<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------
FORM 10-QSB
Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2000
Commission file number 10039
eB2B COMMERCE, INC.
----------------------------
(Exact name of small business issuer as specified in its charter)
NEW JERSEY 22-2267658
---------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
29 WEST 38TH STREET
NEW YORK, NY 10018
--------------------------------------
(Address of Principal Executive Office)
(212) 868-0920
--------------
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the issuer was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days. YES [X]
NO [ ]
As of August 10, 2000, there were 12,552,329 shares of Common Stock, $0.0001
par value, of the issuer outstanding.
Transitional Small Business Disclosure format Yes No X
---- -----
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
eB2B COMMERCE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
(unaudited)
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 14,887 $ 9,907
Investments available-for-sale 4,999 15,986
Accounts receivable, net 1,466 -
Other current assets 707 2,260
---------- ----------
Total Current Assets 22,059 28,153
Property and equipment, net 1,043 167
Goodwill, net 59,169 -
Other intangibles, net 3,005 -
Other assets 892 744
---------- ----------
Total Assets $ 86,168 $ 29,064
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 750 $ -
Accounts payable 3,774 -
Accrued and other 2,763 1,055
Deferred income 598 -
---------- ----------
Total Current Liabilities 7,885 1,055
---------- ----------
Long-term debt 1,750 -
---------- ----------
Stockholders' equity
Preferred stock, Series A - $.0001 par value; 2,000
shares authorized; 300 shares issued and outstanding - -
for both periods
Preferred stock, Series B - $.0001 par value; 4.0 million
shares authorized; 2,999,999 shares issued and
outstanding for both periods - -
Common stock - $.0001 par value; 50,000,000 shares
authorized; 12,531,286 and 7,253,820 shares issued
and outstanding at June 30, 2000 and December 31,
1999, respectively 1 1
Additional paid-in capital 122,803 63,611
Accumulated deficit (60,234) (35,603)
Unearned stock-based compensation 13,963 -
---------- ----------
Total Stockholders' Equity 76,533 28,009
---------- ----------
Total Liabilities and Stockholders' Equity $ 86,168 $ 29,064
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements
1
<PAGE>
EB2B COMMERCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue $ 1,590 $ - $ 2,005 $ -
----------------- ---------------- ----------------- ----------------
Costs and expenses
Cost of revenue 887 - 1,136 -
Marketing and selling (exclusive
of stock-based compensation
expense of $302 and $954 for
the three and six months ended
June 30, 2000, respectively) 665 - 1,016 -
Product development costs
(exclusive of stock-based
compensation expense of $63
and $126 for the three and six
months ended June 30, 2000,
respectively) 1,126 43 1,784 498
General and administrative
(exclusive of stock-based
compensation expense of $10,111
and $12,493 for the three and six
months ended June 30, 2000,
respectively) 4,309 257 6,865 464
Amortization of goodwill and other
intangibles 2,739 - 2,827 -
Stock-based compensation expense 10,476 - 13,573 -
----------------- ---------------- ----------------- ----------------
Total costs and expenses 20,202 300 27,201 962
----------------- ---------------- ----------------- ----------------
Loss from operations (18,612) (300) (25,196) (962)
Interest and other, net 288 (2) 565 (4)
----------------- ---------------- ----------------- ----------------
Net loss $ (18,324) $ (302) $ (24,631) $ (966)
=========== ========= =========== =========
Net loss per common share $ (1.59) $ (0.05) $ (2.60) $ (0.15)
=========== ========= =========== ==========
Weighted average number of common
shares outstanding 11,514,073 6,343,048 9,477,222 6,272,594
=========== ========== =========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements
2
<PAGE>
eB2B COMMERCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
---- ----
<S> <C> <C>
Operating Activities
Net loss $(24,631) $ (966)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 4,766 128
Stock-based compensation expense 13,573 --
Write-down of assets -- 374
Shares and warrants issued for services -- 63
Management of operating assets and liabilities
Accounts receivable, net (299) --
Accounts payable 1,638 --
Accrued and other 265 300
Other (476) (1)
-------- --------
Net cash used in operating activities (5,164) (102)
