AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 14, 2002
REGISTRATION NO. 333-54410
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
EB2B COMMERCE, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
NEW JERSEY 7372 22-2267658
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NO.)
665 BROADWAY
NEW YORK, NEW YORK 11003
(212) 703-2000
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES
AND PRINCIPAL PLACE OF BUSINESS)
-------------------
RICHARD S. COHAN
CHIEF EXECUTIVE OFFICER AND PRESIDENT
EB2B COMMERCE, INC.
665 BROADWAY
NEW YORK, NEW YORK 11003
(212) 477-1700
(NAME AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPY TO:
GARY T. MOOMJIAN, ESQ.
KAUFMAN & MOOMJIAN, LLC
50 CHARLES LINDBERGH BOULEVARD -- SUITE 206
MITCHELL FIELD, NEW YORK 11553
(516) 222-5100
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [x]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
-------------------
Pursuant to Rule 416 of the Securities Act of 1933, this registration
statement also relates to such additional indeterminate number of shares of
common stock as may become issuable by reason of stock splits, dividends,
antidilution adjustments and similar adjustments in accordance with the
provisions of the Series A preferred stock, Series B preferred stock, Series C
preferred stock, Series D preferred stock, notes or warrants.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
________________________________________________________________________________
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------
PROPOSED
MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED(1) REGISTERED PER SHARE(2) OFFERING PRICE(2) FEE
- -------------------------------------------------------------------------------------------------------------
Common Stock(3).......................... 2,500 $.60 $ 1,500 $ 1
- -------------------------------------------------------------------------------------------------------------
Common Stock(4).......................... 3,630,000 $.60 $2,178,000 $ 200
- -------------------------------------------------------------------------------------------------------------
Common Stock(5).......................... 964,850 $.60 $ 578,910 $ 53
- -------------------------------------------------------------------------------------------------------------
Common Stock(6).......................... 953,791 $.60 $ 572,275 $ 53
- -------------------------------------------------------------------------------------------------------------
Common Stock(7).......................... 123,691 $.60 $ 61,846 $ 7
- -------------------------------------------------------------------------------------------------------------
Common Stock(8).......................... 1,590,267 $.60 $ 954,160 $ 88
- -------------------------------------------------------------------------------------------------------------
Common Stock(9).......................... 935,938 $.60 $ 872,363 $ 53
- -------------------------------------------------------------------------------------------------------------
Common Stock(10)......................... 4,238,900 $.60 $2,543,240 $ 234
- -------------------------------------------------------------------------------------------------------------
Common Stock(11)......................... 2,072,824 $.60 $1,243,694 $
- -------------------------------------------------------------------------------------------------------------
Common Stock(12)......................... 104,167 $.60 $ 62,500 $ 115
- -------------------------------------------------------------------------------------------------------------
Common Stock(13)......................... 266,670 $.60 $ 160,002 $ 15
- -------------------------------------------------------------------------------------------------------------
Common Stock(14)......................... 333,336 $.60 $ 200,002 $ 19
- -------------------------------------------------------------------------------------------------------------
Common Stock(15)......................... 1,734,922 $.60 $1,040,959 $ 96
- -------------------------------------------------------------------------------------------------------------
Common Stock(16)......................... 826,439 $.60 $ 495,864 $ 46
- -------------------------------------------------------------------------------------------------------------
Common Stock(17)......................... 165,289 $.60 $ 99,174 $ 9
- -------------------------------------------------------------------------------------------------------------
Common Stock(18)......................... 150,696 $.60 $ 90,418 $ 9
- -------------------------------------------------------------------------------------------------------------
Common Stock(19)......................... 942,814 $.60 $ 568,689 $ 53
- -------------------------------------------------------------------------------------------------------------
Total................................ $1,051(20)
- -------------------------------------------------------------------------------------------------------------
(1) All common stock share data set forth herein has been adjusted to reflect a
1-for-15 reverse stock split of the registrant's common stock approved by
the registrant's stockholders and Board of Directors effective January 10,
2002.
(2) Estimated solely for purposes of calculating the registration fee, based on
the average of the high and low prices for the registrant's common stock at
$.60 per share as reported on the Nasdaq SmallCap Market on May 10,
2002, in accordance with Rule 457(c) promulgated under the Securities Act
of 1933, as amended.
(3) Relates to the resale of shares of common stock issuable upon conversion of
the registrant's Series A preferred stock.
(4) Relates to the resale of shares of common stock issued or issuable upon
conversion of the registrant's Series B preferred stock.
(5) Relates to the resale of shares of common stock issuable upon the exercise
of warrants acquired by the selling securityholders in the December 1999
private placement.
(6) Relates to the resale of shares of common stock issuable upon the exercise
of warrants granted to Commonwealth Associates L.P. and designees of
Commonwealth Associates L.P. for acting as the placement agent for the
December 1999 private placement.
(7) Relates to the resale of shares of common stock issuable upon the exercise
of warrants granted to Commonwealth Associates L.P. and designees of
Commonwealth Associates L.P. in connection with acting as a financial
advisor regarding the April 2000 merger.
(8) Relates to the resale of shares of common stock issuable upon the exercise
of warrants granted to designees of Commonwealth Associates L.P. and to
ComVest Capital Partners LLC and Michael S. Falk in connection with a
pre-bridge and bridge financing conducted in October 1999.
(9) Relates to the resale of shares of common stock issuable upon the exercise
(and subsequent conversion and/or adjustment) of agents' options to
purchase units of Series C preferred stock and warrants granted to
Commonwealth Associates L.P. and Gruntal & Co., LLC and their designees for
acting as placement agent for the May 2001 private placement.
(10) Relates to the resale of shares of common stock issuable upon the
conversion of the Series C preferred stock acquired by selling
securityholders in the May 2001 private placement.
(footnotes continued on following page)
(footnotes continued from previous page)
(11) Relates to the resale of shares of common stock issuable upon the exercise
of warrants acquired by the selling securityholders in the May 2001 private
placement.
(12) Relates to the resale of shares of common stock issuable upon the exercise
of warrants granted to ComVest Venture Partners L.P. in connection with
making a credit line available to us in April and May 2001.
(13) Relates to the resale of shares of Common Stock issuable upon the exercise
of warrants acquired by the selling securityholders in the December 2001
bridge financing.
(14) Relates to the resale of shares of Common Stock issuable upon the
conversion of the registrant's Series D preferred stock.
(15) Relates to the resale of shares of common stock issuable upon the
conversion of the notes acquired by selling stockholders in the January
2002 private placement, and by one creditor in consideration of the
obligation to such creditor. 800,000 of such shares of common stock have
been registered in connection with possible interest payments.
(16) Relates to the resale of shares of common stock issuable upon the exercise
of warrants required by selling stockholders in the January 2002 private
placement.
(17) Relates to the resale of shares of common stock issuable upon the exercise
of warrants granted to Commonwealth Associates L.P. and designees of
Commonwealth Associates L.P. for acting as placement agent for the January
2002 private placement.
(18) Relates to the resale of shares of common stock issuable upon the exercise
of warrants other than those described above.
(19) Relates to the resale of shares of common stock issued by the registrant.
(20) Fee of $6,811.08 was previously paid with the original filing of this
registration statement on January 26, 2001 with respect to 29,549,140
shares of the registrant's common stock (not adjusted for 1-for-15 reverse
stock split effected on January 10, 2002). An additional fee of $3,118.00
was paid in connection with the filing of Amendment No. 1 on July 13, 2001.
No additional fee is required hereunder due to the 1-for-15 reverse stock.
THE INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY
BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS DECLARED EFFECTIVE. THIS
PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MAY 14, 2002
PRELIMINARY PROSPECTUS
EB2B COMMERCE, INC.
19,037,094 SHARES OF COMMON STOCK
This prospectus relates to the resale of up to 19,037,094 shares of our
common stock by the selling securityholders named in this prospectus from time
to time. The shares offered for resale hereby consist of 942,814 shares of our
common stock currently issued and outstanding, 8,204,736 shares of our common
stock underlying shares of our preferred stock, 1,734,922 shares of our common
stock underlying convertible notes issued by us, and interest, if any, that may
be paid in the form of shares of common stock, and 8,154,622 shares of our
common stock issuable upon the exercise of warrants issued by us. The shares
offered for resale hereby are 922% greater than the 1,862,443 shares of our
common stock issued and outstanding as of March 20, 2002.
We will not receive any of the proceeds from the sale of the shares other
than the exercise price, if any, to be received upon exercise of the warrants.
We have agreed to bear all of the expenses in connection with the registration
and sale of the shares, except for any applicable underwriting discounts,
brokerage fees or commissions and transfer taxes, as well as the fees and
disbursements of the selling securityholders' counsel and advisors.
Our common stock is quoted on the Nasdaq SmallCap Market under the symbol
'EBTB.' On May 13, 2002, the closing price of our common stock, as reported by
Nasdaq, was $.60 per share.
-------------------
THE SECURITIES OFFERED IN THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK.
AMONG OTHER THINGS, WE CANNOT ASSURE YOU THAT WE HAVE SUFFICIENT CASH RESOURCES
FOR 12 MONTHS AND WE RECEIVED AN UNQUALIFIED OPINION FROM OUR INDEPENDENT
AUDITORS WITH RESPECT TO OUR FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 2001 WHICH INCLUDED AN EXPLANATORY PARAGRAPH DISCUSSING THE
EXISTENCE OF SUBSTANTIAL DOUBT REGARDING OUR ABILITY TO CONTINUE AS A GOING
CONCERN. YOU SHOULD CAREFULLY READ AND CONSIDER THE 'RISK FACTORS' COMMENCING ON
PAGE 3 FOR INFORMATION THAT SHOULD BE CONSIDERED IN DETERMINING WHETHER TO
PURCHASE ANY OF THE SECURITIES.
-------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------
THE DATE OF THIS PROSPECTUS IS , 2002
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the common stock being sold in this
offering, including the risk factors and the financial statements and related
notes, included elsewhere in this prospectus.
On April 18, 2000, eB2B Commerce, Inc., a Delaware corporation, merged with
and into DynamicWeb Enterprises, Inc., a New Jersey corporation. Following the
merger, although we maintained corporate and legal identity of DynamicWeb
Enterprises, we changed our name from DynamicWeb Enterprises, Inc. to eB2B
Commerce, Inc. and assumed the accounting history of the former eB2B Commerce,
Inc. (i.e. the former Delaware corporation).
All common stock data set forth herein has been adjusted to reflect a
1-for-15 reverse stock split of our common stock which became effective on
January 10, 2002.
OUR BUSINESS
We are a provider of business-to-business transaction management services
designed to simplify trading partner integration, automation and collaboration.
We utilize proprietary software to provide a technology platform for large
buyers and large suppliers to transfer business documents via the Internet to
their small and medium-sized trading partners. These documents include, but are
not limited to, purchase orders, purchase order acknowledgments, advanced
shipping notices and invoices. We provide access via the Internet to our
software, which is maintained on our hardware and on hosted hardware. In some
instances, we allow customers who are also resellers of our services to take
delivery of our proprietary software on a licensed basis.
We also offer professional services, which provide consulting expertise to
the same client base, as well as to other businesses that prefer to operate or
outsource the transaction management and document exchange of their
business-to-business relationships. In addition, we provide authorized technical
education to our client base, and also design and deliver custom computer
courseware, as well as web development training seminars.
Our principal executive offices are located at 665 Broadway, New York, New
York 11003. Our telephone number at that location is (212) 703-2000. Our
Internet address is www.eB2B.com. The information contained on our web site is
not incorporated by reference in this prospectus and shall not be considered a
part of this prospectus.
THE OFFERING
SHARES OFFERED:
19,037,094 shares of common stock to be offered by the selling
securityholders as follows:
8,154,622 of which will be issued upon the exercise of our warrants that
are currently outstanding;
2,500 of which will be issued upon conversion of our Series A preferred
stock;
3,630,000 of which will be or has been issued upon conversion of our
series B preferred stock;
4,238,900 of which will be issued upon conversion of our Series C preferred
stock;
333,336 of which will be issued upon conversion of our Series D preferred
stock;
1,734,922 of which will be issued upon conversion of our 7% senior
subordinated secured convertible notes, inclusive of 800,000 shares
received for possible interest payments; and
942,814 of which is currently issued.
- --------------------------------------------------------------------------------
1
- --------------------------------------------------------------------------------
USE OF PROCEEDS:
We will not receive any of the proceeds from the sale of the shares of
common stock offered in this prospectus other than the exercise price, if any,
to be received upon exercise of the warrants.
SUMMARY FINANCIAL INFORMATION
The following summary financial information has been derived from our
financial statements as of and for the years ended December 31, 2001 and 2000.
Our financial statements appear later in this prospectus, which should be read
in conjunction with the related notes. The information presented is in
thousands, except share and per share data.
YEAR ENDED
DECEMBER 31,
--------------------
2000 2001
---- ----
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $ 5,468 $ 6,816
------- ----------
Costs and expenses:
Cost of revenue......................................... 2,839 3,070
Marketing and selling (exclusive of stock-based
compensation expense)................................. 2,804 1,739
Product development costs (exclusive of stock-based
compensation expense)................................. 2,698 2,024
General and administrative (exclusive of stock-based
compensation expense)................................. 13,438 11,168
Restructuring charge.................................... -- 3,327
Amortization of goodwill and other intangibles.......... 9,829 10,654
Impairment of goodwill.................................. -- 43,375
Stock-based compensation expense........................ 16,027 1,922
------- ----------
Total costs and expenses............................ 47,635 77,279
------- ----------
Loss from operations........................................ (42,167) (70,463)
Interest and other, net..................................... 832 (3,031)
------- ----------
Net loss.................................................... (41,335) (73,494)
Basic and diluted net loss per common share................. $(54.15) $ (58.88)
------- ----------
------- ----------
Weighted average number of common shares outstanding........ 764,100 1,248,164
AS OF
DECEMBER 31, 2001
-----------------
CONSOLIDATED BALANCE SHEET DATA:
Current assets.............................................. $ 4,950
Working capital (deficit)................................... (10)
Goodwill and other intangibles, net......................... 2,273
Total assets................................................ 11,069
Long term debt and capital lease............................ 1,885
Total liabilities........................................... 8,431
Total stockholders' equity.................................. 2,638
- --------------------------------------------------------------------------------
2
RISK FACTORS
You should carefully consider the risks and uncertainties described below,
as well as the discussion of risks and other information contained or
incorporated by reference in this prospectus before deciding whether to invest
in our common stock. Additional risks and uncertainties not presently known to
us or that we currently deem immaterial may also impair our business operations.
If any of the following risks actually occur, our business, financial
condition or operating results could be materially adversely affected. In such
case, the trading price of our common stock could decline and you may lose part
or all of your investment.
DynamicWeb was incorporated on July 26, 1979 in the State of New Jersey, and
has been engaged in electronic commerce since 1996. On April 18, 2000, eB2B
Commerce, Inc., a Delaware corporation, merged with and into DynamicWeb, the
surviving legal entity in a reverse acquisition, and DynamicWeb's name was
changed at that time to eB2B Commerce, Inc. In that the securityholders of
former eB2B received the majority of the voting securities of the combined
company, former eB2B was deemed to be the accounting acquiror. Accordingly, the
financial results discussed in 'Risk Factors' and throughout this prospectus
prior to April 18, 2000 are those of former eB2B, unless otherwise specified.
RISKS RELATING TO OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY, HAVE INCURRED SIGNIFICANT LOSSES AND
CAN GIVE NO ASSURANCE THAT WE CAN EVER ATTAIN PROFITABILITY.
We have a limited operating history in the business-to-business electronic
commerce industry. For the year ended December 31, 2000, we generated revenues
of $5,468,000 and incurred a net loss attributable to common stockholders of
$41,335,000. For the year ended December 31, 2001, we generated revenues of
$6,816,000, incurred a net loss of $73,494,000, inclusive of a goodwill
impairment charge of $43,375,000, and our accumulated deficit on December 31,
2001 was $152,499,000. We cannot give assurances that we will soon make a profit
or that we will ever make a profit. Sales are expected to increase due to the
increasing number of companies we expect to join our trading communities. We
expect this increase to come from (i) the acquisition of Bac-Tech Systems, Inc.
in January 2002; (ii) an increase in the suppliers transacting with a large
existing customer; and (iii) continued growth in signing up target retailers in
our key vertical markets. Among other things, to achieve profitability, we must
market and sell substantially more services, hire and retain qualified and
experienced employees and be able to manage our expected growth. We may not be
successful in these efforts. Our business plan currently contemplates that we
achieve positive EBITDA (earnings before interest, taxes, depreciation and
amortization) at some point in 2002. There can be no assurance that positive
EBITDA can be achieved in this timeframe or at all, and all of the risk factors
described herein may negatively affect our operating results. We expect to have
substantial non-cash expenses that we exclude when determining EBITDA, including
depreciation of software assets, amortization of intangibles other than goodwill
and stock-based compensation expenses. In addition, we will be required to pay
interest on recently issued notes. Accordingly, we expect to continue incurring
a net loss as determined by generally accepted accounting principles in 2002 and
for the foreseeable future.
WE RECEIVED AN UNQUALIFIED OPINION FROM OUR INDEPENDENT AUDITORS WHICH
RAISES SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN, AND
WE MAY NEED TO RAISE ADDITIONAL CAPITAL WHICH, IF NOT OBTAINED, COULD REQUIRE US
TO CEASE OPERATIONS.
As of December 31, 2001, we had approximately $3,700,000 in cash, of which
approximately $2,240,000 was available to fund operations and working capital
requirements. Our cash resources will be further reduced by virtue of our net
loss and negative cash flow from operations in the first quarter of 2002. The
report of our independent auditors on our financial statements as of and for the
year ended December 31, 2001 contains an explanatory paragraph that states that
our recurring losses from operations and negative cash flows from operations
raise substantial doubt about our ability to continue as a going concern. We are
prepared to and have begun to take the following actions to improve our cash
position and fund our operating losses:
3
additional cost reduction measures, which we believe will further reduce
annual salaries, benefits or other operating expenses by approximately
$1,000,000; in this respect, in April 2002, our staff was reduced by five
employees;
sell our training business, subject to finding a suitable buyer; and
raise additional capital, for which there can be no assurance of obtaining.
