<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended July 31, 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: 000-23384
EBT INTERNATIONAL, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3216243
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
299 Promenade Street, Providence, RI 02908
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(401) 752 - 4400
---------------------------------------------------------------
(Registrant's telephone number, including area code)
Inso Corporation
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(Former name, former address and former fiscal year,
if changed since last report.)
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.
Class Outstanding at September 7, 2000
------------------------------------------ ----------------------------------
Common Stock (par value $.01 per share) 16,692,151
<PAGE>
EBT INTERNATIONAL, INC.
FORM 10-Q INDEX
<TABLE>
<CAPTION>
Page No.
-------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
July 31, 2000 and January 31, 2000 3
Condensed Consolidated Statements of Operations
Three Months Ended July 31, 2000 and 1999 4
Condensed Consolidated Statements of Operations
Six Months Ended July 31, 2000 and 1999 5
Condensed Consolidated Statements of Cash Flows
Six Months Ended July 31, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements 7-14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15-21
Item 3. Quantitative and Qualitative Disclosures About Market Risk 22
Part II. Other Information
Item 1. Legal Proceedings 22-23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 24
</TABLE>
2
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EBT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JULY 31, 2000 AND JANUARY 31, 2000
Unaudited
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
JULY 31, January 31,
2000 2000
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 76,616 $ 31,408
MARKETABLE SECURITIES 2,003 4,602
ACCOUNTS RECEIVABLE, NET OF ALLOWANCES OF $1,587 AND $3,139, RESPECTIVELY 3,142 14,469
RECEIVABLES FROM ASSET SALES 6,316 5,723
PREPAID EXPENSES AND OTHER CURRENT ASSETS 990 2,719
--------- ---------
TOTAL CURRENT ASSETS 89,067 58,921
PROPERTY AND EQUIPMENT, NET 2,800 5,034
PRODUCT DEVELOPMENT COSTS, NET OF ACCUMULATED AMORTIZATION OF $6,920,
AND $11,375, RESPECTIVELY 1,786 10,402
EXCESS OF COSTS OVER NET ASSETS ACQUIRED, NET OF ACCUMULATED AMORTIZATION OF
$0 AND $4,628, RESPECTIVELY -- 2,055
OTHER INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION OF $0 AND $1,860,
RESPECTIVELY -- 1,005
LONG-TERM ACCOUNTS RECEIVABLE 90 877
LICENSED TECHNOLOGY AND ADVANCES, NET 1,251 2,295
--------- ---------
TOTAL ASSETS $ 94,994 $ 80,589
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $ 690 $ 1,295
ACCRUED LIABILITIES 7,799 8,910
ACCRUED SALARIES, COMMISSIONS AND BONUSES 6,518 4,924
UNEARNED REVENUE 1,864 8,205
ROYALTIES PAYABLE AND OTHER CURRENT LIABILITIES 35 131
--------- ---------
TOTAL CURRENT LIABILITIES 16,906 23,465
OTHER LIABILITIES, LONG TERM 1,093 1,235
UNEARNED REVENUE, NON-CURRENT PORTION -- 517
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
PREFERRED STOCK, $.01 PAR VALUE; 1,000,000 SHARES AUTHORIZED; NONE ISSUED
COMMON STOCK, $.01 PAR VALUE; 50,000,000 SHARES AUTHORIZED; 16,914,326 AND
16,588,773 SHARES ISSUED AT JULY 31, 2000 AND JANUARY 31, 2000, RESPECTIVELY 169 165
CAPITAL IN EXCESS OF PAR VALUE 157,293 156,098
ACCUMULATED DEFICIT (79,235) (100,633)
--------- ---------
78,227 55,630
UNAMORTIZED VALUE OF RESTRICTED SHARES (661) --
NOTES RECEIVABLE FROM STOCK PURCHASE AGREEMENTS (200) (200)
TREASURY STOCK, AT COST, 52,375 AND 5,075 SHARES AT JULY 31, 2000 AND
JANUARY 31, 2000, RESPECTIVELY (371) (58)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 76,995 55,372
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 94,994 $ 80,589
========= =========
</TABLE>
See accompanying notes to unaudited condensed consolidated
financial statements.
3
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EBT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JULY 31, 2000 AND 1999
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JULY 31, July 31,
2000 1999
---------- ---------
<S> <C> <C>
REVENUES:
PRODUCT LICENSES $ 3,343 $ 13,218
SERVICES 2,312 6,149
---------- ---------
TOTAL REVENUES 5,655 19,367
COST OF REVENUES:
PRODUCT LICENSES 962 2,915
SERVICES 1,811 3,160
---------- ---------
TOTAL COST OF REVENUES 2,773 6,075
---------- ---------
GROSS PROFIT 2,882 13,292
OPERATING EXPENSES:
SALES AND MARKETING 3,766 6,954
PRODUCT DEVELOPMENT 3,713 7,040
GENERAL AND ADMINISTRATIVE 2,462 5,147
AMORTIZATION OF INTANGIBLE ASSETS 240 1,129
RESTRUCTURING EXPENSES - 6,234
SPECIAL CHARGES - 464
---------- ---------
TOTAL OPERATING EXPENSES 10,181 26,968
---------- ---------
OPERATING LOSS (7,299) (13,676)
NON-OPERATING INCOME (EXPENSE):
NET INVESTMENT AND OTHER INCOME 474 545
GAIN ON SALE OF ASSETS, IED 39,312 -
LOSS ON SALE OF ASSETS, MEDIABANK (3,749) -
OTHER NON-OPERATING INCOME (EXPENSE), NET (267) -
WRITE DOWN OF INVESTMENT IN INFORMATION PLEASE LLC - (2,655)
---------- ---------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 28,471 (15,786)
PROVISION FOR INCOME TAXES 300 77
---------- ---------
NET INCOME (LOSS) * $ 28,171 $ (15,863)
========== =========
INCOME (LOSS) PER COMMON SHARE $ 1.69 $ (1.02)
========== =========
DILUTED INCOME (LOSS) PER COMMON SHARE $ 1.68 $ (1.02)
========== =========
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC 16,673 15,590
DILUTED 16,774 15,590
</TABLE>
* Net income (loss) approximates comprehensive income (loss) for both periods
presented.
See accompanying notes to unaudited condensed consolidated
financial statements.
4
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EBT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 31, 2000 AND 1999
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JULY 31, July 31,
2000 1999
-------- --------
<S> <C> <C>
REVENUES:
PRODUCT LICENSES $ 11,168 $ 19,387
SERVICES 4,777 11,474
-------- --------
TOTAL REVENUES 15,945 30,861
COST OF REVENUES:
PRODUCT LICENSES 2,329 6,025
SERVICES 3,355 6,357
-------- --------
TOTAL COST OF REVENUES 5,684 12,382
-------- --------
GROSS PROFIT 10,261 18,479
OPERATING EXPENSES:
SALES AND MARKETING 8,934 15,553
PRODUCT DEVELOPMENT 7,522 14,994
GENERAL AND ADMINISTRATIVE 6,145 11,392
AMORTIZATION OF INTANGIBLE ASSETS 561 2,490
RESTRUCTURING EXPENSES 1,835 6,715
SPECIAL CHARGES - 3,437
--------- --------
TOTAL OPERATING EXPENSES 24,997 54,581
--------- --------
OPERATING LOSS (14,736) (36,102)
NON-OPERATING INCOME (EXPENSE):
NET INVESTMENT AND OTHER INCOME 1,138 986
GAIN ON SALE OF ASSETS, IED 39,312 -
LOSS ON SALE OF ASSETS, MEDIABANK (3,749) -
OTHER NON-OPERATING INCOME (EXPENSE), NET (267) -
WRITE DOWN OF INVESTMENT IN INFORMATION PLEASE LLC - (2,655)
--------- --------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 21,698 (37,771)
PROVISION FOR INCOME TAXES 300 77
--------- --------
NET INCOME (LOSS) * $ 21,398 $(37,848)
========= ========
INCOME (LOSS) PER COMMON SHARE $ 1.29 $ (2.43)
========= ========
DILUTED INCOME (LOSS) PER COMMON SHARE $ 1.23 $ (2.43)
========= ========
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC 16,635 15,549
DILUTED 17,419 15,549
</TABLE>
* Net income (loss) approximates comprehensive income (loss) for both periods
presented.
See accompanying notes to unaudited condensed consolidated
financial statements.