-------- --------
Investing Activities
Cash acquired in acquisitions, net 419 --
Proceeds from maturity of investments available-for-sale 10,987 --
Purchase of property and equipment (357) (62)
Product development costs (1,295) (124)
-------- --------
Net cash provided by (used in) investing activities 9,754 (186)
-------- --------
Financing Activities
Proceeds from borrowings 2,500 --
Repayment of borrowings (2,116) (2)
Payment of capital lease obligation (69) --
Proceeds from issuance of shares and warrants -- 380
Proceeds from exercise of options and warrants 75 --
-------- --------
Net cash provided by financing activities 390 378
-------- --------
Net increase in cash 4,980 90
Cash and cash equivalents at beginning of period 9,907 10
-------- --------
Cash and cash equivalents at end of period $ 14,887 $ 100
======== ========
Non-cash transactions
Common stock, options and warrants issued or
exchanged in connection with acquisitions $ 59,145 $ --
Shares and warrants issued for services $ 66 $ 63
Preferred stock issued in exchange for note payable $ -- $ 15
Common stock issued in exchange for domain name $ -- $ 2
Cash paid during the period for
Interest $ 44 $ --
Income taxes $ -- $ --
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
<PAGE>
eB2B COMMERCE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. BASIS OF PRESENTATION, ORGANIZATION AND OTHER MATTERS
On April 18, 2000, eB2B Commerce, Inc., a Delaware corporation ("eB2B"), merged
with and into DynamicWeb Enterprises, Inc., a New Jersey corporation and an SEC
registrant ("DWeb"), with the surviving company using the name "eB2B Commerce,
Inc." (the "Company"). Pursuant to the Agreement and Plan of Merger between eB2B
and DWeb (the "Merger"), the shareholders of DWeb retained their shares in DWeb,
while the shareholders of eB2B received shares, or securities convertible into
shares, of common stock of DWeb representing approximately 89% of the equity of
the Company, on a fully diluted basis. The transaction was accounted for as a
reverse acquisition.
The reverse acquisition was accounted for as a "purchase business combination"
in which eB2B is the accounting acquirer and DWeb is the legal acquirer. The
management of eB2B remained the management of the Company. As a result of the
reverse acquisition, (i) the historical financial statements of the Company for
periods prior to the date of the Merger are no longer the historical financial
statements of DWeb, and, therefore, DWeb's historical financial statements are
no longer presented; (ii) the historical financial statements of the Company for
periods prior to the date of the Merger are those of eB2B; (iii) all references
to the financial statements of the "Company" apply to the historical financial
statements of eB2B prior to the Merger and to the consolidated financial
statements of the Company subsequent to the Merger; and (iv) any reference to
eB2B applies solely to eB2B Commerce, Inc., a Delaware corporation, and its
financial statements prior to the Merger.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted. In
the opinion of management, all material adjustments, consisting of normal
recurring adjustments, considered necessary for a fair presentation have been
included in the accompanying unaudited condensed consolidated financial
statements. All significant intercompany balances and transactions have been
eliminated in consolidation. Also, the stockholders' equity of eB2B as of
December 31, 1999 has been recast to give effect to the Merger. Certain other
prior year balances have been reclassified to conform with the current year
presentation.
The Company has changed its year-end from September 30 to December 31 to conform
to eB2B's year-end. Operating results for the three and six months ended June
30, 2000 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2000.
The Company provides Internet-based, business-to-business e-commerce solutions
that facilitate cost-effective end-to-end transactions between buyers and
suppliers within specific vertical industries. The Company's services include:
providing the necessary infrastructure and operational services to process
electronic transactions between buyers and suppliers, and consulting services to
businesses that wish to build, operate or outsource their own e-commerce
infrastructure. In addition, the Company provides authorized technical education
to its client base, and also designs and delivers custom computer and
internet-based training seminars.