Due to the significant cost cutting measures and the settlement of certain
outstanding obligations for shares rather than cash, or at reduced amounts,
carried out during 2001, and based upon current expectations, we anticipate
generating positive cash flow from ongoing operations at some point in 2002,
although there can be no assurance in this regard. We would need approximately
$2.3 million in quarterly revenues and collections to report positive cash flow
from operations based on our quarterly cash expenses as of March 31, 2002. In
view of our current circumstances, we may need additional financing. We may not
be able to obtain such additional financing, or, if available, the terms of the
financing may not be favorable to us or our shareholders. Such inability to
raise additional financing would have a material adverse effect on our business,
prospects, operating results and financial condition and may require us to cease
operations. We may also seek to raise funds to finance the acquisition of other
businesses, or to otherwise increase our revenue levels. Further, if we issue
equity securities, shareholders may experience substantial dilution or the new
equity securities may have rights and preferences senior to our common stock and
outstanding preferred stock.
OUR BUSINESS MODEL IS UNPROVEN AND MAY NOT BE SUCCESSFUL.
Our business-to-business electronic commerce model is based on the general
activity in trading communities for the purchase and sale of goods between
buyers and suppliers. While we have signed several participants into our
networks, none of the participants are required to conduct a minimum level of
business. If our business strategy is flawed or if we fail to execute our
strategy effectively, our business, operating results and financial condition
will be substantially harmed. We do not have substantial experience in
developing and operating trading communities. The success of our business model
will depend upon a number of factors, including:
the addition of significantly more buyers and suppliers in our trading
communities, particularly those who already conduct business among
themselves;
an increased volume of transactions conducted by buyers and suppliers;
our ability to maintain customer satisfaction;
our ability to upgrade, develop and maintain the technology necessary for
our operations;
the introduction of new or enhanced services by our competitors;
the pricing policies of competitors;
our ability to attract personnel with Internet industry expertise; and
the satisfactory performance, reliability and availability of our systems
and network infrastructure.
IF WE DO NOT SUCCEED IN EXPANDING MARKET ACCEPTANCE FOR INTERNET
BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE OUR OPERATIONS WILL BE NEGATIVELY
EFFECTED.
Our future revenues and any future profits depend upon the widespread
acceptance and use of the Internet as an effective medium of
business-to-business electronic commerce, particularly as a medium to perform
goods procurement and fulfillment functions in our targeted markets. If the use
of the Internet in electronic commerce in such markets does not grow or if it
grows more slowly than expected, our business will suffer. A number of factors
could prevent such growth, including:
Internet electronic commerce is at an early stage and buyers may be
unwilling to shift their transmission of business documents from
traditional methods to electronic methods;
Internet electronic commerce may not be perceived as offering a cost saving
to users;
4
the necessary network infrastructure for substantial growth in usage of the
Internet may not be adequately developed;
increased governmental regulation or taxation may adversely affect the
viability of electronic commerce;
any shift from flat rate pricing to usage based pricing for Internet access
may adversely impact the viability of the business models;
insufficient availability of telecommunication services or changes in
telecommunication services could result in slower response times;
technical difficulties; and
concerns regarding the security of electronic commerce transactions.
WE MUST ENROLL A SIGNIFICANT NUMBER OF ADDITIONAL BUYERS AND SUPPLIERS IN OUR
TRADING COMMUNITIES IN ORDER TO ACHIEVE AND MAINTAIN PROFITABILITY.
As of December 31, 2001, we connected approximately 170 retail organizations
and 1,100 supplier organizations within our trading communities. We currently
anticipate that the number of buyers and suppliers would have to increase to
approximately 1,800 on an annual basis in order for us to achieve sustained
profitability without carrying out additional operating expense reductions,
which could substantially impact our ability to service our customers, or
without increases in other types of revenue, including our training center and
transaction revenue from professional services and consulting operations. Over
the last several months, we have added approximately 7,000 suppliers as
potential customers to our backlog. This represents supplier lists provided by
retailers on our service, which need to be sold our services. We estimate that
we can sign and implement between 15% and 30% of these suppliers to our service
in 2002 based on our expectation that several of our retailers, including one of
our largest customers, will require their suppliers to transact electronically
and our current forecast. Based on our past performance, there can be no
assurance we will be successful in our efforts to convert these suppliers into
customers. Our business model depends in large part on our ability to create a
network effect of buyers and suppliers. Buyers may not perceive value in the
communities if there is an insufficient number of major suppliers within the
communities. Similarly, suppliers may not be attracted to the network trading
communities if there is an insufficient number of major buyers within the
communities. If we are unable to increase either the number of buyers or
suppliers, we will not be able to benefit from any network effect. As a result,
the overall value of the trading communities would be diminished, which could
harm our business, operating results and financial condition.
THE LOSS OF ONE OR A SMALL NUMBER OF CUSTOMERS COULD SUBSTANTIALLY REDUCE OUR
REVENUES.
In the year ended December 31, 2001, one customer, Toys R Us, accounted for
approximately 21% of our total revenue. In the year ended December 31, 2000,
this customer accounted for approximately 17% of our total revenue. We expect a
slight increase in revenues from the customer and, therefore, expect that such
percentage will decline over the long-term. If this customer were to
substantially reduce or stop its use of our services, our business, operating
results and financial condition would be harmed. Principal customers in our
transaction processing and related services include Toys R Us, Rite Aid,
Verizon, Best Buy and Linens `N Things. Principal customers in our training and
client educational services include AOL Time Warner, J.P. Morgan Chase Bank,
PricewaterhouseCoopers and Teachers' Insurance -- TIAA CREF. Generally, we do
not have any long-term contractual commitments from any of our current
customers, and customers may terminate their contracts with us with little or no
advance notice and without significant penalty. As a result, we cannot assure
you that any of our current customers will continue to use our services in
future periods.
THE INTERNET-BASED BUSINESS-TO-BUSINESS INDUSTRY IS HIGHLY COMPETITIVE AND WE
MAY NOT ATTAIN SUFFICIENT MARKET SHARE TO SUCCEED.
The market for Internet-based, business-to-business electronic commerce
solutions is extremely competitive and has low barriers to entry. Our
competition is expected to intensify as current
5
competitors expand their service offerings and new competitors -- including
larger, more established companies with more resources -- enter the market. The
evolution of technology in our market is rapid and we must adapt to remain
competitive. We may not be able to compete successfully against current or
future competitors and such competitive pressures could harm our business,
operating results or financial condition. Our competition is primarily made of
indirect horizontal competitors, which are focused on similar services, but not
in specific or multiple vertical industries, or those in unrelated vertical
markets. Major publicly traded competitors include Marex, Inc., Neoforma.com,
Inc. and The viaLink Company. Major privately held competitors include Automated
Data Exchange (ADX) (formerly known as The EC Company) and SPS Commerce for
which minimal public information is available on their efforts to date. Also, we
believe that competition may develop from four additional areas: EDI/electronic
commerce companies, technology/software development companies, retailer
purchasing organizations, and leading industry manufacturers. Additionally,
large retailers and suppliers can create their own technology platform to
automate the exchange of business documents with their small and medium sized
trading partners, thereby reducing the number of large retailers and suppliers
in our target markets.
THE FAILURE TO SECURE OUR INTELLECTUAL PROPERTY RIGHTS COULD COMPROMISE THE
VALUE OF OUR SERVICES AND RESULT IN A LOSS OF BUSINESS.
To protect our proprietary products, we rely on a combination of copyright,
trade secret and trademark laws, as well as contractual provisions relating to
confidentiality and related matters. We also rely on common law protection
relating to unfair business practices. Our primary software is licensed from
Interworld Corporation, and has been modified by us to perform the tasks
specific to our business. Such software is run on our computers, thereby
avoiding third party access. Our software license agreement with InterWorld
Corporation, dated as of December 11, 1998, as amended, grants us a non-
exclusive, non-transferable license to use certain software on a designated
platform for (i) internal data processing at designated locations, and
(ii) enabling on-line users to access information about, and to order
electronically, products and services offered through our web site. The
agreement requires us to pay InterWorld a non-refundable net fee of $2,200,000,
which amount has been paid in full through a combination of cash and shares of
our common stock. Additionally, to the extent our annual revenue exceeds
$250,000,000 through the use of the software, we are obligated to pay InterWorld
...01% of the overage as an additional license fee and .08% of the overage as an
additional support and maintenance fee. This agreement may be terminated by
InterWorld at any time for our failure to pay any license fees within fifteen
days of receipt of notification that payment is past due or by either party if
the other party fails to cure a material breach of any term of the agreement
within sixty days of receipt of notice. Despite our efforts to protect our
proprietary rights, unauthorized parties may attempt to copy aspects of our
products or to obtain and use information that we regard as proprietary.
Moreover, we cannot assure you that our means of protecting our proprietary
rights will be adequate or that competitors will not independently develop
similar or superior technology.
WE MAY NOT HAVE FEDERAL TRADEMARK PROTECTION FOR OUR NAME AND THEREFORE MAY NOT
BE ABLE TO ADEQUATELY ADDRESS THIRD PARTY INFRINGEMENT.
Our principal trademark is 'eB2B', for which we are seeking a federal
registration. The United States Patent and Trademark Office issued an initial
objection to the registration application based upon the descriptiveness of the
trademark. We have filed a response with the USPTO challenging the objection,
which response was denied by the USPTO. An additional response was filed by us
to clarify our position, which is currently pending review by the USPTO. There
can be no assurance that a trademark will be granted by the USPTO. If a federal
trademark is not obtained then there can be no assurance that the mark can be
adequately protected against any third party infringement, which could adversely
affect our business. We have not made filings in any states with respect to
obtaining state trademark protection.
6
WE ARE DEPENDENT ON ONE DATA CENTER.
We operate our primary data center at Exodus Communications' Internet Data
Center facility in Jersey City, New Jersey. This data center operates
twenty-four hours a day, seven days a week, and is connected to the Internet and
the electronic data interchange networks via AT&T and IBM Global Network. The
data center consist primarily of servers, storage subsystems, and other
peripheral technology to provide on-line, batch and back-up operations.
Customers' data is backed-up daily and stored off-site. We rely on Exodus
Communications to provide us with Internet capacity, security personnel and fire
protection, and to maintain the facilities, power and climate control necessary
to operate our servers. Additionally, we rely on redundant subsystems, such as
multiple fiber trunks from multiple sources, fully redundant power on the
premises and multiple back-up generators. If Exodus Communications fails to
adequately host or maintain our servers, our services could be disrupted and our
business and operating results could be significantly harmed. We can make no
assurances regarding our recourse against Exodus Communications in the event of
such failure.
In September 2001, Exodus Communications publicly announced that it filed
voluntary petitions for reorganization under Chapter 11 of the United States
Bankruptcy Code. In January 2002, Exodus Communications announced that the
proposed sale of a substantial portion of its business and assets, including
those relating to portions which conduct business with us, to Cable & Wireless
plc. was approved by the bankruptcy court. We expect that normal services will
continue to be provided. There can be no assurance that Exodus Communications or
its successor can effectively provide and manage the aforementioned
infrastructure and services in a reliable fashion.
CERTAIN LEGAL RISKS AND UNCERTAINTIES RELATING TO OUR SERVICES COULD SUBJECT US
TO CLAIMS FOR DAMAGES.
In the course of our business, we will be exposed to certain legal risks and
uncertainties relating to information transmitted in transactions conducted by
our customers. The services provided to customers may include access to
confidential or proprietary information. Any unauthorized disclosure of such
information could result in a claim against us for substantial damages. In
addition, our services include managing the collection and publication of
catalog content. The failure to publish accurate catalog content could deter
users from participating in trading communities, damage our business reputation
and potentially expose us to legal liability. From time to time, some of our
suppliers may submit inaccurate pricing or other catalog information. Even
though such inaccuracies may not be caused by us and are not within our control,
we could be exposed to legal liability. Although we believe that we have
implemented and will continue to implement adequate policies to prevent
disclosure of confidential or inaccurate information, claims alleging such
matters may still be brought against us. Any such claim may be time-consuming
and costly and may harm our business and financial condition. We maintain
insurance for many of the risks encountered in our business, however, there can
be no assurance that the claims will be substantially covered by our insurance.
OUR RESOURCES MAY BE ADVERSELY EFFECTED BY THE COSTS AND ANY DAMAGE AWARDS
RESULTING FROM CURRENT AND POSSIBLE FUTURE LITIGATION.
In October 2000, Cintra Software & Services Inc. commenced a civil action
against us in New York Supreme Court, New York County. The complaint alleges
that we acquired certain software from Cintra upon the authorization of our
former Chief Information Officer. Cintra is seeking damages of approximately
$856,000. We have filed an answer denying the material allegations of the
complaint. We believe we have meritorious defenses to the allegations made in
the complaint and intend to vigorously defend the action.
In March 2001, a former employee commenced a civil action against our
company and two members of our management in New York Supreme Court, New York
County, seeking, among other things, compensatory damages in the amount of $1.0
million and additional punitive damages of $1.0 million for alleged defamation
in connection with his termination, as well as a declaratory judgment concerning
his alleged entitlement to stock options to purchase 5,000 shares of our common
stock. We subsequently filed a motion to dismiss, which was granted as to the
defamation action on January 7,
7
2002. The former employee has the right to appeal this action. We dispute the
remainder of his claims, which do not involve substantial amounts, and intend to
vigorously defend the action.
In December 2001, one of our former officers commenced a civil action
against us in New York Supreme Court, New York County seeking $85,000, plus
liquidated damages, attorneys' fees and costs, for alleged bonuses owing to her.
We subsequently filed a motion to dismiss this action. We dispute this claim and
intend to vigorously defend the action.
More generally, some of our engagements involve the design and development
of customized e-commerce systems that are important to our clients' businesses.
Failure or inability to meet a client's expectations in the performance of
services could result in a diminished business reputation or a claim for
substantial damages regardless of which party is responsible for such failure.
In addition, the services provided to clients may provide us with access to
confidential or proprietary client information. Although we have policies in
place to prevent such client information from being disclosed to unauthorized
parties or used inappropriately, any unauthorized disclosure or use could result
in a claim against us for substantial damages. Contractual provisions attempting
to limit such damages may not be enforceable in all instances or may otherwise
fail to protect us from liability.
In addition, there is always the possibility that our shareholders will
blame us for taking an alleged inappropriate action that causes the loss of
their investment. In the past, following periods of volatility in the market
price of a company's securities, class action litigation often has been
instituted against a company experiencing stock price declines. Similar
litigation, if instituted against us, could result in substantial costs and a
diversion of our management's attention and resources. As a result, your
investment in our stock may become illiquid and you may lose your entire
investment.
WE MAY BE FACED WITH A SIGNIFICANT NON-OPERATIVE STOCK AND CASH LIABILITY.
During 2001, we issued one of our vendors an aggregate of 145,986 shares of
currently unregistered common stock in lieu of the $1,200,000 balance due this
vendor for software license fees. In the event that within two years this vendor
receives gross proceeds (less brokerage commissions) of less than $1,200,000
from selling its shares in the open market, we agreed to issue this vendor
additional shares of common stock in an amount equal to the difference between
gross proceeds (less brokerage commissions) received by this vendor from the
sale of the shares of common stock and the balance due to it divided by the
average closing price of the common stock for the five trading days ending on
the last sale date, up to a maximum of 266,667 shares of common stock. If the
maximum number of shares is insufficient to pay the balance due this vendor, we
have agreed to pay this vendor in cash, no earlier than April 2003, an amount
equal to one-half of the remaining balance (with the remaining one-half to be
forgiven). Fluctuations in the market price of the common stock will increase or
decrease the actual cash payment we will be required to pay and, accordingly, we
may be faced with a significant non-operative stock and cash liability. As of
December 31, 2001, we have accrued approximately $229,000 relating to the
potential cash shortfall for this amount in long term liabilities as the cash
shortfall could not be triggered before April 2003.
RISKS RELATING TO OUR COMMON STOCK
OUR DIRECTORS AND EXECUTIVE OFFICERS HAVE SIGNIFICANT CONTROL AND INFLUENCE OVER
OUR COMPANY AND HOLDERS OF SECURITIES ISSUED IN OUR PRIVATE PLACEMENTS MAY ALSO
HAVE SIGNIFICANT INFLUENCE.
As a group, on January 15, 2002 our directors and executive officers
beneficially owned approximately 81.4% (31.5% on a fully diluted basis) of our
outstanding voting stock. If they vote together, the directors and executive
officers will be able to exercise significant influence over all matters
requiring shareholder approval, including the election of directors. The
interests of our directors and executive officers may conflict with the
interests of our other shareholders. Commonwealth Associates, L.P., a placement
agent for our December 1999, April/May 2001, December 2001 and January 2002
private placements, and the beneficial owner of 38.7% (6.2% on a fully diluted
basis) of our common stock as of January 15, 2002, has designated two members of
our board of directors and may have the right to designate a third in the
future. In addition, holders of Series B preferred stock, as well as related
warrants (excluding agent's warrants), as of January 15, 2002, had the ability
to obtain
8
3,581,250 shares of common stock. Holders of Series C preferred stock, as well
as related warrants (excluding agent's warrants), issued in our April/May 2001
private placement, as of January 15, 2002, had the ability to obtain 6,311,524
shares of our common stock. Holders of our 7% senior subordinated secured
convertible notes, as well as related warrants, issued in our December 2001 and
January 2002 financings, had the ability to obtain 2,028,031 shares of our
common stock. All of the holders of such notes, except for one holder who has
the ability to convert into 108,472 shares, also own Series C preferred stock
and many of the holders of Series C preferred stock also own Series B preferred
stock. As a result, if such holders choose to act together, they could assert
significant influence over our company.
WE DO NOT ANTICIPATE PAYING DIVIDENDS ON OUR COMMON STOCK.
We have never paid dividends on our common stock and we do not anticipate
paying dividends in the foreseeable future. We intend to reinvest any funds that
might otherwise be available for the payment of dividends in further development
of our business.
THE EXERCISE OF OPTIONS AND WARRANTS AND CONVERSION OF CONVERTIBLE SECURITIES
MAY DILUTE THE PERCENTAGE OWNERSHIP OF OUR SHAREHOLDERS AND THE POTENTIAL OR
ACTUAL EXERCISE OR CONVERSION HAS NEGATIVELY AFFECTED, AND MAY CONTINUE TO
NEGATIVELY AFFECT, THE PRICE OF OUR COMMON STOCK AND MAY IMPEDE OUR ABILITY TO
RAISE CAPITAL.
A substantial number of our shares of common stock underlie outstanding
shares of convertible preferred stock, convertible notes and outstanding options
and warrants. A substantial portion of these underlying shares are included for
resale in this Prospectus, and the shares offered for resale hereby are 922%
greater than the 1,862,443 shares of common stock issued and outstanding as of
January 15, 2002. As of January 15, 2002, there are outstanding shares of
convertible preferred stock and convertible notes to purchase an aggregate of
approximately 8.1 million shares of our common stock and options and warrants to
purchase an aggregate of approximately 9.0 million shares of our common stock.
