<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File Number: 000-28185
----------------
C-BRIDGE INTERNET SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-2001899
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
219 Vassar Street,
Cambridge, Massachusetts 02139
(Address of principal executive (Zip Code)
offices)
(617) 497-1707
(Registrant's telephone number, including area code)
----------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
As of July 21, 2000, there were 20,925,543 shares of common stock
outstanding.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC.
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I--FINANCIAL INFORMATION:
Item 1: Financial Statements
Consolidated Balance Sheets as of June 30, 2000 and December 31,
1999........................................................... 3
Consolidated Statements of Operations for the Three and Six
Months Ended June 30, 2000 and 1999............................ 4
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2000 and 1999......................................... 5
Notes to Consolidated Financial Statements....................... 6
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 7-12
Item 3: Quantitative and Qualitative Disclosures about Market Risk...... 12
PART II--OTHER INFORMATION:
Item 2: Changes in Securities and Use of Proceeds....................... 13
Item 4: Submission of Matters to a Vote of Security Holders............. 13
Item 6: Exhibits and Reports on Form 8-K................................ 13
SIGNATURES............................................................... 14
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................ $ 64,707,823 $ 65,312,334
Accounts receivable, net of allowance of $237,000
and $100,000, respectively ..................... 6,848,034 3,499,356
Unbilled receivables............................. 6,046,579 1,792,133
Other current assets............................. 2,488,829 584,794
------------ ------------
Total current assets........................... 80,091,265 71,188,617
------------ ------------
Property and Equipment, at cost:
Computer equipment............................... 3,959,733 1,812,637
Furniture and fixtures........................... 341,772 208,003
Computer software................................ 1,681,119 965,433
Leasehold improvements........................... 267,131 40,181
------------ ------------
6,249,755 3,026,254
Less--Accumulated depreciation and amortization.. 1,436,225 682,536
------------ ------------
4,813,530 2,343,718
------------ ------------
Other Assets....................................... 2,060,926 1,361,326
------------ ------------
Total assets................................... $ 86,965,721 $ 74,893,661
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of equipment loans and capital
lease obligations............................... $ 211,105 $ 191,206
Accounts payable................................. 1,481,143 2,018,741
Accrued expenses................................. 4,592,174 3,431,285
Deferred revenue................................. 4,382,238 1,877,628
------------ ------------
Total current liabilities...................... 10,666,660 7,518,860
------------ ------------
Equipment Loans and Capital Lease Obligations, net
of current portion................................ 142,221 263,100
------------ ------------
Stockholders' Equity:
Common stock, $.01 par value--
Authorized--50,000,000 shares
Issued--20,604,464 and 18,906,258 shares,
respectively.................................... 206,045 189,063
Additional paid-in capital......................... 91,769,590 82,394,326
Deferred compensation.............................. (4,084,191) (5,107,259)
Accumulated deficit................................ (11,581,604) (10,211,429)
Treasury stock, at cost--512,708 and 510,000
shares, respectively.............................. (153,000) (153,000)
------------ ------------
Total stockholders' equity..................... 76,156,840 67,111,701
------------ ------------
Total liabilities and stockholders' equity..... $ 86,965,721 $ 74,893,661
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended Ended
------------------------ ------------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Revenues:
Professional services.... $17,137,054 $ 3,763,793 $27,405,960 $ 6,204,693
Educational services..... 1,650,279 1,029,170 3,554,276 1,029,170
----------- ----------- ----------- -----------
Total net revenues..... 18,787,333 4,792,963 30,960,236 7,233,863
----------- ----------- ----------- -----------
Costs and Expenses:
Direct costs of
professional services
(exclusive of noncash
compensation expense
presented below)........ 8,331,089 2,008,528 13,764,256 3,535,508
Direct costs of
educational services
(exclusive of noncash
compensation expense
presented below)........ 869,728 568,507 1,482,688 568,507
Selling and marketing
(exclusive of noncash
compensation expense
presented below)........ 4,567,294 618,890 7,714,875 1,032,059
General and
administrative
(exclusive of noncash
compensation expense
presented below)........ 6,248,274 1,584,226 10,521,065 2,268,954
Compensation expense
related to stock options