4
<PAGE>
NOTE 2. ACQUISITIONS
On February 22, 2000, eB2B completed its acquisition of Netlan Enterprises, Inc.
and subsidiaries ("Netlan"). Pursuant to the Agreement and Plan of Merger (the
"Netlan Merger"), Netlan's stockholders exchanged 100% of their common stock for
46,992 shares of eB2B common stock (equivalent to 125,000 shares of Company
common stock). Additionally, 75,188 shares of eB2B common stock (equivalent to
200,000 shares of Company common stock) were issued, placed into an escrow
account, and may be released to certain former shareholders of Netlan upon
successful completion of escrow requirements, including continued employment
with the Company. The aggregate value of such shares, or $2,050,000, has been
treated as stock-based compensation and is being amortized over the one year
vesting period from the date of acquisition. In connection with this
acquisition, eB2B incurred transaction costs consisting primarily of
professional fees of approximately $332,000, which have been included in the
purchase price of the Netlan Merger. A total of approximately $334,000 of the
purchase consideration was allocated to other intangibles, including assembled
workforce. The remaining purchase consideration, or $4,731,000, was recorded
as goodwill. The results of operations of Netlan have been included in the
Company's results of operations since March 1, 2000.
As described in Note 1 herein, the Merger of eB2B with and into DWeb was
accounted for as a reverse acquisition, utilizing the purchase business
combination method of accounting, in which eB2B acquired control of DWeb for
accounting purposes and DWeb acquired control of eB2B for legal purposes.
Pursuant to the Agreement and Plan of Merger, each share of common stock of DWeb
remained outstanding and each share of eB2B common stock was exchanged for the
equivalent of 2.66 shares of DWeb's common stock. In addition, shares of eB2B
preferred stock, warrants and options were exchanged for like securities of
DWeb, reflective of the 2.66 to 1 exchange ratio.
The purchase price of the Merger was approximately $59.9 million, which
primarily represents (i) the number of shares of DWeb's common stock outstanding
as of April 18, 2000, the date of the Merger, adjusted for common shares
issuable, valued at the market value of DWeb's common stock on December 1, 1999,
the date at which the parties signed the definitive merger agreement; (ii) the
aggregate market value of the shares of common stock and warrants principally
issued to a financial advisor (the "Financial Advisor") (see also Note 5,
Related Parties); and (iii) the market value of warrants issued to the Financial
Advisor in consideration for the advisory services rendered during the Merger
(see also Note 5, Related Parties). In connection with this acquisition, eB2B
also incurred transaction costs consisting primarily of professional fees of
approximately $343,000, which have been included in the purchase price of the
Merger. The purchase price was allocated to those assets acquired and
liabilities assumed based on the estimated fair value of DWeb's net assets as of
April 18, 2000. At that date, assets acquired and liabilities assumed had fair
values substantially equal to their historic book values. A total of
approximately $2,902,000 of the purchase consideration was allocated to other
intangibles, including assembled workforce and customer list. Also, the Company
recorded liabilities totaling $672,000 principally in relation to the severance
provided to certain employees. The remaining purchase consideration, or
$57,034,000, was recorded as goodwill. The results of operations of DWeb have
been included in the Company's results of operations since April 19, 2000.
The goodwill resulting from the above business combinations is being amortized
over five years and other intangibles are being amortized over a three-year
period. At June 30, 2000, accumulated amortization related to the goodwill and
other intangibles acquired in the Netlan and DWeb acquisitions totaled
approximately $2.8 million.
5
<PAGE>
The business combinations described above were recorded using management's
estimates and preliminary evaluation. The actual purchase price accounting
adjustments to reflect the fair value of net assets and the related amortization
periods utilized will be based on management's final evaluation, therefore, the
information above is subject to change pending the final allocation of purchase
price.