If a significant number of these options or warrants were exercised, or a
significant amount of preferred stock or notes was converted to common stock,
the percentage ownership of our common stock would be materially diluted. For
example, if all outstanding options and warrants were exercised and if all
convertible securities were converted to common stock as of January 15, 2002,
there would have been approximately 930% more common stock outstanding at such
time. We believe that the potential exercise or conversion may have an adverse
impact on the price of our common stock and therefore on our ability to raise
capital. The actual conversion or exercise of convertible securities, and the
sale of the underlying common stock into the open market, could further
substantially negatively affect the price of our common stock.
THERE IS POTENTIAL EXPOSURE TO US IN THAT CERTAIN SHARES OF COMMON STOCK
UNDERLYING OUR PREFERRED STOCK HAVE BEEN SOLD PRIOR TO THE DATE OF THIS
PROSPECTUS.
From December 2, 2000 until January 11, 2001, certain shares of our common
stock, which were issued by virtue of conversion of shares of preferred stock,
were sold by our shareholders in the open market. Such shareholders believed
that their shares were registered pursuant to a previous registration statement
of ours. The Securities and Exchange Commission has advised us of their opinion
that such shares were not covered by the prior registration statement. While we
believe that such sales were made in conformance with applicable securities laws
and regulations, a different determination may result in our having liability.
Commencing January 25, 2001, we advised such converting shareholders to resell
their shares pursuant to Rule 144 promulgated under the Securities Act of 1933.
We estimate that approximately 195,534 shares of our common stock were issued to
such shareholders on or prior to January 11, 2001. Such shares may have
potentially been sold in the open market on or prior to January 11, 2001, at
prices that may have ranged from $7.50 to 18.75 per share. It is possible that
the selling securityholders will seek to include us in any action for recission
taken against them by third parties who purchased the common stock. The measure
of damages could be the purchase price paid, plus interest. We are unable to
assess the amount of damages, in the event that there is any liability.
9
BECAUSE OF THE DECLINE IN THE MARKET PRICE OF OUR COMMON STOCK RELATIVE TO THE
STOCK PRICES AT THE TIME OF OUR PRIOR SECURITIES OFFERINGS, OUR COMMON
SHAREHOLDERS HAVE BEEN SIGNIFICANTLY DILUTED DUE TO PREFERENCES INCLUDED IN OUR
OUTSTANDING PREFERRED SHARES AND WARRANTS.
We have a substantial number of outstanding shares of convertible preferred
stock, a significant amount of convertible notes and a substantial number of
outstanding warrants to purchase shares of our common stock. The preferred
shareholders and convertible noteholders are entitled to an adjusted conversion
price, which results in their receiving additional shares of common stock upon
conversion, if we raise capital at a price below the then current conversion
price or market price. Similarly, many of our warrant holders are entitled to a
reduced exercise price on their warrants if we raise capital at a price below
the then current exercise price or market price. The number of shares of common
stock underlying these shares of preferred stock and warrants have significantly
increased as a result of the offering price for our securities in our private
financings concluded in 2001 and January 2002. If we raise additional capital at
a price below these amounts, our common shareholders' percentage of ownership
will be further diluted by the additional common stock required to underlie the
preferred shares, convertible notes and warrants.
THE PRICE OF OUR COMMON STOCK IS VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL
LOSSES FOR INVESTORS.
Our stock price has been and is likely to continue to be volatile. For
example, from January 1, 2001 through May 6, 2002, our common stock traded as
high as $36.56 per share and as low as $.60 per share (which prices reflect a 1
for 15 reverse stock split effected in January 2002).
Volatility in the future may be due to a variety of factors, including:
volatility of stock prices of Internet and electronic commerce companies
generally;
variations in our operating results and/or our revenue growth rates;
changes in securities analysts' estimates of our financial performance, or
for the performance of our industry as a whole;
announcements of technological innovations;
the introduction of new products or services by us or our competitors;
change in market valuations of similar companies;
market conditions in the industry generally;
announcements of additional business combinations in the industry or by us;
issuances or the potential issuances of additional shares;
additions or departures of key personnel; and
general economic conditions.
The stock market has experienced extreme price and volume fluctuations that
have particularly affected the market prices of securities of Internet-related
companies. These fluctuations may adversely affect the market price of our
common stock.
WE MAY BE DELISTED FROM THE NASDAQ SMALLCAP MARKET.
Our common stock is traded on the Nasdaq SmallCap Market under the symbol
'EBTB'. Nasdaq requires a bid price of at least $1.00 as a requirement for
continued listing. The bid price of our common stock was below $1.00
continuously from April 9, 2001 to January 9, 2002. In September 2001, Nasdaq
announced that it was implementing a moratorium on the $1.00 minimum bid
requirement. This moratorium expired on January 2, 2002. However, Nasdaq
extended the 90-day bid price grace period for companies whose securities are
traded on the Nasdaq SmallCap market to 180 days. Following this grace period,
companies that demonstrate compliance with the core initial listing standards of
the SmallCap market will be afforded an additional 180-day grace period within
which to regain compliance. On January 10, 2002, we affected a one-for-fifteen
reverse stock split. The board of directors believes that this reverse stock
split of the common stock may enable our common stock to meet Nasdaq's minimum
$1.00 bid price requirement for continued listing. There is a risk, however,
that
10
the dilutive effect of the conversion of our preferred stock and convertible
notes and the exercise of warrants included in this Prospectus, together with
the sale of a significant number of shares of our common stock, including those
shares included in this Prospectus, may unravel the effects of the reverse stock
split by providing downward pressure on our stock price. Although our common
stock traded above $1.00 per share immediately after the reverse stock split, in
April 2002 it began trading below $1.00 per share. In addition, to maintain a
Nasdaq listing, a net worth of $2,500,000 is required. At December 31, 2001, our
net worth was $2,638,000. In the event we suffer losses or fail to take other
corrective actions, we may fail to meet these requirements. If our common stock
is eventually delisted from the Nasdaq SmallCap Market, trading in the
securities may then continue to be conducted on the non-Nasdaq over-the-counter
market in what are commonly referred to as the electronic bulletin board and the
'pink sheets'. As a result, an investor may find it more difficult to dispose of
or obtain accurate quotations as to the market value of the securities.
OUR SHARES COULD BECOME A 'PENNY STOCK', IN WHICH CASE IT WOULD BE MORE
DIFFICULT FOR INVESTORS TO SELL THEIR SHARES.
The SEC has adopted rules that regulate broker-dealer practices in
connection with transactions in 'penny stocks'. Penny stocks generally are
equity securities with a price of less than $5.00, other than securities
registered on national securities exchanges or quoted on Nasdaq, provided that
current price and volume information with respect to transactions in such
securities is provided by the exchange or system. Prior to a transaction in a
penny stock, a broker-dealer is required to:
deliver a standardized risk disclosure document that provides information
about penny stocks and the nature and level of risks in the penny stock
market;
provide the customer with current bid and offer quotations for the penny
stock;
explain the compensation of the broker-dealer and its salesperson in the
transaction;
provide monthly account statements showing the market value of each penny
stock held in the customer's account; and
make a special written determination that the penny stock is a suitable
investment for the purchase and receive the purchaser's written agreement
to the transaction.
These requirements may have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the penny
stock rules. If our shares become subject to the penny stock rules, investors
may find it more difficult to sell their shares.
FORWARD-LOOKING STATEMENTS
The statements contained in this prospectus that are not historical facts
may be 'forward-looking statements,' as defined in Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act of 1934, that contain risks
and uncertainty. Such statements can be identified by the use of forward-
looking terminology such as 'estimates,' 'projects,' 'anticipates,' 'expects,'
'intends,' 'believes,' or the negative of each of these terms or other
variations thereon or comparable terminology or by discussions of strategy that
involve risks and uncertainties. Although we believe that our expectations are
reasonable within the bounds of our knowledge of our business operations, there
can be no assurance that actual results will not differ materially from our
expectations. The uncertainties and risks include, among other things, our
plans, beliefs and goals, estimates of future operating results, our limited
operating history, the ability to raise additional capital, if needed, the risks
and uncertainties associated with rapidly changing technologies such as the
Internet, the risks of technology development and the risks of competition that
can cause actual results to differ materially from those in the forward-looking
statements.
Forward-looking statements are only estimates or predictions and should not
be relied upon. We can give you no assurance that future results will be
achieved. Actual events or results may differ materially as a result of risks
facing us or actual results differing from the assumptions underlying such
statements. These risks and assumptions could cause actual results to vary
materially from the future results indicated, expressed or implied in the
forward-looking statements included in this prospectus.
11
All forward-looking statements made in this prospectus that are attributable
to us or persons acting on our behalf are expressly qualified in their entirety
by the factors listed above in the section captioned 'Risk Factors' and other
cautionary statements included in this prospectus. We undertake no obligation to
update information contained in any forward-looking statement.
USE OF PROCEEDS
The proceeds from the sale of the shares by the selling securityholders will
belong to the individual selling securityholders. We will not receive any of the
proceeds from the sale of the shares other than with respect to the exercise
price, if any, of the warrants.
PRICE RANGE OF COMMON STOCK
Our common stock has been quoted on the Nasdaq SmallCap Market under the
symbol 'EBTB' since August 15, 2000. Prior to such time, our common stock was
quoted on the Over-the-Counter Bulletin Board maintained by the National
Association of Securities Dealers. The volume of trading in our common stock has
been limited during the period presented until August 15, 2000, the date the
Nasdaq SmallCap Market began quoting our common stock and the closing sale
prices reported may not be indicative of the value of our common stock or the
existence of an active trading market prior to such date.
The following table sets forth the high and low closing sale prices for our
common stock for the periods indicated as adjusted for the 1 for 15 reverse
stock split effected January 10, 2002:
Quarter Ended High Low
- ------------- ---- ---
March 31, 2000.............................................. 277.50 148.20
June 30, 2000............................................... 210 48.75
September 30, 2000.......................................... 81.60 30.90
December 31, 2000........................................... 32.40 10.50
March 31, 2001.............................................. 36.56 10.31
June 30, 2001............................................... 17.81 3
September 30, 2001.......................................... 3.90 1.50
December 31, 2001........................................... 3.45 1.50
January 1 to March 31, 2002................................. 3.62 .95
April 1 to May 6, 2002...................................... 1.25 .60
As of March 15, 2002, we have approximately 3,000 record holders of our
common stock.
DIVIDEND POLICY
We have never paid cash dividends on our capital stock and do not anticipate
paying cash dividends in the foreseeable future. We currently intend to retain
any future earnings for reinvestment in our business. Any future determination
to pay cash dividends will be at the discretion of our board of directors and
will be dependent upon our financial condition, results of operations, capital
requirements and other relevant factors.
12
SELECTED FINANCIAL DATA
The following selected financial data has been derived from the financial
statements of eB2B from its inception until the merger with DynamicWeb
Enterprises, Inc. on April 18, 2000 and from our consolidated financial
statements as of and for the years ended December 31, 2000 and 2001. Our
financial statements appear later in this prospectus, which should be read in
conjunction with the related notes. The information presented is in thousands,
except share and per share data.
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
PERIOD FROM
NOVEMBER 6, 1998
(INCEPTION) TO YEAR ENDED DECEMBER 31,
DECEMBER 31, --------------------------------------
1998 1999 2000 2001
---- ---- ---- ----
Revenue................................... $ -- $ -- $ 5,468 $ 6,816
----- -------- -------- --------
Costs and expenses:
Cost of revenue....................... -- -- 2,839 3,070
Marketing and selling (exclusive of
stock-based compensation expense)... -- -- 2,804 1,739
Product development costs (exclusive
of stock-based compensation
expense)............................ 53 572 2,698 2,024
General and administrative (exclusive
of stock-based compensation
expense)............................ 55 1,670 13,438 11,168
Restructuring charge.................. -- -- -- 3,327
Amortization of goodwill and other
intangibles......................... -- -- 9,829 10,654
Impairment of goodwill................ -- -- -- 43,375
Stock-based compensation expense...... -- 2,686 16,027 1,922
----- -------- -------- --------
Total costs and expenses.......... (108) 4,928 47,635 77,279
----- -------- -------- --------
Loss from operations...................... (108) (4,928) (42,167) (70,463)
Interest and other, net................... -- (3,192) 832 (3,031)
----- -------- -------- --------
Net loss.................................. (108) (8,120) (41,335) (73,494)
Deemed dividend on preferred stock........ -- (29,442) -- --
----- -------- -------- --------
Net loss attributable to common
stockholders............................ $(108) $(37,562) $(41,335) $(73,494)
----- -------- -------- --------
----- -------- -------- --------
Basic and diluted net loss per common
share................................... $ (85.50) $ (54.15) $ (58.88)
-------- -------- --------
-------- -------- --------
Weighted average number of common shares
outstanding............................. 439,407 764,100 1,248,164
CONSOLIDATED BALANCE SHEET DATA:
AS OF DECEMBER 31,
----------------------------------
1998 1999 2000 2001
---- ---- ---- ----
Current assets............................................. $ 10 $28,153 $11,589 $ 4,950
Working capital (deficit).................................. (41) 27,098 3,299 (10)
Goodwill and intangibles, net.............................. -- -- 56,363 2,373
Total assets............................................... 384 29,064 73,219 11,069
Long term and capital leases............................... -- -- 1,462 1,885
Total liabilities.......................................... 137 1,055 10,131 8,431
Total stockholders' equity................................. 247 28,009 63,088 2,638
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis should be read with the financial
statements and accompanying notes, included elsewhere in this prospectus. It is
intended to assist the reader in understanding and evaluating our financial
position.
On April 18, 2000, eB2B Commerce, Inc., a Delaware corporation, merged with
DynamicWeb, which is a New Jersey corporation, which was the surviving legal
entity. Following the merger, although the merged company maintained the
corporate and legal identity of DynamicWeb, we changed our name from DynamicWeb
Enterprises, Inc. to eB2B Commerce, Inc. and assumed the accounting history of
the former eB2B Commerce, Inc. (i.e. the Delaware corporation).
OVERVIEW
We are a provider of business-to-business transaction management services
designed to simplify trading partner integration, automation and collaboration.
We utilize proprietary software to provide a technology platform for large
buyers and large suppliers to transfer business documents via the Internet to
their small and medium-sized trading partners. These documents include, but are
not limited to, purchase orders, purchase order acknowledgments, advanced
shipping notices and invoices. We provide access via the Internet to our
proprietary software, which is maintained on our hardware and on hosted
hardware. In some instances, we will allow customers who are also resellers of
our services to take delivery of our proprietary software on a licensed basis as
a result of the Bac-Tech acquisition in January 2002.
We also offer professional services, which provide consulting and technical
expertise to the same client base, as well as to other businesses that prefer to
operate or outsource the transaction management and document exchange of their
business-to-business relationships. In addition, we are an authorized provider
of technical education to our clients for products of Citrix, Lotus Development
Corporation, Microsoft Corporation, and Novell, Inc.
On February 22, 2000, former eB2B completed its acquisition of Netlan
Enterprises, Inc. Pursuant to the agreement and plan of merger, Netlan's
stockholders exchanged 100% of their common stock for 46,992 shares of former
eB2B common stock (equivalent to 8,334 shares of our common stock).
Additionally, 75,188 shares of former eB2B common stock (equivalent to 13,334
shares of our common stock) were issued, placed into an escrow account, and
released to certain former shareholders of Netlan upon successful completion of
escrow requirements. The purchase price of the Netlan acquisition was
approximately $1.6 million. We recorded approximately $4,896,000 of goodwill and
approximately $334,000 of other intangibles in connection with this transaction.
On April 18, 2000, former eB2B merged with and into DynamicWeb, with the
surviving company changing its name from 'DynamicWeb Enterprises, Inc.' to 'eB2B
Commerce, Inc.' Pursuant to our agreement and plan of merger with former eB2B,
the DynamicWeb shareholders retained their shares in our company, while the
shareholders of former eB2B received shares, or securities convertible into
shares, of common stock of DynamicWeb representing approximately 89% of our
equity, on a fully diluted basis.
The April 2000 merger was accounted for as a purchase business combination
in which former eB2B was the accounting acquirer and DynamicWeb was the legal
acquirer. As a result of the reverse acquisition, (i) the financial statements
of former eB2B are our historical financial statements; (ii) the results of
operations include the results of eB2B and DynamicWeb after the date of the
April 2000 merger; (iii) the acquired assets and assumed liabilities were
recorded at their estimated fair market value at the date of the April 2000
merger; and (iv) all references to our financial statements apply to the
historical financial statements of former eB2B prior to the April 2000 merger
and to our consolidated financial statements subsequent to the April 2000
merger. The purchase price of the April 2000 merger was approximately $59.1
million, of which approximately $1.9 million was allocated to
14
identifiable net liabilities assumed, $58.1 million was allocated to goodwill
and $2.9 million was allocated to other intangibles.
The goodwill resulting from the above business combinations was being
amortized over five years and other intangibles are being amortized over a
three-year period. For the year ended December 31, 2000, amortization related to
the goodwill and other intangibles acquired in the Netlan Enterprises, Inc.
acquisition and April 2000 merger with DynamicWeb totaled approximately $9.8
million. Through September 30, 2001, amortization related to these transactions
amounted to approximately $10.2 million. As of September 30, 2001, we determined
the goodwill and other intangibles to be impaired based on the projected future
undiscounted cash flows that these assets were expected to generate and we
recorded an impairment charge of approximately $43.4 million. As of
December 31, 2001, there were no indications of any further potential
impairment. We also recorded amortization expense of approximately $448,000 in
the fourth quarter against the $1.6 million and $951,000 that remained in
goodwill and other intangibles, respectively, after the impairment review in
September 2001.
Our financial condition and results of operations were dramatically
different during the years ended December 31, 2001 and 2000. For the year ended
December 31, 2001, our results reflect the operations of Netlan and the
operations of DynamicWeb for a full year. For the year ended December 31, 2000,
our results reflect the operations of Netlan from March 1, 2000 and the
operations of DynamicWeb from April 19, 2000; the dates of the respective
acquisitions. Former eB2B was a development stage company, which primarily
devoted its operations to recruiting and training of employees, development of
its business strategy, design of a business system to implement its strategy,
and development of business relationships with buyers and suppliers. As a
result, we believe that the results of operations for the year ended
December 31, 2001 are not comparable to the results of operations for the same
period in 2000, and our anticipated financial condition and results of
operations going forward. Furthermore, our limited operating history makes the
prediction of future operating results very difficult. We believe that
period-to-period comparisons of operating results should not be relied upon as
predictive of future performance. Our prospects must be considered in light of
the risks, expenses and difficulties encountered by companies at an early stage
of development, particularly companies in new and rapidly evolving markets. We
may not be successful in addressing such risks and difficulties.
