UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarter ended September 30, 1999.
[ ] Transaction Report under Section 13 or 15(d) of the Exchange Act for the
transaction period from ___________ to ____________.
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Commission file number 0-24005
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UBARTER.COM INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 91-1739746
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
21400 International Blvd. #207
Seattle, WA 98198
(Address of principal executive offices)
-----------------------------------
(206) 870-9290
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 6,031,920 shares of Common Stock as
of November 10, 1999.
<PAGE>
UBARTER.COM INC.
For the Quarter Ended
September 30, 1999
INDEX TO FORM 10-QSB
<TABLE>
Page
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<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheet:
September 30, 1999 and March 31, 1999.........................................................3
Consolidated Statement of Operations:
For the Three and Six Months Ended
September 30, 1999 and 1998...................................................................4
Consolidated Statement of Cash Flows:
For the Six Months Ended
September 30, 1999 and 1998...................................................................5
Notes to Financial Statements ................................................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................................................9
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.....................................................23
Item 4. Submission of Matters to a Vote of Security Holders...........................................23
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
</TABLE>
2
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UBARTER.COM INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999 AND MARCH 31, 1999
ASSETS
September 30, March 31
1999 1999
-------------- -----------
CURRENT ASSETS (Unaudited)
Cash and cash equivalents $ 375,500 $ 442,700
Accounts receivable, net 272,800 305,700
Intercompany receivable BBE from Ubarter -
Intercompany receivable Ubarter purchase - -
Inventory 308,900 310,400
Intercompany account - Seattle - -
Other current assets 5,300 9,200
-------------- -----------
Total current assets 962,500 1,068,000
-------------- -----------
EQUIPMENT AND LEASEHOLDS, net 394,500 383,600
-------------- -----------
OTHER ASSETS
Goodwill 2,225,000 2,750,900
Prepaid advertising 135,000 135,000
Notes receivable 22,900 23,500
Other assets 1,000 28,700
-------------- -----------
2,383,900 2,938,100
-------------- -----------
Total Assets $ 3,740,900 $ 4,389,700
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 188,900 $ 111,400
Accrued liabilities 211,700 28,200
Intercompany account - Seattle -
Intercompany payable from Ubarter to BBE - -
Due to BBE - -
Unearned revenue - 186,300
Trade dollars issued in excess of earned 2,376,300 2,147,900
Note payable to shareholder 66,200 66,200
Current portion of long-term obligations 126,000 35,400
-------------- -----------
Total current liabilities 2,969,100 2,575,400
-------------- -----------
LONG-TERM OBLIGATIONS, net of current portion 573,949 81,600
-------------- -----------
COMMITMENTS - -
STOCKHOLDERS' EQUITY
Common stock 6,000 5,900
Additional paid-in capital 3,359,351 2,649,300
Subscribed shares - -
Accumulated deficit (3,164,700) (909,500)
Treasury stock (13,000) (13,000)
Accumulated other comprehensive income, 10,200 -
-------------- -----------
197,851 1,732,700
-------------- -----------
Total Liabilities and Stockholders' Equity $ 3,740,900 $ 4,389,700
============== ============
See accompanying notes.
3
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UBARTER.COM INC.
CONSOLIDATED STATEMENT OF OPERATIONS
THREE AND SIX MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
<TABLE>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
9/30/99 9/30/98 9/30/99 9/30/98
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
REVENUE
Exchange revenue $ 499,900 $ 107,700 $ 1,266,200 $ 239,100
Corporate trading revenue 239,800 17,000 380,200 34,200
------------ ------------ ------------ -----------
739,700 124,700 1,646,400 273,300
------------ ------------ ------------ -----------
OPERATING EXPENSES
Cost of corporate trading 43,000 17,000 314,700 34,200
Sales and marketing 147,100 - 230,400 -
Product development 275,300 - 486,500 -
General and Administrative 1,322,400 443,600 2,880,700 569,600
------------ ------------ ------------ -----------
1,787,800 460,600 3,912,300 603,800
------------ ------------ ------------ -----------
INCOME (LOSS) FROM OPERATIONS (1,048,100) (335,900) (2,265,900) (330,500)
------------ ------------ ------------ -----------
OTHER INCOME (EXPENSE)
Interest expense (1,900) (500) (2,300) (2,000)
Interest income 9,700 14,100 13,000 18,300
------------ ------------ ------------ -----------
7,800 13,600 10,700 16,300
------------ ------------ ------------ -----------
LOSS BEFORE INCOME TAXES (1,040,300) (322,300) (2,255,200) (314,200)
INCOME TAX BENEFIT (PROVISION) - - - 600
------------ ------------ ------------ -----------
NET INCOME (LOSS) $(1,040,300) $ (322,300) $(2,255,200) $ (313,600)
============ ============ ============ ===========
NET INCOME (LOSS) PER COMMON
SHARE
Basic $ (0.17) $ (0.06) $ (0.38) $ (0.06)
============ ============ ============ ===========
Diluted $ (0.17) $ (0.06) $ (0.38) $ (0.06)
============ ============ ============ ===========
AVERAGE COMMON AND EQUIVALENT
SHARES
Basic 6,020,733 5,683,200 5,994,533 5,227,367
============ ============ ============ ===========
Diluted 6,020,733 5,683,200 5,994,533 5,227,367
============ ============ ============ ===========
</TABLE>
See accompanying notes.
4
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UBARTER.COM INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
<TABLE>
September 30, September 30,
1999 1998
----------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(2,255,200) $ (313,600)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation and amortization 907,700 5,900
Non-cash charges related to stock option grants 37,400 172,800
Foreign currency loss 10,200 -
Deferred income taxes - (600)
Bad debts (4,200) 1,100
Net trade dollars expended 143,800 (42,100)
Change in operating assets and liablilites
Accounts receivable 37,100 9,600
Other assets 31,600 (14,100)
Accounts payable and other liabilities 74,700 30,600
----------------- ------------------
(1,016,900) (150,400)
----------------- ------------------
CASH FROM INVESTING ACTIVITIES
Acquisition of equipment and leaseholds (226,600) (13,500)
Note receivable collections 600 -
----------------- ------------------
(226,000) (13,500)
----------------- ------------------
CASH FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 141,000 1,506,900
Proceeds from notes payable 1,036,800 (8,900)
Repayment of notes payable (2,100) -
----------------- ------------------
1,175,700 1,498,000
----------------- ------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (67,200) 1,334,100
CASH AND CASH EQUIVALENTS
Beginning of period 442,700 382,600
----------------- ------------------
End of period $ 375,500 $ 1,716,700
================= ==================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 3,100 $ 2,000
================= ==================
Income taxes $ - $ -
================= ==================
NON-CASH INVESTING AND FINANCING
ACTIVITIES
Purchase of BBE (Windsor) stock for Trade Dollars
and Ubarter.com stock $ 134,900 $ -
================= ==================
Prepaid advertising and scrip acquired for
Ubarter.com Trade Dollars $ - $ 135,400
================= ==================
</TABLE>
See accompanying notes.