The following represents the summary unaudited pro forma condensed consolidated
results of operations for the six-month periods ended June 30, 2000 and 1999 as
if the acquisitions had occurred at the beginning of each of the periods
presented (in thousands, except per share data):
<TABLE>
<CAPTION>
Six months ended June 30,
2000 1999
---- ----
<S> <C> <C>
Revenues $ 3,610 $ 3,108
Net loss (31,904) (10,562)
Net loss per common share (2.65) (0.98)
</TABLE>
The pro forma results are not necessarily indicative of what would have occurred
if the acquisitions had been in effect for the periods presented. In addition
the pro forma results are not necessarily indicative of the results that will
occur in the future and do not reflect any potential synergies that might arise
from combined operations.
NOTE 3. NET LOSS PER COMMON SHARE
Basic net loss per common share is computed by dividing net loss by the
weighted-average number of common shares outstanding during the period. Diluted
loss per common share has not been computed since the assumed conversion of
options, warrants and preferred shares would have been antidilutive. Had the
Company reported earnings at June 30, 2000 and 1999, options and warrants to
purchase 21,249,411 and 292,600 common shares, and preferred shares convertible
into 16,358,994 and 399,000 common shares, respectively, would have been
included in the computation of diluted earnings per common share.
The unaudited pro forma net loss per common share presented in Note 2 herein has
been computed in the same manner as net loss per common share.
The weighted-average number of shares outstanding for purposes of presenting net
loss per common share on a comparative basis has been retroactively restated to
the earliest period presented to reflect the 2.66 to 1 exchange ratio in the
reverse acquisition described in Note 2 herein.
NOTE 4. PRODUCT DEVELOPMENT COSTS
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" requires companies to
capitalize qualifying computer software costs incurred during the application
development stage. All other costs incurred in connection with internal use
software were expensed as incurred. The useful life assigned to capitalized
product development costs should be based on the period such product is expected
to provide future utility to the Company. As of June 30, 2000 and December 31,
1999, capitalized product development costs, which have been classified as other
assets in the Company's balance sheets, were $714,000 and $738,000,
respectively. Total product development costs were
6
<PAGE>
approximately $1,784,000 and $498,000, as expensed, for the six-month periods
ended June 30, 2000 and 1999, respectively. During the six-month period ended
June 30, 1999, eB2B abandoned the use of the product development costs
capitalized at December 31, 1998, and recorded a $374,000 write-down.
NOTE 5. RELATED PARTIES
A principal and Chief Executive Officer of the Financial Advisor is a
director of the Company. Under an agreement between the Financial Advisor and
eB2B, upon completion of the Merger with DWeb on April 18, 2000, the Financial
Advisor received a finder's fee equal to 3% of the total number of shares
received by eB2B stockholders in the Merger. The fee was paid in the form of
720,282 shares of Company common stock and warrants to purchase 502,383 of such
shares. The shares of common stock and warrants have been included in the
purchase price of the Merger for an aggregate value of approximately $10.1
million (see also Note 2, Acquisitions). The value of the warrants was
determined using the Black-Scholes pricing model.
Also, eB2B issued the Financial Advisor warrants to purchase 470,000 shares of
eB2B common stock (equivalent to 1,250,200 shares of Company common stock) at an
exercise price of $5.50 per share (equivalent to $2.07 per share of Company
common stock) in consideration for the advisory services rendered during the
Merger. These warrants vested upon completion of the Merger on April 18, 2000
and have been included in the purchase price of the Merger, along with 30,000
additional warrants to purchase shares of eB2B common stock (equivalent to
79,800 shares of Company common stock) granted to a Board member and its
affiliate, for an aggregate value of approximately $10.1 million (see also
Note 2, Acquisitions). The value of the warrants was determined using the
Black-Scholes pricing model.