IMPACT OF CRITICAL ACCOUNTING POLICIES
The SEC has recently issued Financial Reporting Release No. 60, 'Cautionary
Advice Regarding Disclosure About Critical Accounting Policies' ('FRR 60'),
suggesting companies provide additional disclosure and commentary on those
accounting policies considered most critical. FRR 60 considers an accounting
policy to be critical if it is important to our financial condition and results,
and requires significant judgment and estimates on the part of management in its
application. Management believes the following represent our critical accounting
policies as contemplated by FRR 60. For a summary of all of our significant
accounting policies, including the critical accounting policies discussed below,
see Note 2 to the accompanying consolidated financial statements.
Revenue Recognition
Revenue from transaction processing is recognized on a per transaction basis
when a transaction occurs between a buyer and a supplier. The fee is based
either on the volume of transactions processed during a specific period,
typically one month, or calculated as a percentage of the dollar volume of the
purchase related to the documents transmitted during a similar period. Revenue
from related implementation, if any, annual subscription and monthly hosting
fees are recognized on a straight-line basis over the term of the contract with
the customer. Deferred income includes amounts billed for implementation, annual
subscription and hosting fees, which have not been earned. For related
consulting arrangements on a time-and-materials basis, revenue is recognized as
services are performed and costs are incurred in accordance with the terms of
the contract. Revenues from related fixed-price consulting arrangements are
recognized using the percentage-of-completion method. The revenue recognized
from fixed-price consulting arrangements is dependent on: management's estimate
of (i) the total costs to complete the project; and (ii) the degree of
completion at the end of the applicable accounting period. Fixed-price
consulting arrangements are mainly short-term in nature and we do not
15
have a history of incurring losses on these types of contracts. If we were to
incur a loss, a provision for the estimated loss on the uncompleted contract
would be recognized in the period in which such loss becomes probable and
estimable. Billings in excess of revenue recognized under the percentage-of-
completion method on fixed-price contracts is included in deferred income.
Revenue from training and client educational services is recognized upon the
completion of the seminar and is based upon class attendance. If a seminar
begins in one period and is completed in the next period, we recognize revenue
based on the percentage-of-completion method for the applicable period.
Therefore, the amount of revenue recognized is dependent on management's
estimate of the total costs to complete a seminar and the scheduled dates of the
applicable seminar. Deferred income includes amounts billed for training
seminars and classes that have not been completed.
Accounting for Business Combinations, Goodwill, and Other Intangible Assets
The judgments made in determining the estimated fair value and expected
useful lives assigned to each class of assets and liabilities acquired can
significantly impact net income. For example, different classes of assets will
have useful lives that differ -- the useful life of a customer list may not be
the same as the other intangible assets, such as patents, copyrights, or to
other assets, such as software licenses. Consequently, to the extent a
longer-lived asset (e.g., patents) is ascribed greater value or a greater part
of the purchase price is allocated to goodwill than to a shorter-lived asset
(e.g. customer lists and software licenses) there may be less amortization
recorded in a given period. Furthermore, to the extent goodwill or other long
lived assets are determined to be impaired using the guidance in the guidance in
the applicable accounting literature and an impairment charge is recorded, there
may be less amortization recorded in future periods.
Determining the fair value of certain assets and liabilities acquired is
judgmental in nature and often involves the use of significant estimates and
assumptions. As provided by the accounting rules, we used the one-year period
following the consummation of the Netlan acquisition and Dynamic Web merger to
finalize estimates of the fair value of assets and liabilities acquired. One of
the areas that requires more judgment in determining fair values and useful
lives is intangible assets. While there were a number of different methods used
in estimating the value of the intangibles acquired, there were two approaches
primarily used: discounted cash flow and market multiple approaches. Some of the
more significant estimates and assumptions inherent in the two approaches
include: projected future cash flows (including timing); discount rate
reflecting the risk inherent in the future cash flows; perpetual growth rate;
determination of appropriate market comparables; and the determination of
whether a premium or a discount should be applied to comparables. The value of
our intangible assets, including goodwill, is exposed to future adverse changes
if our company experiences declines in operating results or experiences
significant negative industry or economic trends or if future performance is
below historical trends. We periodically review intangible assets and goodwill
for impairment using the guidance of applicable accounting literature. In 2002,
we will adopt new rules for measuring the impairment of goodwill and certain
intangible assets. The estimates and assumptions described above, as well as the
determination as to how goodwill will be our operating segments, will impact the
amount of impairment, if any, to be recognized upon adoption of the new
accounting standard.
YEARS ENDED DECEMBER 31, 2001 AND 2000
Revenue for the year ended December 31, 2001 increased $1,348,000 or 25% to
$6,816,000 as compared to $5,468,000 for the year ended December 31, 2000. The
increase in revenues reflects a full year of the results of operations from
Netlan and DynamicWeb in 2001, compared to ten months and eight and one-half
months, respectively, in 2000. On a pro-forma basis, assuming the acquisitions
of Netlan and DynamicWeb were completed on January 1, 2000, revenues declined by
$257,000 or 4% to $6,816,000 in 2001 from $7,073,000 in 2000. The slight decline
in revenues on a pro-forma basis is primarily due to (i) the impact of
September 11, 2001, particularly on our training business which experienced
cancellations and deferrals of training sessions; (ii) sluggish economic
conditions in the B2B sector and (iii) elimination of certain consulting
services acquired from Netlan during the latter part of 2000.
16
Our transaction processing and related services business segment generated
revenue of $4,333,000 for year ended December 31, 2001 as compared to $3,039,000
for the year December 31, 2000, an increase of $1,294,000 or 43% for year ended
December 31, 2001 as compared to the prior year. This increase in revenue for
the period is principally due to the following:
(i) Increased revenue in 2001 as a result of the full twelve months of
operations acquired from DynamicWeb on April 18, 2000 and included from
April 19, 2000. On a pro forma basis had we acquired DynamicWeb on
January 1, 2000, the revenue from transaction processing and related
services for the year ended December 31, 2000 would have been $897,300
higher than the revenue reported by us in the period;
(ii) Increased revenue in 2001 ($675,000) as a result of an increase in the
average fee paid per customer for transaction processing services as
well as additions of new customers to our service, net of
cancellations of this service by certain inactive or very low volume
customers;
(iii) Decreased revenue in 2001 ($625,000) in relation to consulting
services acquired from Netlan on February 22, 2000 and reflected from
March 1, 2000, which have been eliminated during the latter part of
2000.
Our training and client educational services' business segment generated
revenue of $2,483,000 for the year ended December 31, 2001 as compared to
$2,429,000 for the year ended December 31, 2000. The $54,000 or 2% increase in
the year ended December 30, 2001 as compared to the comparable period in the
previous year is chiefly associated with the full year of operations of Netlan
in the 2001 period versus ten months of operations in the 2000 period as these
operations were reflected from March 1, 2000, offset by the negative effect of
the terrorist attacks in New York. We believe the September 11, 2001 terrorist
attacks resulted in lost revenues of approximately $125,000, net of the recovery
of $36,000 in business interruption insurance for cancellations on that day. We
believe the remainder of lost revenues was caused by cancellations in the
following weeks. Since November 2001, the training center business has started
to return to its normal monthly revenue prior to the September 11, 2001
terrorist attacks. Had we acquired Netlan on January 1, 2000, the revenue from
training and client educational services for the year ended December 31, 2000
would have been approximately $275,000 higher than the revenue reported in the
year ended December 31, 2001.
In the year ended December 31, 2001, one customer accounted for
approximately 21% of our total revenue. In the year ended December 31, 2000,
this customer accounted for 17% of our revenue. No other customer accounted for
10% or more of our total revenue for these periods. As our transaction business
continues to grow, we expect the percentage of overall revenue coming from this
customer to decline, although there can be no assurance in this regard.
Cost of revenue consists primarily of (i) salaries and benefits for
employees providing technical support, (ii) salaries and benefits of personnel
and consultants providing consulting and training services to clients and
(iii) communication and hosting expenses associated with the transmittal and
hosting of our transaction data. Total cost of revenue for the year ended
December 31, 2001 amounted to $3,070,000, as compared to $2,839,000 for the year
ended December 31, 2000, an increase of $231,000 or 8%. The increase in cost of
revenue for the year ended December 31, 2001 compared to the prior year period
reflected a full year of the operations of Netlan and DynamicWeb.
Marketing and selling expenses consist primarily of employee salaries,
benefits and commissions, and the costs of promotional materials, trade shows
and other sales and marketing programs. Marketing and selling expenses
(exclusive of stock-based compensation) for the year ended December 31, 2001
amounted to $1,739,000 as compared to $2,804,000 for the year ended
December 31, 2000, a decrease of $1,065,000 or 38%. The decrease is chiefly
associated with the reorganization plan implemented by us prior to and during
2001 by which we (i) eliminated approximately $125,000 in monthly salaries and
benefits on a recurring basis and (ii) reduced or eliminated expenses related to
trade shows and other marketing programs, offset by the full year of operations
of both Netlan and DynamicWeb in 2001.
Product development costs mainly represent payments to outside contractors
and personnel and related costs associated with the development of our
technological infrastructure necessary to process transactions, including the
amortization of certain capitalized costs. Product development costs (exclusive
of stock-based compensation) were approximately $2,024,000 for the year ended
17
December 31, 2001 as compared to $2,698,000 for the year ended December 31,
2000, a decrease of $674,000 or 25%. On April 16, 2001, we put our new
technology platform in service and started amortizing the related capitalized
costs. During the first quarter of 2001, we had expensed approximately $910,000
in relation to costs chiefly associated with the transition of certain of our
existing customers to this new technology platform. In 2000, we were amortizing
the prior version of our technology platform. We capitalize qualifying computer
software costs incurred during the application development stage. Accordingly,
we anticipate that product development expenses will fluctuate from year to year
as various milestones in the development are reached and future versions are
implemented.
General and administrative expenses consist primarily of employee salaries
and related expenses for executives, administrative and finance personnel, as
well as other consulting, legal and professional fees and, to a lesser extent,
facility and communication costs. During the year ended December 31, 2001, total
general and administrative expenses (exclusive of stock-based compensation)
amounted to $11,168,000 as compared to $13,438,000 for the year ended
December 31, 2000, a decrease of $2,270,000 or 17%. The decrease in general and
administrative expenses for the year is principally due to the following:
(i) consulting fees in relation to the design and the implementation of our
strategy, business model and management structure of approximately
$1,257,000 in the year ended in 2000 that did not exist in 2001,
(ii) a reduction of monthly salaries and benefits of approximately $190,000
on a recurring basis as a result of the cost cutting measures
implemented by us during and prior to the second and third quarters of
2001, partially offset by
(iii) our different scope of operations in 2001 and increased expenses to
manage and operate the companies acquired during 2000.
As a result of the reorganization plan implemented, we recorded a total
restructuring charge of $3,327,000 in 2001. This restructuring charge consisted
of (i) lease termination costs of $1,765,000; (ii) severance totaling $1,145,000
and (iii) contract termination costs of $417,000. The lease termination costs
represent the expected costs to terminate our office lease at 757 Third Avenue.
The lease termination costs consist of (i) approximately $1.2 million in
security deposit (inclusive of approximately $300,000 in accrued rent);
(ii) approximately $700,000 in additional cash or stock consideration to account
for the short fall between our rental rate and current market rates; and
(iii) the write-off of approximately $162,000 in leasehold improvements. The
severance costs related to the elimination of 40 full-time positions
representing approximately 46% of our workforce, which was completed in 2001. As
of December 31, 2001, we paid approximately $1,065,000 of the severance costs
and approximately $238,000 of the contract termination costs accrued as part of
the restructuring charge. We expect to pay the remaining severance costs in the
first and second quarters of 2002. The remaining contract termination costs were
paid in the first quarter of 2002.
Amortization of goodwill and other intangibles are non-cash charges
associated with the DynamicWeb and Netlan business combinations. Such
amortization expense was $10,654,000 for the year ended December 31, 2001 as
compared to $9,829,000 for the year ended December 31, 2000, an increase of
$825,000 or 8%. This increase is due to the timing of the Netlan and the
DynamicWeb acquisitions, which took place on February 22, 2000 and April 18,
2000, respectively, and the resulting full year of amortization of the related
goodwill and other intangibles in 2001 versus partial year of amortization in
2000 as the operations of Netlan and DynamicWeb were reflected from March 1,
2000 and April 19, 2000, respectively. This income is partially offset by lower
amortization expense in the fourth quarter of 2001 as a result of the impairment
charge taken at September 30, 2001.
Based upon our history of recurring operating losses and our market
capitalization being less than our stockholders' equity as of September 30,
2001, management assessed the carrying value of goodwill and other intangibles
and determined that such value may not be recoverable. If the sum of the
expected undiscounted future cash flows were less than the carrying amount of
the assets, we would recognize an impairment loss. The impairment loss is
measured as the amount by which the carrying amount of the goodwill and other
intangibles exceeds the fair value of the assets, as calculated utilizing the
discounted future cash flows. In accordance with this policy, we recorded an
impairment charge of
18
$43,375,000 and changed the amortization period of goodwill from five years to
three years for the remainder of 2001. Commencing on January 1, 2002, goodwill
will no longer be amortized, but will be reviewed periodically for impairment in
accordance with Statement of Financial Accounting Standards No. 142. Other
intangibles will continue to be amortized over the expected period of income
benefit.
During the year ended December 31, 2001, stock-based compensation expense
amounted to $1,922,000 as compared to $16,027,000 for the year ended
December 31, 2000, a decrease of $14,105,000 or 88%. During the second quarter
of 2000, the Company recorded a one-time charge of approximately $8.8 million
related to warrants to purchase 88,667 shares of our common stock, which vested
upon the completion of the April 18, 2000 merger. The deferred stock
compensation is principally being amortized over the vesting periods of the
related options and warrants contingent upon continued employment of the
respective option or warrant holders. The vesting period of the options and
warrants ranges principally from two to four years. The balance of unearned
stock-based compensation at December 31, 2001 was approximately $768,000. This
balance will be amortized at approximately $81,000 per quarter through September
2003.
We define Earnings Before Interest, Taxes, Depreciation and Amortization
('EBITDA') as net income (loss) adjusted to exclude: (i) provision (benefit) for
income taxes, (ii) interest income and expense, (iii) depreciation, amortization
and impairment charges of long-lived assets, and (iv) stock-based compensation.
EBITDA is discussed because management considers it an important indicator
of the operational strength and performance of its business based in part on the
significant level of non-cash expenses recorded by us to date, coupled with the
fact that these non-cash items are managed at the corporate level. EBITDA,
however, should not be considered an alternative to operating or net income as
an indicator of our performance, or as an alternative to cash flows from
operating activities as a measure of liquidity, in each case determined in
accordance with accounting principles generally accepted in the United States of
America. See Liquidity and Capital Resources for a discussion of cash flow
information.
For the year ended December 31, 2001, EBITDA was a loss of $11,517,000 as
compared to a loss of $13,104,000 for the year ended December 31, 2000, a
decrease of $1,587,000 or 12%. Excluding the impact of the $3,327,000
restructuring charge recorded in 2001, the EBITDA loss was $8,190,000, which
represents a decrease of $4,769,000 or 38% from the prior year. The improvement
in EBITDA reflects the significant reductions in costs effected by us, in 2001
without a corresponding decrease in revenues.
Interest and other, net was an expense of $3,031,000 for the year ended
December 30, 2001 as compared to income of $832,000 for the year ended
December 31, 2000. During 2001, this expense was primarily a total of $3,190,000
amortization expense associated with debt issuance costs on the convertible
notes issued in April/May 2001, and related discount, non-cash interest and
conversion option. In 2000, this income, net of other expenses, related
primarily to interest earned on cash balances and available-for-sale marketable
securities during the period.
Net loss for the year ended December 30, 2001 was $73,494,000 as compared to
$41,335,000 for the year ended December 31, 2000, an increase of $32,159,000 or
78%. The increased net loss in 2001 from 2000 reflects the items described
above, the primary cause of which was the $43,375,000 impairment charge recorded
against goodwill recorded in the third quarter. This was partially offset by
cost savings related to the restructuring.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2001, our principal source of liquidity was approximately
$2.2 million of cash and cash equivalents. This excludes restricted cash of
approximately $1.4 million against which a bank held a custody account with
approximately $1,441,000 as security on a $1,300,000 line of credit with the
bank, the equivalent of 109% of the line of credit. The line of credit secures
approximately $1,441,000 of letters of credit that were outstanding at
December 31, 2001 in relation to our leased facilities and certain other
equipment. This line of credit is not available to fund operating and working
capital requirements. Our cash resources will be reduced by virtue of our net
loss and negative cash flow from operations in the first quarter of 2002. The
report of our independent auditors on our financial
19
statements as of and for the year ended December 31, 2001 contains an
explanatory paragraph which states that our recurring losses from operations and
negative cash flows from operations raise substantial doubt about our ability to
continue as a going concern. We are prepared to take the following actions to
improve our cash position and fund our operating losses during 2002:
additional cost reduction measures, which we believe will further reduce
annual salaries, benefits or other operating expenses by approximately
$1,000,000; in this respect, in April 2002, our staff was reduced by five
employees;
sell our training business, subject to finding a suitable buyer; and
raise additional capital, for which there can be no assurance of obtaining.
We may seek additional capital in order to fund our internal growth, for
possible acquisitions, or, if positive cash flow from operations is not
generated, revenue growth does not materialize positively or there are
unanticipated expenses.
As a result of the significant cost cutting measures carried out as part of
our 2001 restructuring plan, our ongoing quarterly cash expenses more closely
approximate our quarterly revenues, although we still reported negative cash
flows from operations and an EBITDA loss for both the fourth quarter and the
year ended December 31, 2001. We also expect to report negative cash flow from
operations and an EBITDA loss in the first quarter of 2002 due to the
integration of our operations with Bac-Tech Systems and the fact that the first
quarter is historically slow for Bac-Tech's business. At our current quarterly
expense rates, including the impact of the Bac-tech acquisition but prior to the
staff reductions in April 2002, we will require approximately $2.3 million in
quarterly revenues and cash collections to report positive EBITDA and cash flow
from operations. To the extent our quarterly revenues and cash collections are
below this amount, we are prepared to take additional actions, including further
cost reduction measures. We expect to generate positive cash flow from ongoing
operations on a recurring basis, at some point during 2002, although there can
be no assurance in this regard.