and warrants............ 265,526 424,747 1,019,294 424,747
----------- ----------- ----------- -----------
Total operating
expenses.............. 20,281,911 5,204,898 34,502,178 7,829,775
----------- ----------- ----------- -----------
Loss from operations... (1,494,578) (411,935) (3,541,942) (595,912)
Interest Expense........... -- (51,811) -- (128,824)
Interest Income............ 907,654 1,809,735 --
Other Income, net.......... 206,481 342,490 362,032 348,972
----------- ----------- ----------- -----------
Net loss............... $ (380,443) $ (121,256) $(1,370,175) $ (375,764)
=========== =========== =========== ===========
Basic and Diluted Net Loss
per Share (Note 2)........ $ (.02) $ (.01) $ (.07) $ (.04)
=========== =========== =========== ===========
Basic and Diluted Weighted
Average Shares
Outstanding............... 19,875,316 10,469,628 19,696,401 10,360,131
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months
Ended
------------------------
June 30, June 30,
2000 1999
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss........................................... $(1,370,175) $ (375,764)
Adjustments to reconcile net loss to net cash (used
in) provided by operating activities--
Depreciation..................................... 753,689 170,014
Noncash stock based compensation................. 1,019,294 424,747
Repayment of debt by third party................. -- (348,000)
Changes in current assets and liabilities--
Accounts receivable.............................. (3,348,678) (1,167,465)
Unbilled receivables............................. (4,254,446) (884,606)
Other current assets............................. (1,904,035) (100,036)
Accounts payable................................. (537,598) 279,171
Accrued expenses................................. 1,160,889 1,284,377
Deferred revenue................................. 2,504,610 806,770
----------- -----------
Net cash (used in) provided by operating
activities.................................... (5,976,450) 89,208
----------- -----------
Cash Flows from Investing Activities:
Purchases of property and equipment................ (3,223,501) (291,665)
Increase in other assets........................... (699,600) (45,000)
----------- -----------
Net cash used in investing activities.......... (3,923,101) (336,665)
----------- -----------
Cash Flows from Financing Activities:
Proceeds from the sale of common stock, net of
issuance costs.................................... 8,928,009 2,000,000
Repayments of line of credit, net of proceeds...... -- (2,011,597)
Repayments of capital leases....................... (100,979) (50,381)
Repayments of amounts due to affiliates............ -- (11,610)
Proceeds from exercise of stock options............ 468,010 143,241
----------- -----------
Net cash provided by financing activities...... 9,295,040 69,653
----------- -----------
Net Decrease in Cash and Cash Equivalents............ (604,511) (177,804)
Cash and Cash Equivalents, Beginning of Period....... 65,312,334 190,409
----------- -----------
Cash and Cash Equivalents, End of Period............. $64,707,823 $ 12,605
=========== ===========
Supplemental Disclosure of Noncash Financing
Activities:
Assets acquired under capital lease................ $ -- $ 99,449
=========== ===========
Assets acquired in connection with outsourcing
agreement......................................... $ -- $ 233,397
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during period for interest............... $ 30,995 $ 27,001
=========== ===========
Cash paid during period for income taxes........... $ 2,294 $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements included herein
have been prepared by C-bridge Internet Solutions, Inc. and its subsidiaries
(together the "Company"), pursuant to the rules and regulations of the
Securities and Exchange Commission. The information furnished in the condensed
consolidated financial statements includes normal recurring adjustments and
reflects all adjustments which are, in the opinion of management, necessary for
a fair presentation of such condensed consolidated financial statements.
Results of operations for the three and six month periods presented are not
necessarily indicative of the results to be expected for the year ended
December 31, 2000 or for any future period. Certain information and footnote
disclosures normally included in the consolidated financial statements prepared
in accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the information presented
not misleading. These condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements, and the notes
thereto, included in the Company's Annual Report on Form 10-K/A for the year
ended December 31, 1999.
2. NET LOSS PER SHARE
Basic and diluted net loss per share are the same for all periods presented
due to the Company's net losses for the three and six months ended June 30,
1999 and 2000. Antidilutive securities, which consist of options and warrants
to purchase common stock that are not included in diluted net loss per share,
were 6,122,870 and 7,244,672 for the three and six months ended June 30, 1999,
respectively and 7,406,368 and 7,478,613 for the three and six months ended
June 30, 2000, respectively.