The Chief Executive Officer of the Company has been granted warrants to purchase
500,000 shares of eB2B common stock (equivalent to 1,330,000 shares of Company
common stock) at an exercise price of $5.50 per share (equivalent to $2.07
per share of Company common stock). These warrants vested upon the completion
of the Merger on April 18, 2000. In connection with such warrants, the Company
recorded a one-time charge classified as stock-based compensation expense of
approximately $8.8 million in both the three and six-month periods ended
June 30, 2000.
7
<PAGE>
NOTE 6. SEGMENT REPORTING
The following information is presented in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which established standards for reporting
information about operating segments in the Company's financial statements.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Transaction processing and related services $ 888 $ - $ 1,065 $ -
Training and client educational services 702 - 940 -
--------- -------- -------- ---------
$ 1,590 $ - $ 2,005 $ -
========= ======== ======== =========
Income (loss) from operations
Transaction processing and related services $ (1,745) $ (43) $ (2,828) $ (498)
Training and client educational services 256 - 339 -
--------- -------- --------- =--------
Total segment operating loss (1,489) (43) (2,489) (498)
Corporate (17,123) (257) (22,707) (464)
--------- -------- --------- =--------
$(18,612) $ (300) $(25,196) $ (962)
========= ======== ========= =========
</TABLE>
Transaction processing and related services includes revenue for processing
transactions and consulting services. Revenue from transaction processing is
recognized on a "pay per transaction" basis or based on a monthly subscription
charge related to the overall number of transactions during the period. The
revenue from these services is recognized in the month in which the services are
rendered. Revenue from consulting fees is recognized as services are rendered
over the contract term. The revenue derived from training and client educational
services is recognized as services are rendered for the respective seminars,
typically one to five days. Deferred income includes amounts billed for the
unearned portion of certain consulting contracts and training seminars.
NOTE 7. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", was issued. SFAS No. 133 established accounting and reporting for
derivative and for hedging activities. The Company intends to adopt SFAS No. 133
on January 1, 2001 in accordance with SFAS No. 137, which delayed the required
implementation of SFAS No. 133 for one year. At the current time the Company
does not utilize derivative instruments, and accordingly it is anticipated that
the adoption of SFAS No. 133 will not affect the Company's consolidated
financial position and results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition in Financial Statements", which summarizes certain of the
staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements. The Company believes that its revenue
recognition principles comply with SAB No. 101.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD-LOOKING STATEMENTS
The following discussion and analysis should be read in conjunction with the
financial statements included in this report. It is intended to assist the
reader in understanding and evaluating the financial position of the Company.
This report contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. Words such as "may", "will",
"should", "could", "expects", "plans", "intends", "anticipates", "believes",
"estimates", "potential", or "continue" or the negative of such terms and other
comparable terminology are intended to identify forward-looking statements. The
Company's actual results could differ materially from the results discussed in
the forward-looking statements. Risk factors that could cause or contribute to
such differences include those discussed in DynamicWeb Enterprises, Inc.'s
("DWeb") annual report on Form 10-KSB for the year ended September 30, 1999,
DWeb's registration statement on Form S-4, effective in March 2000, and the
Company's quarterly report on Form 10-QSB for the period ended March 31, 2000.
OVERVIEW
Background
The Company provides Internet-based, business-to-business e-commerce solutions
that facilitate cost-effective end-to-end transactions between buyers and
suppliers within specific vertical industries. The Company's services include:
providing the necessary technological infrastructure and operational services to
process electronic transactions between buyers and suppliers, and consulting
services to businesses that wish to build, operate or outsource their e-commerce
infrastructure. In addition, the Company provides authorized technical education
to its client base, and also designs and delivers custom computer and
internet-based training seminars.