5
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UBARTER.COM INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal, recurring adjustments)
considered necessary for fair presentation have been included. The results of
operations for the three and six month periods ended September, 30, 1999 and
1998 are not necessarily indicative of the results to be expected for the full
year. The consolidated financial statement combines the Company's balance sheet
as of September 30, 1999 with the balance sheet of Barter Business Exchange,
Inc. ("BBE") as of August 31, 1999. The consolidated statement of operations
presents the results of operations of the Company for the three and six months
ended September 30, 1999, however, due to the differing year-ends, the results
of operations of BBE from March 1, 1999 (the date of purchase) through August
31, 1999 are consolidated with the Company's results of operations for the
second quarter of 1999. Certain prior year amounts have been reclassified to
conform with current year presentation. For further information, refer to the
financial statements and footnotes included in the company's report on Form
10-KSB for the year ended March 31, 1999.
2 - TRADE DOLLARS
In accordance with the guidelines established by the International Reciprocal
Trade Association, the Company has the right to borrow from the exchange and
spend within the exchange systems. Such a practice is used by barter exchanges,
worldwide, to cover inventory purchases, capital purchases, operating expenses
and to control the supply of trade dollars in the exchange economy. The Company
is obligated to provide goods and services to clients to offset any amounts of
Trade Dollars issued in excess of earned. At September 30, 1999 and March 31,
1999, the Company had expended $2,376,300 and $2,147,900 Trade Dollars
respectively, in excess of the amount of Trade Dollars earned by the Company.
3 - ACQUISITION
The Company previously owned 50% of the outstanding common stock of Barter
Business Exchange (Windsor) Inc. ("BBE Windsor") (a subsidiary of Barter
Business Exchange, Inc.). On June 23, 1999, Ubarter.com acquired the remaining
50% ownership for approximately $11,100 in cash, $43,800 in Ubarter Trade
Dollars, and 20,000 shares of Ubarter.com common stock valued at $4.00 on the
date of purchase. The purchase has been accounted for under the purchase method
of accounting. Under the purchase method of accounting, the purchase price is
allocated to the assets acquired and liabilities assumed based on their
estimated fair values at the date of acquisition. The excess purchase price over
the estimated fair value of the assets acquired and liabilities assumed has been
allocated to goodwill. The Company estimated the economic useful life to be two
years.
4 - CAPITAL STOCK
In May through August of 1999, the Company received approximately $141,000 from
the exercise of E warrants to purchase 93,600 shares of common stock. In October
of 1998, 10,980 shares were repurchased for approximately $13,000 and classified
as treasury stock.
6
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On June 23, 1999, the Company issued 20,000 shares of common stock valued at
$4.00 per share as partial payment for equity ownership in BBE Windsor. (See
Note 3.) At September 30, 1999, the Company had 6,040,400 shares (including
treasury shares) of common stock issued and outstanding at a par value of $.001
per share, with total authorized shares of 25,000,000.
On July 9, 1998, the Board of Directors authorized a 2-for-1 split of its common
stock to be distributed to stockholders of record at the close of business on
July 24, 1998. All per-share and shares outstanding data in the accompanying
consolidated financial statements have been restated to reflect the stock split.
5 - INCOME (LOSS) PER SHARE
Following, is a reconciliation of the numerators of the basic and diluted income
(loss) per share for the three and six months ended September 30, 1999 and 1998:
<TABLE>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
9/30/99 9/30/98 9/30/99 9/30/98
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income (loss) available to common
shareholders $(1,040,300) $ (322,300) $(2,255,200) $ (313,600)
============= ============= ============= =============
Weighted average shares 6,020,733 5,683,200 5,994,533 5,227,367
Effect of dilutive securities
Options - - - -
Warrants - - - -
------------- ------------- ------------- -------------
6,020,733 5,683,200 5,994,533 5,227,367
============= ============= ============= =============
Basic income (loss) per share (based on
weighted average shares) $ (0.17) $ (0.06) $ (0.38) $ (0.06)
============= ============= ============= =============
Diluted income (loss) per share $ (0.17) $ (0.06) $ (0.38) $ (0.06)
============= ============= ============= =============
</TABLE>
Options and warrants to purchase shares of common stock were excluded from the
computation in 1999 and 1998 because their effect would be antidilutive.
6 - STOCK OPTIONS
The Company adopted a Stock Option Plan (`the Plan") effective June 1, 1998
whereby, nonqualified and incentive stock options for shares of common stock may
be granted to Directors, Officers, Employees and Consultants. Options granted
under the Plan are not to have a life in excess of five years from the date of
grant and vest 50% after 12 months, 75% after 18 months, and 100% after 24
months from the date grant. The provisions of the Plan allow the administrators
to determine the vesting period of options granted.
In August and September of 1999, the Company granted options under the Plan to
purchase 189,500 shares of common stock at exercise prices ranging from $2.67
per share to $4.00 per
7
<PAGE>
share. In June of 1999, the Company granted options under the Plan to purchase
135,000 shares of common stock all at an exercise price of $4.88 per share and
to purchase 1,000 shares of common stock at an exercise price of $2.75 per share
to certain of the Company's officers and employees.
7 - NOTE PAYABLE
In August 1999, funds totaling $1,000,000 ("the Note") were loaned to the
Company by Alpine Capital Group, LLC. The Note is payable on September 1, 2002,
with interest accruing at the rate of 5 1/2% per annum on the unpaid principal
amount. If the Company closes a financing or financings in the aggregate amount
of at least $2,500,000 through public or private sale of its debt or equity
securities on or before June 1, 2000, the Company must repay any unpaid
principal and interest within 5 business days of such closing. If, on June 1,
2000, there remains unpaid principal on the Note, the Payee shall have the
option exercisable at any time thereafter, but not later than September 1, 2002,
to convert such unpaid principal into 1,333,333 shares of common stock at the
rate of $.75 per share. After June 1, 2000, the holder of the note may exercise
the conversion option any time prior to the maturity date of the note. Alpine
Capital Group, Inc. also received 183,333 warrants to purchase common shares at
$2.00 per share. Accordingly, the Company has allocated $451,700 of the proceeds
to the warrants and is amortizing this amount of interest expense from the
period of issuance to June 1, 2000. The effective rate of the note payable is
20.5%. The warrants may be exercised from September 1, 1999 through September 1,
2004.
