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 March 31, 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)
DYNAMICWEB ENTERPRISES, INC.
271 ROUTE 46 WEST
BLDG F SUITE 209
FAIRFIELD, NEW JERSEY 07004
(Former Name & Address)
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 May 10, 2000, there were 12,479,558 shares of Common Stock, $0.0001
par value, of the issuer outstanding.
Transitional Small Business Disclosure format Yes No X
---- -----
Introduction
PART I
FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
Introductory Note. 1
Condensed Balance Sheets as of March 31, 2000 (unaudited)
and September 30, 1999. 2
Condensed Statements of Operations for the three and six
months ended March 31, 2000 and 1999 (unaudited). 3
Condensed Statements of Cash Flows for the six months
ended March 31, 2000, and 1999 (unaudited). 4
Notes to Condensed Financial Statements. 5-7
INTRODUCTORY NOTE
On April 18, 2000, eB2B Commerce, Inc., a Delaware corporation ("eB2B"), merged
with and into DynamicWeb Enterprises, Inc., a New Jersey corporation (the
"Company"), with the surviving company using the name `eB2B Commerce, Inc.'
(the "Combined Company"). Pursuant to the Agreement and Plan of Merger between
the Company and eB2B, the shareholders of the Company retained their shares in
the Company, while the shareholders of eB2B received shares, or derivative
securities convertible into common stock, of the Company representing
approximately 88% of the Combined Company, on a fully diluted basis. eB2B
is engaged in business-to-business e-commerce. After the merger, the Company
changed its Cusip number and its ticker symbol to `EBTB'. For more information
relating to the merger or eB2B, a Registration Statement (Form S-4) relating to
the merger was filed with the Securities and Exchange Commission on March 20,
2000 and became effective March 22, 2000. 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 the Company is the legal acquirer.
As a result of the reverse acquisition, the financial statements on a go
forward basis will be that of the accounting acquirer (eB2B), the net assets
of the legal acquirer (the Company) will be revalued and the purchase price
will be allocated to those assets acquired and liabilities assumed.
Subsequent to the merger on April 18, 2000, the Company was required to file a
quarterly financial statement (on 10-QSB) under the Securities Exchange Act
of 1934, as amended ("Securities Exchange Act"), for the quarter ended
March 31, 2000. In that the merger was completed after March 31, 2000,
the financial statements and other information contained in this Form 10-QSB
are reflective of business operations of the Company, and do not include
the financial information of eB2B. The Combined Company will begin to report
combined financial results for the quarter ended June 30, 2000.
eB2B COMMERCE, INC.
CONDENSED BALANCE SHEETS
MARCH 31, SEPTEMBER 30,
2000 1999
ASSETS (UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents $ 1,413,000 $ 418,000
Accounts receivable, net of allowance for doubtful accounts
of $107,000 and $102,000 666,000 627,000
Prepaid expenses and other current assets 74,000 40,000
------------ -----------
TOTAL CURRENT ASSETS 2,153,000 1,085,000
------------ -----------
PROPERTY AND EQUIPMENT, less accumulated depreciation
of $288,000 and $208,000 460,000 459,000
------------ -----------
OTHER ASSETS
Patents and trademarks, less accumulated amortization of $25,000 and $19,000 17,000 23,000
Customer list, less accumulated amortization of $67,000 and $57,000 33,000 43,000
Software costs, less accumulated amortization of $152,000 and $113,000 221,000 73,000
Cost in excess of fair value of net assets acquired, net of accumulated
amortization of $97,000 and $72,000 738,000 436,000
Other assets 9,000 14,000
------------ -----------
TOTAL OTHER ASSETS 1,018,000 589,000
------------ -----------
$ 3,631,000 $ 2,133,000
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of capital lease obligations $ 59,000 $ 32,000
Loans payable 2,000,000 --
Accounts payable 471,000 305,000
Accrued expenses 721,000 396,000
Other current liabilities -- 12,000
Deferred revenue 85,000 95,000
------------ -----------
TOTAL CURRENT LIABILITIES 3,336,000 840,000
------------ -----------
CAPITAL LEASE OBLIGATIONS, net of current portion 27,000 24,000
------------ -----------
STOCKHOLDERS' EQUITY
Preferred stock - par value to be determined with each issue: 5,000,000 shares
authorized
Series A, 6% cumulative, convertible preferred stock, aggregate liquidation
value $1,787,500, $.001 par value, 0 and 1,375 shares issued and outstanding
at March 31, 2000 and September 30, 1999 -- 1,110,000
Series B, 6% cumulative, convertible preferred stock, aggregate liquidation
value $650,000, $.001 par value, 0 and 1,500 shares issued and outstanding
at March 31, 2000 and September 30, 1999 -- 1,027,000
Common stock, $.0001 par value, 50,000,000 shares authorized;