Transaction processing and related services includes revenue for processing
transactions and consulting services. Revenue from transaction processing is
recognized on a "pay per transaction" basis or based on a monthly subscription
charge related to the overall number of transactions during the period. The
revenue from these services is recognized in the month in which the services are
rendered. Revenue from consulting fees is recognized as services are rendered
over the contract term. The revenue derived from training and client educational
services is recognized as services are rendered for the respective seminars,
typically one to five days. Deferred income includes amounts billed for the
unearned portion of certain consulting contracts and training seminars.
Recent Events
On April 18, 2000, eB2B Commerce, Inc., a Delaware corporation ("eB2B"), merged
with and into DWeb, a New Jersey corporation, with the surviving company using
the name "eB2B Commerce, Inc." (the "Company"). Pursuant to the Agreement and
Plan of Merger between eB2B and DWeb (the "Merger"), the shareholders of DWeb
retained their shares in DWeb, while the shareholders of eB2B received shares,
or securities convertible into shares, of common stock of DWeb representing
approximately 89% of the equity of the Company, on a fully diluted basis. The
transaction was accounted for as a reverse acquisition.
9
<PAGE>
The reverse acquisition was accounted for as a purchase business combination in
which eB2B is the accounting acquirer and DWeb is the legal acquirer. As a
result of the reverse acquisition, (i) the historical financial statements of
the Company for periods prior to the date of the Merger are no longer the
historical financial statements of DWeb, and therefore, DWeb's historical
financial statements are no longer presented; (ii) the historical financial
statements of the Company for periods prior to the date of the Merger are those
of eB2B; (iii) all references to the financial statements of the "Company" apply
to the historical financial statements of eB2B prior to the Merger and to the
consolidated financial statements of the Company subsequent to the Merger; and
(iv) any reference to eB2B applies solely to eB2B Commerce, Inc., a Delaware
corporation, and its financial statements prior to the Merger. The purchase
price of the Merger was approximately $59.9 million, of which approximately
$57.0 was recorded as goodwill and $2.9 million was recorded as other
intangibles.
On February 22, 2000, eB2B completed its acquisition of Netlan Enterprises, Inc.
and subsidiaries ("Netlan"). Pursuant to the Agreement and Plan of Merger (the
"Netlan Merger"), Netlan's stockholders exchanged 100% of their common stock for
46,992 shares of eB2B common stock (equivalent to 125,000 shares of Company
common stock). Additionally, 75,188 shares of eB2B common stock (equivalent to
200,000 shares of Company common stock) were issued, placed into an escrow
account, and may be released to certain former shareholders of Netlan upon
successful completion of escrow requirements, including continued employment
with the Company. The purchase price of the Netlan Merger was approximately
$5.1 million. The Company recorded approximately $4.8 million of goodwill
and approximately $0.3 million of other intangibles in connection with
this transaction.
The goodwill resulting from the above business combinations is being amortized
over five years and other intangibles are being amortized over a three-year
period. At June 30, 2000, accumulated amortization related to the goodwill and
other intangibles acquired in the Netlan and DWeb acquisitions totaled
approximately $2.8 million.
The Company has changed its year-end from September 30 to December 31 to conform
to eB2B's year-end.
The Company's financial condition and results from operations were dramatically
different during the three and six-month periods ended June 30, 2000 and 1999.
eB2B did not recognize any revenue for the six-month period ended June 30, 1999.
eB2B was a development stage company, which primarily devoted its operations to
recruiting and training of employees, development of its business strategy,
design of a business system to implement its strategy, and development of
business relationships with retailers and manufacturers. For the six-months
ended June 30, 2000, the Company's results reflect the new operations of the
Company, the operations of Netlan since March 1, 2000 and the operations of DWeb
since April 19, 2000. As a result, the Company believes that the results of
operations for the three and six-month periods ended June 30, 1999 are not
comparable to the results of operations for the same periods in 2000 and the
Company's anticipated financial condition and results of operations going
forward.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Total revenue for the three and six-month periods ended June 30, 2000 amounted
to $1,590,000 and $2,005,000, respectively. During both periods in 1999, the
Company was a development stage company and did not recognize any revenue.