In December 2001, we raised gross proceeds of $2,000,000 through the sale of
90-day, 7% senior subordinated secured notes and common stock purchase warrants
to purchase an aggregate of 266,667 shares of common stock at $1.80 per share.
These warrants were valued using the Black Scholes model at approximately
$218,875. This amount will be amortized over the life of the debt and charged to
interest expense in 2002. In connection with this financing, we paid a
cash-private placement fee amounting to $200,000 and incurred approximately
$85,000 in indirect expenses, consisting primarily of legal fees. The proceeds
of this financing are being used to fund general working capital needs in 2002
and to fund the upfront cash portion of the Bac-Tech acquisition, which was
approximately $250,000, completed in January 2002. In January 2002, these notes,
in the aggregate principal amount of $2,000,000, were automatically converted
into $2,000,000 principal amount of five-year, 7% senior subordinated secured
convertible notes and common stock purchase warrants to purchase an aggregate of
826,439 shares at $2.90 per share. Management believes our current cash
resources, which includes the proceeds from our most recent financing in
December 2001, together with the improvement of our working capital as a result
of the following actions, may be sufficient to continue operations through 2002
and thereafter if our operations are cash flow positive, as we anticipate:
Our entering into agreements to settle approximately $425,000 in severance
and other contractual obligations through the issuance of shares of our
common stock during the fourth quarter of 2001 and the restructuring of a
liability of $262,500 through the issuance a five year 7% senior
subordinated secured convertible notes during January 2002, based on an
agreement reached in December 2001.
The settlement of certain liabilities in December 2001 for approximately
$400,000 less than what was previously owed.
The average savings of approximately $475,000 in monthly cash expenses as a
result of a restructuring plan we initiated during the second quarter of
2001, which included principally staffing reductions and discretionary
spending reductions in selling, marketing, general and administrative
expenses.
20
In January 2002, utilizing a portion of the proceeds of the December 2001
financing, we acquired Bac-Tech Systems, Inc., a privately-held New York
City-based e-commerce company. As a result of the Bac-Tech acquisition, the
Series D preferred stock transaction requires shareholder approval by
November 30, 2002. If such approval is not obtained by November 30, 2002, the
Series D preferred stock becomes redeemable, at the option of the holders, for
$10 per share in cash, plus accrued dividends. We expect this vote to occur
before the end of the third quarter of 2002. If the vote to convert does not
occur, a cash payment of approximately $980,000 would be required to be paid to
the Bac-Tech shareholders. We may seek to grow by additional acquisitions. There
can be no assurances provided that any additional funding will be concluded, or
that, if concluded, will be concluded on acceptable terms or be adequate to
accomplish our goals. There can be no assurance that any other additional
acquisitions can be concluded or, if concluded, will achieve the results desired
by us. We anticipate spending approximately $0.7 million on capital expenditures
over the next twelve months, primarily on capitalized product development costs.
Currently, we are also seeking to exit approximately 22,000 square feet of
leased space in New York City that we use for our corporate headquarters and
back office operations. In this respect, we are seeking to utilize significantly
smaller space, which would result in reduced rental and security obligations.
Our current monthly rental cost is approximately $100,000 and we have a letter
of credit of approximately $1.2 million securing this lease. As a result of the
current status of the negotiations with the landlord, we recorded a charge of
$1.8 million in the fourth quarter for the expected costs to terminate the lease
at 757 Third Avenue. This includes (i) approximately $1.2 million in the
security deposit which we expect to surrender (inclusive of accrued rent of
approximately $300,000) through December 31, 2001; (ii) approximately $700,000
in additional stock or cash consideration to account for the short fall between
our rent terms and the current market price of the lease facility and (iii) the
write-off of approximately $162,000 in leasehold improvements. The estimated
liability to terminate the lease of approximately $1.9 million which includes
approximately $300,000 in accrued rent for the period October 2001 to December
2001, is recorded on our balance sheet at December 31, 2001.
At December 31, 2001, we accrued approximately $229,000 potentially owing to
a creditor. We had previously issued shares of our common stock to this party
for payment of obligations then owing, and had agreed that in the event it
received gross proceeds from the sale of these shares less than the amount
originally owing of $1,200,000, then we would issue additional shares to cover
the shortfall. In December 2001, we amended our agreement with this creditor
whereby the creditor agreed to be issued up to 266,667 shares of our common
stock to offset any deficiency, and to the extent such amount is insufficient,
then to be paid one-half of the remaining balance in cash no earlier than April
2003, with the other one-half to be forgiven.
Since our inception on November 6, 1998, we have incurred significant
operating losses, net losses and negative cash flows from operations, due in
large part to the start-up and development of our operations and the development
of proprietary software and technological infrastructure for our platform to
process transactions. We expect that our net losses will continue as we
implement our growth strategy. There can be no assurance that revenue will
improve, that expenses will not increase in 2002, that net losses will be
reduced or that we will generate positive cash flow from operations at some
point in 2002 as currently projected. Historically, we have funded our losses
and capital expenditures through borrowings and the net proceeds of prior
securities offerings. From inception through December 31, 2001, net proceeds
from private sales of securities and issuance of convertible notes totaled
approximately $38.1 million.
Management has addressed the costs of providing transaction management and
document exchange services throughout 2000 and 2001. While we continue to add
customers to our service and this remains a critical factor for future growth,
it is equally important for us to focus on adding trading partners who transact
business with our largest existing customers.
From April 16 through May 2, 2001, we received gross proceeds of $7.5
million from a private placement of convertible notes and warrants to certain
accredited investors. Pursuant to the financing, we issued $7,500,000 of
principal amount of 7% convertible notes, convertible into an aggregate of
1,000,000 shares of our common stock ($7.50 per share), and warrants to purchase
an aggregate 1,000,000 shares of our common stock at $13.95 per share. The
convertible notes had a term of 18
21
months. Interest was payable quarterly in cash, in identical convertible notes
or in shares of common stock, at our option. In addition, the convertible notes
were automatically convertible into Series C preferred stock if we received the
required consent of the holders of our Series B preferred stock for the issuance
of this new series. The convertible notes were converted into the Series C
preferred stock on September 28, 2001 when we received the required consents
from the holders of our Series B preferred stock. The Series C preferred stock
is convertible into common stock on the same basis as the convertible notes
were. The private warrants are exercisable through October 17, 2003.
In connection with the closing of the April/May 2001 financing, we canceled
a $2,250,000 line of credit issued in April 2001, pursuant to which we had not
borrowed any funds. We incurred a cash fee amounting to $61,500 in consideration
of the availability of the line of credit. In addition, the issuer of the line
of credit was issued warrants to purchase 60,000 shares of our common stock at
$7.50 per share for a period of five years in consideration of the availability
of such line. These warrants were valued using the Black-Scholes option-pricing
model at $548,000.
In connection with the April/May 2001 financing and as compensation to the
placement agents, we incurred a cash fee amounting to $750,000 and issued
(i) warrants to purchase 150,000 shares of our common stock with an exercise
price of $13.95 for a period of five years and (ii) unit purchase options to
purchase Series C preferred stock convertible into an aggregate of 150,000
shares of common stock with an exercise price of $7.50 per share for a period of
five years. These warrants and unit purchase options were valued using the
Black-Scholes option-pricing model at $675,000 and $810,000, respectively.
Additionally, other expenses directly related the April/May 2001 financing,
principally legal and accounting fees, amounted to approximately $309,000.
Net cash used in operating activities totaled approximately $9,529,000 for
the year ended December 31, 2001 as compared to net cash used in operating
activities of approximately $9,416,000 for the same period in 2000. Net cash
used in operating activities for the year ended December 31, 2001 resulted
primarily from (i) the $73,494,000 net loss in the period and (ii) a $990,000
use of cash from operating assets and liabilities, offset by (iii) an aggregate
of $62,975,000 of non-cash charges consisting primarily of depreciation,
amortization, stock-based compensation expense, restructuring charges and the
impairment of goodwill. Net cash used in operating activities for the year ended
December 31, 2000 resulted primarily from (i) the $41,335,000 net loss in the
period, offset by (ii) $2,749,000 of cash provided by operating assets and
liabilities, and (iii) an aggregate of $29,170,000 of non-cash charges
consisting primarily of depreciation, amortization and stock-based compensation
expense.
Net cash used in investing activities totaled approximately $2,291,000 for
the year ended December 31, 2001 as compared to net cash provided by investing
activities of approximately $9,075,000 for the same period in 2000. Net cash
used in investing activities for the year ended December 31, 2001 resulted from
(i) the purchase of capital assets for $596,000, and (ii) $1,695,000 in product
development costs consisting of fees of outside contractors and capitalized
salaries. Net cash provided by investing activities for the year ended
December 31, 2000 resulted from $15,986,000 net proceeds from maturity of
investments available-for-sale offset by (i) the purchase of capital assets for
$978,000, (ii) $2,331,000 in product development costs consisting of fees of
outside contractors and capitalized salaries, (iii) the $2,527,000 for the
increase in capitalized software costs, and (vi) the $978,000 net cash effect of
the DynamicWeb merger and Netlan acquisition.
Net cash provided by financing activities totaled approximately $5,851,000
for the year ended December 31, 2001 as compared to a use of approximately
$1,357,000 for the same period in 2000. On May 2, 2001, we completed our $7.5
million financing. In connection with that financing, we paid a cash fee
amounting to $750,000 and incurred direct expenses, principally legal and
accounting fees, aggregating $309,000. In February 2000, we obtained a
$2,500,000 term loan from a bank. The proceeds from the term loan were primarily
used to refinance the $2,116,000 debt of Netlan paid by us in connection with
the Netlan acquisition. Beginning December 1, 2000, the term loan required ten
quarterly principal payments of $250,000. On March 1, 2001, we made a $250,000
quarterly payment. In addition, we paid the $2.0 million outstanding balance of
the loan in full on April 2, 2001 using cash held in the custodial cash account.
22
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued SFAS No. 141, 'Business Combinations'. SFAS
No. 141 applies prospectively to all business combinations initiated after
June 30, 2001 and to all business combinations accounted using the purchase
method for which the date of acquisition is July 1, 2001, or later. This
statement requires all business combinations to be accounted for using one
method, the purchase method. Under previously existing accounting rules,
business combinations were accounted for using one of two methods, the
pooling-of-interests method or the purchase method.
In June 2001, the FASB issued SFAS No. 142, 'Goodwill and Other Intangible
Assets'. SFAS No. 142 addresses financial accounting and reporting for acquired
goodwill and intangible assets with indefinite lives. Under SFAS No. 142,
goodwill and some intangible assets will no longer be amortized, but rather
reviewed for impairment on a periodic basis. The provisions of this Statement
are required to be applied at the beginning of our next fiscal year and to be
applied to all goodwill and other intangible assets recognized in our financial
statements at that date. Impairment losses for goodwill and certain intangible
assets that arise due to the initial application of this Statement are to be
reported as resulting from a change in accounting principle. Goodwill and
intangible assets acquired after June 30, 2001 will be subject immediately to
the provisions of this Statement. We are currently evaluating the impact of the
new accounting standard on existing goodwill and other intangible assets and
plan to adopt the new accounting standard in our financial statements for the
fiscal year ending December 31, 2002. We are required to complete the initial
step of the transitional impairment test within six months of adoption of SFAS
No. 142, and to complete the step of the transitional impairment test by the end
of the fiscal year.
In June 2001, the FASB issued SFAS No. 143, 'Accounting for Asset Retirement
Obligations'. SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated retirement costs. SFAS No. 143 applies to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and (or) the normal operation of
long-lived assets, except for certain obligations of lessees. The provisions of
this Statement are required to be applied starting with fiscal years beginning
after June 15, 2001. Earlier application is encouraged. We are currently
evaluating the impact of the new accounting standard and plan to adopt the new
accounting standard in our financial statements for the fiscal year ending
December 2002.
In August 2001, the FASB issued SFAS No. 144, 'Accounting for the Impairment
or Disposal of Long-Lived Assets'. SFAS No. 144 addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. SFAS No. 144
supersedes FASB Statement No. 121, 'Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of', and the accounting and
reporting provisions of APB Opinion No. 30, 'Reporting the Results of
Operations -- Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions', for
the disposal of a segment of a business. This Statement also amends ARB No. 51,
'Consolidated Financial Statements', to eliminate the exception to consolidation
for a subsidiary for which control is likely to be temporary. The provisions of
this Statement are required to be applied starting with fiscal years beginning
after December 15, 2001. We are currently evaluating the impact of the new
accounting standard on existing long-lived assets and plan to adopt the new
accounting standard in our financial statements for the fiscal year ending
December 2002.
23
BUSINESS
GENERAL
We utilize proprietary software to provide services that create more
efficient business relationships between trading partners (i.e. buyers and
suppliers). Our technology platform allows trading partners to electronically
automate the process of business document communication and turn-around,
regardless of what type of computer system the partners use. Through our service
offerings, our technology platform has the capability of receiving business
documents in any technology format, translating the document into any other
format readable by the respective trading partners and transmitting the document
to the respective trading partner. We provide access via the Internet to our
proprietary software, which we maintain on our hardware and on hosted hardware.
We also provide professional services and other consulting services to tailor
our software to our customers' specific needs with regard to automating the
customers' transactions with their suppliers. In some instances, we allow
customers who are also resellers of our services to take delivery of our
proprietary software on a licensed basis.
The business relationship between a buyer and a supplier is not created
within our platform; it is one which already exists. Our services enhance the
previously existing relationship as documents can be transmitted between a buyer
and a supplier in an electronic automated format utilizing our technology
platform. These documents include, but are not limited to, purchase orders,
purchase order acknowledgments, advanced shipping notices and invoices. Our
customers utilize our services for business documents primarily in the direct
goods area, which encompasses purchasing of finished goods for ultimate sale to
an end user, be that a consumer or a business.
In many cases the automation of the exchange of business documents is
occurring between a large buyer or supplier and their smaller trading partners.
In the past, these trading partners communicated with each other via phone, fax
or mail. Our services permit efficiencies among trading partners by
significantly reducing or eliminating the process of manual communications. This
electronic automation allows each trading partner to leverage their investment
in technology (hardware and software) by integrating business document
transactions directly into their back-end systems. These technologies include,
but are not limited to, Electronic Data Interchange, Point of Sale, Enterprise
Resource Planning, Accounting, Inventory, Supply Chain and/or Order Management.
The resulting efficiencies often reduce cost of staffing and cut error rates
typically associated with manual processing of the respective business
documents.
In addition to the integration and automation capabilities of our services,
buyers and suppliers can also exchange documents and conduct business via a
catalog-based environment. This environment supports the needs of both buyer and
supplier throughout the trading life cycle. These include requisitions, order
management, fulfillment and settlement. This is especially useful to support the
trading needs of specific business partners in order to ensure products are
ordered and delivered in the most efficient and least expensive means available.
We also provide professional services to the same client base, as well as to
businesses that wish to build, operate or outsource the transaction management
of their business-to-business trading partner relationships and infrastructure.
In addition, we provide authorized technical education to corporate computer
professionals.
RECENT DEVELOPMENTS
In December 2001, we completed a bridge financing consisting of convertible
notes and warrants. The gross proceeds of $2,000,000 were used for general
corporate purposes and for the acquisition described below. Pursuant to the
December 2001 financing, we issued $2,000,000 of principal amount of 7% senior
subordinated secured notes, having a 90 day maturity, which notes were
automatically convertible into securities issued in our next private placement
financing (subject to certain parameters), and warrants to purchase an aggregate
of 266,667 shares of common stock at an exercise price of $1.80 per share. The
shares underlying the warrants are registered for resale in this prospectus.
In January 2002, the December 2001 bridge financing notes were converted
into five-year 7% senior subordinated secured notes, convertible into 826,444
shares of common stock at a conversion
24
price of $2.42 per share, and two-year warrants exercisable to purchase an
aggregate of 826,439 shares of common stock at an exercise price of $2.90 per
share. We received no cash in this transaction. The shares underlying these
notes and warrants are registered for resale in this prospectus.
During the fourth quarter of 2001, we entered into agreements to settle
certain liabilities including (i) the settlement of certain vendor obligations
resulting in debt forgiveness of approximately $400,000 and (ii) agreements to
settle approximately $425,000 of severance and other contractual obligations
through the issuance of 188,401 shares of common stock. In the first quarter of
2002, we restructured an accrued liability of $262,500 included in our balance
sheet at December 31, 2001 through the issuance of a five year 7% senior
subordinated secured convertible notes convertible into 108,472 shares of common
stock. In addition, in December 2001, we agreed to issue up to 266,667 shares of
common stock to one creditor to offset any deficiency in net proceeds received
by that creditor on the sale of previously issued common stock and pay one-half
of the remaining balance owing to this creditor in cash no earlier than
April 2003 (with the remaining one-half to be forgiven).
Effective January 2, 2002, we acquired Bac-Tech Systems, Inc., a New York
City-based privately-held e-commerce business, through a merger. Pursuant to the
merger agreement, we paid an aggregate of $250,000 in cash and issued an
aggregate of 200,000 shares of common stock and 95,000 shares of Series D
preferred stock to the two stockholders of Bac-Tech. The Series D preferred
stock, inclusive of any accrued dividend, is automatically convertible into an
aggregate of 333,334 shares of common stock upon our stockholders' approval of
the acquisition and/or the issuance of the Series D preferred stock in
connection with the acquisition. If such approval is not obtained by
November 30, 2002, the Series D preferred stock becomes redeemable, at the
option of the holders, for $10 per share in cash, plus accrued dividends. We
expect this vote to occur before the end of the third quarter of 2002. If the
vote to convert does not occur, a cash payment of approximately $980,000 would
be required to be paid to the Bac-Tech shareholders. We also issued secured
notes to the Bac-Tech stockholders in the aggregate amount of $600,000, payable
in three equal annual installments in 2003, 2004 and 2005. All shares of common
stock issued, and underlying the shares of Series D preferred stock issued, to
Bac-Tech's stockholders are being registered for resale in this prospectus
although such holders have a lock-up restriction on the sale of their shares for
a period of one year. In connection with the acquisition, we employed the two
Bac-Tech stockholders for a period of three years. Robert Bacchi now serves as
our chief operating officer and Michael Dodier now serves as Executive Vice
President - Sales. Bac-Tech offers comprehensive EDI and web-based services to a
growing portfolio of nationally known suppliers, including O-Cedar Brands,
Peregrine Outfitters, Schott Glass and Ross Products, a division of Abbott Labs.