4,087,048 and 2,637,076 shares issued and outstanding at March 31, 2000
and September 30, 1999 -- --
Additional paid-in capital 12,977,000 8,508,000
Unearned portion of compensatory stock options (44,000) (78,000)
Accumulated deficit (12,665,000) (9,298,000)
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 268,000 1,269,000
------------ -----------
$ 3,631,000 $ 2,133,000
============ ===========
See accompanying notes to condensed financial statements. 2
eB2B COMMERCE, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999 2000 1999
----------- ----------- ----------- -----------
REVENUES
Transaction/subscription processing $ 370,000 $ 205,000 $ 751,000 $ 345,000
Consulting services 482,000 355,000 856,000 697,000
Network development 172,000 142,000 425,000 199,000
----------- ----------- ----------- -----------
1,024,000 702,000 2,032,000 1,241,000
COST OF REVENUES
Transaction/subscription processing 210,000 142,000 394,000 260,000
Consulting services 203,000 216,000 423,000 416,000
Network development 109,000 74,000 201,000 140,000
----------- ----------- ----------- -----------
522,000 432,000 1,018,000 816,000
GROSS PROFIT 502,000 270,000 1,014,000 425,000
----------- ----------- ----------- -----------
EXPENSES
Marketing and selling 440,000 372,000 880,000 721,000
General and administrative (including a
$653,000 write-down of assets for the
three and six months ended March 31, 2000) 1,602,000 425,000 2,296,000 812,000
Merger related expenses 780,000 -- 780,000 --
Research and development 276,000 97,000 477,000 192,000
----------- ----------- ----------- -----------
3,098,000 894,000 4,433,000 1,725,000
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (2,596,000) (624,000) (3,419,000) (1,300,000)
OTHER INCOME 89,000 -- 89,000 --
INTEREST (EXPENSE) INCOME AND OTHER, NET (34,000) 2,000 (37,000) 18,000
----------- ----------- ----------- -----------
NET LOSS (2,541,000) (622,000) (3,367,000) (1,282,000)
DIVIDENDS ON CUMULATIVE PREFERRED
STOCK, INCLUDING IMPUTED DIVIDENDS
OF $414,000 AND $558,000 FOR THE THREE
MONTHS AND SIX MONTHS ENDED
MARCH 31, 1999, RESPECTIVELY, AND $73,000 FOR
THE SIX MONTHS ENDED MARCH 31,
2000. -- (450,000) (97,000) (614,000)
----------- ----------- ----------- -----------
NET LOSS ATTRIBUTED TO COMMON
STOCKHOLDERS $(2,541,000) $(1,072,000) $(3,464,000) $(1,896,000)
=========== =========== =========== ===========
NET LOSS PER COMMON SHARE
BASIC AND DILUTED $ (0.66) $ (0.46) $ (0.99) $ (0.82)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING,
BASIC AND DILUTED 3,855,875 2,351,737 3,505,786 2,320,370
=========== =========== =========== ===========
See accompanying notes to condensed financial statements. 3
eB2B COMMERCE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
MARCH 31,
2000 1999
----------- -----------
OPERATING ACTIVITIES:
Net loss $(3,367,000) $(1,282,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Gain on sale of assets (2,000) (15,000)
Provision for bad debts 187,000 --
Depreciation and amortization 173,000 72,000
Write-down of assets 653,000 --
Stock options issued for compensation 34,000 86,000
Options and shares issued for services 221,000 --
Increase (decrease) in cash and cash equivalents attributable
to changes in operating assets and liabilities:
Accounts receivable, net (226,000) (296,000)
Prepaid expenses and other current assets (34,000) (14,000)
Other assets 5,000 --
Accounts payable 166,000 336,000
Accrued expenses 482,000 35,000
Other current liabilities (12,000) --
Deferred revenue (10,000) 191,000
----------- -----------
Net cash used in operating activites (1,730,000) (887,000)
----------- -----------
INVESTING ACTIVITIES:
Acquisition of property and equipment (40,000) (19,000)
Acquisition of patents and trademarks -- (8,000)
Proceeds from sale of property, net of selling expense 5,000 189,000
Increase in software costs (187,000) (65,000)
----------- -----------
Net cash provided by (used in) investing activities (222,000) 97,000
----------- -----------
FINANCING ACTIVITIES:
Proceeds from loans 2,000,000 --
Proceeds from exercise of common stock options and warrants 917,000 --
Proceeds from issuance of preferred stock and warrants -- 795,000
Payment of long-term debt -- (187,000)
Payment of capital lease obligation (27,000) --
Proceeds from issuance of common stock 57,000 --
Loans from stockholders/officers -- 100,000
----------- -----------
Net cash provided by financing activities 2,947,000 708,000
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 995,000 (82,000)
CASH AND CASH EQUIVALENTS, beginning of period 418,000 290,000
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 1,413,000 $ 208,000
=========== ===========
See accompanying notes to condensed financial statements. 4
eB2B COMMERCE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A. BASIS OF PRESENTATION 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 (the "Company"), with the surviving company
using the name "eB2B Commerce, Inc." (the "Combined Company").