10
<PAGE>
The Company's transaction processing and related services' reportable segment
generated revenue of $888,000 and $1,065,000 for the three and six-month periods
ended June 30, 2000. Such revenue includes fees paid for processing transactions
between buyers and suppliers and related consulting revenue. The Company
provides authorized technical education to its client base, and also designs and
delivers custom computer and internet-based training through its training and
client educational services' reportable segment. This segment generated
revenues of $702,000 and $940,000 during the three and six months ended June 30,
2000, respectively.
In the three and six-month periods ended June 30, 2000, one customer accounted
for approximately 16% and 12% of the Company's total revenue, respectively.
Cost of revenue consists primarily of salaries and benefits for employees
providing customer support and implementation services as well as salaries and
benefits of personnel providing consulting and training services to clients.
Total cost of revenues for the three and six months ended June 30, 2000 amounted
to $887,000 and $1,136,000, respectively.
Marketing and selling expenses consist primarily of employee salaries, benefits
and commissions, and the costs of promotional materials, trade shows and other
sales and marketing programs. Marketing and selling expenses (exclusive of
stock-based compensation) were approximately $665,000 and $1,016,000 for the
three and six months ended June 30, 2000.
Product development expenses consist primarily of payments to outside
contractors and personnel and related costs associated with the development of
the Company's technological infrastructure necessary to process transactions.
Product development expenses (exclusive of stock-based compensation) were
approximately $1,126,000 and $1,784,000 for the three and six months ended June
30, 2000.
General and administrative expenses consist primarily of employee salaries and
related expenses for executives, administrative and finance personnel, as well
as other consulting, legal and professional fees, and, to a lesser extent,
facility and communication costs. During the three and six-month periods ended
June 30, 2000, total general and administrative expenses (exclusive of
stock-based compensation) amounted to $4,309,000 and $6,865,000, respectively.
During the six months ended June 30, 2000, non-recurring outside contractor and
consulting fees in relation with the design and the implementation of the
Company's strategy and management structure totaled approximately $2.2 million.
Amortization of goodwill and other intangibles are non-cash charges associated
with the DWeb and Netlan business combinations. Such amortization expense were
$2,739,000 and $2,827,000 for the three and the six-month periods ended June 30,
2000, respectively. The Company expects to incur quarterly non-cash charges
through March 2003 of approximately $3.4 million corresponding to the
amortization of such goodwill and other intangibles. Between June 2003 and March
2005, the quarterly amortization expense related to the Dweb and Netlan business
combinations is expected to be approximately $3.1 million. The Company is still
refining its purchase price allocation and some adjustments may be recorded in
the future, which might affect the amortization of goodwill and other
intangibles or the periods used for amortization purposes.
During the three and six-month periods ended June 30, 2000, stock-based
compensation expense amounted to $10,476,000 and $13,573,000, respectively. The
deferred stock compensation is being amortized over the vesting periods of the
related options and warrants. The vesting period of the options and warrants
ranges principally from two to four years with the exception of
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500,000 warrants to purchase shares of eB2B common stock (equivalent to
1,330,000 shares Company common stock) which vested upon the completion of the
Merger and generated a one-time charge of approximately $8.8 million in both the
three and six-month periods ended June 30, 2000. Based on existing agreements at
June 30, 2000, the Company anticipates that it will incur a recurring quarterly
stock-based compensation expense of approximately $1.4 million through March
2002.
Interest and other, net amounted to $288,000 and $565,000 for the three and
six-month periods ended June 30, 2000, respectively. Such income, net of other
expenses, related primarily to interest earned on private placement proceeds
(See Liquidity and Capital Resources).