3. SEGMENT AND GEOGRAPHIC INFORMATION
The Company views its operations and manages its business as two segments,
strategic and technology consulting services and educational services. The
Company's reportable segments are strategic business units that provide
distinct services to the end customer. They are managed separately because each
business requires different marketing and management strategies. The Company's
approach is based on the way that management organizes the segments within the
Company for making operating decisions and assessing performance.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies contained in the Company's
Annual Report on Form 10-K/A for the year ended December 31, 1999. The Company
does not allocate operating expenses between its two reportable segments.
Accordingly, the Company's measure of performance for each reportable segment
is based on total net revenues and direct costs of services, which are reported
separately in the accompanying consolidated statements of operations. The
Company does not identify assets and liabilities by segment. Accordingly,
identifiable assets, capital expenditures and depreciation and amortization are
not reported by segment.
4. SUBSEQUENT EVENT
On July 5, 2000, the Company completed the acquisition of Open Enterprise
Corporation (OEC). In connection with the acquisition, the Company issued
approximately 399,000 shares of common stock and paid approximately $2.5
million in cash for all of the outstanding common stock of OEC. OEC's
operations prior to the acquisition were not material to the Company's.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-looking Statements
This Report on Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and section 21E of the
Securities Act of 1934, as amended. Statements beginning with such words as
"believes", "intends", "plans", and "expects" and similar expressions include
forward-looking statements that are based on management's expectations given
facts as currently known by management. Actual results may differ materially
from those discussed in these forward-looking statements. Factors that could
cause the Company's future results to differ materially from the expectations
described herein include but are not limited to the profitability of the
Company's contracts, the Company's ability to hire, train, and retain qualified
employees, the Company's ability to continue to develop effective sales and
marketing capabilities, the Company's ability to keep pace with the Internet's
rapid technological changes, evolving industry standards and changing client
requirements, worldwide business use of the Internet, the growth in the number
of web access devices per user, the absence of any failure of the Internet, the
continued improvement of security on the Internet, general economic and
industry conditions, as well as, other factors noted in the Company's
Registration Statement on Form S-1 dated December 16, 1999, as filed with the
Securities and Exchange Commission and in the Company's Annual Report on Form
10-K/A for the year ended December 31, 1999.
Overview
C-bridge Internet Solutions, Inc. (the "Company") is a full service provider
of Internet-based solutions designed to help companies conduct eBusiness. The
Company has experienced consistent revenue growth since its inception in
October of 1996.
The Company's revenues are derived primarily from providing Internet
professional services and it anticipates that revenue growth will be driven
primarily by the number and scope of its client engagements and by the growth
of its professional services headcount. During the second quarter of 2000, the
Company earned professional services revenues from 30 clients and three
professional services clients accounted for approximately 42% of the Company's
total net revenues. Revenues from any given client will vary from period to
period; however, the Company expects that significant customer concentration
will continue for the foreseeable future. To the extent that any significant
client uses less of the Company's services or terminates its relationship with
the Company, revenues could decline substantially. In addition, the loss of any
significant client could materially and adversely affect the Company's business
and results of operations.
The Company also generates revenues from providing educational services. In
May 1999, the Company entered into an outsourcing agreement with one of its
sales lead sources, CEE, to provide the operational aspects of their executive
education seminars. The Company markets and sells its services through
executive education seminars, indirectly with partners, and directly through
its sales organization. A material portion of leads and revenues for 2000 and a
majority of leads and revenues for 1999 have come through executive education
seminars.
Revenues and earnings may fluctuate from quarter to quarter based on factors
within and outside the Company's control, including the variability in market
demand for the Internet and for Internet professional services, the length of
the sales cycle associated with service offerings, the number and scope of
projects, seasonal factors and the efficiency of utilizing professional
services employees.