Pursuant to the Agreement and Plan of Merger between the
Company and eB2B, the shareholders of the Company retained their
shares in the Company, while the shareholders of eB2B received
shares, or derivative securities convertible into common stock,
of the Company representing approximately 88% of the Combined
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 the
Company is the legal acquirer. As a result of the reverse
acquisition, the financial statements on a go forward basis will
be that of the accounting acquirer (eB2B), the net assets of the
legal acquirer (the Company) will be revalued and the purchase
price will be allocated to those assets acquired and liabilities
assumed. In that the merger was completed after March 31, 2000,
the financial statements and other information contained herein
are reflective of business operations of the Company, and do not
include the financial information of eB2B.
The accompanying unaudited condensed financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information (and with the
instructions to Form 10-QSB and Article 3 of Regulation S-B).
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for fair presentation have been included.
The balance sheet at September 30, 1999 has been derived from the
audited financial statements at that date but does not include all
the information and footnotes required by generally accepted
accounting principles for complete financial statements. For
further information, refer to the audited financial statements and
footnotes thereto included in the annual report on Form 10-KSB.
The Company provides services and software that facilitate
business-to-business e-commerce between buyers and sellers.
The Company's services include the provision of the necessary
infrastructure and operational services to facilitate electronic
transactions between buyers and sellers and consulting services
to businesses that wish to build and/or operate their own
e-commerce infrastructure.
NOTE B. LOSS PER SHARE
Basic earnings (loss) per share is computed by dividing net income
(loss) by the weighted average number of common shares outstanding
during the period. Diluted earnings (loss) per share is computed
by dividing net income (loss) by a diluted weighted average
number of common shares outstanding during the period. Such
dilution is computed using the treasury stock method for the
assumed conversion of stock options, warrants and other
convertible securities whose exercise price was less than
the average market price of the common shares during the
respective period, and certain additional dilutive effect of
exercised, terminated and cancelled stock options.
For the six and three month periods ended March 31, 2000 and 1999,
diluted weighted-average common and common equivalent shares
outstanding were the same as basic weighted-average common and
common equivalent shares as all common share equivalents were
antidilutive given that the Company had a net loss for these
periods.
Options and warrants to purchase 1,027,277 and 901,606 common
shares at March 31, 2000 and 1999, respectively, were excluded
from the computation of diluted earnings per share because of
their antidilutive effect caused by the net loss during such
periods.
5
eB2B COMMERCE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE C. SOFTWARE COSTS
Costs relating to the conceptual formulation and design of
software are expensed as research and development. Costs incurred
subsequent to establishment of technological feasibility to
produce the finished product are generally capitalized.
Technological feasibility was established when a product design
and a working model were completed. Capitalized software costs,
including certain license fees, are amortized by the straight-line
method over a maximum of three years or the expected life of the
product whichever is less.