8 - REVENUE
The following table summarizes the cash and trade (consisting of Ubarter.com
Trade Dollars) components of revenue for the three and six months ended
September 30, 1999 and 1998:
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
9/30/99 9/30/98 9/30/99 9/30/98
------------- ------------- ------------- -------------
Trade $ 337,100 $ 62,100 $ 857,800 $ 134,500
Cash 402,600 62,600 788,600 138,800
------------- ------------- ------------- -------------
$ 739,700 $ 124,700 $ 1,646,400 $ 273,300
============= ============= ============= =============
9 - COMPREHENSIVE INCOME
As of April 1, 1999, the Company adopted SFAS No. 130, Reporting Comprehensive
Income, which established standards for the reporting and display of
comprehensive loss and its components in the financial statements. Comprehensive
loss for the six month period ended September 30, 1999 was $2,245,000 which
consisted of net loss and foreign currency translation adjustments. There was no
difference between comprehensive income (loss) and net income (loss) in the
periods prior to the six months ended September 30, 1999.
8
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
The discussion in this report contains forward-looking statements, including,
without limitation, statements, which are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Although 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.
Overview
Ubarter.com provides business to business barter services for retail,
professional, media and other corporate clients through the Company's offices in
Seattle, Washington, Toronto, Ontario, Vancouver, British Columbia and Windsor,
Ontario. The Company manages a private barter currency, Ubarter Dollars, to
enable its members to sell their products or services to the Company's other
members for Ubarter Dollars. In September 1999, the Company launched its
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 members in the Seattle area at the time of the merger.
Ubarter.com began a direct public offering of common stock after the merger and
became publicly traded in February 1998. In March 1999, the Company acquired all
of the outstanding stock of Barter Business Exchange ("BBE"). In April 1999,
International Barter Corp.'s name was changed to Ubarter.com Inc. to reflect the
Company's change to an Internet-based business model.
Substantially all of the Company's cash revenues are derived from transaction
fees paid in by buyers and sellers in a barter transaction. The Company
currently charges a 5% cash fee on both sides (i.e., to both the seller and
buyer) of most barter transactions. The Company has also derives revenues from
monthly and set-up fees charged to members. The Company does not anticipate
charging set-up or monthly fees for members doing business over the Internet.
Revenues from transaction fees are billed on a monthly basis. The Company
recognizes revenue equal to the cash to be received from its commission earned
when the buyer has made an unconditional commitment to pay and the earnings
process has been completed by the finalization of a trade commission. Revenue is
recognized for monthly fees after the fees have been earned and collected.
A Ubarter Dollar is an accounting unit used to record the value of transactions
as determined by the buying and selling parties in barter transactions. Ubarter
Dollars denote the right to receive products or services available from other
members or the obligation to provide goods or services to other members. Ubarter
Dollars may not be redeemed for cash. When BBE was acquired, all of the BBE
Trade Dollars were converted to Ubarter Dollars.
Ubarter.com uses the ratio of one Ubarter Dollar to one local currency dollar
(currently, United States or Canadian) in measuring and accounting for purchases
and sales. This one-to-one ratio is
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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.
Three Months Ended September 30, 1999 Compared to the Three Months Ended
September 30, 1998
Our total revenue in the second quarter of fiscal 2000 was $739,700 compared
with total revenue of $124,700 in the second quarter of fiscal 1999. This was a
493% increase in fiscal 2000 from fiscal 1999. Revenue increased primarily as a
result of the acquisition of BBE effective March 1, 1999. Primarily as a result
of the BBE acquisition, the Company substantially increased its members and
products and services offered to members in the second quarter of fiscal 2000
compared with the comparable quarter in fiscal 1999. Excluding revenues from
BBE, revenues decreased in the three months ended September 30, 1999 compared
with the comparable period in 1998 as a result of concentrating a large portion
of its financial and labor resources on the development of its
business-to-business e-commerce site for barter. Much of the effort, which in
prior years focused on increasing transaction fees from barter transactions, was
shifted to its website development and to e-commerce strategic development
activities in the first and second quarter of fiscal 2000.
Costs and Operating Expenses
Cost of revenue consists of the cost of inventories acquired for resale and sold
during the period. The cost of revenue for the second quarter of fiscal 2000 was
$43,000. These costs were all incurred by BBE. No such costs were incurred by
the Company because inventory sales were made on consignment. In the second
quarter of fiscal 1999, revenue costs were $17,000.
Other costs and operating expenses (including depreciation) increased to
$1,744,800 in the second quarter of fiscal 2000 from $443,600 in the second
quarter of fiscal 1999. The increase in operating expenses related primarily to
recurring operating expenses incurred by BBE, significant increases in product
development and general administrative expenses and an increase in sales and
marketing expense in the second quarter of fiscal 2000.
Product development expense increased to $275,300 in the second quarter of
fiscal 2000 compared with minimal expense in the second quarter of fiscal 1999.
Product development expenses consist primarily of payments to outside
contractors related to website development and, to a lessor extent, of
depreciation on equipment used for development and overhead costs. Ubarter.com's
policy is to expense product development costs as they are incurred. The
increase in the second quarter of fiscal 2000 was primarily attributable to our
development efforts, including retaining outside consultants related to
technologies necessary to support an e-commerce barter site. The Company expects
to incur approximately $1.5 million in product development costs in fiscal 2000
as our website is launched and e-commerce functionality is enhanced.
General and administrative expenses increased to $1,322,400 in the second
quarter of fiscal 2000 from $443,600 in the second quarter of fiscal 1999. This
increase was primarily due to recurring operating expenses incurred by BBE, the
addition of several key personnel and several new staff members in our trading
department and additional employees hired to work on developing the Company's
website. In addition, we incurred substantially greater legal and other
professional
10
<PAGE>
fees, such as accounting and investor/public relations, as a result of our
public company status and to assist us in executing our business strategy.
Another significant noncash expense in the first quarter of fiscal 2000 related
to the amortization of the cost of goodwill resulting from the acquisition of
BBE. Amortization expense of $355,000 was recognized during the second quarter
of fiscal 2000. Goodwill resulting from the acquisition of BBE was estimated by
management to be primarily associated with the acquired workforce,
infrastructure and technological expertise. As a result of the rapid
technological changes occurring in the Internet industry and the intense
competition for qualified professionals, goodwill is amortized on a
straight-line basis over the estimated life of the benefit of 24 months
Sales and marketing expense primarily consists of advertising and other
promotional costs. Ubarter.com expects sales and marketing expense to increase
significantly in fiscal 2000 primarily related to the promotion and marketing 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.