For the quarter ended June 30, 2000, approximately 88% of professional
services revenues were generated pursuant to time and material contracts, while
for the quarter ended June 30, 1999, approximately 66% of revenues were derived
from time and material contracts. Revenues from time and material contracts are
generally recognized as services are provided. Revenues generated pursuant to
fixed-fee contracts are generally
7
<PAGE>
recognized as services are rendered using the percentage-of-completion method
of accounting. Revenues exclude reimbursable expenses charged to clients.
Despite a growth in revenues, the Company has not been profitable and
expects to continue to incur net losses. Net losses may not decrease
proportionately with the increase in revenues primarily because of increased
expenses related to the hiring of additional employees, expansion of the number
of offices, increased investment in knowledge management, methodologies and
operations infrastructure, and increased marketing and sales efforts. To the
extent that future revenues do not increase significantly in the same periods
in which operating expenses increase, operating results would be adversely
affected.
The largest portions of the Company's costs result from employee
compensation and the related overhead and facilities costs. The Company
currently expects to continue to grow its headcount. Accordingly, if revenues
do not increase at a rate equal to expenses, the Company's business, financial
condition or results of operations could be materially and adversely affected.
In addition, liquidity may also be adversely affected if revenues do not
increase at a rate equal to these additional expenses.
Client engagements currently average three to six months in duration. If a
client engagement ends earlier than expected, professional services employees
must be re-deployed and any resulting non-billable time will adversely affect
professional services margins. The Company also expects per capita professional
services costs to increase over time due to wage increases and inflation.
Professional services margins are affected by trends in hiring and in
professional services employee utilization, and, as such, will vary in the
future. Any significant inability to increase billable rates, a decline in
billable rates or time billed to clients or the loss of a significant client
would materially adversely affect professional services margins.
At June 30, 2000, the Company had 491 employees.
Results of Operations Three Months Ended June 30, 2000 Compared to Three Months
Ended June 30, 1999
Total Net Revenues
Total net revenues increased 292% to $18.8 million for the quarter ended
June 30, 2000 from $4.8 million for the quarter ended June 30, 1999.
Professional Services Revenues
Professional services revenues increased 355% to $17.1 million for the
quarter ended June 30, 2000 from $3.8 million for the quarter ended June 30,
1999. The increase reflects growing demand for Internet professional services
and increases in both the size and number of the Company's client engagements.
For the quarter ended June 30, 2000, professional services revenues from three
clients totaled 42% of total net revenues reflecting a decreasing but continued
concentration of revenues from a small number of clients, while professional
services revenues from four clients totaled 72% of total net revenues for the
quarter ended June 30, 1999.
Educational Services Revenues
The Company began providing educational services in May 1999. Educational
services revenues increased 60% to $1.6 million for the quarter ended June 30,
2000 from $1.0 million for the quarter ended June 30, 1999. Of the $1.6 million
of educational services revenues earned in the second quarter of 2000, $1.4
million were earned through an outsourcing agreement with CEE and represented
7% of total net revenues for the quarter ended June 30, 2000.
8
<PAGE>
Direct Costs of Professional Services
Direct costs of professional services consist primarily of the compensation
and benefits of employees engaged in the delivery of professional services and
of non-reimbursable project expenses related to client projects. Direct costs
of professional services margins reflect revenues less the professional
services expenses whether or not the employee's time is billed to a client.
Direct costs of professional services increased 315% to $8.3 million for the
quarter ended June 30, 2000 from $2.0 million for the quarter ended June 30,
1999. This increase was primarily due to the growth of professional services
headcount to respond to growth and a general increase in wages for professional
services employees. The Company increased its professional services headcount
to 324 at June 30, 2000 from 69 at June 30, 1999. Direct costs of professional
services represented 44% of total net revenues for the quarter ended June 30,
2000 and 42% of total net revenues for the quarter ended June 30, 1999.
Direct Costs of Educational Services
Direct costs of educational services consist of the salaries, benefits and
direct expenses for personnel related to the Company's educational services. It
also includes the direct expenses of delivering educational services. Direct
costs of educational services increased 53% to $870,000 for the quarter ended
June 30, 2000 from $568,000 for the quarter ended June 30, 1999. Direct costs
of educational services represented 5% of total net revenues for the quarter
ended June 30, 2000 and 12% of total net revenues for the quarter ended June
30, 1999.