5
<PAGE>
EBT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JULY 31, 2000 AND 1999
UNAUDITED
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
JULY 31, July 31,
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 21,398 $(37,848)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES:
DEPRECIATION 950 2,241
AMORTIZATION 2,797 7,265
NON-CASH STOCK COMPENSATION EXPENSE 73 -
NON-CASH RESTRUCTURING EXPENSES 196 3,177
WRITE DOWN OF INFORMATION PLEASE LLC - 2,655
GAIN ON SALE OF IED (39,312) -
LOSS ON DISPOSITION OF MEDIABANK 3,749 -
LOSS ON SETTLEMENT OF PRIOR YEAR BUSINESS DISPOSITIONS, NET 267 -
-------- --------
(9,882) (22,510)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
ACCOUNTS RECEIVABLE 5,856 2,283
PREPAID EXPENSES AND OTHER CURRENT ASSETS 1,275 184
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (1,657) 3,515
ACCRUED SALARIES, COMMISSIONS AND BONUSES 101 3,163
OTHER ASSETS AND LIABILITIES (1,994) (1,080)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (6,301) (14,445)
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
PROPERTY AND EQUIPMENT EXPENDITURES (560) (1,185)
CAPITALIZED PRODUCT DEVELOPMENT COSTS (1,138) (1,786)
PAYMENTS RELATED TO 1998 ACQUISITIONS (4,932)
PROCEEDS FROM DISPOSITIONS OF BUSINESSES 50,494 -
NET PROCEEDS FROM SALES OF MARKETABLE SECURITIES 2,599 20,194
-------- --------
NET CASH PROVIDED BY INVESTING ACTIVITIES 51,395 12,291
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
NET PROCEEDS FROM EXERCISE OF STOCK OPTIONS AND OTHER
ISSUANCES OF COMMON STOCK 465 557
PROCEEDS FROM THE PAYMENT OF NOTES RECEIVABLE UNDERLYING
STOCK PURCHASE AGREEMENTS - 296
PAYMENTS FOR PURCHASES OF TREASURY STOCK (313) -
PAYMENTS UNDER CAPITAL LEASE OBLIGATIONS (38) (493)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 114 360
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 45,208
(1,794)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 31,408 9,517
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 76,616 $ 7,723
======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
ISSUANCE OF RESTRICTED STOCK AS EMPLOYEE COMPENSATION $ (734) $ -
</TABLE>
See accompanying notes to unaudited condensed consolidated
financial statements.
6
<PAGE>
EBT INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JULY 31, 2000
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared by eBT International, Inc. formerly known as Inso
Corporation, (the "Company"), in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. All normal and recurring
adjustments that are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods have been included.
Operating results for the three and six-month periods ended July 31, 2000 are
not necessarily indicative of the results that may be expected for any other
interim period, or for the fiscal year ending January 31, 2001.
The balance sheet at January 31, 2000 has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission ("SEC") for the fiscal year ended
January 31, 2000.
Certain amounts in the prior period financial statements have been
reclassified to conform to the current year presentation.
NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities" effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. SFAS 133 provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. In June 1999, the Financial Accounting Standards Board
issued Statement of Accounting Standards No. 137 (SFAS 137), "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133." SFAS No. 137 amended the effective date of SFAS No. 133
for all fiscal quarters of fiscal years beginning after June 15, 2000. In June
2000, the Financial Accounting Standards Board (FASB) issued Statement No. 138
(SFAS 138), "Accounting for Certain Derivative Instruments and Certain Hedging
Activities: an amendment of FASB Statement No. 133". SFAS 138 establishes
accounting and reporting standards for derivative instruments and addresses a
limited number of issues causing implementation difficulties for numerous
entities. We do not believe that the adoption of SFAS 133 and SFAS 138, which we
will adopt no later than February 1, 2001, will have a material effect on our
financial position or results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101.
"Revenue Recognition in Financial Statements," which is effective no later than
the fourth fiscal quarter of our fiscal year ended January 31, 2001. SAB 101
clarifies the SEC's views related to revenue recognition and disclosure. We do
not believe that the adoption of SAB 101 will have a material effect on our
financial position or results of operations.
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequences of various modifications to
the terms of previously fixed stock options or awards; and the accounting for an
exchange of
7
<PAGE>
stock compensation awards in a business combination. FIN 44 is effective July 1,
2000, but certain conclusions in FIN 44 cover specific events that occurred
after either December 15, 1998 or January 12, 2000. The adoption of FIN 44 did
not have a material impact on our financial position or results of operations.
NOTE 3. EARNINGS PER SHARE
Basic earnings per share is calculated based on the weighted average
number of common shares outstanding during the period. Dilutive earnings per
share is calculated using the weighted average number of common shares
outstanding during the period, plus the dilutive effect of potential common
shares which consists of stock options, stock purchase warrants, unissued shares
subscribed under the employee stock purchase plan and unvested shares of
restricted stock.
The following table sets forth the computations of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31, SIX MONTHS ENDED JULY 31,
2000 1999 2000 1999
-------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Basic
Net income (loss) $ 28,171 $(15,863) $ 21,398 $(37,848)
Weighted average shares outstanding 16,673 15,590 16,635 15,549
Income (loss) per common share $ 1.69 $ (1.02) $ 1.29 $ (2.43)
Diluted:
Net income (loss) $ 28,171 $(15,863) $ 21,398 $(37,848)
Weighted average shares outstanding 16,673 15,590 16,635 15,549
Dilutive effect of potential common shares 101 - 784 -
-------- -------- -------- --------
Total diluted weighted average shares 16,774 15,590 17,419 15,549
Income (loss) per common share $ 1.68 $ (1.02) $ 1.23 $ (2.43)
</TABLE>
NOTE 4. COMMITMENTS AND CONTINGENCIES
On February 4, 1999, the Company and certain of its officers were named
as defendants in a purported class action lawsuit filed in the United States
District Court for the District of Massachusetts. Thereafter, six substantially
similar actions were filed in the same Court. On April 5, 1999, the seven class
action lawsuits that were filed against the Company were consolidated into one
lawsuit entitled In Re Inso Corporation, Civil Action No. 99-10193-WGY. These
lawsuits were filed following the Company's announcement on February 1, 1999
that it planned to restate its revenues for the first three quarters of 1998.
The consolidated lawsuit principally claimed that the defendants
violated federal securities laws allegedly by making false and misleading
statements and by failing to disclose material information concerning the
Company's financial performance during the purported class period of April 23,
1998 through March 31, 1999 and sought unspecified damages. The Company and all
of the individual defendants denied any wrongdoing,
On September 29, 1999, the Company entered into an insurance agreement
pursuant to which the insurance carrier assumed complete financial responsibly
for the ultimate resolution of the lawsuit. A net charge to the fiscal year 2000
consolidated results of $13,451,000 was taken in connection with the insurance
agreement. On May 26, 2000, the Company entered into an agreement to settle the
consolidated securities class action. The settlement provides that all claims
against the Company and the individual defendants will be dismissed. In agreeing
to the proposed settlement, the Company and the individual defendants
specifically continue to deny any wrongdoing.
The settlement was preliminarily approved by the Court on May 29, 2000
and is subject to certain other customary conditions, including notice to the
class and final approval by the Court. The Court has scheduled a final approval
hearing for September 14, 2000.
8
<PAGE>
As soon as the Company discovered that it would be necessary to restate
certain of its financial results for the first three quarters of 1998, the
Company immediately and voluntarily provided this information to the U.S.
Securities and Exchange Commission. On June 2, 1999, the Company was informed
that the U.S. Securities and Exchange Commission had issued a Formal Order of
Private Investigation in connection with matters relating to the previously
announced restatement of the Company's 1998 financial results. We cannot predict
the ultimate resolution of this action at this time, and there can be no
assurance that the Formal Order of Private Investigation will not have a
material adverse impact on our financial condition and results of operations.
On June 9, 1999, the bankruptcy estates of Microlytics, Inc. and
Microlytics Technology Co., Inc. (together "Microlytics") filed a complaint
against the Company in the United States Bankruptcy Court for the Western
District of New York. The lawsuit is captioned Microlytics, Inc. and Microlytics
Technology Co., Inc. v. Inso Corporation, Adversary Proceeding No. 99-2177. The
complaint seeks turnover of purported property of the estates and damages for
the Company's alleged breaches of a license from Microlytics relating to certain
computer software databases and other information. The complaint seeks damages
of at least $11,750,000. On August 19, 1999, the Company filed its Answer and
Demand for Jury Trial. Also, on August 19, 1999, the Company filed a motion to
withdraw the case from the Bankruptcy Court to the United States District Court
for the Western District of New York. On December 15, 1999, the United States
District Court granted the Company's motion for the purposes of dispositive
motions and trial. The parties are presently engaging in document discovery and
no depositions have been taken. We believe that the claims are subject to
meritorious defenses, which we plan to assert during the lawsuit. We cannot
predict the ultimate resolution of this action at this time, and there can be no
assurance that the litigation will not have a material adverse impact on our
financial condition and results of operations.