Six Months Ended September 30, 1999 Compared to the Six Months Ended September
30, 1998
Total revenue in the first six months of fiscal 2000 was $1,646,400 compared
with total revenue of $273,300 in the first six months of fiscal 1999. This was
a 502% increase in fiscal 2000 from fiscal 1999. Revenue increased primarily as
a result of the acquisition of BBE effective March 1, 1999. Excluding revenues
from BBE, revenues decreased in the six months ended September 30, 1999 compared
with the comparable period in 1998 as a result of concentrating a large portion
of its financial and labor resources on the development of its
business-to-business e-commerce site for barter. Much of the effort, which in
prior years focused on increasing transaction fees from barter transactions, was
shifted to its website development and to e-commerce strategic development
activities in the first quarter of fiscal 2000.
Costs and Operating Expenses
Cost of revenue consists of the cost of inventories acquired for resale and sold
during the period. The cost of revenue for the first six months of fiscal 2000
was $314,700. These costs were all incurred by BBE. No costs were incurred by
the Company because inventory sales were made on consignment, as described
above. In the first six months of fiscal 1999, revenue costs were $34,200.
Other costs and operating expenses (including depreciation) increased to
$3,597,600 in the first six months of fiscal 2000 from $569,600 in the first six
months of fiscal 1999. The increase in operating expenses related primarily to
recurring operating expenses incurred by BBE, significant increases in product
development and general administrative expenses and an increase in sales and
marketing expense in the first six months of fiscal 2000.
Product development expense increased to $486,500 in the first six months of
fiscal 2000 compared with minimal expenses in the first six months of fiscal
1999. 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 the first six months of fiscal 2000 was primarily attributable to
our development efforts, including retaining outside consultants related to
technologies necessary to support an e-commerce barter site.
11
<PAGE>
General and administrative expenses increased to $2,880,700 in the first six
months of fiscal 2000 from $569,600 in the first six months of fiscal 1999. This
increase was primarily due to recurring operating expenses incurred by BBE, the
addition of several key personnel and several new staff members in our trading
department and additional employees hired to work on developing the Company's
website. In addition, the Company incurred substantially greater legal and other
professional fees, such as accounting and investor/public relations, as a result
of our public company status and to assist us in executing our business
strategy. Another significant noncash expense in the first six months of fiscal
2000 related to the amortization of the cost of goodwill resulting from the
acquisition of BBE. Amortization expense of $692,000 was recognized during the
first six months of fiscal 2000. Goodwill resulting from the acquisition of BBE
was estimated by management to be primarily associated with the acquired
workforce, infrastructure and technological expertise. As a result of the rapid
technological changes occurring in the Internet industry and the intense
competition for qualified professionals, goodwill is amortized on a
straight-line basis over the estimated life of the benefit of 24 months
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 September 30, 1999, Ubarter.com had a working capital deficit of $2,006,600.
Our working capital was $1,615,083 at September 30, 1998. The decrease in
working capital resulted primarily from a $2,255,000 (deficit) balance of
Ubarter Dollars issued in excess of earned that existed on the books of BBE as
of August 31, 1999. Excluding the deficit balance of Ubarter Dollars, the
Company had working capital of $369,700 at September 30, 1999.
In accordance with the guidelines established by the International Reciprocal
Trade Association, Ubarter.com has the right to borrow from its exchange and
spend within its exchange system. Such a practice is commonly used by barter
exchanges, worldwide, to cover inventory purchases, capital purchases, operating
expenses and to control the supply of trade dollars. Ubarter.com engages in
barter to pay for some of its 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. BBE also engaged in barter to pay
for some of its operating costs. At September 30, 1999, Ubarter.com had expended
2,376,300 of Ubarter Dollars in excess of the amount of Ubarter Dollars earned
by it compared with 98,765 Ubarter Dollars at September 30, 1998. The Company
considers the current level manageable. These amounts are shown as a liability
on the Company's balance sheet as of September 30, 1999 and 1998.
The cash provided by financing activities was $1,175,700 in the first six months
of fiscal 2000 compared with $1,498,000 in the first six months of fiscal 1999.
Net cash provided by financing activities in the first six months of 2000 and
1999 resulted primarily from the exercise of warrants and proceeds from notes
payable. In August 1999, funds totaling $1,000,000 were loaned to the Company by
Alpine Capital Group, LLC. (See Note 7 to the financial statements.) We
currently have a $67,000 revolving note payable with a bank. The note payable is
subject to annual renewal. There was a balance of $67,000 at September 30, 1999.
Borrowings under the note require security deposits of cash and cash equivalents
with the bank. We did not have any credit facility in the first six months of
fiscal 2000.
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The net cash used by operating activities was $1,016,900 in the first six months
of fiscal 2000 and $150,400 in the first six months of fiscal 1999. For the six
months ended September 30, 1999, Ubarter.com had a net loss of $2,255,200. The
primary adjusting items were $907,700 in depreciation and amortization of
goodwill and $143,800 net expenditure in Ubarter Dollars. During the first six
months of fiscal 2000, there were decreases in accounts receivable of $37,100
and increases in accounts payable and other liabilities of $74,700. The cash
used in operating activities of $150,400 for the six months ended September 30,
1998, reflected a net loss of $313,600. The increase in cash used in operations
was primarily attributable to increased personnel and product development costs
in the first six months of fiscal 2000 compared with the first six months of
fiscal 1999. In the first six months of fiscal 2000, Ubarter.com used net cash
of $226,600 for the acquisition of property, equipment and leaseholds, compared
to $13,500 in the first six months of fiscal 1999.
Ubarter.com maintains its major U.S. cash balances at two financial institutions
located in Las Vegas, Nevada and Seattle, Washington 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 September 30, 1999, we had no material commitments for capital
expenditures. Ubarter.com leases its U.S. office facilities in Seattle,
Washington and leases its Canadian office facilities in Toronto, Vancouver and
Windsor. Future minimum rental commitments as of September 30, 1999 pursuant to
these leases are approximately $325,000.
The Company believes its existing working capital and cash from financing
activities will be sufficient to fund our operating activities through the end
of fiscal year 2000, however, it is currently experiencing a significant
shortage in cash resources necessary to fund planned expenditures in product
development, salaries for existing and future personnel, and professional fees
and marketing. Unless the Company is successful in raising additional capital,
it may not be able to achieve its expansion goals, including further development
of its website. There is no assurance that the Company will have or be able to
access sufficient capital or other resources. Ubarter.com believes that a
portion of its short-term capital resources, up to $1,059,000 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. In addition, the
Company will likely seek to raise additional capital in the near term through
additional equity issuances. If the Company is unable to obtain financing
through the exercise of warrants or other means, it may be unable to meet its
working capital requirements or implement our short-term plans for expansion.