Selling and Marketing Expenses
Selling and marketing expenses consist of salaries, commissions, benefits
and related expenses for personnel engaged in sales and marketing activities.
It also includes public relations, trade shows, promotional expenses and other
expenses directly related to sales and marketing. Selling and marketing
expenses increased 638% to $4.6 million for the quarter ended June 30, 2000
from $619,000 for the quarter ended June 30, 1999. This increase was primarily
due to an increase in selling and marketing headcount, travel related expenses
and an increase in direct expenses related to sales and marketing programs
during the second quarter of 2000. Selling and marketing expenses represented
24% of total net revenues for the quarter ended June 30, 2000 and 13% of total
net revenues for the quarter ended June 30, 1999.
General and Administrative Expenses
General and administrative expenses consist of compensation, benefits, and
related expenses for personnel engaged in executive and general management,
recruiting, human resources, information technology, finance, administrative,
and developing and maintaining the Company's service methodologies. It also
includes expenses for recruiting, training, leasing and maintaining office
space, professional fees and all other general corporate expenses. General and
administrative expenses increased 294% to $6.2 million for the quarter ended
June 30, 2000 from $1.6 million for the quarter ended June 30, 1999. This
increase was due primarily to an increase in recruiting expenses and an
increase in general and administrative headcount. General and administrative
expenses represented 33% of total net revenues for the quarters ended June 30,
2000 and 1999.
Compensation Expense Related to Stock Options and Warrants
Compensation expense related to stock options and warrants consists of the
non-cash compensation expense related to the granting of stock options and
warrants. The Company has previously recorded deferred compensation expense of
$9.5 million related to certain stock option grants. This deferred compensation
expense is recognized based on the vesting of these stock options. Of the
original $9.5 million of deferred compensation expense, aproximately $512,000
was expensed in the quarter ended June 30, 2000. During the quarter ended June
30, 2000, the Company also recorded a credit to compensation expense of
approximately $247,000 related to non-qualified options that are accounted for
under variable plan accounting.
9
<PAGE>
Interest and Other Income
Net interest and other income (expense) increased 283% to income of $1.1
million for the quarter ended June 30, 2000 from income of $291,000 for the
quarter ended June 30, 1999. This change was primarily due to interest income
related to the proceeds from the Company's initial public offering and payments
received in connection with the settlement of litigation.
Provision for Income Taxes
The Company had a net operating loss carryforward of $3.1 million at
December 31, 1999, which may be used to offset future taxable income, if any.
This carryforward is subject to review and possible adjustment by the Internal
Revenue Service. The Internal Revenue Code contains provisions that may limit
use of the carryforward in the event there are significant changes in ownership
of the Company. The Company has not given recognition to any potential tax
benefits, consisting primarily of the net operating loss carryforward, as it is
more likely than not that these benefits will not be realizable in future
years' tax returns.
Results of Operations Six Months Ended June 30, 2000 Compared to Six Months
Ended June 30, 1999
Total Net Revenues
Total net revenues increased 328% to $31.0 million for the six months ended
June 30, 2000 from $7.2 million for the six months ended June 30, 1999.
Professional Services Revenues
Professional services revenues increased 342% to $27.4 million for the six
months ended June 30, 2000 from $6.2 million for the six months ended June 30,
1999. The increase reflects growing demand for Internet professional services
and increases in both the size and number of the Company's client engagements.
For the first six months of June 30, 2000, professional services revenues from
two clients totaled 32% of total net revenues reflecting a decreasing but
continued concentration of revenues from a small number of clients, while
professional services revenues from three clients totaled 79% of total net
revenues for the six months ended June 30, 1999.
Educational Services Revenues
The Company began providing educational services in May 1999. Educational
services revenues increased 245% to $3.6 million for the six months ended June
30, 2000 from $1.0 million for the six months ended June 30, 1999. Of the $3.5
million of educational services revenues earned in the first six months of
2000, $2.9 million were earned through an outsourcing agreement with CEE and
represented 9% of total net revenues for the six months ended June 30, 2000.