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred significant operating losses, net losses and negative
cash flows from operations, due in large part to the start-up and development of
its operations and the development of technological infrastructure to process
transactions. The Company expects that its net losses and negative cash flows
from operations will continue as it implements its growth strategy.
Historically, the Company has funded its losses and capital expenditures through
borrowings, capital contributions, and a portion of the net proceeds of prior
securities offerings.
In December 1999, eB2B concluded a private placement offering of Series B
preferred stock and received gross proceeds of approximately $33.0 million.
Through June 30, 2000, net proceeds of private sales of common stock and
preferred stock totaled $29.9 million.
Net cash used in operating activities totaled approximately $5,164,000 for the
six months ended June 30, 2000 as compared to net cash used in operating
activities of approximately $102,000 for the same period in 1999. Net cash used
in operating activities for the six months ended June 30, 2000 resulted
primarily from the $24,631,000 net loss in the period offset by (i) an aggregate
of $18,339,000 of non-cash charges consisting of depreciation, amortization and
stock-based compensation expense, and (ii) a $1,638,000 increase in accounts
payable mainly attributable to billings from outside contractors working on the
development of the Company's infrastructure necessary to process transactions,
and billings from consultants and outside services in relation with the design
and the implementation of the Company's strategy and management structure.
Net cash provided by investing activities totaled approximately $9,754,000 for
the six months ended June 30, 2000 as compared to net cash used in investing
activities of approximately $186,000 for the same period in 1999. Net cash
provided by investing activities for the six months ended June 30, 2000 resulted
primarily from the $10,987,000 net proceeds from maturity of investments
available-for-sale and the $419,000 net effect of the DWeb and Netlan business
combinations, mainly cash acquired, offset by (i) $1,295,000 in product
development costs consisting of the amortization of fees of outside contractors
and capitalized salaries pursuant to the provisions of Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use", and (ii) the acquisition of capital assets for
$357,000, primarily computer and office equipment.
Net cash provided by financing activities totaled approximately $390,000 for the
six months ended June 30, 2000 as compared to net cash provided by financing
activities of approximately $378,000 for the same period in 1999. In February
2000, eB2B obtained a $2,500,000 term loan from a bank (the "Bank"). The term
loan has a term of three years, is interest-only until December 1, 2000, and
bears interest at a rate equal to LIBOR plus 1%. Beginning December 1, 2000,
the loan requires ten quarterly principal payments of $250,000. The proceeds
from the
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term loan were primarily used to refinance the $2,116,000 debt of Netlan paid by
eB2B in connection with the merger with Netlan. The Company has also obtained a
$6.0 million line of credit with the Bank. No amounts were borrowed under the
line of credit as of June 30, 2000.
The Company anticipates spending approximately $750,000 on capital expenditures
and leasehold improvements over the next twelve months, primarily on technology
infrastructure and improvements on new office space acquired in August 2000. The
Company believes that it has sufficient cash and cash equivalents, combined with
the maturity of investments available-for-sale, primarily treasury bills, to
fund its operating and investing activities for at least the next twelve months.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Refer to the quarterly report on Form 10-QSB for the period ended March 31,
2000.
ITEM 5. OTHER INFORMATION
On August 7, 2000, the Company was notified by NASDAQ that its shares have been
conditionally approved for listing on the NASDAQ Small Cap market for trading
under its current symbol EBTB. The listing is conditioned on the Company's
continued compliance with applicable listing criteria at the time of initial
listing and the filing by the Company of this Form 10-QSB for the quarter ended
June 30, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K
A Form 8-K was filed by the Company on April 25, 2000 with respect to
the completion of the Merger.
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SIGNATURES
In accordance with the requirements of the Securities Exchange
of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
eB2B Commerce, Inc.
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(Registrant)
August 11, 2000 By: /s/ Peter J. Fiorillo
-------------------------
Chief Executive Officer
August 11, 2000 By: /s/ Victor L. Cisario
-------------------------
Chief Financial Officer