The Company anticipates having to raise additional capital by equity issuance
during the next several years, as it expects to grow at rates that will require
more funds than will be generated by its operations. Ubarter.com does not have
any commitments for additional financing at this time. The Company's ability to
obtain additional capital may be dependent on market conditions, the national
and international economies and other factors outside its control. If adequate
funds are not available or are not available at acceptable terms, the Company's
long-term ability to finance its expansion, develop or enhance services or
respond to competitive pressures would be significantly limited.
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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.
Risk Factors
You should carefully consider the following factors, among others, as you
evaluate the Company and the forward-looking statements the Company makes in
this document. Any of these risk factors could materially and adversely affect
the Company's business, financial condition or operating results.
Forward-looking statements are subject to a number of risks and uncertainties.
The Company urges you to note the description of its plans, objectives and
strategies for future operations, assumptions underlying these plans, objectives
and strategies and other forward-looking statements included in the "Business"
section in this document. These descriptions and statements are based on the
Company's current expectations. The Company's actual results may differ
significantly from the results discussed in these forward-looking statements as
a result of certain factors, including those set forth in this "Risk Factors"
section and elsewhere in this document. The Company undertakes no obligation to
update publicly any forward-looking statements for any reason, even if new
information becomes available or other events occur in the future.
The Company may face difficulties in achieving its growth strategy in its
markets. You should consider the risks and difficulties the Company expects to
encounter as it attempts to execute its business strategy, including the rapidly
evolving nature of the commercial barter market and the Internet market. These
risks include uncertainties about its ability to:
* attract a larger number of members to execute barter transactions on
its offline trade exchange and on its e-commerce barter website
launched in September 1999;
* increase awareness of the benefits of bartering in general and the
specific services it can provide;
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* strengthen the loyalty of its existing members;
* successfully implement its plan to introduce its online e-commerce
barter website;
* respond effectively to competitive pressures;
* continue to develop and upgrade its technology;
* attract, integrate, retain and motivate qualified personnel;
* respond effectively to increased business operation demands.
The Company may be unable to accomplish one or more of the above, which could
cause its business to suffer. In addition, accomplishing one or more of the
above could be very costly, which could harm its financial results.
Funds may be insufficient to finance its plans for growth and its operations.
The Company's existing working capital and cash from financing activities will
not be sufficient to allow it to execute its business plan, including the
further development and implementation of its e-commerce barter website and
acquisition of other barter exchanges, and meet the demands for its services
during fiscal year 2000. In August 1999, the Company raised $1 million of
short-term financing, however, it still needs to raise additional capital to
finance its expansion goals and operations and to repay the short-term
financing. The Company believes a portion of its capital resources, up to
approximately $1,059,000, will come from the exercise of outstanding warrants.
Some of these warrants have an exercise price of $1.50 and expire in June 2000
and some have an exercise price of $2.00 and expire in September 2004. The
perceived value of these warrants at any given time is related to the market
price of the Company's common stock, which trades over the counter through the
OTC Bulletin Board. In addition, the Company is seeking to raise additional
capital in the near term through additional equity or debt issuances. If it is
unable to obtain the expected portion of its financing through the exercise of
warrants or other financings, it may not be able to successfully implement its
short-term or long-term plans for expansion or to meet its working capital
requirements. In addition, if it is unable to repay the $1 million of short-term
financing by June 1, 2000, the lender would have the right to convert the loan
into 1,333,333 shares, or approximately 22% of the Company's common stock based
on the number of shares outstanding at September 30, 1999. Excluding accrued
interest owing on the loan at the time of conversion, the conversion price per
share of common stock would be $.75. Accordingly, current shareholders would, in
the event of such a conversion, experience significant dilution of their
investment in Ubarter.com. The full development and implementation of the
Ubarter.com website will require additional resources. The Company may not be
able to obtain the working capital necessary to develop its website fully.
Furthermore, the website may not produce material revenue even if successfully
developed.
Additionally, the Company may not be successful in its efforts to acquire other
regional trade exchanges. One of the assumptions in making acquisitions is that
the Company will be able to use its common stock, rather than cash, as
consideration for any purchase. This assumption may prove to be incorrect. If it
does use shares of its common stock to make acquisitions, the issuance of
additional shares could be dilutive. Even if it succeeds in its expansion plans,
it may experience rapid growth that requires additional funds to expand its
operations and organization. Working capital requirements in the foreseeable
future will depend on a variety of factors including capital requirements to
implement and adjust the business plan.
The Company does not have current commitments for additional financing. It
intends to explore a number of options to secure alternative financing including
the issuance of additional equity. It might not succeed, however, in raising
additional equity capital or in negotiating and obtaining
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additional and acceptable financing when it is needed. The ability to obtain
additional capital may depend on market conditions (including the market for
Internet stocks), national and global economies and others factors beyond the
control of the Company. If adequate capital were not available or were not
available on acceptable terms at a time when the Company needs it, its ability
to execute its expansion plans, develop or enhance its services or respond to
competitive pressures would be significantly impaired.
The Company faces competition from numerous barter exchanges and other
companies. There are hundreds of independent barter exchanges in the United
States and Canada, some of which may have similar plans for international
expansion and development of online e-commerce barter sites. Some of the
established entities in the barter industry may have more operating experience,
larger member bases or greater financial, marketing, technical and other
resources. It is possible that a group of independent barter exchanges could
join forces to create a large national or international barter company with an
online e-commerce barter site. Consequently, the Company will encounter
competition in its efforts to expand our business and to acquire desirable
independent trade exchanges.
The Company believes the more market penetration it achieves, the higher the
barrier to entry will become for anyone contemplating a similar e-commerce
solution for barter. The Company faces the risk, however, that existing or new
competitors may develop technologies or services or strategic alliances and
affiliations that makes its services less marketable or less useful or
desirable. Furthermore, the Company may not be able to successfully enhance its
services, develop new services or lower costs when and as it needs them.
Similarly, the Company expects to face competition in its efforts to develop
Ubarter.com into a premier e-commerce barter website. The market for
Internet-based services and products is relatively new, intensely competitive,
rapidly evolving and subject to rapid technological change. A number of
companies that have expertise in developing online commerce and in facilitating
person-to-person or business-to-business interaction, could be potential
competitors if they elected to enter the barter business. Certain Internet-based
companies with unique purchasing or sales models such as eBay and Priceline.com
have significant technical, financial and marketing resources and could be
potential competition for Ubarter.com. These companies would be strong
competitors if they decided to enter the barter business.