During February 2000, certain shareholders of the Company filed two
putative class action lawsuits against the Company and certain of the Company's
officers and employees in the United States District Court for the District of
Massachusetts. The lawsuits are captioned as follows: Liz Lindawati, et al. v.
Inso Corp., et al., Civil Action No. 00-CV-10305GAO; Group One Limited, et al.
v. Inso Corp., et al., Civil Action No. 00-CV-10318GAO. These lawsuits were
filed following our preliminary disclosure of revenues for the fiscal year 2000
fourth quarter on February 1, 2000. Both complaints assert claims for violations
of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 of the
Securities and Exchange Commission, as well as a claim for violation of Section
20(a) of the Exchange Act. The plaintiffs allege that the defendants prepared
and issued deceptive and materially false and misleading statements to the
investing public. They seek unspecified damages. We believe that the claims are
subject to meritorious defenses, which we plan to assert during the lawsuit. We
cannot predict the ultimate resolution of these actions at this time, and there
can be no assurance that the litigation will not have a material adverse impact
on our financial condition and results of operations.
NOTE 5. DIVESTITURES
Sale of Information Exchange Division
On July 10, 2000, the Company sold its Information Exchange Division
("IED") to IntraNet Solutions, Inc. ("IS") for a stated sale price of
$55,000,000, less amounts for retained rights under license and subject to
adjustment based on the net working capital of the IED business on the closing
date. The transaction was in the form of a merger of two wholly owned
subsidiaries of IS with the Company's subsidiaries Inso Chicago Corporation and
Inso Kansas City Corporation, which generally comprised the IED business. We
received $48,000,000 of the proceeds in cash at the time of the closing. An
additional $5,500,000 has been placed in an escrow account, and, subject to our
indemnification obligations under the agreement, shall be released to us on the
first anniversary of the closing date. The net gain from the transaction was
$39,312,000. The transaction created a capital gain for tax purposes, which will
be offset by capital losses generated in prior periods, for federal tax
reporting. We have provided for estimated state tax liabilities in connection
with the transaction.
We expect to make a net payment approximating up to $1,100,000 to IS,
in final settlement of the net working capital requirement, under the terms of
the agreement. Also, we may incur additional liabilities to certain former
employees of the IED division. Any amounts due to former employees are
contingent upon future termination, and the amounts are dependent on the date of
termination and on our stock price at a future date. As of July 31, 2000, the
Company has accrued the anticipated working capital deficit and all amounts that
would be due to the certain former employees had terminations occurred as of
that date. Additional contingent amounts that may be due cannot be reasonably
estimated at this time.
9
<PAGE>
Sale of MediaBank
In June 2000, we sold our MediaBank product line, which was formerly a
component of the eBusiness Technologies ("eBT") division, for contingent future
consideration of up to $2,000,000. As the consideration is contingent, no
proceeds were recorded on the sale, and a loss on the disposition of the net
assets of the MediaBank business in the amount of $3,749,000 was charged against
income in connection with the transaction. The majority of the charge,
approximately $3,500,000, was a non-cash charge related to licensed technology
that was sold, while approximately $400,000 related to severance and
professional fees incurred as a result of the transaction. These amounts were
partially offset by the liabilities assumed by the buyer.
Sale of DynaText
On October 29, 1999, we sold our DynaText/DynaWeb stand-alone technical
document-publishing component of our Product Data Management ("PDM") Division,
along with our ViewPort browser technology assets, for $14,750,000. The sale was
in the form of a stock purchase by Enigma Information System Ltd. and its
subsidiary, Enigma Information Retrieval Systems, Inc., (collectively "Enigma")
of all of the outstanding stock of two wholly owned subsidiaries of the Company,
Inso Providence Corporation and ViewPort Development AB. In connection with the
disposition, we retained the accounts receivable directly associated with the
DynaText/DynaWeb and ViewPort browser technologies. The proceeds of the sale
were $9,000,000 in cash and $5,750,000 in the form of a promissory note, due and
payable by April 30, 2000. The promissory note was secured by a Stock Pledge
Agreement of the stock of Inso Providence Corporation. In connection with this
transaction, we recorded direct transaction costs and other accruals for costs
directly associated with the sale. As a result, we reported a gain of
$14,549,000 in the quarter ended October 31, 1999. The transaction created a
capital loss for federal tax purposes, which will be carried forward to future
periods.
On January 27, 2000 the Company and Enigma amended their agreement and
related promissory note. Enigma paid $4,500,000 in cash to us and deposited
$1,200,000 into an interest bearing escrow account, with payment to us of the
escrowed funds to occur following completion of the post-closing audit, subject
to adjustment based upon receipt of certain customer receivables. In return, we
released the security for the promissory note. In July 2000, we received
approximately $909,000 of the escrow, after certain adjustments, in final
settlement of all purchase price amounts due from Enigma. In connection with
this settlement, during the second quarter of fiscal 2001, we adjusted the
carrying amounts of certain assets and liabilities, and recorded an additional
gain of approximately $370,000. The gain is included in the "other non operating
income (expense), net" caption in the accompanying statements of operations.
Sale of PDM Division
On January 5, 2000, we sold the remaining interest in our PDM Division
to Structural Dynamics Research Corporation ("SDRC") for $6,000,000 in cash plus
assumption of liabilities. The transaction was in the form of a stock purchase
of all of the outstanding stock of the Company's subsidiaries Sherpa Systems
Corporation, and Inso France Development S.A. (formerly AIS Software, S.A.). The
proceeds received from the sale totaled $5,000,000 in cash at the time of the
closing, and $1,000,000 was placed in a supplemental closing fund to be paid no
later than 90 days after the first anniversary of the closing date. The selling
price was subject to adjustment based on the net worth of the business at
closing. After direct transaction costs, the loss on the sale of PDM was
$2,337,000. The transaction created a capital loss for federal tax purposes,
which will be carried forward to future periods. The net worth of the business
on the closing balance sheet, as agreed to by SDRC and the Company in July 2000,
net of certain other adjustments negotiated between the Company and SDRC,
resulted in an additional receipt from SDRC of approximately $2,696,000, in
final settlement of the net worth balances. This amount was received in July
2000. In connection with this settlement, during the second quarter of fiscal
2001, we adjusted the carrying amounts of
10
<PAGE>
certain assets and liabilities, and recorded an additional loss of approximately
$637,000. The loss is included in the "other non operating income (expense),
net" caption in the accompanying statements of operations.
NOTE 6. RESTRUCTURING EXPENSES
On April 11, 2000, we adopted a restructuring plan under which we would
focus our energies on our eBusiness Technologies' ("eBT") Web Content Management
and Workflow product line, and pursue divestiture of certain assets, including
the Information Exchange Division. The plan included the consolidation of our
Boston, Massachusetts' headquarters into the Providence, Rhode Island offices of
our eBT division. In connection with this reorganization, approximately 18
administrative employees and four executive officers were terminated or resigned
in May 2000. As a result of this plan, we recorded a charge of $1,930,000 for
severance costs in the first quarter of fiscal 2001. The charge was reduced by
net proceeds to be received on the disposal of certain fixed assets located at
the Boston headquarters in connection with the move. As of July 31, 2000,
accrued liabilities of approximately $1,399,000 remain relating to this
restructuring charge. The activity impacting the accrual related to
restructuring charges from the date of the charge until July 31, 2000 is
summarized in the following table:
<TABLE>
<CAPTION>
ACCRUAL BALANCE PAYMENTS ACCRUAL BALANCE
APRIL 30, 2000 MADE JULY 31, 2000
-------------- --- -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Cash charges:
Severance for administrative positions............................ $1,930 $531 $1,399
</TABLE>
We incurred $481,000 in restructuring expenses in the first quarter of
the fiscal year ended January 31, 2000 ("fiscal 2000") relating to the closure
of our Kansas City location, primarily for severance for 11 terminated
employees. The entire balance was paid in full during fiscal 2000.
As of July 31, 2000, we had an accrual of approximately $196,000
related to our July 1999 restructuring plan, which was aimed at reducing then
current operating costs, as well as supporting our then-new divisional
structure. This restructuring plan included a work force reduction of 105
employees, including 10 executives or managers, the closure and/or combination
of domestic and international sales and administrative facilities and the
abandonment of leasehold improvements and support assets associated with these
locations, as well as a change in focus away from certain products. As a result
of the restructuring plan, we recorded an initial charge of $6,234,000 to the
fiscal 2000 second quarter results, which was subsequently adjusted in the
fourth quarter, increasing the total charge to $6,390,000. After the fourth
quarter adjustment, approximately $3,093,000 of this charge represented non-cash
write-downs of capitalized product development costs and intangibles for
discontinued products and support assets located at closed facilities.