We believe this acquisition broadens our customer base and distribution
channels, leverages our revenue model and adds depth to our management team.
At our 2001 annual meeting of stockholders, held on October 17, 2001, our
stockholders gave the board authority to effect a reverse stock split in any of
the following ratios: one-for-five (1:5), one-for-seven (1:7), one-for-ten
(1:10), one-for-twelve (1:12) and one-for-fifteen (1:15). On January 3, 2002,
our board of directors approved a one-for-fifteen (1:15) reverse stock split of
our common stock. The intent of our board in approving the reverse stock split
was to increase the long-term manageability and liquidity of our common stock.
The Board approved the 1:15 reverse stock split in part in an effort to maintain
compliance with Nasdaq's continued listing maintenance requirements which
require that our common stock maintain a $1.00 per share minimum bid price. The
record date for the reverse stock split was January 10, 2002.
HISTORY AND ORGANIZATION
DynamicWeb Enterprises, Inc. was incorporated in the state of New Jersey on
July 26, 1979.
eB2B Commerce, Inc. was incorporated in the state of Delaware on
November 6, 1998.
On April 18, 2000, eB2B Commerce, Inc., a Delaware corporation, merged with
and into DynamicWeb Enterprises, Inc., a New Jersey corporation and a SEC
registrant. The surviving company changed its name from DynamicWeb Enterprises,
Inc. to eB2B Commerce, Inc. Pursuant to the agreement and plan of merger between
DynamicWeb and former eB2B, the shareholders of DynamicWeb retained their shares
in our company, while the shareholders of former eB2B received
25
shares, or securities convertible into shares, of common stock of our company
representing approximately 89% of our equity, on a fully diluted basis. At the
time of the merger, (i) DynamicWeb was engaged in the provision of services and
software that facilitated business-to-business e-commerce between buyers and
sellers of direct goods and (ii) former eB2B was a development stage company
formed to provide Internet-based business-to-business e-commerce services for
manufacturers and retailers to conduct cost-effective electronic commerce
transactions. Prior to the merger, former eB2B primarily devoted its operations
to recruiting and training of employees, development of its business strategy,
design of a business system to implement its strategy, and development of
business relationships with retailers and suppliers.
The April 2000 merger was accounted for as a reverse acquisition, a
'purchase business combination' in which former eB2B was the accounting acquirer
and DynamicWeb was the legal acquirer. The management of former eB2B remained as
our management. As a result of the April 2000 merger, (i) the financial
statements of former eB2B are our historical financial statements; (ii) the
results of our operations include the results of DynamicWeb after the date of
the merger; (iii) acquired assets and assumed liabilities were recorded at their
estimated fair market value at the date of the merger; (iv) all references to
our financial statements apply to the historical financial statements of former
eB2B prior to the April 2000 merger and to our consolidated financial statements
subsequent to the April 2000 merger; (v) any reference to former eB2B applies
solely to eB2B Commerce, Inc., a Delaware corporation, and its financial
statements prior to the merger, and (vi) our year-end is December 31, that of
the accounting acquirer, former eB2B.
On February 22, 2000, prior to the April 2000 acquisition of DynamicWeb
Enterprises, former eB2B completed its acquisition of Netlan Enterprises, Inc.
and its subsidiaries. At the time of the acquisition, Netlan was engaged in
website development for clients and software and other technical training for
clients. Pursuant to the agreement and plan of merger, Netlan's stockholders
exchanged 100% of their common stock for 8,334 shares of our common stock.
Additionally, 13,334 shares of our common stock were issued, placed into an
escrow account, and released to certain former shareholders of Netlan upon
successful completion of escrow requirements. The purchase price of the Netlan
acquisition was approximately $1.6 million. We recorded approximately $4,896,000
of goodwill and approximately $334,000 of other intangibles in connection with
this transaction.
INDUSTRY BACKGROUND
Businesses are increasingly seeking to improve their operating efficiency
with other businesses through electronically automated and integrated business
to business solutions. Electronic Data Interchange, or 'EDI', is a specific form
of business to business electronic commerce, consisting of a standard protocol
for electronic transmission of data between a company and a third party. EDI has
existed for over twenty years. It is a very expensive technology to both
implement and maintain and is, therefore, typically utilized by the largest
companies. In an EDI transaction, the computers of the buyer and the supplier
communicate and exchange the relevant information using an agreed-upon or
standard format. Until very recently, companies that wanted to conduct business
electronically were required to have a special type of computer network called a
value-added computer network or 'VAN'. For a significant fee, a VAN, often
managed by a separate third party, was responsible for the guaranteed exchange
of business documents between trading partners.
The emergence of the Internet as an alternative means of managing the
transactional flow of business to business document exchange has revolutionized
the way businesses operate and interact with their trading partners. The
Internet coupled with a new breed of software solutions has created technology
that supports highly efficient channels of communication and collaboration. The
Internet gives small and medium-sized buyers and suppliers access to the same
efficiencies associated with traditional EDI systems. In addition, the
combination of the Internet and these new software technologies enables buyers
and suppliers of all sizes to electronically exchange business documents and
interact with a greater number of potential trading partners.
Businesses are faced with the challenge of leveraging their existing
investments in older EDI-based systems and software and converting to newer,
Internet and Web-based alternatives. Decision-makers
26
are interested in creating operating efficiencies and achieving return on
investment in this complex evolution of systems and electronic trading
relationships.
BUSINESS OVERVIEW
We use proprietary software to provide a technology platform for large
buyers and large suppliers to transfer business documents via traditional EDI
and the Internet to their small and medium-sized trading partners. These
documents include, but are not limited to, purchase orders, purchase order
acknowledgements, advanced shipping notices and invoices. We provide access via
the Internet to our proprietary software, which we maintain on our hardware and
on hosted hardware. In some instances, we allow our customers who are also
resellers of our services to take delivery of our proprietary software. In 2001,
there was no revenue recognized from the licensing of our proprietary software.
Our technology platform has the capability of integrating trading partners,
electronically automating the exchange of business documents between trading
partners and supporting the collaboration of information across an enterprise's
trading partner community. Integration encompasses the ability to translate
documents from the buyer's required format to the supplier's required format (or
vice versa). This 'any to any' capability insures each organization is able to
leverage their existing technology environment while supporting the specific
needs of their trading partners. Automation allows trading partners to
communicate with each other regardless of the type of computer system, hardware
and software, each partner is utilizing. Collaboration supports the ability for
trading partners to not only exchange business documents but unlock the
potential the information these business documents provide. This includes, for
example, product movement information and vendor performance.
Many large retailers and large suppliers transfer business documents between
each other via EDI. Our platform, utilizing the Internet as a delivery
mechanism, allows these large EDI enabled companies to transfer documents to
companies that are otherwise not EDI capable. Additionally, our services permit
the transmission of documents between two trading partners even when neither is
EDI capable.
According to recent research by AMR Research Corporation, it is estimated
that currently less than 20% of all transactions between businesses in the
United States of America are done with document transfer via EDI. The other
80%-plus of transactions and the related transfer of documents are conducted via
phone, fax and mail. This is our target market. Included in this 80%-plus are
over 100,000 retailers and over 2 million suppliers. On an annual basis these
retailers and their suppliers transact over $1 trillion in purchases. We provide
services to automate currently existing business relationships. The simplicity
of doing electronic automated transactions using our services can help create
additional business among the trading partners, but it is not intended as a
marketplace solution in that we do not intend to create new relationships for
trading partners through our technology platform.
We are positioned to use the Internet to streamline business processes
related to transmitting documents from one business to another. Using our hosted
infrastructure as their technology platform, companies previously unable to
afford the high cost and complexity of doing business with EDI can now
electronically transact business among their trading partners in a more simple,
cost effective manner. The benefits of this approach -- integration, automation
and collaboration -- allow companies utilizing our services to trade more
efficiently, accurately and inexpensively while complying with the trading
requirements of their partners.
Large EDI enabled retailers can use our services as a means to
electronically communicate and transfer business documents to their small and
medium-sized suppliers. Likewise, large EDI enabled suppliers can use our
services to electronically communicate and transfer business documents to their
small and medium-sized retailers. Small and medium-sized retailers and suppliers
can transfer business documents even when neither party is EDI enabled. Using
our services reduces manual processing costs from each organization, thereby
creating efficiencies for both trading partners, as this method of transferring
business documents is much less time consuming than transactions conducted
through the phone, fax or mail. Additionally, our technology platform
significantly reduces error rates normally associated with the processing of
manual documents.
27
We also offer professional services, which provide consulting expertise to
the same client base, as well as to other businesses that prefer to operate or
outsource the transaction management and document exchange of their
business-to-business relationships. As such, our consultants could reside at a
large EDI enabled retailer or supplier with the objective of providing EDI
expertise that does not exist on-site.
Our transaction processing technology platform and professional services
make up one business unit defined as 'transaction processing and related
services'.
We believe that our proprietary software provides the following advantages
to trading partners:
Benefit to Suppliers
Higher revenue by interacting with more buyers
Significant reduction in order processing costs
Reduced customer service costs
Significant reduction in data transmission error rates
Increased inventory turnover and decreased order-to-delivery cycle time
Supplier-buyer demand collaboration
Improved purchasing history and buying pattern information
Increased ability to project demand cycles
Predictable, low monthly payments
Benefit to Buyers
Significant reduction in order management costs
Substantially more convenient and efficient ordering
Real-time information exchange, with access to order status, shipment
timing and inventory availability
Improved product information via online catalog access
Faster delivery
Significant reduction in order error rates
Buyer-supplier demand collaboration
Access to broader base of suppliers
We provide a complete solution, tailored for each customer and designed
specifically for our business processes. By leveraging our expertise in EDI,
business to business transaction management and document exchange, application
development, and Internet networking, we are able to provide a suite of services
that facilitate the transfer of business documents among trading partners.
Customers can use our services not only to electronically send business
documents to each other, but also to achieve demand chain transparency by having
access, as appropriate, to their trading partners data systems via our
proprietary software. Customers of any size or capability can communicate,
exchange documents and transact business with their trading partners regardless
of the type of integration, connectivity or data format. The ability for each
trading partner to both leverage their existing investment in technology
(hardware and software) while supporting the requirements of their trading
partners is an important cost saving feature.
Our services integrate the entire trading process, from requisition to order
management, to fulfillment and settlement. Automated transaction management
across the trading lifecycle supports the synchronization of product movements
through the demand chain. The higher efficiencies and cost savings are
quantifiable to both sides of the trading equation.
We are also an authorized provider of technical education to our clients for
products of Citrix, Lotus Development Corporation, Microsoft Corporation, and
Novell Inc. We design and deliver custom
28
technical education for the same client base and provide education through
delivery of custom computer and Internet-based on-line training seminars. This
is our second business unit defined as 'training and client educational
services'.
MARKETS AND MARKETING
The marketing goals of transaction processing and related services business
segment has been to attract and retain buyers and suppliers principally in the
following vertical industries:
chain drug,
sporting goods,
toys,
general retail,
telecommunications and
consumer electronics
These sizeable industries are characterized by certain operating
inefficiencies. Our management believes that increasing margin pressures, a need
to increase technological sophistication, and a low or average penetration of
EDI make these industries attractive vertical markets for their transaction
processing and related services.
While our sales focus is primarily directed toward specific targeted
vertical markets, our proprietary software was built to operate across many
verticals (a horizontal focus) without requiring significant enhancements. This
will allow us to more easily expand into additional vertical markets in the
future.
Key clients in the chain drug vertical include Rite Aid, Duane Reade and
Eckerd. In the sporting goods vertical, major customers include Bike, Adams and
Carbite Golf. In the toys vertical, Toys R Us is our predominant customer. In
the general retail vertical, our customers include Linens 'N Things, Swatch and
Disney. In the telecommunications vertical, customers include AT&T Wireless,
Verizon Communications and Verizon Wireless, and in the consumer electronics
vertical, customers include Best Buy, Voicestream and Handspring. In the year
ended December 31, 2001 and 2000, one customer, Toys R Us, accounted for
approximately 21% and 17%, respectively, of our total revenue. We provide
professional services to this customer in processing its EDI transactions.
Revenue from this arrangement is recognized on a time and materials basis as
services are performed.
We market and sell our services through a direct sales force in the United
States of America and indirectly through partnerships and reseller arrangements.
To extend our vertical market reach and increase sales opportunities in the
vertical industries we have selected, we participate in national trade shows and
establish relationships with trading partners.
We anticipate that alliances with technology firms and other partnerships
will continue to be integral to our success and increased effort will be made in
pursuing these relationships. To continue to bring the best solution to market,
we plan on further technology partnerships that extend our core solutions
including reseller and other relationships. In order to leverage our current
direct sales force and add new revenue streams, we also expect to establish
alliances with other firms that have an established presence in our vertical
markets or related ones. Likely companies for us to partner with would include
software and services firms in our vertical markets and associations that play a
key role in influencing buying behavior. For example, joint marketing or sales
programs with alliance partners would be intended to gain access to several
large buyers, enabling us to add connections to many of their small and
medium-sized suppliers. Reseller relationships would generate royalty revenue to
us for each sale made, including a portion of ongoing recurring revenue.
As of December 31, 2001 we connected approximately 170 retail organizations
and 1,100 supply organizations to their trading partners. As of December 31,
2001 we were processing in excess of 600,000 transactions per quarter prior to
the Bac-Tech Systems, Inc. acquisition.
Major customers within our training and client educational services'
business segment include AOL Time Warner, J.P. Morgan Chase, Prudential
Securities, MTV/Viacom, PricewaterhouseCoopers and Teachers'
Insurance -- TIAA-CREF.
29
REVENUE RECOGNITION
We earn revenue from two business units:
transaction processing and related services, and
training and client educational services.
Revenue from transaction processing is recognized on a per transaction basis
when a transaction occurs between a buyer and a supplier. The fee is based
either on the volume of transactions processed during a specific period,
typically one month, or calculated as a percentage of the dollar volume of the
purchase related to the documents transmitted during a similar period. Revenue
from related implementation, if any, annual subscription and monthly hosting
fees are recognized on a straight-line basis over the term of the contract with
the customer. Deferred income includes amounts billed for implementation, annual
subscription and hosting fees, which have not been earned.
For related consulting arrangements on a time-and-materials basis, revenue
is recognized as services are performed and costs are incurred in accordance
with the terms of the contract.
Revenues from related fixed price consulting arrangements are recognized
using the percentage-of-completion method. Progress towards completion is
measured using the efforts-expended method based upon management estimates.
Fixed price consulting arrangements are mainly short-term in nature and we do
not have a history of incurring losses on these types of contracts. If we were
to incur a loss, a provision for the estimated loss on the uncompleted contract
would be recognized in the period in which such loss becomes probable and
estimable. Billings in excess of revenue recognized under the
percentage-of-completion method on fixed price contracts is included in deferred
income.
Revenue from training and client educational services is recognized upon the
completion of the seminar and is based upon class attendance. If a seminar
begins in one period and is completed in the next period, we recognize revenue
based on the percentage of completion method for the applicable period. Deferred
income includes amounts billed for training seminars and classes that have not
been completed.
COMPETITION
Business-to-business electronic commerce is a new and rapidly evolving
industry. Competition is intense and is expected to increase in the future. Our
management believes that we provide a unique service in the business-to-business
electronic commerce area, where a small to medium-sized retailer can process
transactions with multiple suppliers, and small to medium-sized suppliers can
process transactions with multiple retailers.
Our competition is primarily made of indirect horizontal competitors, which
are focused on similar services but not in specific or multiple vertical
industries. Others are focused in vertical markets unrelated to those pursued by
us. Major publicly traded competitors include Marex, Inc., Neoforma.com, Inc.
and The viaLink Company. Major privately held competitors include Automated Data
Exchange (ADX) (formerly known as The EC Company) and SPS Commerce, for which
minimal public information is available on their efforts to date.
Also, we believe that competition may develop from four additional areas:
EDI/electronic commerce companies, technology/software development companies,
retailer purchasing organizations, and leading industry manufacturers.
Additionally, large retailers and suppliers can create their own technology
platform to automate the exchange of business documents with their small and
medium-sized trading partners, thereby reducing the number of large retailers
and suppliers in our target markets. However, we believe it will prove to be an
inefficient use of resources for these large companies to build a technology
platform for their internal use as compared to using our services.
INTELLECTUAL PROPERTY
Our success depends on our ability to maintain the proprietary aspects of
our technology and operate without infringing the proprietary rights of others.
We rely on a combination of trademarks, patents, trade secrets and copyright
law, as well as contractual restrictions, to protect the proprietary
30
aspects of our technology. We seek to protect the source code for our
proprietary software, documentation and other written materials under trade
secret and copyright law.
We also seek to protect our intellectual property by requiring employees and
consultants with access to proprietary information to execute confidentiality
agreements with us and by restricting access to our source code.
Due to rapid technological change, our management believes that factors such
as the technological and creative skills of our personnel and consultants, new
product developments and enhancements to existing services are equally as
important as the various legal protections of our technology to establish and
maintain a technology leadership position.
GOVERNMENT REGULATION
Our services enable buyers and suppliers to transmit documents to their
trading partners over dedicated and public telephone lines. These transmissions
are governed by regulatory policies establishing charges and terms for
communications. Our management believes that we are in compliance with
applicable regulations.
In addition, due to the increasing popularity and use of the Internet, we
might be subject to increased regulation. Such laws may regulate issues such as
user privacy, defamation, network access, pricing, taxation, content, quality of
products and services, and intellectual property and infringement.
These laws could expose us to liability, materially increase the cost of
providing services, and decrease the growth and acceptance of the Internet in
general, and access to the Internet over cable systems.
PRODUCT DEVELOPMENT
Our product development efforts for our proprietary software are directed
toward the development of new complementary services and the enhancement and
expansion of the capabilities of existing services. Product development expenses
(exclusive of stock-based compensation) were approximately $2,024,000 and
$2,698,000 for the years ended December 31, 2001 and 2000, respectively. We
continue to make the product development expenditures that management believes
are necessary to rapidly deliver new features and functions. As of December 31,
2001, six employees were engaged in product development activities. In addition,
based on our specific needs to rapidly deliver new features and functions, we
hire consultants who take part in product development activities. In accordance
with American Institute of Certified Public Accountants Statement of
Position 98-1, 'Accounting for Software Development Costs', we capitalize some
of these costs, which are amortized over a period of two years.