A key component of the Company's future revenue growth depends on the its
ability to develop and successfully implement a quality e-commerce barter
website. The Company intends to develop Ubarter.com into a premier e-commerce
barter website where businesses can buy and sell products and services. The
Company may not be successful in its plans to implement, maintain and develop
usage of the website. The website may encounter technical difficulties in
implementation. Technical problems may cause delays or require additional
expenditures. For the website to be perceived as a viable marketplace and a
replacement for or supplement to current trade exchanges, the website must
provide accurate and timely information on a consistent, easy-to-use and
reliable basis. Other measures of quality of the Company's website include:
- the level of representative member participation;
- a sufficient range and availability of products and services offered
on its website;
- its ability to service high response rates for members; and
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- timely posting of changes and modifications to the inventory of
members and products and services offered over its website.
The Company expects to derive revenues in the near term from the Ubarter.com
website. The success of its business will depend on end-user acceptance of its
online services. Its success will also depend on its ability to design, develop,
test and support new services and enhancements on a timely basis that meet
changing customer needs and our ability to respond to technological developments
and emerging industry standards. It 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 an effort to develop new and enhanced services and features for the Company's
website, it may alienate current users or experience technical difficulties. The
Company believes its website will be more beneficial to members by allowing
members to access products and services online 24 hours a day, seven days a
week, and execute transactions online. Accordingly, it intends to introduce
additional or enhanced services and features designed to attract new members to
its website while retaining current members. If it introduces services or
features that do not function properly or that current members do not perceive
favorably, they may not continue to visit the website. Members may also choose a
competitor's site over ours. The Company may also experience difficulties that
could delay or prevent it from introducing new services or features.
Furthermore, these services or features may contain errors or problems that the
Company may discover after it has already introduced them. The Company may need
to modify significantly the design of these services or features on its website
to correct these errors. Errors could lead to significant dissatisfaction of
members and result in adverse publicity.
The Company's growth and success depend on continued growth in barter industry.
Industry sources, as well as the Company's experience, indicate that for the
last several years the commercial barter industry has experienced a steady
growth. These sources have attributed the growing appeal of the barter industry
among business owners to increasing competitive pressures, the existence of
surplus inventory, unproductive assets, excess capacity and the ability to
generate new sales and reach new customers while conserving cash. Nevertheless,
the Company believes that there has been low penetration by the barter industry
into the market of potential business customers. Although the Company is aware
of no factors that would lead it to conclude that the commercial barter industry
will not continue to grow at a steady rate, it is possible this growth will not
continue. If the growth of the barter industry were to decline, however, the
Company would expect to face heightened competition with weakened profitability
and a reduced share of the barter market, which could materially adversely
affect its business, results of operations and financial condition.
The Company may be unable to effectively manage its growth. As the Company
continues to expand its level of operations, it will need an effective planning
and management process to implement its business plan successfully. With the
introduction of its new website, it may experience periods of significant
expansion of its business. Depending on the amount and timing of any increase in
business, this expansion could place a strain on management, operational and
financial resources. Some areas that could be put under strain by growth include
customer support, customer billing and website support and maintenance. The
Company has management, operating and financial systems in place, and it intends
to continue its efforts to improve these systems. There is a risk, however, that
such systems may be inadequate to support its existing and future operations or
that hiring, training and managing new employees will be more difficult then it
anticipates.
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The Company has historical losses and anticipates future losses in the initial
stage of implementing its business strategy. The Company is incurring losses
from its operating activities. As of September 30, 1999, the Company has an
accumulated deficit of $3,164,700. It expects to increase its operating expenses
in an effort to expand its marketing, and it expects to increase its level of
expenditures to further develop online barter capability. These anticipated
increases in operating expense levels and developmental costs will adversely
affect operating results. The Company expects that it will continue to incur
losses during fiscal year 2000 and beyond. Further, if it successfully
accomplishes its plan of acquiring existing trade exchanges, it believes these
acquisitions could result in additional operating losses and negative cash flows
until the acquisitions are successfully integrated into its operations. If it
acquires other trade exchanges, period-to-period comparisons of its financial
results may not be meaningful, and you should not rely on them as an indication
of future performance.
The Company may not be able to integrate successfully the operations from its
acquisition of Barter Business Exchange or from any future acquisitions. The
Company may not be successful in integrating the operations of Barter Business
Exchange or from any future acquisitions. The BBE acquisition was its first
significant acquisition. The Company therefore has limited experience with
completing and integrating acquisitions. There is risk that it will be unable to
integrate successfully the operations of Barter Business Exchange with its
existing business or that the anticipated benefits of the acquisition, or any
future acquisitions, may not be realized. Part of the business strategy includes
growth by acquisition, so the Company expects to pursue other acquisitions in
the future. It may be unable to identify, negotiate or finance future
acquisitions. The Barter Business Exchange acquisition and any future
acquisitions present many risks and uncertainties generally associated with
acquisitions including:
- adverse effects on its 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.
The Company is currently facing all of these challenges in some degree relating
to the BBE acquisition. The Company does not have any understandings,
commitments or agreements with respect to any other material acquisition, and no
material acquisition is being pursued, as of the date of this prospectus.
The Company is dependent on key personnel. The successful implementation of its
business plan and the overall success of its business will depend on the skills
and efforts of its management personnel and, to a large extent, the active
participation of Steven White, its Chief Executive
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Officer and President and Bob Bagga, its Chief Operating Officer, as well as its
other executive officers and key employees. The Company has employment
agreements in place with certain key employees and management. It also has
key-man insurance covering the life of Mr. White in the amount of $1 million. It
does not have key man life insurance on other executives. Its 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. The Company provides stock options, which further serve to retain
and motivate key employees. It nevertheless faces the risk that it will be
unable to attract, integrate, retain and motivate qualified employees.
An established public trading market for the Company's securities does not
exist. The Company's common stock trades on the OTC Bulletin Board. The OTC
Bulletin Board is an electronic quotation medium used by subscribing broker
dealers to reflect dealer quotations on a real-time basis. The over-the-counter
market provides significantly less liquidity than the Nasdaq Stock Market.
Quotes for stocks included on the OTC Bulletin Board are not listed in the
financial sections of newspapers as are those for the Nasdaq Stock Market.
Further, quotation entries on the OTC Bulletin Board may reflect an unpriced
indicator of interest (such as "bid wanted" or "offer wanted" indicators) on
unsolicited non-dealer interest. Therefore, prices for securities traded solely
on the OTC Bulletin Board may be difficult to obtain, and holders of common
stock may be unable to resell their securities at or near their original
offering price or at any price.