Approximately $2,372,000 was for severance for employees in administrative,
sales and development positions and $925,000 was related to the closure or
combination of domestic and international administrative and sales facilities.
The activity impacting the accrual related to restructuring charges during the
six months ended July 31, 2000 is summarized in the following table:
<TABLE>
<CAPTION>
ACCRUAL BALANCE PAYMENTS ACCRUAL BALANCE
JANUARY 31, 2000 MADE JULY 31, 2000
---------------- ---- -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Cash charges:
Severance for administrative, sales and development positions..... $214 $78 $136
Closure/combination of domestic and international administrative
and sales facilities........................................... 192 132 60
--- --- --
Total............................................................. $406 $210 $196
==== ==== ====
</TABLE>
As of July 31, 2000, we had an accrual of approximately $267,000
related to our October 1999 plan of restructuring, which was aimed at reducing
then-current operating costs at our PDM division. The restructuring plan
included a PDM workforce reduction of 51 employees, including 9 executives or
managers, the consolidation of the PDM division's sales, service and support
organizations, the consolidation of PDM development facilities and the
abandonment of leasehold improvements and support assets associated with these
locations. The plan also called
11
<PAGE>
for a change in focus away from certain development activities. As a result of
the restructuring plan, we recorded an initial charge of $4,290,000 to the
fiscal 2000 third quarter results, which was subsequently adjusted in the fourth
quarter, decreasing the total charge to $4,198,000. After the fourth quarter
adjustment, approximately $2,312,000 of this charge represented non-cash write-
downs of licensed technology for discontinued products and support assets
located at closed facilities. Approximately $1,396,000 was for severance for
employees in administrative, sales and development positions and $490,000 was
related to the consolidation of facilities. The activity impacting the accrual
related to restructuring charges during the six months ended July 31, 2000 is
summarized in the following table:
<TABLE>
<CAPTION>
ACCRUAL BALANCE PAYMENTS ACCRUAL BALANCE
JANUARY 31, 2000 MADE JULY 31, 2000
---------------- ---- -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Cash charges:
Severance for administrative, sales and development positions. $630 $363 $267
</TABLE>
NOTE 7. SPECIAL CHARGES
As of July 31, 2000, we had an accrual of approximately $1,897,000
related to the special charges incurred during fiscal 2000. For the fiscal year
ended January 31, 2000, we incurred $28,103,000 of special charges, $3,437,000
of which was recorded in the six months ended July 31, 1999. Of the total amount
incurred during the first six months of fiscal 2000, approximately $1,120,000
related to professional fees incurred in connection with the Company's
investigation of errors and irregularities and restatement of its 1998 financial
results and approximately $2,320,000 related to severance and other costs
incurred for certain executive, management, and other staff terminations or
resignations.
Included in the total special charges for the full year of fiscal 2000
were $1,527,000 in professional fees, $13,451,000 for net premium costs and
related professional advisory fees for a major insurance carrier to assume
financial risk associated with the class action litigation initiated against the
Company in February 1999, as well as $2,320,000 for severance costs of certain
employees who were terminated or resigned. Additionally, approximately
$10,805,000 of the special charges related to the write-down of intangible
assets and capitalized software costs, substantially all attributable to the PDM
division, to their estimated fair values. The activity impacting the accrual
related to this charge during the six months ended July 31, 2000 is summarized
in the following table:
<TABLE>
<CAPTION>
ACCRUAL BALANCE PAYMENTS ACCRUAL BALANCE
JANUARY 31, 2000 MADE JULY 31, 2000
---------------- ---- -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Cash charges:
Professional fees associated with restatement of 1998 results,
lawsuits and SEC investigation.................................. $500 $205 $295
Net insurance premiums and other costs related to class action
litigation initiated against the Company in February 1999 ...... 1,000 - 1,000
Severance for certain executive, management and other staff........ 1,072 470 602
----- --- ---
Total.............................................................. $2,572 $675 $1,897
====== ==== ======
</TABLE>
NOTE 8. OPERATIONS BY INDUSTRY SEGMENT
We operated in the following operating segments in fiscal 2000: Product
Data Management ("PDM"), eBusiness Technologies ("eBT"), and Information
Exchange ("IED"). We operated in the eBT and IED segments in fiscal 2001,
through July 10, 2000. Each of the identified operating segments disclosed
represents the divisions for which we have managed. We evaluate performance and
allocate resources based on profit and loss before special charges, income
taxes, certain administrative expenses, and interest earned on our investments.
The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies in our Annual Report
on Form 10-K. Effective with the sale of the IED business on July 10, 2000 (see
Note
12
<PAGE>
5), we now operate in only one segment, eBT. The results of the MediaBank
product line, which was sold in June 2000 (see Note 5), are included in the eBT
segment results through the date of sale.
The PDM segment information below for the prior year period includes
the operations of the DynaText/DynaWeb and ViewPort browser technologies sold to
Enigma on October 29, 1999 (see Note 5). The balance of the PDM division was
sold effective January 5, 2000 (see Note 5). The IED segment information below
is for the periods through July 10, 2000, the date of the sale of the IED
business (see Note 5).
Each segment's profit and loss for the three and six months ended July
31, 2000 and 1999, reflects all income and losses, except for the items shown in
the reconciliation information below.
Segment Disclosure
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31, 2000
-------------------------------------
EBT IED TOTALS
----- ---- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Revenues from external customers........................................ $3,140 $2,515 $5,655
Depreciation and amortization expense................................... 899 739 1,638
Segment profit (loss)................................................... (5,948) (730) (6,678)
Segment assets.......................................................... 8,683 - 8,683
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31, 1999
--------------------------------
EBT IED PDM TOTALS
--- --- ----- ------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Revenues from external customers.................................... $2,812 $7,744 $8,811 $19,367
Depreciation and amortization expense............................... 1,138 1,109 1,815 4,062
Segment profit (loss)............................................... (4,627) 2,925 (1,623) (3,325)
Segment assets...................................................... 13,749 48,230 45,753 107,732
Segment Disclosure
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JULY 31, 2000
------------------------------------
EBT IED TOTALS
--- --- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Revenues from external customers........................................ $7,560 $8,385 $15,945
Depreciation and amortization expense................................... 1,921 1,624 3,545
Segment profit (loss)................................................... (10,133) 27 (10,106)
Segment assets.......................................................... 8,683 - 8,683
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JULY 31, 1999
------------------------------
EBT IED PDM TOTALS
--- --- ---- ------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Revenues from external customers.................................... $3,525 $13,110 $14,226 $ 30,861
Depreciation and amortization expense............................... 2,246 2,057 3,963 8,266
Segment profit (loss)............................................... (11,342) 3,304 (8,565) (16,603)
Segment assets...................................................... 13,749 48,230 45,753 107,732
</TABLE>
13
<PAGE>
Reconciliation Information
Profit or loss
--------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31,
---------------------------
2000 1999
---- ----
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Total external loss for reportable segments............................................ $(6,678) $(3,325)
Restructuring expenses................................................................. - (6,234)
Special charges........................................................................ - (464)
Net investment income.................................................................. 474 467
Write down of investment in Information Please LLC..................................... - (2,655)
Gain on sale of IED business........................................................... 39,312 -
Loss on disposition of MediaBank business.............................................. (3,749) -
Other income (expense)................................................................. (267) -
Unallocated corporate and other income (expense)....................................... (621) (3,575)
-------------- -----------
Consolidated income (loss) before provision for income taxes........................... $28,471 $(15,786)
============ ===========
<CAPTION>
SIX MONTHS ENDED JULY 31,
-------------------------
2000 1999
---- ----
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Total external loss for reportable segments............................................ $(10,106) $(16,603)
Restructuring expenses................................................................. (1,835) (6,715)
Special charges........................................................................ - (3,437)
Net investment income.................................................................. 1,138 906
Write down of investment in Information Please LLC..................................... - (2,655)
Gain on sale of IED business........................................................... 39,312 -
Loss on disposition of MediaBank business.............................................. (3,749) -
Other income (expense)................................................................. (267) -
Unallocated corporate and other expenses............................................... (2,795) (9,267)
------------- -----------
Consolidated loss before provision for income taxes.................................... $21,698 $(37,771)
============ ===========
</TABLE>
NOTE 9. SUBSEQUENT EVENTS
On August 28, 2000, we issued a press release announcing that we have
changed our name from Inso Corporation to eBT International, Inc. and will
continue to do business under the name eBusiness Technologies. Our stock now
trades under the ticker symbol "EBTI" on the NASDAQ national market.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Review of Recent Transactions
-----------------------------
In July 2000, we completed the divestiture of our non-core assets, which was
originally announced in April 2000. Between October 1999 and July 2000, we
divested of our former Product Data Management ("PDM") division, our Information
Exchange Division ("IED") and our MediaBank product line ("MediaBank"). Our
ongoing operations are comprised of our DynaBase family of web content
management technologies and related services, and are run under the name
eBusiness Technologies ("eBT"). MediaBank was previously a component of the eBT
division. All references to eBT in this narrative exclude the MediaBank results.