PERSONNEL
As of May 1, 2001, we employed 45 full-time employees. Many of our employees
are highly skilled, with advanced degrees. Our continued success depends upon
our ability to continue to attract and retain highly skilled employees. We have
never had a work stoppage, and none of our employees are represented by a labor
organization. We consider our employee relations to be good.
PROPERTY
We operate out of three offices in New York, New York. The following table
sets forth information on our properties:
PRINCIPAL ADDRESS SQUARE FOOTAGE OWNED/LEASED PURPOSE
- ----------------- -------------- ------------ -------
757 Third Avenue 22,600 Leased Offices
New York, NY 10017
29 West 38th 6,400 Leased Training Center
Street
New York, NY 10018
665 Broadway 5,000 Leased Corporate Headquarters &
New York, NY 10003 Technology Center
31
The lease for our premises at 757 Third Avenue expires in April 2007.
Pursuant to the 757 Third Avenue lease we pay fixed annual rent of $1,197,694 in
monthly payments of $99,808 until July 2004 and a fixed annual rent of
$1,242,890 in monthly payments of $103,574 thereafter. We are currently in
negotiations with the landlord to terminate our lease at 757 Third Avenue. Based
on an oral understanding with our landlord, we have not paid our rent from
October 2001 to date. It is anticipated that if a new tenant is found for our
space, the landlord would deduct prior months' rents from our security deposit,
together with any further amounts that may be owing by us, such as brokers'
commissions or rent differential resulting from potentially lower rent payments
from a new tenant.
As a result of the current status of the negotiations with the landlord, we
recorded a charge of $1.8 million in the fourth quarter of 2002 for the expected
costs to terminate the lease facility at 757 Third Avenue. This includes
(i) approximately $1.2 million in the security deposit, which we expect to
surrender (inclusive of accrued rent of approximately $300,000);
(ii) approximately $700,000 in additional stock and/or cash consideration to
account for the short fall between our rent terms and current market price of
the lease facility; and (iii) write-off of approximately $162,000 in leasehold
improvements. The estimated liability to terminate the lease of approximately
$1.9 million, which includes approximately $300,000 in accrued rent for the
period October 2001 to December 2001, is recorded on our balance sheet at
December 31, 2001.
The lease for our premises at 665 Broadway, which was assumed as part of the
Bac-Tech Systems, Inc. acquisition in January 2002, expires in February 2008. It
calls for annual rent payments of $95,614, in monthly payments of $7,968,
through February 28, 2002; and annual payments of $98,482, in monthly payments
of $8,207, through February 28, 2003, with annual rent increasing approximately
5% thereafter through February 28, 2008.
LEGAL PROCEEDINGS
We are party to certain legal proceedings and claims, which arise in the
ordinary course of business. In the opinion of our management, the amount of an
ultimate liability with respect to these actions will not materially affect our
financial position, results of operations or cash flows.
In October 2000, Cintra Software & Services Inc. commenced a civil action
against our company in New York Supreme Court, New York County. The complaint
alleges that we acquired certain software from Cintra upon the authorization of
our former Chief Information Officer. Cintra is seeking damages of approximately
$856,000. We have filed an answer denying the material allegations of the
complaint. We believe that we have meritorious defenses to the allegations made
in the complaint and intend to vigorously defend the action.
In March 2001, a former employee commenced a civil action against our
company and two members of our management in New York Supreme Court, New York
County, seeking, among other things, compensatory damages in the amount of $1.0
million and additional punitive damages of $1.0 million for alleged defamation
in connection with his termination, as well as a declaratory judgment concerning
his alleged entitlement to stock options to purchase 5,000 shares of our common
stock. We subsequently filed a motion to dismiss, which was granted as to the
defamation action on January 7, 2002. We dispute the remainder of these claims,
which do not involve substantial amounts, and intend to defend the action.
In December 2001, a former officer of ours commenced a civil action against
our company in New York Supreme Court, New York County, seeking $85,000, plus
liquidated damages, attorneys' fees and costs, for alleged bonuses owed. We
subsequently filed a motion to dismiss this action. We dispute this claim and
intend to vigorously defend the action.
We are not currently a party to any other material legal proceeding.
32
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding our directors
and executive officers:
NAME AGE POSITION
---- --- --------
Richard S. Cohan....... 49 Chief Executive Officer, President, and Chief Financial Officer
Robert Bacchi.......... 47 Chief Operating Officer
Michael Dodier......... 44 Executive Vice President -- Sales
Steven Rabin........... 46 Chief Technology Officer
Michael S. Falk........ 40 Director
Timothy P. Flynn....... 51 Director
Stephen J. Warner...... 61 Director
Harold S. Blue......... 40 Director
Bruce J. Haber......... 49 Director
Mark Reichenbaum....... 51 Director
Richard S. Cohan joined our company in May 2001 as president and chief
operating officer. In July 2001, he became chief executive officer of our
company, and relinquished his position as chief operating officer. Mr. Cohan
served as senior vice president of CareInsite, a health information technology
company (which merged with WebMD in September 2000), from June 1998 to January
2001. He was also president of The Health Information Network Company, an
e-health consortium of major New York health insurers and associations of which
CareInsite was the managing partner, from 1998 to 2001. Prior to joining
CareInsite, Mr. Cohan spent 15 years at National Data Corporation, with various
titles including executive vice president.
Robert Bacchi joined our company in January 2002 as chief operating officer
following our acquisition of Bac-Tech Systems, Inc., a privately-held New York
City based e-commerce company. Mr. Bacchi founded Bac-Tech in 1981 and served as
its President since such date.
Michael Dodier joined our company in January 2002 as executive vice
president -- sales following our acquisition of Bac-Tech. Mr. Dodier joined
Bac-Tech in 1993 and served as its executive vice president -- sales since such
date.
Steven Rabin has served as our chief technology officer since November 2000.
Prior to joining our company, Mr. Rabin was the chief technology officer for
InterWorld Corporation from May 1997 to September 2000. From February 1995 to
May 1997, Mr. Rabin worked as chief technologist at Logility, Inc., a division
of American Software Inc., a publicly held company, where he designed and
developed a variety of supply chain management and business-to-business
e-commerce solutions.
Michael S. Falk has been a director of our company since April 2000, and
prior to the April 2000 merger was a director of former eB2B since January 2000.
Mr. Falk is the co-founder and, since 1988, chairman and chief executive officer
of Commonwealth Associates, L.P., a New York-based merchant bank and investment
bank. Mr. Falk is also a member of the board of directors of the following
public companies: IntraWare, Inc., a provider of Internet-enabled software
delivery and information technology management solutions; U.S. Wireless Data,
Inc., a provider of technology for wireless point of sale and ATM transactions;
and ProxyMed, Inc., a provider of healthcare transaction processing services.
Timothy P. Flynn has been a director of our company since April 2000, and
prior to the April 2000 merger was a director of former eB2B since January 2000.
Mr. Flynn is a principal of Flynn Gallagher Associates, LLC. Mr. Flynn is also a
director of MCG Communications, Inc., a publicly held telecommunications
company. Mr. Flynn has served on the board of directors of PurchasePro.com,
Inc., a publicly held business-to-business e-commerce company. From 1993 until
1997, Mr. Flynn served as a director of ValuJet Airlines. Prior to that, he
served as a senior executive and director of WestAir Holdings, Inc., a company
which operated WestAir, a California-based commuter airline affiliated with
United Airlines.
33
Stephen J. Warner has been a director of our company since May 2001. Mr.
Warner has been chief executive officer of Crossbow Ventures, Inc., a venture
capital firm, since January 1999. He was chairman of Bioform Inc., a consulting
firm, from 1994 to 1999. From 1991 to 1994, he was a director of Commonwealth
Associates, L.P. Mr. Warner served as president of Merrill Lynch Venture Capital
from 1981 to 1990.
Harold S. Blue has been a director of our company since May 2001. Mr. Blue
has been the chief operating officer of Commonwealth Associates, L.P. since July
2001 and was an executive vice president from January 2001 to July 2001. He
served as chairman and chief executive officer of ProxyMed, Inc. from 1993 to
December 2000. Mr. Blue previously served as president and chief executive
officer of Health Services, Inc., a physician practice management company, from
1990 to 1993. In 1984 he founded Best Generics, a major generic drug
distribution company that was acquired by Ivax Corp. and served on Ivax's board
of directors. He also currently serves as a director of the following public
companies: Healthwatch, Inc., a healthcare information technology company;
ProxyMed, Inc.; and MonsterDaata, Inc., an information infrastructure utility
company.
Bruce J. Haber has been a director of our company since July 2001. Mr. Haber
served as president and chief executive officer of MedConduit.com, Inc., a
healthcare e-commerce company, from March 2000 to June 2001. From 1997 until
1999, Mr. Haber was executive vice president and director of Henry Schein, Inc.,
a healthcare distribution company, and president of such company's medical
group. From 1981 until 1997, Mr. Haber served as president, chief executive
officer and director of Micro Bio-Medics, Inc., a medical supply distributor
which merged into Henry Schein, Inc. in 1997.
Mark Reichenbaum has been a director of our company since July 2001. Mr.
Reichenbaum has served as president of HAJA Capital Corporation, an investment
firm, since 1997. Prior to such time, Mr. Reichenbaum served as president of
Medo Industries, Inc., a manufacturer and distributor of consumer products, from
1972 until 1997. From 1996 to 1997, he was Vice President of Quaker State
Corporation. Mr. Reichenbaum has also served as co-chairman of Clean Rite
Centers, a retail chain of laundry serving super stores, since 1999.
All of the above directors will hold office until the next annual meeting of
the stockholders and until their successors have been duly elected and
qualified. All of the above executive officers serve at the discretion of our
board of directors.
Commonwealth Associates, L.P. currently has the right to designate two
members of our board of directors, and has designated Harold S. Blue and Michael
S. Falk. The holders of our Series B preferred stock, voting as a class, have
the right to designate one member of our board of directors, and have designated
Timothy P. Flynn. When the holders of the Series B preferred stock no longer
have the right to designate a director, Commonwealth shall receive the right to
designate such member. Commonwealth's right to designate this third member of
the board and one of its two other designees shall expire when the Series C
preferred stock has converted into shares of common stock or there is otherwise
less than 20% of the originally issued shares of Series C preferred stock
outstanding.
34
EXECUTIVE COMPENSATION
The following table provides information concerning the annual and long-term
compensation earned or paid to our chief executive officer and to each of our
most highly compensated 'named executive officers' other than the chief
executive officer, whose compensation exceeded $100,000 during 2001. For the
period prior to April 18, 2000, the date of the merger of former eB2B with and
into DynamicWeb, the following table includes compensation earned at former
eB2B.
LONG-TERM COMPENSATION
---------------------------------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
---------------------------- RESTRICTED UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS STOCK AWARD OPTIONS COMPENSATION
--------------------------- ---- ------ ----- ----------- ------- ------------
Peter J. Fiorillo, ............ 2001 $225,000 $ 25,000 173,000
Chief Financial Officer(1) 2000 $219,000 $ 50,000 133,000
1999 $195,000(2) $110,000
Richard S. Cohan .............. 2001 $114,086 $ 8,333 166,667
Chief Executive Officer and
President(3)
Alan J. Andreini, ............. 2001 $102,083 66,667 $20,833(5)
Chief Executive Officer 2000 $112,500 100,000
(1)(4)
John J. Hughes, ............... 2001 $105,729 $ 18,750 17,734 $88,542(5)
Executive Vice President and 2000 $102,000 $ 60,000(7)
General Counsel(6)
Steve Rabin, .................. 2001 $131,250 $ 22,500 3,334 36,667
Chief Technology Officer (8) 2000 $ 61,500(9) $ 72,500(10)
- ---------
(1) Mr. Fiorillo was the chief executive officer of former eB2B prior to the
April 2000 merger and of our company from April 2000 until November 2000,
at which point Mr. Andreini became our chief executive officer. From April
2001 until May 2001 he served as president and, from May 2001 to May 2002,
served as chief financial officer.
(2) From January 1, 1999 to September 30, 1999, former eB2B elected, in
accordance with the right it was granted under each employment agreement,
to accrue the base salary for each of the executive officers of former
eB2B. In January 2000, the accrued salary for each officer (which
represented approximately 75% of the total salary for each officer) was
converted at the election of the officers, into common stock of former
eB2B.
(3) Mr. Cohan has been employed by our company since May 1, 2001.
(4) Mr. Andreini was employed by our company from July 2000 until July 2001.
(5) Represents severance payments.
(6) Mr. Hughes was employed by our company from June 2000 until July 2001. In
connection with his cessation of employment, Mr. Hughes received severance
payments, over a six month period, aggregating $88,542.
(7) Includes a $35,000 signing bonus.
(8) Mr. Rabin commenced employment with our company in November 2000.
(9) Includes $32,500 paid as consulting fees to a company whose majority
shareholder is Mr Rabin.
(10) Includes a $50,000 signing bonus.
35
OPTION GRANTS IN 2001
The following table provides information concerning individual grants of
stock options made during 2001 to each of our named executive officers.
PERCENT OF
NUMBER OF TOTAL OPTIONS
SECURITIES GRANTED TO EXERCISE OR
UNDERLYING EMPLOYEES BASE PRICE EXPIRATION
NAME OPTIONS IN 2001 (IN $ PER SHARE) DATE
---- ------- ------- ---------------- ----
Peter J. Fiorillo..................... 66,667 17.4% $ 8.25 May 2011
Richard S. Cohan...................... 133,334 34.8% $ 8.25 May 2011
John J. Hughes........................ 17,734 4.7% $ 3.45 June 2010
Steven Rabin.......................... 36,667 9.8% $ 2.10 November 2010
Alan Andreini......................... 66,667 17.4% $11.25 January 2011
AGGREGATED OPTION EXERCISES IN 2001 AND YEAR END VALUES
The following table provides information concerning the exercise of stock
options during 2001, and the value of unexercised options owned, by each of our
named executive officers:
VALUE OF UNEXERCISED
SHARES NUMBER OF SECURITIES IN-THE-MONEY
ACQUIRED UNDERLYING UNEXERCISED(1) OPTIONS(2)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
Peter J. Fiorillo.......... -- -- 133,000 -- -- --
Richard S. Cohan........... -- -- -- 133,334 -- --
Steven Rabin............... -- -- 12,223 38,666 -- --
Alan J. Andreini........... -- -- -- -- -- --
John J. Hughes............. -- -- -- -- -- --
- ---------
(1) Includes ownership of options as of December 31, 2001.
(2) Based on closing price of our common stock as reported on Nasdaq on
December 31, 2001 as adjusted for the 1:15 reverse stock split effective
January 10, 2002.
EMPLOYMENT AGREEMENTS
Our company and Richard S. Cohan, our chief executive officer and president,
are parties to an employment agreement, dated May 4, 2001. The initial term of
the agreement expires on May 3, 2004, but the agreement automatically renews for
successive one-year terms unless terminated by either party prior to renewal.
The agreement provides for an annual base salary of $175,000 with a minimum
annual bonus of $50,000. Mr. Cohan was also granted options to purchase 133,334
shares of common stock pursuant to our amended 2000 stock option plan. In the
event Mr. Cohan's employment is terminated, for reason other than 'cause' (as
defined in the agreement), including the resignation of Mr. Cohan for good
reason, the termination of Mr. Cohan's employment for our own convenience or
upon Mr. Cohan's death or disability, the agreement provides that we are
required to pay Mr. Cohan an amount equal to his annual base salary and bonus
for a period of six months following the date of the event that resulted in the
termination of employment and his options shall accelerate and immediately vest
as provided in the agreement.
Our company and Steven Rabin, our chief technology officer, are parties to
an employment agreement, dated as of October 31, 2000, as amended December 31,
2001. The initial term expires on December 31, 2003, but the agreement
automatically renews for successive one-year terms unless terminated by either
party prior to renewal. The agreement permits Mr. Rabin to determine the
allocation of his business time between our offices and his home in
Massachusetts. As amended, the agreement provides for an annual base salary of
$87,500 and an annual minimum bonus of $22,500 in exchange for Mr. Rabin working
half time. In the event the agreement is terminated for reasons other than
'cause' (as defined in the agreement), including the resignation of Mr. Rabin
for good reason, the
36
termination of Mr. Rabin's employment for convenience or upon Mr. Rabin's death
or disability, we are required to pay Mr. Rabin an amount equal to 50% of his
annual base salary, with such sum payable over a period of six months.
In connection with the acquisition of their company Bac-Tech Systems, Inc.,
our company entered into employment agreements, dated January 2, 2002, with each
of Robert Bacchi and Michael Dodier pursuant to which they were employed as our
chief operating officer and executive vice president -- sales, respectively. The
initial term of the agreements expires on January 1, 2005, but the agreements
automatically renew for successive one-year terms unless terminated by either
party prior to renewal. The employment agreements each provide for an annual
base salary of $165,000. Messrs. Bacchi and Dodier were each also granted
options to purchase 33,334 shares of common stock pursuant to our amended 2000
stock option plan. In the event the employment of Mr. Bacchi or Mr. Dodier is
terminated by us during the first year for reasons other than 'cause' (as
defined in the agreements), including termination of employment for our
convenience, we are required to pay the terminated employee an amount equal to
his annual base salary for the remainder of the year plus an additional six
months. If either employee is terminated without cause or for our convenience
after the first year or in the event of their respective deaths or disabilities
at any time, he or his estate would be entitled to his base salary for a period
of six months from termination.
PROVISIONS OF OUR CHARTER AND BY-LAWS
Our amended and restated certificate of incorporation provides that we will
indemnify any person who is or was our director, officer, employee or agent to
the fullest extent permitted by the New Jersey Business Corporation Act, and to
the fullest extent otherwise permitted by law. The New Jersey law permits a New
Jersey corporation to indemnify its directors, officers, employees and agents
against liabilities and expenses they may incur in such capacities in connection
with any proceeding in which they may be involved, unless a judgment or other
final adjudication adverse to the director, officer, employee or agent in
question establishes that his or her acts or omissions (a) were in breach of his
or her duty of loyalty (as defined in the New Jersey law) to our company or our
stockholders, (b) were not in good faith or involved a knowing violation of law
or (c) resulted in the receipt by the director, officer, employee or agent of an
improper personal benefit.