NOTE D. USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
NOTE E. SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
SIX MONTHS ENDED
MARCH 31,
2000 1999
---- ----
Equipment acquired under capital lease $ 57,000 $ --
---------- ----------
---------- ----------
Conversion of Series A preferred shares to common stock $1,110,000 $ --
---------- ----------
---------- ----------
Conversion of Series B preferred shares to common stock $1,027,000 $ --
---------- ----------
---------- ----------
Dividends accrued and converted to common stock $ 157,000 $ --
---------- ----------
---------- ----------
Issuance of 80,000 shares of common stock as additional
purchase price consideration for prior acquisition $ 980,000 $ --
---------- ----------
---------- ----------
During the quarter ended March 31, 2000, the Company issued 80,000
shares of common stock valued at $980,000 as additional purchase
price consideration for a prior acquisition. The Company recorded
the $980,000 as Cost in excess of fair value of net assets
acquired. The Company reviewed the assets previously acquired,
primarily a customer list, and determined the fair value of such
assets as of March 31, 2000 to be approximately one-third of the
shares issued. The determination was based primarily upon the
current and expected revenues from such customers. Accordingly
the Company recorded a $653,000 write-down. The remaining
$327,000 will be amortized over twenty months starting April 1,
2000.
During the period ended December 31, 1999 all 1,375 shares of
Series A and 1,500 shares of Series B cumulative, convertible
preferred stock, issued and outstanding at September 30, 1999,
were converted into 1,073,888 shares of common stock.
NOTE F. SUBSEQUENT EVENTS
On April 18, 2000, pursuant to an Agreement and Plan of Merger,
dated December 1, 1999, as amended by Amendment No. 1, dated as of
February 29, 2000 (the "Merger Agreement"), the Company merged
with eB2B, a company engaged in business-to-business e-commerce.
Pursuant to the Merger Agreement, each share of common stock of
the Company remained outstanding and each share of eB2B capital
stock was exchanged for the equivalent of 2.66 shares of the
Company's common stock. In addition, each share of eB2B preferred
stock was exchanged for a like share of preferred stock in the
Company. In accordance with the terms of the Merger Agreement,
eB2B shareholders own approximately 88% of the Combined
Company, on a fully diluted basis. The transaction is a tax-free
merger and reorganization. The transaction was accounted for as
a reverse acquisition.
The reverse acquisition was accounted for as a purchase business
combination in which eB2B was the accounting acquirer and the
Company was the legal acquirer. As a result of the reverse
acquisition, the financial statements on a go forward basis will
be that of the accounting acquirer (eB2B), the net assets of
the legal acquirer (the Company) will be revalued and the purchase
price will be allocated to those assets acquired and liabilities
assumed. In addition, the Combined Company's year-end will change
to a calendar year ending December 31st.
6
eB2B COMMERCE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE F. SUBSEQUENT EVENTS (CONTINUED)
The Company entered into a loan agreement with eB2B, dated
November 12, 1999, as amended by Amendment No. 1, dated November
19, 1999, as amended by Amendment No. 2 dated February 29, 2000
(the "Loan Agreement"). Details about the Merger Agreement and
Loan Agreement are contained in the Company's financial statements
as of September 30, 1999, included in Form 10-KSB and the
registration statement on Form S-4.
Under the Loan Agreement, eB2B loaned the Company $2,000,000
subject to certain conditions. The Company received $250,000 in
November 1999 and $1,750,000 in December 1999. All loans under the
Loan Agreement accrue simple interest at the rate of eight percent
(8%) per year. The loans had a maturity date of May 12, 2000. The
Loan Agreement contains standard termination provisions, as well
as representations, warranties and covenants from the Company to
eB2B. As of April 18, 2000, the above loans were deemed cancelled
in connection with the merger.
As additional consideration for the loans, the Company also issued
to eB2B warrants to purchase, under certain conditions, an
aggregate of 7,500,000 shares of the Company's common stock at an
exercise price of $2.00 per share. As of April 18, 2000, the
above warrants were deemed cancelled in connection with the
merger.
7
eB2B COMMERCE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with the financial statements included in this report
and in conjunction with the description of the Company's business
included in the Company's Form 10-KSB for the year ended September
30, 1999. It is intended to assist the reader in understanding and
evaluating the financial position of the Company.
This discussion contains, in addition to historical information,
forward looking statements that involve risks and uncertainty. The
Company's actual results could differ materially from the results
discussed in the forward-looking statements. Factors that could
cause or contribute to such differences include those discussed in
the Company's Form 10-KSB for the year ended September 30, 1999.