References to "divested businesses" include PDM, IED and MediaBank.
As a result of the divestitures that have taken place over the past 12 months,
and the restructuring that took place in the first quarter of fiscal 2001, the
corporate function has been substantially reduced, and absorbed into the
operations of eBT. Also, since we expect to operate in only one division
beginning in the third quarter, these corporate costs are more directly related
to the operations of eBT, beginning in the second quarter of fiscal 2001, when
the decision was made to operate under this new structure. Prior to the second
quarter of fiscal 2001, we operated in several segments, and the Company was
structured differently to accommodate this diversity. Consequently, certain
corporate costs, which have historically been excluded from our divisional and
segment discussions in this section, are now included in the eBT results,
beginning in the second quarter of fiscal 2001, in all of the discussion
presented below. Due to the significant changes that have taken place in the
Company since July 1999, we believe that attempts to allocate a portion of the
prior year corporate related expenses among the segments is not meaningful, and
therefore, no such allocations have been included in the discussion presented
below, for any periods prior to the second quarter of fiscal 2001.
Three Months Ended July 31, 2000 Compared to Three Months Ended July 31, 1999
-----------------------------------------------------------------------------
Revenues for the three months ended July 31, 2000 totaled $5,655,000, a decrease
of $13,712,000, or 71%, from the $19,367,000 reported for the three months ended
July 31, 1999, primarily due to the divestitures since October 1999, and also
due to continued declines of IED's Quick View Plus ("QVP") product sales to
corporate customers. Total revenues for the fiscal quarter ended July 31, 2000
included revenues of $2,725,000 from businesses that were divested in fiscal
2001. Total revenues for the fiscal quarter ended July 31, 1999 included
revenues of $8,392,000 and $8,811,000 from businesses that were divested in
fiscal 2001 and fiscal 2000, respectively. Excluding the revenues associated
with the divested businesses, net revenues of eBT increased by approximately
$766,000, or 35%, to $2,930,000 for the three months ended July 31, 2000 from
$2,164,000 for the three months ended July 31, 1999. The increase was comprised
of growth in service revenue, partially offset by a decline in product revenue.
Growth in service revenue trails growth in product sales, as services are
provided following product sales. The current quarter increase in service
revenues can therefore be related to the growth in product sales in the first
quarter of fiscal 2001 over the first quarter of fiscal 2000. The decline in
product sales from the prior year quarter is a result of a transition to the
newly released engenda product from the DynaBase product line, and also due to
turnover in our product sales force. During the current year quarter, we
acquired nine new eBT customers and licensed additional technology and services
to 15 existing customers.
Gross profit decreased $10,410,000, or 78%, from $13,292,000 for the three
months ended July 31, 1999 to $2,882,000 for the three months ended July 31,
2000 primarily due to the divestitures and also due to the declining revenues of
IED, which were not offset by corresponding declines in direct costs. Excluding
the gross profit associated with the divested businesses, eBT gross profit
decreased $291,000, or 26%, from $1,099,000 for the three months ended July 31,
1999, to $808,000 for the three months ended July 31, 2000. Gross profit for
eBT, as a percentage of revenues, was 28% for the three months ended July 31,
2000, compared to 51% for the three months ended July 31, 1999. The change in
revenue does not always result in a corresponding change in associated direct
costs, which include the personnel costs associated with service revenues. Our
service revenues generally contribute a lower margin than product revenues.
15
<PAGE>
Total operating expenses decreased $16,787,000, or 62%, to $10,181,000 for the
three months ended July 31, 2000, from $26,968,000 for the three months ended
July 31, 1999. Included in total operating expenses for the three months ended
July 31, 1999 were restructuring charges of $6,234,000 for the July 1999
restructuring initiative aimed at reducing operating costs, and special charges
of $464,000, for costs relating to the restatement of our financial results for
the first three quarters of 1998. Excluding the aforementioned charges and the
operating expenses associated with the divested businesses, eBT operating
expenses increased $2,157,000, or 49%, to $6,599,000 for the three months ended
July 31, 2000 as compared to $4,442,000 for the three months ended July 31,
1999. As a percentage of eBT revenue, total eBT operating expenses were 205% in
the three months ended July 31, 1999, as compared to 225% for the three months
ended July 31, 2000. These increases relate primarily to increased sales and
marketing costs, and to increased general and administrative costs. As discussed
previously, for the second quarter of fiscal 2001, certain recurring operating
expenses formerly associated with the corporate function located in Boston,
Massachusetts are now included in the eBT results. In total, cost savings
generated at the corporate level from the actions taken in the first and second
quarters of fiscal 2000 (see Notes 6 and 7) and the first quarter of fiscal
2001, combined with the divestitures of PDM and IED, more than offset the
increases in eBT expenses, resulting in the overall decrease in operating
expenses.
Sales and marketing expenses decreased $3,188,000, or 46%, to $3,766,000 for the
three months ended July 31, 2000 from $6,954,000 for the three months ended July
31, 1999, primarily due to the divestitures and to decreased compensation
related expenses of IED resulting from the decrease in IED sales. Excluding the
sales and marketing expenses associated with the divested businesses, eBT sales
and marketing expenses increased $967,000, or 56%, for the three months ended
July 31, 2000 as compared to the three months ended July 31, 1999. Sales and
marketing expenses for eBT were 92% of related revenues for the three months
ended July 31, 2000 compared to 80% for the three months ended July 31, 1999.
The increase in eBT sales and marketing expenses reflects our continued
investment in growing the eBT business, primarily through expanded marketing
campaigns. Increased sales and marketing expenses in the eBT division were more
than offset by decreases in sales and marketing expenses in the IED division for
the same periods, combined with the impact of the divestiture of PDM. IED sales
and marketing expenses for the three months ended July 31, 2000 do not represent
expenses of a full quarter.
Product development expenses decreased $3,327,000, or 47%, from $7,040,000 for
the three months ended July 31, 1999 to $3,713,000 for the three months ended
July 31, 2000, primarily due to the divestitures of PDM, IED and Mediabank.
Excluding the product development expenses associated with the divested
businesses, product development expenses increased by $296,000, or 16%, for the
three months ended July 31, 2000 compared to the three months ended July 31,
1999. The increase was due primarily to increased headcount to support new
product development initiatives. Product development expenses of eBT were 75% of
eBT revenues for the three months ended July 31, 2000 compared to 80% of eBT
revenues for the three months ended July 31, 1999. The decrease in product
development expenses as a percentage of revenues was due primarily to the
increased sales generated by eBT, which increased at a faster rate than the
increase in development expenses.
General and administrative expenses decreased $2,685,000, or 52%, to $2,462,000
for the three months ended July 31, 2000 compared to $5,147,000 for the three
months ended July 31, 1999, primarily due to the divestitures of PDM and IED and
to cost savings related to reductions in personnel and facilities following the
fiscal 2000 and 2001 restructuring actions. Excluding the administrative
expenses associated with the divested businesses, eBT general and administrative
expenses increased $894,000, or 108%, for the three months ended July 31, 2000
compared to the three months ended July 31, 1999. General and administrative
expenses, excluding the expenses and revenues associated with the divested
businesses, were 59% of revenues for the three months ended July 31, 2000 and
38% of revenues for the three months ended July 31, 1999. These increases are
primarily related to the inclusion of expenses formerly considered corporate
unallocated expenses in eBT's second quarter results for fiscal 2001. The prior
year eBT expenses do not include any corporate related expenses. The total of
corporate related general and administrative expenses included in eBT results
was $703,000 for the three months ended July 31, 2000.
In June 2000, we sold the MediaBank product line, which was formerly a component
of the eBT division, for contingent future consideration of up to $2,000,000. As
the consideration is contingent, we did not record any
16
<PAGE>
proceeds on the sale, and we wrote off the net assets of the MediaBank business,
taking a charge of $3,749,000 in connection with the transaction. The majority
of the charge, approximately $3,500,000, was a non-cash charge related to
licensed technology that was sold, while approximately $400,000 related to
severance and professional fees incurred on the transaction. These amounts were
partially offset by the liabilities assumed by the buyer.