The National Association of Securities Dealers has recently enacted Rules that
limit quotations on the OTC Bulletin Board to securities of issuers that are
current in their reports filed with the Securities and Exchange Commission. This
rule becomes effective for the Company's stock in May, 2000. The intent of this
rule is to make reliable and current financial and other information about
issuers available to the investing public. At this time, the impact these rule
changes may have on the Company's securities or the trading of securities
generally on the OTC Bulletin Board cannot be determined. If at any time the
Company's securities are not included on the OTC Bulletin Board and do not
qualify for Nasdaq, quotes for the securities may be included in the "pink
sheets" for the over-the-counter market. This trading market is even less liquid
than the OTC Bulletin Board and holders of common stock may be unable to obtain
any quotations for securities.
"Penny stock" regulations impose certain restrictions on marketability of
securities. The SEC has adopted regulations that generally define a "penny
stock" to be any equity security that is not traded on a national securities
exchange or Nasdaq and that has a market price of less than $5.00 per share or
an exercise price of less than $5.00 per share, subject to certain exceptions.
The definition excludes the securities of an issuer that meets certain minimum
financial requirements. Generally, these minimum thresholds would be met by an
issuer with net tangible assets in excess of $2 million or $5 million,
(depending on whether the issuer has been operating continuously for less or
more than three years) or by an issuer with "average revenue" of at least $6
million for the last three years.
As long as the Company does not meet the relevant financial requirements and its
common stock is trading at less than $5.00 per share on the OTC Bulletin Board,
its securities are subject to the penny stock rules. These rules impose
additional sales practice requirements on broker-dealers who sell the Company's
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
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deliver an SEC mandated risk disclosure document relating to the penny stock
market and the risks associated therewith prior to the transaction. The
broker-dealer must also disclose the commission payable to both the
broker-dealer and the registered representative as well as current quotations
for the securities. If the broker-dealer is the sole market-maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. Finally, the broker-dealer must send monthly statements
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. Consequently, the penny stock
rules may restrict the ability of broker-dealers to sell our securities and may
affect the ability of our shareholders to sell their securities in the secondary
market. Volume of shares eligible for sale may depress the market price.
Of the 6,029,420 shares of common stock outstanding as of September 30, 1999,
the Company issued 1,439,400 under an exemption from the registration provisions
of the Securities Act of 1933 under Rule 504 of Regulation D. These Rule 504
shares are eligible for resale, without limitation, in the open market. The
Company issued the remaining 4,590,020 shares in private transactions. These
4,590,020 shares are restricted securities within the meaning of Rule 144 under
the Securities Act of 1933. Of these shares, 1,916,000 shares (or approximately
32% of the shares currently outstanding) are being registered for resale by the
selling shareholders pursuant to the registration statement to which this
prospectus relates. In addition, the remaining 2,674,020 shares of our common
stock are currently eligible for resale in the open market, subject to the
volume and other conditions of Rule 144. There are no contractual restrictions
on the resale of the outstanding common stock, except for some volume
limitations on the 150,000 shares issued in connection with the BBE acquisition.
In addition, the Company filed a registration statement on Form S-8 registering
a total of 1,825,040 shares of common stock subject to outstanding stock options
or reserved for issuance under our stock option plan. Shares registered under
the Form S-8 registration statement will, subject to Rule 144 volume limitations
applicable to affiliates, be available for sale in the open market, unless such
shares are subject to vesting restrictions. The sale in the public market of the
shares to be registered for resale pursuant to the registration statement to
which this prospectus relates as well as the restricted shares, or the
perception that these sales may occur, may depress prevailing market prices of
the common stock. These factors may also make it more difficult for us to raise
funds through future offerings of common stock.
The Company will depend on the continued utility of the Internet and technology
for its e-commerce barter site. The performance of the Ubarter.com website will
be dependent on the successful operation of the Internet and on certain third
parties and services (such as Internet service providers, Internet backbone
providers and Web browsers). Users may experience difficulties resulting from
system failures unrelated to the Company's internal systems and services. If the
Internet were to become regularly unavailable for many hours at a time, or if
its ability to handle traffic loads were to deteriorate enough to cause frequent
unavailability or slow response times, there would be less traffic to its
website. Furthermore, the perception of the quality of its 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.
The Company's Internet services will be designed around certain standards,
including, for example, Internet security standards. Current and future success
of its services may become subject to additional industry standards as Internet
commerce rapidly evolves. As a result its business may incur additional costs of
unknown proportions as it is confronted with new technology standards. In
addition, it may not be successful in its efforts to enhance existing services
and to develop, introduce and market new services. Furthermore, its enhancements
and new services may not adequately meet the requirements of the marketplace and
achieve market
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acceptance. As the Internet develops, it is possible that incompatibility or
lack of appropriate features could impact its business.
The Company expects sales of its services will depend in large part on a robust
industry and infrastructure for providing Internet access and carrying the
rapidly increasing Internet traffic. Certain critical issues concerning the
commercial use of the Internet (including capacity to handle projected increases
in traffic, security, reliability, cost, ease of use, access and quality of
service) remain unresolved and may impact the growth of Internet use. The
Internet may not prove to be a viable commercial marketplace because of
inadequate development of the necessary infrastructure, such as a reliable
network backbone or timely development of complementary products, such as high
speed modems. Because global commerce and on-line exchange of information on the
Internet and other similar open wide area networks are new and evolving, the
Company cannot predict with any assurance whether the infrastructure or
complementary products necessary to make the Internet a viable commercial
marketplace will continue to be developed. Even if the necessary infrastructure
and complementary products are developed, the Company cannot predict whether the
Internet will remain a viable commercial marketplace. In addition, the
widespread adoption of new Internet or telecommunications technologies or
standards could require the Company to make substantial expenditures to modify
or adapt its services. In this case, the new Internet or telecommunications
services or enhancements that it offers could contain design flaws or other
defects. Although it expects to be responsive to changes in the Internet and
technology, it may not be successful in achieving widespread acceptance of its
services before competitors offer services with speed and performance equal to
or greater than those of the Company.
Security and privacy concerns could subject the Company to liability or
otherwise deter consumers from using its Website. The Company's members are now
able to conduct online barter transactions and it could be subject to litigation
and liability if third parties were able to penetrate its network security or
otherwise misappropriate its users' personal information. This liability could
include claims for unauthorized barter transactions, impersonation or other
similar fraud claims. It could also include claims for other misuses of personal
information, such as for unauthorized marketing purposes. In addition, the
Federal Trade Commission and certain states have been investigating certain
Internet companies regarding their use of personal information. The Company
could incur additional expenses if new regulations regarding the use of personal
information are adopted or should government agencies choose to investigate the
Company's privacy practices.