GENERAL
On April 18, 2000, pursuant to an Agreement and Plan of Merger,
dated December 1, 1999, as amended by Amendment No. 1, dated as of
February 29, 2000 (the "Merger Agreement), DynamicWeb Enterprises,
Inc. (the "Company") merged with eB2B Commerce, Inc. ("eB2B"), a
company engaged in business-to-business e-commerce with the
surviving company using the name "eB2B Commerce, Inc." (the
"Combined Company"). Pursuant to the Merger Agreement, each share
of common stock of the Company remained outstanding and each share
of eB2B capital stock was exchanged for the equivalent of 2.66
shares of the Company's common stock. In addition, in accordance
with the terms of the Merger Agreement, eB2B shareholders own
approximately 88% of the Combined Company. The transaction is a
tax-free merger and reorganization. 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 the
Company was the legal acquirer. As a result of the reverse
acquisition, the financial statements on a go forward basis will
be that of the accounting acquirer (eB2B), the net assets of
the legal acquirer (the Company) will be revalued and the purchase
price will be allocated to those assets acquired and liabilities
assumed. All costs associated with the merger have been expensed
in the period incurred. In addition, the Combined Company's
year-end will change to a calendar year ending December 31st.
RESULTS OF OPERATIONS
The Company had revenues of $1,024,000 for the three months ended
March 31, 2000, compared to $702,000 for the period in 1999, an
increase of approximately $322,000, or 46%. The Company had
revenues of $2,032,000 the six month period ended March 31, 2000,
compared to $1,241,000 for the same period in 1999, an increase of
$791,000 or 64%. The increase in revenues was chiefly associated
with increased sales of the Company's new EDI/Internet products
and services, which consisted primarily of transaction processing
services offered through the Company's EDI service bureau
and sales of consulting services.
8
eB2B COMMERCE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Transaction/subscription processing revenues include initial
subscription fees, and monthly transaction fees. These revenues
for the three months ended March 31, 2000 were $370,000, as
compared to $205,000 in the same period in 1999, an increase of
$165,000, or 80%. Transaction/subscription revenues recognized for
the six month period ended March 31, 2000 were $751,000 as
compared to $345,000 in the same period in 1999, an increase of
$406,000 or 118%. The increase is attributable to an increase in
the initial subscription fees from customers who use the
EDIxchange Suite of Services and an increase in monthly
transaction fees from existing customers, as well as from the
addition of new customers.
Consulting service revenues represent fees from EC consulting and
contract computer programming. These revenues for the three months
ended March 31, 2000 were $482,000 as compared to $355,000 for the
same period in 1999, an increase of $127,000, or 36%. Revenues for
the six month period ended March 31, 2000 were $856,000 as
compared to $697,000 for the same period in 1999, an increase of
$159,000 or 23%. The increase resulted from additional customers
coupled with an increase in the average utilization of our
consultants. There was approximately $71,000 of revenues billed to
eB2B for consulting services performed during the quarter ended
March 31, 2000.
Network development revenues primarily relate to the development
of EDI maps, the reutilization of our EDI map library and the
custom development of EDIxchangeOutsource, EDIxchangeBuy and
EDIxchangeSell (extranets) from which the Transaction/subscription
processing revenues are derived. Network development revenues for
the three months ended March 31, 2000 were $172,000 as compared to
$142,000 for the same period in 1999, resulting in an increase of
$30,000, or 21%. The revenues for the six months ended March 31,
2000 were $425,000 as compared to $199,000 for the same period in
1999, an increase of $226,000 or 114%. This increase is
attributable to the increased development and reutilization of EDI
maps for customers using the EDIxchange Suite of Services and also
the new customer setup of the EDIxchange Suite of Products. There
was approximately $51,000 of revenues billed to eB2B for network
development projects during the quarter ended March 31, 2000.
Total cost of revenues for the three months ended March 31, 2000
increased to $522,000 from $432,000 in the same period in 1999, an
increase of $90,000 or 21%. Cost of revenues for the six month
period ended March 31, 2000 increased to $1,018,000 from $816,000
in the same period in 1999, an increase of $202,000 or 25%. A
portion of the increase in cost of revenues is attributable to
salary increases that took effect in the second and third quarters
of fiscal 1999. The aggregate salary increase consists of the
salary expense related to new employees and the normal course of
business pay raises for all other employees at prevailing market
rates. The increase is also attributable to increased costs for
maintaining and upgrading equipment and communications.