On July 10, 2000, we sold our IED division for a stated sale price of
$55,000,000, less amounts for retained rights under license and subject to
adjustment based on the net working capital of the IED business on the closing
date. We expect to make a net payment approximating up to $1,100,000 to IntraNet
Solutions, Inc. ("IS"), the acquiror, during the third quarter of fiscal 2001,
in final settlement of the net working capital requirement, under the terms of
the agreement. The sale transaction was in the form of a merger of two wholly
owned subsidiaries of IS with our subsidiaries, Inso Chicago Corporation and
Inso Kansas City Corporation, which comprised the IED business. We received
$48,000,000 of the proceeds in cash at the time of the closing. An additional
$5,500,000 has been placed in an escrow account, and, subject to our
indemnification obligations under the agreement, shall be released to us on the
first anniversary of the closing date. The net gain from the transaction was
$39,312,000. The transaction created a capital gain for federal income tax
purposes, essentially all of which is offset by the capital loss carryforwards
generated in prior years.
As a result of net operating losses incurred in prior periods, and after
evaluating the Company's anticipated performance over its normal planning
horizon, we have provided a full valuation allowance for our net operating loss
carryforwards and other net deferred tax assets for federal tax purposes as of
July 31, 2000. We have estimated that the tax gain generated from the sale of
IED, almost all of which will be characterized as capital, will be offset, for
federal tax purposes, by our capital loss carryforwards of approximately
$46,000,000. However, the transaction is expected to generate a small state tax
liability, as some states do not provide for the same utilization of net
operating loss and capital loss carryforwards as the federal tax rules allow.
Additionally, the Company generates taxable income in many of the foreign
jurisdictions in which it transacts business. Accordingly, we have recorded a
tax provision of $300,000 in the quarter ended July 31, 2000, for state and
foreign income tax liabilities, as compared to a provision of $77,000 in the
comparable prior year quarter.
Net income and diluted income per share were $28,171,000 and $1.68,
respectively, for the three months ended July 31, 2000 as compared to net loss
and diluted loss per share of $15,863,000 and $1.02, respectively, for the three
months ended July 31, 1999. Excluding the restructuring and special charges for
both the fiscal 2001 and 2000 second quarters, as well as the results of the
divested business for both periods, net loss and net loss per share would have
been $5,617,000 and $0.34 per share, respectively, for the quarter ended July
31, 2000 and $2,875,000 and $0.18 per share, respectively, for the quarter ended
July 31, 1999.
Six Months Ended July 31, 2000 Compared to Six Months Ended July 31, 1999
-------------------------------------------------------------------------
Revenues for the six months ended July 31, 2000 totaled $15,945,000, a decrease
of $14,916,000, or 48%, from the $30,861,000 reported for the six months ended
July 31, 1999, primarily due to the divestitures since October 1999, and also
due to continued declines of IED's QVP product sales to corporate customers.
Total revenues for the six months ended July 31, 2000 included revenues of
$9,081,000 from business that were divested in fiscal 2001. Total revenues for
the six months ended July 31, 1999 included revenues of $14,048,000 and
$14,226,000 from business that were divested in fiscal 2001 and fiscal 2000,
respectively. Excluding the revenues associated with the divested businesses,
net revenues of eBT increased by approximately $4,278,000, or 165%, for the six
months ended July 31, 2000 compared to the six months ended July 31, 1999. For
the six month period, service revenue contributed 65% of the increase in
revenue, while product revenue accounted for the remaining 35% of the increase.
Growth in service revenue trails the growth in product revenue, as services are
offered following product sales. The slower growth in product sales reflects the
impact of the second quarter product transition to the newly released engenda
product, from the DynaBase product line, and also due to turnover in our sales
force. During the current year six-month period, we acquired 18 new eBT
customers and licensed additional technology and services to 32 existing
customers.
Gross profit decreased $8,218,000, or 45%, from $18,479,000 for the six months
ended July 31, 1999 to $10,261,000 for the six months ended July 31, 2000
primarily due to the divestitures and also due to the declining
17
<PAGE>
revenues of IED, which were not offset by corresponding declines in direct
costs. Excluding the gross profit associated with the divested businesses, eBT
gross profit increased $2,429,000, or 405%, from $600,000 for the six months
ended July 31, 1999 to $3,029,000 for the six months ended July 31, 2000. Gross
profit as a percentage of revenues for eBT was 44% for the six months ended July
31, 2000, compared to 23% for the six months ended July 31, 1999. The increase
in gross profit percentage in the first six months of fiscal 2001 was largely
due to the increased eBT sales, which increased at a greater rate than
associated costs, and thereby resulted in improved gross margins on both product
and service revenues for the first six months of fiscal 2001.
Total operating expenses decreased $29,584,000, or 54%, to $24,997,000 for the
six months ended July 31, 2000, from $54,581,000 for the six months ended July
31, 1999. Included in total operating expenses for the six months ended July 31,
2000 were net restructuring charges of $1,835,000 for costs associated with the
consolidation and closure of our Boston headquarters. Included in total
operating expenses for the six months ended July 31, 1999 were restructuring
charges of $6,715,000 for the closure of our Kansas City office and for the July
1999 restructuring action aimed at reducing operating costs, and special charges
of $3,437,000, for costs relating to the restatement of our financial results
for the first three quarters of 1998 and for the termination or resignation of
certain employees. Excluding the aforementioned charges and the operating
expenses associated with the divested businesses, eBT operating expenses
increased $2,818,000, or 31%, to $11,891,000 for the six months ended July 31,
2000 as compared to $9,073,000 for the six months ended July 31, 1999. The
increase relates primarily to increased sales and marketing expenses and to
increased general and administrative expenses. As described in the discussion of
results for the three month period, certain corporate related expenses have been
included in the eBT results for three of the six months in the current year
period, contributing to the increase in eBT expenses. Cost savings generated at
the corporate level from the actions taken in the first and second quarters of
fiscal 2000 (see Notes 6 and 7) and the first quarter of fiscal 2001, combined
with the divestitures of PDM and IED, more than offset the increase in eBT
expenses.
Sales and marketing expenses decreased $6,619,000, or 43%, to $8,934,000 for the
six months ended July 31, 2000 from $15,553,000 for the six months ended July
31, 1999. Excluding the sales and marketing expenses associated with the
divested businesses, sales and marketing expenses increased $1,715,000, or 49%,
for the six months ended July 31, 2000 as compared to the six months ended July
31, 1999. The increase in eBT sales and marketing expenses reflects our
continued investment in growing the eBT business. Excluding the sales and
marketing expenses and revenues associated with the divested businesses, sales
and marketing expenses were 76% of revenues for the six months ended July 31,
2000 compared to 136% for the six months ended July 31, 1999, again reflecting
the impact of the increase in revenue, paired with slower growth in the
associated costs. Increased sales and marketing expenses of eBT were more than
offset by savings from restructuring actions taken in the first and second
quarters of fiscal 2000 and the first quarter of fiscal 2001, and the
divestiture of PDM.
Product development expenses decreased $7,472,000, or 50%, from $14,994,000 for
the six months ended July 31, 1999 to $7,522,000 for the six months ended July
31, 2000, primarily due to the PDM and IED divestitures. Excluding the product
development expenses associated with the divested businesses, product
development expenses decreased by $121,000, or 3%, for the six months ended July
31, 2000 compared to the six months ended July 31, 1999. Product development
expenses, excluding the product development expenses and revenues associated
with the divested businesses, were 57% of revenues for the six months ended July
31, 2000 compared to 157% of revenues for the six months ended July 31, 1999.
The decrease in product development expenses as a percentage of revenues was due
primarily to the substantial increase in sales, paired with a small decline in
costs.
General and administrative expenses decreased $5,247,000, or 46%, to $6,145,000
for the six months ended July 31, 2000 compared to $11,392,000 for the six
months ended July 31, 1999. Excluding the administrative expenses associated
with the divested businesses, general and administrative expenses increased
$1,224,000, or 81%, for the six months ended July 31, 2000 compared to the six
months ended July 31, 1999. This increase is primarily related to the inclusion
of expenses formerly considered corporate unallocated expenses in eBT's second
quarter results for fiscal 2001. The prior year presentation has not been
restated to reflect an allocation of corporate expenses, as the structure of the
Company was so different at that time, that we believe such an allocation would
not be meaningful. The total of corporate related general and administrative
expenses included in eBT results was $703,000 for the six
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months ended July 31, 2000. General and administrative expenses, excluding the
expenses and revenues associated with the divested businesses, were 40% of
revenues for the six months ended July 31, 2000 and 58% of revenues for the six
months ended July 31, 1999. The increase in general and administrative expenses
did not match the increase in revenues for the six-month period, resulting in
the decrease in the ratio of expenses to revenue. The decrease in remaining
total general and administrative expenses was primarily due to cost savings
related to reductions in personnel and facilities following the fiscal 2000 and
2001 restructuring actions and the divestiture of PDM.