Direct Costs of Professional Services
Direct costs of professional services consist primarily of the compensation
and benefits of employees engaged in the delivery of professional services and
of non-reimbursable project expenses related to client projects. Direct costs
of professional services margins reflect revenues less the professional
services expenses whether or not the employee's time is billed to a client.
Direct costs of professional services increased 289% to $13.8 million for the
six months ended June 30, 2000 from $3.5 million for the six months ended June
30, 1999. This increase was primarily due to the growth of professional
services headcount to respond to growth and a general increase in wages for
professional services employees. The Company increased its professional
services headcount to 324 at June 30, 2000 from 69 at June 30, 1999. Direct
costs of professional services
10
<PAGE>
represented 44% of total net revenues for the six months ended June 30, 2000
and 49% of total net revenues for the six months ended June 30, 1999.
Direct Costs of Educational Services
Direct costs of educational services consist of the salaries, benefits and
direct expenses for personnel related to the Company's educational services. It
also includes the direct expenses of delivering educational services. Direct
costs of educational services increased 161% to $1.5 million for the six months
ended June 30, 2000 from $569,000 for the six months ended June 30, 1999.
Direct costs of educational services represented 5% of total net revenues for
the six months ended June 30, 2000 and 8% of total net revenues for the six
months ended June 30, 1999.
Selling and Marketing Expenses
Selling and marketing expenses consist of salaries, commissions, benefits
and related expenses for personnel engaged in sales and marketing activities.
It also includes public relations, trade shows, promotional expenses and other
expenses directly related to sales and marketing. Selling and marketing
expenses increased 648% to $7.7 million for the six months ended June 30, 2000
from $1.0 million for the six months ended June 30, 1999. This increase was
primarily due to an increase in selling and marketing headcount, travel related
expenses and an increase in direct expenses related to sales and marketing
programs during the first six months of 2000. Selling and marketing expenses
represented 25% of total net revenues for the six months ended June 30, 2000
and 14% of total net revenues for the six months ended June 30, 1999.
General and Administrative Expenses
General and administrative expenses consist of compensation, benefits, and
related expenses for personnel engaged in executive and general management,
recruiting, human resources, information technology, finance, administrative,
and developing and maintaining the Company's service methodologies. It also
includes expenses for recruiting, training, leasing and maintaining office
space, professional fees and all other general corporate expenses. General and
administrative expenses increased 364% to $10.5 million for the six months
ended June 30, 2000 from $2.3 million for the six months ended June 30, 1999.
This increase was due primarily to an increase in recruiting expenses and an
increase in general and administrative headcount. General and administrative
expenses represented 34% of total net revenues for the six months ended June
30, 2000 and 31% of total net revenues for the six months ended June 30, 1999.
Compensation Expense Related to Stock Options and Warrants
Compensation expense related to stock options and warrants consists of the
non-cash compensation expense related to the granting of stock options and
warrants. The Company has previously recorded deferred compensation expense of
$9.5 million related to certain stock option grants. This deferred compensation
expense is recognized based on the vesting of these stock options. Of the
original $9.5 million of deferred compensation expense, $1.0 million was
expensed in the first six months of 2000. During the six months ended June 30,
2000, the Company also recorded net compensation expense of $19,000 related to
non-qualified options that are accounted for under variable plan accounting.
Interest and Other Income
Net interest and other income (expense) increased 886% to income of $2.2
million for the six months ended June 30, 2000 from income of $220,000 for the
six months ended June 30, 1999. This change was primarily due to interest
income related to the proceeds from the Company's initial public offering and
payments received in connection with the settlement of litigation.
11
<PAGE>
Liquidity and Capital Resources
Since inception, the Company has funded operations through the sale of
equity securities, bank borrowings and lease financing arrangements.
At June 30, 2000, the Company's cash and cash equivalents were $64.7
million. Working capital increased to $69.4 million at June 30, 2000 from $63.7
million at December 31, 1999. The increase was primarily due to net proceeds of
$8.9 million received from the exercise of the underwriters' over-allotment
option during January 2000. Based on the current business plan, the Company
believes that its current cash will be sufficient to meet working capital and
capital expenditure requirements at least through the next twelve months.
However, there can be no assurance that the Company will not require additional
financings within this time frame or that such additional financing, if needed,
will be available on acceptable terms, if at all.