Cost of transaction/subscription processing was $210,000 for the
three months ended March 31, 2000, compared to $142,000 for the
three months ended March 31, 1999, resulting in gross margins of
43% and 31%, respectively. Cost of transaction/subscription
processing was $394,000 for the six months ended March 31, 2000,
compared to $260,000 for the six months ended March 31, 1999,
resulting in gross margins of 48% and 25%, respectively.
Cost of consulting service revenues was $203,000 for the three
months ended March 31, 2000, compared to $216,000 for the
three months ended March 31, 1999 resulting in gross margins of
58% and 39%, respectively. Cost of consulting service revenues
was $423,000 for the six months ended March 31, 2000, for a gross
profit of $433,000 and gross margin of 51%. This compares to cost
of consulting service revenues of $416,000 and a gross profit of
$281,000 or 40% for the same period in 1999.
9
eB2B COMMERCE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Cost of network development revenues was $109,000 for the three
months ended March 31, 2000, for a gross profit of $63,000 and
gross margin of 37%. This compares to cost of network development
revenues of $74,000 for the three months ended March 31, 1999,
resulting in a gross profit of $68,000 and gross margin of 48%.
Cost of network development revenues was $201,000 for the six
months ended March 31, 2000, for a gross profit of $224,000 and
gross margin of 53%. This compares to cost of network development
revenues of $140,000 for the six months ended March 31, 1999,
resulting in a gross profit of $59,000 and gross margin of 30%.
Marketing and selling expenses were $440,000 for the three months
ended March 31, 2000 as compared to $372,000 in the same period in
1999. For the six month period ended March 31, 2000, marketing and
selling expenses increased $159,000 from $721,000 to $880,000 in
the same period in 1999. The increase is attributable to salaries
for new hires and the costs of attendance at trade shows
associated with the Company's efforts to market its EDI/Internet
services. The increase is also a result of additional advertising
expenses and the creation of a new division, customer
satisfaction, to provide support for the Company's products.
General and administrative expenses were $1,602,000 for the three
months ended March 31, 2000 as compared to $425,000 for the three
months ended March 31, 1999. For the six month period ended March
31, 2000, general and administrative expenses increased $1,484,000
from $812,000 to $2,296,000 in the same period in 1999. The
increase in general and administrative expenses was due primarily
to a $653,000 write-down of Cost in excess of fair value of net
assets acquired, a $221,000 one time compensation expense in
connection with options granted for consulting services provided
to the Company, and an increase in general accrued expenses to
account for contingencies.
During the quarter ended March 31, 2000, the Company issued
80,000 shares of common stock valued at $980,000 as additional
purchase price consideration for a prior acquisition. The Company
reviewed the assets previously acquired, primarily a customer
list, and determined that the fair value of such assets was
approximately one-third of the value of the shares issued. The
determination was based primarily upon the current and expected
revenues from such customers.
Merger related expenses were $780,000 for the three months ended
March 31, 2000, as well as for the six month period. These
expenses are comprised of professional fees and Securities
Exchange Commission filing fees associated with the merger with
eB2B.
Research and development expenses were $276,000 for the three
months ended March 31, 2000 as compared to $97,000 for the three
months ended March 31, 1999. For the six month period ended March
31, 2000, research and development expenses increased $285,000
from $192,000 to $477,000 in the same period in 1999. The increase
is attributable to hiring of additional staff and to higher
compensation.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company had cash and cash equivalents
of $1,413,000 and total current assets of $2,153,000.
The Company had a net loss of $3,367,000 for the six months ended
March 31, 2000 and net cash used in operating activities of
$1,730,000. The Company's cash flow for the six months ended
March 31, 2000 was primarily funded by a $2,000,000 loan from
eB2B and by the exercise of options and warrants in the amount
of $917,000.
During the quarter ended March 31, 2000, the Company issued
$80,000 shares of common stock valued at $980,000, as additional
purchase price consideration for a prior acquisition.
During the quarter ended December 31, 1999, all 1,375 and 1,500
shares of Series A and Series B convertible preferred stock,
respectively, were converted into 1,073,888 common shares.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On December 17, 1999, Sands Brothers & Co., Ltd. commenced a civil
action against the Company in the United States District Court for
the Southern District of New York. The Company had retained Sands
Brothers & Co., Ltd. under an agreement to provide financial
advisory, corporate finance, and merger and acquisition advice.