The restructuring charge reported in the six months ended July 31, 2000 relates
to the April 2000 restructuring plan, under which we began to focus our energies
on eBT's Web Content Management and Workflow product line, and pursue
divestiture of certain assets, including IED. The plan included the
consolidation of our Boston headquarters into the Providence, Rhode Island
offices of the eBT division. In connection with this reorganization,
approximately 18 administrative employees and four executive officers were
terminated or resigned in May 2000. As a result of this plan, we recorded a net
charge of $1,835,000 in the first quarter of fiscal year ending January 31,
2001. The charge was comprised primarily of severance for those employees. This
restructuring action was estimated to generate annualized cost savings of
approximately $4 million from the level of expenses incurred at the time of the
restructuring.
In June 2000, we sold the MediaBank product line, taking a charge of $3,749,000
in connection with the transaction, as previously discussed. On July 10, 2000,
we sold our IED division, and recorded a net gain from the transaction of
$39,312,000, as previously discussed.
As a result of net operating losses incurred in prior periods, and after
evaluating the Company's anticipated performance over its normal planning
horizon, we have provided a full valuation allowance for our net operating loss
carryforwards and other net deferred tax assets for federal tax purposes as of
July 31, 2000. We have estimated that the tax gain generated from the sale of
IED, almost all of which will be characterized as capital, will be offset, for
federal tax purposes, by our capital loss carryforwards of approximately
$46,000,000. However, the transaction is expected to generate a small state tax
liability, as some states do not provide for the same utilization of net
operating loss and capital loss carryforwards as the federal tax rules allow.
Additionally, the Company generates taxable income in many of the foreign
jurisdictions in which it transacts business. Accordingly, we have recorded a
tax provision of $300,000 in the six months ended July 31, 2000, for state and
foreign income tax liabilities, as compared to a provision of $77,000 in the
comparable prior year period.
Net income and diluted income per share were $21,398,000 and $1.23,
respectively, for the six months ended July 31, 2000 as compared to net loss and
diluted loss per share of $37,848,000 and $2.43, respectively, for the three
months ended July 31, 1999. Excluding the restructuring and special charges for
both the fiscal 2001 and 2000 six month periods, as well as the results of the
divested business for both periods, net loss and net loss per share would have
been $4,937,000 and $0.30 per share, respectively, for the six months ended July
31, 2000 and $11,589,000 and $0.75 per share, respectively, for the six months
ended July 31, 1999.
Liquidity and Capital Resources
Our operating activities used cash of $6,301,000 for the six months ended July
31, 2000 compared to $14,445,000 for the six months ended July 31, 1999. The
$8,144,000 improvement in cash results from operating activities was due
principally to the reduction in operating losses incurred in the six months
ended July 31, 2000, resulting from the divestiture of the PDM division and the
MediaBank product line, and from the cost savings realized from the fiscal 2000
and fiscal 2001 restructuring actions.
Our investing activities generated cash of $51,395,000 for the six months ended
July 31, 2000 compared to $12,291,000 for the six months ended July 31, 1999.
The increase of $39,103,000 was due primarily to the proceeds generated from the
sale of our IED division in July 1999, paired with collections in July 2000 of
receivables on both the DynaText and PDM divestitures that took place last
fiscal year. These three transactions generated net cash proceeds of
$46,889,000, $909,000 and $2,696,000, respectively, during July 2000. The
increase in cash generated from investing activities was partially offset by
declines in net proceeds from sales of
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marketable securities, which is attributable to the cost savings from the fiscal
2000 restructuring actions, the divestiture of PDM and MediaBank, and the
availability of cash from the three aforementioned sale transactions. As a
result of these sources of cash, and the decrease in cash used in operations, it
was not necessary to liquidate investments in the same volume as in the prior
year six-month period to support our operations.
Our financing activities provided cash of $114,000 for the six months ended July
31, 2000 compared to $360,000 for the six months ended July 31, 1999. In the
fiscal 2000 six month period, the Company collected approximately $296,000 on
notes receivable underlying stock purchase agreements, and there were no such
collections in the current year period. Substantial declines in payments under
capital lease obligations in the six months ended July 31, 2000 relate to the
divestment of PDM, and were essentially offset by the increased use of cash in
connection with the stock repurchase plan announced immediately following the
sale of IED.
On April 11, 2000, we announced that as part of our review of strategic
alternatives, which began in February 2000, the Board of Directors determined
that the most appropriate means to enhance shareholder value is for us to remain
independent and to focus our energies on eBT's Web Content Management and
Workflow product line. As a result, we divested of certain assets, including IED
and our MediaBank product line. Also in connection with this strategic
evaluation, we consolidated our Boston, Massachusetts headquarters into the
Providence, Rhode Island offices of the eBT division. Consequently,
approximately 18 administrative employees and four executive officers were
terminated or resigned in May 2000. Under this plan, we will pay out
approximately $1,930,000 in severance related costs through the 24 months ending
in April 2002. Through July 31, 2000, payments approximating $531,000 were made
against this liability (see Note 6). This restructuring action was estimated to
generate annualized cost savings of approximately $4 million from the level of
expenses incurred at the time of the restructuring.
As of July 31, 2000, we had working capital of $72,160,000. Total cash, cash
equivalents and marketable securities at July 31, 2000 were $78,619,000. Due to
the restructuring actions taken in both fiscal 2000 and fiscal 2001, and the
divestiture of the PDM, IED and MediaBank businesses, we believe that available
funds will be sufficient to finance our operations through the foreseeable
future.
On June 2, 1999, we were informed that the United States Securities and Exchange
Commission issued a Formal Order of Private Investigation in connection with
matters relating to the Company's previously announced restatement of its 1998
financial results. We are cooperating with the Securities and Exchange
Commission. We cannot predict the ultimate resolution of this action at this
time, and there can be no assurance that the investigation will not have a
material adverse impact on our financial condition and results of operations.
Additionally, while it is not feasible to predict the total costs, we expect to
continue to incur further professional fees with respect to the SEC
Investigation.
On June 9, 1999, the bankruptcy estates of Microlytics, Inc. and Microlytics
Technology Co., Inc. (together "Microlytics") filed a complaint against the
Company in the United States Bankruptcy Court for the Western District of New
York. The lawsuit is captioned Microlytics, Inc. and Microlytics Technology Co.,
Inc. v. Inso Corporation, Adversary Proceeding No. 99-2177. The complaint seeks
turnover of purported property of the estates and damages for the Company's
alleged breaches of a license from Microlytics relating to certain computer
software databases and other information. The complaint seeks damages of at
least $11,750,000. On August 19, 1999, we filed our Answer and Demand for Jury
Trial. Also, on August 19, 1999, we filed a motion to withdraw the case from the
Bankruptcy Court to the United States District Court for the Western District of
New York. On December 15, 1999, the United States District Court granted our
motion for the purposes of dispositive motions and trial. The parties are
presently engaging in document discovery and no depositions have been taken. We
believe that the claims are subject to meritorious defenses, which we plan to
assert during the lawsuit. We cannot predict the ultimate resolution of this
action at this time, and there can be no assurance that the litigation will not
have a material adverse impact on our financial condition and results of
operations.
During February 2000, certain shareholders of the Company filed two putative
class action lawsuits against the Company and certain of the Company's officers
and employees in the United States District Court for the District of
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Massachusetts. The lawsuits are captioned as follows: Liz Lindawati, et al. v.