The need to securely transmit confidential information over the Internet has
been a significant barrier to electronic commerce and communications over the
Internet. Any well-publicized compromise of security could deter more people
from using the Internet or from using it to conduct transactions that involve
transmitting confidential information, such as barter transactions and personal
information. Internet security concerns could frustrate the Company's efforts to
grow its member base. It may also incur significant costs to protect against the
threat of security breaches or to alleviate problems caused by such breaches.
The Company faces risks from potential government regulation of the barter
industry and of the Internet. The barter industry is not currently subject to
direct regulation by any government agency, other than regulations generally
applicable to businesses. Certain tax regulations require U.S. barter exchanges
to file with the Internal Revenue Service, on an annual basis, the totals of the
barter sales of their members. Similarly, there are currently few laws or
regulations governing usage of the Internet. It is possible that a number of
laws and regulations may be adopted with respect to the Internet, covering
issues such as user privacy, taxes and the pricing, quality and other
characteristics of products and services. The adoption of laws or regulations
applicable to
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our business could hinder the growth of the barter industry or the Internet. As
a result, these regulations could cause a decrease in the demand for our
services and an increase in our cost of doing business or otherwise have a
material adverse effect on our business, prospects, financial condition and
results of operations. Furthermore, the applicability to the Internet of
existing laws in various jurisdictions governing issues such as property
ownership, sales and other taxes, libel and personal privacy is uncertain and
may take years to resolve.
The Company's systems may be subject to Year 2000 problems. The Company has
reviewed its own information technology and other technology systems to assess
and remediate any Year 2000 problems. It believes all of its systems and
software are Year 2000 compliant. It cannot, though, be sure that its internal
systems will function properly in the Year 2000. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Discussion of
the Year 2000 Issue."
The Company's quarterly operating results are subject to fluctuations and
seasonality. The Company's revenue and operating results may vary significantly
from quarter to quarter as a result of a number of factors, some of which are
outside of its control. These factors include:
- the commitment of members to the general concept of bartering and to
the concept of bartering online through its website;
- the budget cycles of its members;
- the attractiveness to members of its bartering services;
- changes in costs that it incurs to attract and retain members;
- changes in its fees or the fees of its competitors for bartering
services;
- the introduction of new services by the Company or by its competitors;
- unexpected costs and delays relating to the expansion of its
operations;
- the occurrence of technical difficulties and system downtime; and
- general economic and market conditions.
The Company does not believe its revenue will be subject to seasonal
fluctuations as a result of general patterns of retail advertising and direct
marketing, which are typically higher during the fourth calendar quarter.
Expenditures by its members may though tend to be cyclical, reflecting overall
economic conditions, member buying patterns and changing marketing strategies.
As a result of the above factors, revenues and operating results are difficult
to forecast, and you should not rely on period-to-period comparisons of results
of operations as an indication of the Company's future performance. The Company
may incur a significant shortfall in revenues in relation to its expectations.
In addition, in future periods its operating results may fall below the
expectations of public market analysts and investors. Should this occur, the
market price of its common stock would likely decline.
22
<PAGE>
PART II -OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(1) During the three months ended September 30, 1999, "E" warrants were
exercised at the exercise price of $1.50 per share. These issuances of common
stock underlying the warrants were exempt from registration under the provisions
of Section 4(2) of the Securities Act and or Rule 506 promulgated under the
Securities Act. As shareholders and warrant holders, these individuals and
entities had pre-existing relationships with the Company, had knowledge and
information about the business of the Company and had access to publicly
available and other information about the Company. These exercises of warrants
did not involve the use of general solicitation or advertising.
(2) Pursuant to the Company's 1988 Stock Option Plan, the Company granted stock
options to certain employees to purchase an aggregate of 189,500 shares of
common stock at exercise prices ranging from $2.67 per share to $4.88 per share
and an aggregate of 1,000 shares of common stock at an exercise price of $2.75
per share. The granting of stock options did not require registration under the
Securities Act.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders of Ubarter.com Inc. was held on September 30,
1999. Shareholders holding 4,673,398 shares, or approximately 79% of the
outstanding shares, were represented at the meeting by proxy or in person.
Matters submitted at the meeting for vote by the shareholders were as follows:
a. Election of Directors
The following nominees were elected to serve as members of the Board of
Directors until the annual meeting of shareholders in 2000 or until such time as
a successor may be elected.
TABULATION OF VOTES
FOR WITHELD
--- -------
Steven M. White 4,672,698 700
Eric M. Best 4,672,698 700
John A. Wade 4,672,698 700
b. Approval of amendment to the Company's articles of incorporation
Shareholders approved an amendment to the Company's articles of incorporation
creating 10,000,000 shares of preferred stock, $.001 par value per share, by a
vote of 3,339,268 shares, or 56% of outstanding shares in favor, 34,300 shares
against, 4,750 shares abstained, and 2,568,082 shares not voted.
c. Ratification of Appointment of Moss Adams LLP
Shareholders ratified the appointment of Moss Adams LLP as the Company's
independent auditors for the fiscal year ended March 31, 2000.
23
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K on September 13, 1999, reporting
the $1 million of financing received from Alpine Capital Group LLC.
24
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
UBARTER.COM INC.
November 12, 1999 /s/ Steven M. White
--------------------------------------------
President and CEO
November 12, 1999 /s/ Kevin R. Andersen
--------------------------------------------
Kevin R. Andersen
Chief Financial Officer
<PAGE>
EXHIBIT LIST
Exhibit Number Description
- -------------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Mar-31-2000
<PERIOD-END> Sep-30-1999
<CASH> 375,500
<SECURITIES> 0
<RECEIVABLES> 397,964
<ALLOWANCES> 125,164
<INVENTORY> 308,900
<CURRENT-ASSETS> 962,500
<PP&E> 755,660
<DEPRECIATION> 361,160
<TOTAL-ASSETS> 3,740,900
<CURRENT-LIABILITIES> 2,969,100
<BONDS> 573,949
0
0
<COMMON> 6,000
<OTHER-SE> 191,851
<TOTAL-LIABILITY-AND-EQUITY> 3,740,900
<SALES> 239,800
<TOTAL-REVENUES> 739,700
<CGS> 43,000
<TOTAL-COSTS> 43,000
<OTHER-EXPENSES> 1,744,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,900
<INCOME-PRETAX> (1,040,300)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,040,300)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,040,300)
<EPS-BASIC> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