Sands Brothers & Co., Ltd. alleges that it is entitled to
compensation under the agreement for introducing eB2B, the company
with which the Company has merged with on April 18, 2000, to the
Company. The Company disputes that Sands Brothers & Co., Ltd.
is entitled to compensation. Sands Brothers & Co., Ltd. is suing
the Company for breach of contract, unjust enrichment and other
related causes of action arising from the allegations that it
introduced eB2B to the Company. By its complaint, Sands Brothers
& Co., Ltd. seeks an accounting, a declaratory judgment adjudging
the respective rights under the agreement, and damages in an
amount not less than $3,500,000, plus interest, costs and
attorney's fees. On January 6, 2000, the Company answered the
compliant denying the material allegations contained therein.
Discovery is now proceeding.
The Company is not currently a party to any other material legal
proceeding.
10
eB2B COMMERCE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
A Special Meeting of the Shareholders of DynamicWeb Enterprises,
Inc., a New Jersey corporation (the "Company"), was held on
April 18, 2000.
As of the close of business on March 21, 2000, the record date for
this meeting fixed by the Board of Directors, there were 4,084,850
shares of the Company's Common Stock, par value $0.0001 per share,
outstanding and entitled to be voted at the meeting. The holders
of 2,653,016 shares or 64.9% of the shares of the Company's Common
Stock outstanding and entitled to vote at the meeting were present
at the meeting in person or by proxy.
The first item voted on by shareholders at the meeting was the
proposal to ratify and approve the Agreement and Plan of Merger,
between the Company and eB2B Commerce, Inc., a Delaware
corporation ("eB2B"), dated December 1, 1999, as amended, as set
forth in the Company's proxy/prospectus as filed with the
Securities and Exchange Commission on a Form S-4 on January 24,
2000, as amended on March 20, 2000 (the "Proxy Statement"). The
Agreement and Plan of Merger was ratified and approved with a
total of 2,639,793 votes, or approximately 64.6% of the shares
outstanding and entitled to vote.
The second item on the Agenda was the proposal to ratify and
approve the amendment and restatement of the Company's certificate
of incorporation to change the name of the Company, to increase
the number of authorized shares of common stock, to authorize the
creation of new series of preferred stock and to eliminate
certain anti-takeover provisions, as set forth in the Company's
Proxy Statement. The amendment and restatement of the Company's
certificate of incorporation was ratified and approved by a total
of 2,626,056 votes, or approximately 64.3% of the shares
outstanding and entitled to vote.
The third item on the Agenda was the proposal to ratify and
approve the 2000 Stock Option Plan as set forth in the Company's
Proxy Statement. The 2000 Stock Option Plan was ratified and
approved with a total of 2,568,444 votes, or approximately 62.9%
of the shares outstanding and entitled to vote.
ITEM 5. OTHER INFORMATION
On April 18, 2000, the Company merged with eB2B Commerce, Inc.
("eB2B"), a company engaged in business-to-business e-commerce,
with the Combined Company using the name "eB2B Commerce, Inc."
Pursuant to the Merger Agreement, each share of common stock of
the Company remained outstanding and each share of eB2B capital
stock was exchanged for the equivalent of 2.66 shares of the
Company's common stock. In accordance with the terms of the Merger
Agreement, eB2B shareholders own approximately 88% of the
Combined Company. The transaction is a tax-free merger and
reorganization. The transaction was accounted for as a reverse
acquisition.
The reverse acquisition was accounted for as a purchase business
combination in which eB2B was the accounting acquirer and the
Company was the legal acquirer. As a result of the reverse
acquisition, the financial statements on a go forward basis will
be that of the accounting acquirer (eB2B), the net assets of
the legal acquirer (the Company) will be revalued and the purchase
price will be allocated to those assets acquired and liabilities
assumed. In addition, the Combined Company's year-end will change
to a calendar year ending December 31st.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K
Not applicable.
11
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.
----------------------------
(Registrant)
May 15, 2000 By: /s/ Peter J. Fiorillo
-------------------------
Chief Executive Officer
May 15, 2000 By: /s/ Victor L. Cisario
-------------------------
Chief Financial Officer