Inso Corp., et al., Civil Action No. 00-CV-10305GAO; Group One Limited, et al.
v. Inso Corp., et al., Civil Action No. 00-CV-10318GAO. These lawsuits were
filed following our preliminary disclosure of revenues for the fiscal 2000
fourth quarter on February 1, 2000. Both complaints assert claims for violations
of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 of the
Securities and Exchange Commission, as well as a claim for violation of Section
20(a) of the Exchange Act. The plaintiffs allege that the defendants prepared
and issued deceptive and materially false and misleading statements to the
investing public. They seek unspecified damages. We believe that the claims are
subject to meritorious defenses, which we plan to assert during the lawsuit. We
cannot predict the ultimate resolution of these actions at this time, and there
can be no assurance that the litigation will not have a material adverse impact
on our financial condition and results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments
and Hedging Activities" effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. SFAS 133 provides a comprehensive and consistent
standard for the recognition and measurement of derivatives and hedging
activities. In June 1999, the Financial Accounting Standards Board issued
Statement of Accounting Standards No. 137 (SFAS 137), "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133." SFAS 137 amended the effective date of SFAS 133 for all
fiscal quarters of fiscal years beginning after June 15, 2000. In June 2000, the
Financial Accounting Standards Board (FASB) issued Statement No. 138 (SFAS 138),
"Accounting for Certain Derivative Instruments and Certain Hedging Activities:
an amendment of FASB Statement No. 133". SFAS 138 establishes accounting and
reporting standards for derivative instruments and addresses a limited number of
issues causing implementation difficulties for numerous entities. We do not
believe that the adoption of SFAS 133 and SFAS 138 will have a material effect
on our financial position or results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101. "Revenue
Recognition in Financial Statements," which is effective no later than the
quarter ending June 30, 2000. SAB 101 clarifies the SEC's views related to
revenue recognition and disclosure. We do not believe that the adoption of SAB
101 will have a material effect on our financial position or results of
operations.
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequences of various modifications to
the terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The adoption
of FIN 44 did not have a material impact on our financial position or results of
operations.
Factors that May Affect Future Operating Results
------------------------------------------------
This report, and other reports, proxy statements and other communications to
stockholders, as well as oral statements by the Company's officers or its
agents, may contain forward-looking statements with respect to, among other
things, the Company's future revenues, operating income, earnings per share or
cash flows. Please refer to the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 2000 for a description of certain factors, which
may cause the Company's actual results to vary materially from those forecasted
or projected in any such forward-looking statements. Among the factors which may
cause the Company's actual results to differ materially from historical results
are the following: competitive pressures including price pressures; the
inability of the Company to effectively integrate new hires and address sales
coverage and execution issues; increased reliance on systems integrators and
other technology partners; market acceptance of new and modified products;
increased reliance on the very competitive and dynamic web publishing market
segment; the inability to leverage and grow relationships with systems
integrators and other channel partners; increased personnel costs and
competition for
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experienced personnel; market acceptance of products based on eXtensible Markup
Language; and adverse economic changes in the markets in which the Company does
business.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk disclosures set forth in its fiscal 2000 Annual Report
filed on Form 10-K has not changed significantly.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 4, 1999, the Company and certain of its officers were named as
defendants in a purported class action lawsuit filed in the United States
District Court for the District of Massachusetts. Thereafter, six substantially
similar actions were filed in the same Court. On April 5, 1999, the seven class
action lawsuits that were filed against us were consolidated into one lawsuit
entitled In Re Inso Corporation, Civil Action No. 99-10193-WGY. These lawsuits
were filed following our announcement on February 1, 1999 that we planned to
restate our revenues for the first three quarters of 1998.
The consolidated lawsuit principally claimed that the defendants violated
federal securities laws allegedly by making false and misleading statements and
by failing to disclose material information concerning the Company's financial
performance during the purported class period of April 23, 1998 through March
31, 1999 and sought unspecified damages. The Company and all of the individual
defendants denied any wrongdoing.
On September 29, 1999, we entered into an insurance agreement pursuant to which
the insurance carrier assumed complete financial responsibly for the ultimate
resolution of the lawsuit. A net charge to our fiscal year 2000 consolidated
results of $13,451,000 was taken in connection with the insurance agreement. On
May 26, 2000, we entered into an agreement to settle the consolidated securities
class action. The settlement provides that all claims against the Company and
the individual defendants will be dismissed. In agreeing to the proposed
settlement, the Company and the individual defendants specifically continue to
deny any wrongdoing.
The settlement was preliminarily approved by the Court on May 29, 2000 and is
subject to certain other customary conditions, including notice to the class and
final approval by the Court. The Court has scheduled a final approval hearing
for September 14, 2000.
As soon as we discovered that it could be necessary to restate certain of our
financial results for the first three quarters of 1998, we immediately and
voluntarily provided this information to the U.S. Securities and Exchange
Commission. On June 2, 1999, we were informed that the U.S. Securities and
Exchange Commission had issued a Formal Order of Private Investigation in
connection with matters relating to the Company's previously announced
restatement of its 1998 financial results. We cannot predict the ultimate
resolution of this action at this time, and there can be no assurance that the
Formal Order of Private Investigation will not have a material adverse impact on
our financial condition and results of operations.
On June 9, 1999, the bankruptcy estates of Microlytics, Inc. and Microlytics
Technology Co., Inc. (together "Microlytics") filed a complaint against the
Company in the United States Bankruptcy Court for the Western District of New
York. The lawsuit is captioned Microlytics, Inc. and Microlytics Technology Co.,
Inc. v. Inso Corporation, Adversary Proceeding No. 99-2177. The complaint seeks
turnover of purported property of the estates and damages for the Company's
alleged breaches of a license from Microlytics relating to certain computer
software databases and other information. The complaint seeks damages of at
least $11,750,000. On August 19, 1999, we filed our Answer and Demand for Jury
Trial. Also, on August 19, 1999, we filed a motion to withdraw the case from the
Bankruptcy Court to the United States District Court for the Western District of
New York. On December 15, 1999, the United States District Court granted our
motion for the purposes of dispositive motions and trial. The parties are
presently engaging in document discovery and no depositions have been taken. We
believe that the
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claims are subject to meritorious defenses, which we plan to assert during the
lawsuit. We cannot predict the ultimate resolution of this action at this time,
and there can be no assurance that the litigation will not have a material
adverse impact on our financial condition and results of operations.
During February 2000, certain shareholders of the Company filed two putative
class action lawsuits against the Company and certain of the Company's officers
and employees in the United States District Court for the District of
Massachusetts. The lawsuits are captioned as follows: Liz Lindawati, et al. v.
Inso Corp., et al., Civil Action No. 00-CV-10305GAO; Group One Limited, et al.
v. Inso Corp., et al., Civil Action No. 00-CV-10318GAO. These lawsuits were
filed following our preliminary disclosure of revenues for the fiscal year 2000
fourth quarter on February 1, 2000. Both complaints assert claims for violations
of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 of the
Securities and Exchange Commission, as well as a claim for violation of Section
20(a) of the Exchange Act. The plaintiffs allege that the defendants prepared
and issued deceptive and materially false and misleading statements to the
investing public. They seek unspecified damages. We believe that the claims are
subject to meritorious defenses, which we plan to assert during the lawsuit. We
cannot predict the ultimate resolution of these actions at this time, and there
can be no assurance that the litigation will not have a material adverse impact
on our financial condition and results of operations.
We are also subject to various legal proceedings and claims that arise in the
ordinary course of business. We currently believe that resolving these matters
will not have a material adverse impact on our financial condition or our
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The disclosure concerning the vote of the Company's stockholders at its
annual meeting held on June 1, 2000 is incorporated herein by reference
to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended April 30, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following are filed as exhibits to this Form 10-Q
Exhibit 2.1 Agreement and Plan of Merger, dated July 10, 2000,
by and among IntraNet Solutions, Inc., IntraNet Chicago
Acquisition Corporation, IntraNet Kansas City
Acquisition Corporation, Inso Chicago Corporation, Inso
Kansas City Corporation and Inso Corporation
(incorporated by reference to the Company's Current
Report on Form 8-K filed on July 25, 2000)
Exhibit 10.1 Agreement and Release between Robert F. Dudley and the
Company dated May 26, 2000
Exhibit 10.2 Agreement and Release between Bruce G. Hill and the
Company dated May 12, 2000
Exhibit 10.3 Agreement and Release between Elaine S. Ouellette and
the Company dated May 26, 2000
Exhibit 10.4 Sublease Agreement between Houghton Mifflin and the
Company, dated July 1, 2000
Exhibit 27-1 Financial Data Schedule for the three and six month
periods ended July 31, 2000
(b) Reports on Form 8-K
Registrant filed one (1) report on Form 8-K during the quarter ended
July 31, 2000.
(i) Current Report on Form 8-K dated July 10, 2000
reporting under Item 2. Acquisition or Disposition of
Assets, the Company's sale of the IED business to
IntraNet Solutions, Inc.
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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.
eBT International, Inc.
------------------------------
Registrant
Date: September 14, 2000 /s/ James M. Ringrose
----------------------
James M. Ringrose
Chief Executive Officer
Date: September 14, 2000 /s/ Christopher M. Burns
------------------------
Christopher M. Burns
Chief Financial Officer
(Chief Accounting Officer)
24