Cash used in operating activities was $6.0 million for the six months ended
June 30, 2000 as a result of the significant working capital requirements
associated with the Company's growth. Cash provided by operating activities was
$89,000 for the six months ended June 30, 1999. For the six months ended June
30, 2000 and 1999 the Company had capital expenditures of $3.2 million and
$292,000, respectively.
Cash provided by the exercise of stock options was $468,000 for the six
months ended June 30, 2000 and $143,000 for the six months ended June 30, 1999.
The Company's borrowings at June 30, 2000 consist of $353,000 due under
equipment financing obligations.
Recent Accounting Pronouncements
The Securities and Exchange Commission (SEC) issued Staff Accounting
Bulletin (SAB) No. 101, Revenue Recognition, in December 1999. The Company has
adopted this new accounting guidance for all periods presented. The adoption of
the guidance provided in SAB No. 101 did not have a material impact on any
period presented.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Derivative Financial Instruments, Other Financial Instruments and Derivative
Commodity Instruments
As of June 30, 2000, the Company did not participate in any derivative
financial instruments or other financial and commodity instruments for which
fair market value disclosure would be required under SFAS No. 107. All of the
Company's investments are money market accounts or U.S. Treasury Bills with
maturities of ninety days or less that are carried on the Company's books at
amortized cost, which approximates fair market value. Accordingly, the Company
has no quantitative information concerning the market risk of participating in
such instruments.
Primary Market Risk Exposures
The Company's primary market risk exposure is in the area of interest rate
risk. The Company's investment portfolio of cash and cash equivalents is
subject to interest rate fluctuations, but the Company believes this risk is
immaterial due to the short-term nature of the investments.
12
<PAGE>
PART II--OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(d). On January 11, 2000, the managing underwriters of the Company's initial
public offering exercised their over-allotment option and purchased
600,000 shares of common stock from the Company at $16.00 per share. In
conjunction with its sale of the 600,000 shares, the Company received $8.9
million, net of commissions and costs. The total net proceeds to the
Company from the initial public offering were approximately $57.8 million.
The Company has used, and continues to expect to use, the proceeds from
the sale of stock for general corporate purposes, including working
capital. A portion of the proceeds may also be used for the acquisitions
of businesses that are complimentary to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held in Cambridge,
Massachusetts on May 23, 2000. Of the 19,331,282 shares of common stock
outstanding on the record date, 13,525,490 were present by proxy. Those shares
were voted on the matters before the meeting as follows:
1. Election of Directors
<TABLE>
<S> <C> <C>
For Against
Joseph L. Badaracco, Jr. 13,495,190 30,300
Joseph M. Bellini 13,502,739 22,751
Paul R. Charron 13,494,426 31,064
Gerard F. King, II 13,284,065 241,425
Raymond J. Lane 13,502,753 22,737
Ramanan Raghavendran 13,495,190 30,300
2. To ratify appointment of Arthur Andersen, LLP as the Company's
independent auditors for the current year.
For Against Abstain
13,523,638 1,083 769
</TABLE>
3. To approve the C-bridge 2000 Stock Incentive Plan and the reservation
of 6,000,000 shares thereunder.
<TABLE>
<S> <C> <C> <C>
For Against Abstain Non-Vote
10,167,723 2,830,000 759 527,008
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a). Exhibits
<TABLE>
<C> <S>
10.1 Lease agreement dated May 11, 2000, by and between the Company and
Arden Realty Limited Partnership relating to office space located at
Howard Hughes Tower, 6701 Center Drive West, Los Angeles, California.
10.2 Lease agreement dated June 15, 2000, by and between the Company and
125 Summer Street Cornerstone L.L.C. relating to office space located
at 125 Summer St., Boston Massachusetts.
27.1 Financial Data Schedule
</TABLE>
(b). Reports on form 8-K
None to report.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
C-Bridge Internet Solutions, Inc.
Date: July 27, 2000 /s/ Joseph M. Bellini
By: _________________________________
Joseph M. Bellini,
Chief Executive Officer
Date: July 27, 2000 /s/ Richard O. Wester
By: _________________________________
Richard O. Wester,
Chief Financial Officer
14