Pursuant to our amended and restated certificate of incorporation and the
New Jersey law, no director or officer of our company will be personally liable
to us or to any of our stockholders for damages for breach of any duty owed to
us or our stockholders, except for liabilities arising from any breach of duty
based upon an act or omission (i) in breach of such director's or officer's duty
of loyalty (as defined in the New Jersey law) to us or our stockholders,
(ii) not in good faith or involving a knowing violation of law or
(iii) resulting in receipt by such director or officer of an improper personal
benefit.
In addition, our bylaws include provisions to indemnify our officers and
directors and other persons against expenses, judgments, fines and amounts
incurred or paid in settlement in connection with civil or criminal claims,
actions, suits or proceedings against such persons by reason of serving or
having served as officers, directors, or in other capacities, if such person
acted in good faith, and in a manner such person reasonably believed to be in or
not opposed to our best interests and, in a criminal action or proceeding, if he
or she had no reasonable cause to believe that his/her conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent will not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he or she reasonably believed to be in or not opposed to our best
interests or that he or she had reasonable cause to believe his or her conduct
was unlawful. Indemnification as provided in the bylaws will be made only as
authorized in a specific case and upon a determination that the person met the
applicable standards of conduct.
37
BENEFICIAL OWNERSHIP OF SECURITIES
The following table shows the common stock owned by our directors and 'named
executive officers', by persons known by us to beneficially own, individually,
or as a group, more than 5% of our outstanding common stock as of January 15,
2002 and all of our current directors and executive officers as a group.
Included as shares beneficially owned are shares of convertible preferred stock,
which preferred shares have the equivalent voting rights of the underlying
common shares. Such preferred shares are included to the extent of the number of
underlying shares of common stock. Also included are shares of common stock
underlying convertible notes.
PERCENT OF
COMMON STOCK
BENEFICIAL PERCENT OF ON A FULLY
NAME AND ADDRESS OWNERSHIP OF COMMON DILUTED
OF BENEFICIAL OWNER(1) CAPITAL STOCK(2) STOCK(3) BASIS(4)
- ---------------------- ---------------- -------- --------
Alan J. Andreini(5)................................. 33,334(6) 1.8% *
John J. Hughes(7)................................... 23,431(8) 1.3% *
Steven Rabin........................................ 13,376(9) * *
Peter J. Fiorillo(10)............................... 310,790(11) 16.0% 1.6%
Michael S. Falk(12)................................. 2,873,373(13) 61.7% 15.2%
Timothy P. Flynn(14)................................ 389,825(15) 17.5% 2.1%
Richard S. Cohan.................................... 3,447 * *
Stephen J. Warner(16)............................... 1,579,321(17) 46.3% 8.4%
Harold S. Blue(18).................................. 18,731(19) 1.0% *
Bruce J. Haber...................................... -- * *
Mark Reichenbaum(20)................................ 223,266(21) 10.9% 1.2%
Commonwealth Associates L.P.(22).................... 1,159,116(23) 38.7% 6.2%
Robert Priddy(24)................................... 2,580,096(25) 58.6% 13.5%
All directors and officers as a group
(11 persons)...................................... 5,945,463(26) 81.4% 31.5%
- ---------
* less than 1%
(1) The address of each person who is a 5% holder, except as otherwise noted,
is c/o eB2B Commerce, Inc., 665 Broadway, New York, New York 11003.
(2) Except as otherwise noted, each individual or entity has sole voting and
investment power over the securities listed. Includes ownership of only
those options and warrants that are exercisable within 60 days of the date
of this prospectus.
(3) The ownership percentages in this column for each person listed in this
table are calculated assuming the exercise of all options and warrants held
by such person exercisable within 60 days of the date of this prospectus
and conversion of all convertible notes held by such person convertible
within such time period and giving effect to the shares of common stock
underlying the Series A preferred stock, the Series B preferred stock, the
Series C preferred stock, the Series D preferred stock and convertible
notes held by such person.
(4) The ownership percentages in this column are calculated for each person
listed in this table on a fully diluted basis, assuming the exercise of all
options and warrants, regardless of whether or not exercisable within
60 days, held by such person and all of our other securityholders and
conversion of all preferred stock and convertible notes regardless of
whether or not convertible within 60 days held by such person and all of
our other securityholders.
(5) Mr. Andreini is no longer an officer or employee of our company as of
August 2001.
(6) Includes 33,334 shares underlying warrants.
(7) Mr. Hughes is no longer an officer or employee of our company as of July
2001.
(8) Includes 21,067 shares underlying warrants.
(9) Includes 10,042 shares underlying options and 3,334 shares of restricted
stock.
(footnotes continued on next page)
38
(footnotes continued from previous page)
(10) Mr. Fiorillo is no longer an officer or employee of our company as of May
2002.
(11) Includes 106,333 shares underlying options and 2,838 shares of common stock
owned by family members.
(12) The address of Mr. Falk is c/o Commonwealth Associates, L.P., 830 Third
Avenue, New York, New York 10022.
(13) In addition to the aggregate of 1,159,116 shares beneficially owned by
Commonwealth Associates L.P., which may be deemed to be beneficially owned
by Mr. Falk, Mr. Falk's holdings include 12,056 shares of common stock, and
the right to acquire (i) 645,180 shares underlying warrants and options,
and (ii) 24,672 shares underlying convertible preferred stock. In his
capacity as chairman and controlling equity owner of Commonwealth
Associates Management Corp., Mr. Falk shares voting and dispositive power
with respect to the securities beneficially owned by Commonwealth
Associates L.P. and may be deemed to be the beneficial owner of such
securities. In addition, Mr. Falk (i) as sole member of the general partner
of ComVest Venture Partners, L.P., Mr. Falk may be deemed to own the
104,167 shares underlying warrants owned by such entity, and (ii) as a
manager and principal member of ComVest Capital Partners, LLC, Mr. Falk may
be deemed to beneficially own the 928,182 shares beneficially owned by such
entity, which is inclusive of 895,287 shares underlying warrants and 32,895
shares underlying convertible preferred stock. With respect to the entities
mentioned in this note, Mr. Falk may be deemed to share indirect voting and
dispositive power with respect to such entities' shares and may therefore
be deemed to be the beneficial owner of such securities.
(14) The address of Mr. Flynn is c/o Flynn Gallagher Associates, 3291 North
Buffalo Drive, Las Vegas, Nevada 89129.
(15) Includes (i) 254,383 shares underlying convertible preferred stock,
(ii) 5,911 shares underlying options and (iii) 128,516 shares underlying
warrants.
(16) The address of Mr. Warner is One N. Clematis Street, West Palm Beach,
Florida 33401.
(17) Includes 734,723 shares underlying convertible preferred stock, 206,612
shares underlying convertible notes and 632,564 shares underlying warrants
owned by Alpine Venture Capital Partners L.P. Mr. Warner is the chief
executive officer of Crossbow Ventures Inc., the management company for
Alpine Venture Capital Partners L.P.
(18) The address of Mr. Blue is c/o Commonwealth Associates, L.P., 830 Third
Avenue, New York, New York 10022.
(19) Includes 5,450 shares underlying convertible preferred stock and 13,163
shares underlying warrants.
(20) The address of Mr. Reichenbaum is c/o HAJA Capital Corp., 323 Railroad
Avenue, Greenwich, Connecticut 06830.
(21) Includes (i) 137,559 shares underlying convertible preferred stock and
(ii) 81,250 shares underlying warrants.
(22) The address of Commonwealth Associates, L.P. is 830 Third Avenue, New York,
New York 10022.
(23) Commonwealth Associates L.P.'s holding includes 2,686 shares underlying
convertible preferred stock and 1,116,759 shares underlying warrants and
unit purchase options.
(24) The address of Mr. Priddy is 830 Third Avenue, New York, New York 10022.
(25) Mr. Priddy may be deemed to beneficially own (i) 1,689,802 shares
beneficially owned by RMC Capital, LLC ('RMC'), of which Mr. Priddy is a
manager and principal member, (ii) 451,541 shares underlying warrants,
(iii) 149,397 shares underlying convertible preferred stock and (iv)
289,256 shares underlying convertible notes. RMC's beneficial holdings
include (i) 8,341 shares of common stock, (ii) 551,111 shares underlying
warrants and (iii) 1,130,350 shares underlying preferred stock.
(footnotes continued on next page)
39
(footnotes continued from previous page)
(26) Includes (i) 1,125,702 shares underlying convertible preferred stock,
(ii) 3,616,886 shares underlying warrants, (iii) 206,612 shares underlying
convertible notes and (iv) 122,286 shares underlying stock options.
CERTAIN TRANSACTIONS
In October 1999, former eB2B entered into a finder's agreement with
Commonwealth, which provided that upon completion of a merger, sale or other
similar transaction, Commonwealth would earn a finder's fee equal to three
percent of the total compensation received in the transaction. Upon the
completion of the April 2000 merger, we issued Commonwealth 3% of the total
number of securities received by former eB2B's stockholders in the merger,
consisting of 48,019 shares of our common stock and seven-year warrants to
purchase 33,493 shares of our common stock at an exercise price of $31.05.
In November 1999, in connection with Commonwealth providing advisory
services to former eB2B during the merger, former eB2B granted to Commonwealth
five-year warrants to purchase 470,000 shares of former eB2B common stock
(equivalent to 83,347 shares of our common stock at an exercise price equivalent
to $31.05 per share). The warrants vested upon the closing of the April 2000
merger.
In April and May 2001, we issued to Commonwealth (and its designees), for
providing services as the placement agent in a private placement of convertible
notes and warrants, five year 'agents options' to purchase Series C preferred
stock, convertible into an aggregate of 125,000 shares of our common stock at an
exercise price of $7.50 and warrants to purchase 125,000 shares of our common
stock at an exercise price of $13.95 per share. We also paid Commonwealth a fee
of $637,500 plus reimbursement of its expenses in connection with such services.
In connection with the closing of the April/May 2001 financing, we canceled
a $2,050,000 line of credit issued to us in April 2001 by ComVest Venture
Partners L.P., an affiliate of Commonwealth, pursuant to which we did not borrow
any funds. We incurred a cash fee amounting to $61,500 in consideration of the
availability of the line of credit. In addition, ComVest Venture Partners L.P.
was issued warrants to purchase 60,000 shares of our common stock at an exercise
price of $1.80 per share for a period of five years.
In April and May 2001, Messrs. Flynn, Reichenbaum and Warner, members of our
Board of Directors, either directly or indirectly, purchased $250,000, $200,000
and $1,300,000, respectively, of Series C preferred stock and related warrants.
In December 2001, Stephen J. Warner, a member of our Board of Directors,
also purchased $500,000 of convertible notes and related warrants.
In April and May 2001, Robert Priddy, a greater than 10% beneficial owner,
directly or indirectly, purchased $2,000,000 of Series C preferred stock and
related warrants and in December 2001 he purchased $700,000 of convertible notes
and related warrants.
In December 2001, Commonwealth acted as the placement agent in our bridge
financing and we paid Commonwealth a placement fee of $200,000 plus
reimbursement of its expenses in connection with such services.
In January 2002, we issued Commonwealth (and its designees) for providing
services as the placement agent in the private placement of convertible notes
and warrants, five year warrants to purchase 165,288 shares of our common stock
at an exercise price of $2.42 per share.
All of the above share numbers for our common stock have been adjusted to
reflect the one-for-fifteen reverse stock split effected in January 2002, but do
not reflect any other anti-dilution adjustments subsequent to their issuance.
Commonwealth currently beneficially owns 38.7% of our voting securities
(6.2% on a fully diluted basis).
40
SELLING SECURITYHOLDERS
The shares covered by this prospectus are shares of our common stock that
have been issued and shares of our common stock that have been issued or will be
issued upon the conversion of our preferred stock or convertible notes or upon
the exercise of warrants to purchase shares of our common stock. The number of
shares of common stock that may be actually sold by the selling securityholders
will be determined by such selling securityholder. We are registering for the
selling securityholders named herein an aggregate of 19,057,094 shares of common
stock. The shares to which this prospectus relates include but are not limited
to the following:
942,814 of the shares consist of shares of common stock that we previously
issued;
2,500 of the shares consist of shares of common stock issuable upon
conversion of the Series A Preferred Stock acquired by selling
securityholders in a private placement that was completed in May 1999;
1,590,267 of the shares consist of shares of common stock issuable upon the
exercise of warrants granted to designees of Commonwealth Associates L.P.
in connection with a bridge financing conducted in October 1999 and to
ComVest Capital Management LLC and Michael S. Falk in connection with a
pre-bridge and bridge financing conducted in October 1999;
3,630,000 of the shares consist of shares of common stock issued or
issuable upon conversion of the Series B Preferred Stock acquired by the
selling securityholders in a private placement that was completed in
December 1999;
964,850 of the shares consist of shares of common stock issuable upon the
exercise of warrants acquired by the selling securityholders in the
December 1999 private placement;
953,791 of the shares consist of shares of common stock issuable upon the
exercise of warrants granted to Commonwealth Associates L.P. and designees
of Commonwealth Associates L.P. for acting as the placement agent for the
December 1999 private placement;
123,691 of the shares consist of shares of common stock issuable upon the
exercise of warrants granted to Commonwealth Associates L.P. and its
designees and certain third parties as a fee in connection with the April
2000 merger;
104,167 of the shares consist of shares of common stock issuable upon the
exercise of warrants granted to ComVest Venture Partners L.P. in connection
with making a credit line available to us;
4,238,900 of the shares consist of shares of common stock issuable upon
conversion of the Series C preferred stock acquired by selling
securityholders by virtue of the conversion of convertible notes issued in
a private placement that was completed in May 2001;
2,072,824 of the shares consist of shares of common stock issuable upon the
exercise of warrants acquired by the selling securityholders in the May
2001 private placement;
935,938 of the shares consist of shares of common stock issuable upon the
exercise of agents' options to purchase units of Series C preferred stock
and warrants granted to Commonwealth Associates L.P. and Gruntal & Co., LLC
and their designees for acting as placement agent for the May 2001 private
placement;
333,336 of the shares consist of common stock issuable upon conversion of
the Series D preferred stock acquired by the selling securityholders
pursuant to our acquisition of Bac-Tech Systems, Inc. in January 2002;
266,670 of the shares consist of shares of common stock issuable upon the
exercise of warrants acquired by the selling securityholders in the
December 2001 bridge financing;
1,734,922 of the shares consist of common stock issuable upon conversion of
the five year notes acquired by the selling securityholders in a private
placement in January 2002 by virtue of the automatic conversion of their
convertible notes issued in a bridge financing completed in December 2001
and by one creditor in consideration of the obligation to such creditor
(including 800,000 shares being registered in connection with possible
interest payments);
41
826,439 of the shares consist of shares of common stock issuable upon the
exercise of the warrants acquired by the selling securityholders in the
January 2002 private placement;
165,289 of the shares consist of common stock issuable upon the exercise of
agents' warrants to purchase common stock granted to Commonwealth
Associates L.P. and its designess for acting as placement agent for the
January 2002 private placement; and
150,696 of the shares consist of shares of common stock issuable upon the
exercise of warrants other than those described above.
Except as noted below or in the 'Beneficial Ownership of Securities' and
'Management' sections of this prospectus, none of the selling securityholders
has, or within the past three years has had, any relationship, position or
office with us or our predecessors or affiliates.
The following table sets forth, as of April 23, 2002: (1) the name of each
selling securityholder, (2) the number of shares of our common stock
beneficially owned by each selling securityholder, including the number of
shares purchasable upon exercise of warrants or conversion of preferred stock or
notes, (3) the maximum number of shares of common stock which the selling
securityholders can sell pursuant to this prospectus and (4) the number of
shares of common stock that the selling securityholders would own if they sold
all their shares registered by this prospectus.
Except as otherwise noted below, the number of shares of our common stock
registered for sale hereunder for a selling shareholder consists of shares of
our common stock either beneficially owned or issuable upon exercise of the
warrants or conversion of the preferred stock or notes described above.
NUMBER OF
SHARES OF NUMBER OF
COMMON STOCK SHARES OF NUMBER OF SHARES PERCENTAGE
BENEFICIALLY COMMON STOCK OF COMMON STOCK OF OUR
OWNED BEING REGISTERED TO BE BENEFICIALLY OUTSTANDING
PRIOR TO IN THIS OWNED AFTER COMMON STOCK
SELLING SECURITYHOLDER OFFERING PROSPECTUS OFFERING AFTER OFFERING
---------------------- -------- ---------- -------- --------------
Abatangelo, William P. & Angela K.
JTROS(1).......................... 3,481 3,481 0 0
Abraham, Dean....................... 1,741 1,741 0 0
Abrahamson, Melissa R. & Paul....... 696 696 0 0
Abrams, Beverly..................... 1,393 1,393 0 0
Abrams, Burton R.................... 1,393 1,393 0 0
Abrams, Richard..................... 7,658 7,658 0 0
Abrams, Rodney A.................... 10,791 10,791 0 0
Acks, Shannon P..................... 3,481 3,481 0 0
Adametz, James R.................... 5,152 5,152 0 0
A'Hearn, Michael F. & Maxine C.
JTROS(1).......................... 3,481 3,481 0 0
Alya, Al-Bahar & Lulwa Al-Khaled,
JTROS(1).......................... 6,962 6,962 0 0
Alliance Equities, Inc.............. 17,405 17,405 0 0
Alpine Venture Capital Partners
L.P.(2)........................... 1,579,321 1,579,321 0 0
Anders Carlgren SEP-IRA............. 1,393 1,393 0 0
Anderson, Jack L.................... 3,481 3,481 0 0
Anderson, Jr., Ferdinand F.......... 3,481 3,481 0 0
Andreini, Alan J.................... 20,000 20,000 0 0
Apodaca Investment Offshore, Ltd.... 55,692 55,692 0 0
Apodaca Investment Partners, LP..... 55,692 55,692 0 0
Appelbaum, Michael L. IRA........... 10,431 10,431 0 0
Ascuitto, Basil..................... 16,190 16,190 0 0
Ashok, Shanthamallappa A............ 3,481 3,481 0 0
Astor, Michael...................... 3,481 3,481 0 0
(table continued on next page)
42
(table continued from previous page)
NUMBER OF
SHARES OF NUMBER OF
COMMON STOCK SHARES OF NUMBER OF SHARES PERCENTAGE
BENEFICIALLY COMMON STOCK OF COMMON STOCK OF OUR
OWNED BEING REGISTERED TO BE BENEFICIALLY OUTSTANDING
PRIOR TO IN THIS OWNED AFTER COMMON STOCK
SELLING SECURITYHOLDER OFFERING PROSPECTUS OFFERING AFTER OFFERING
---------------------- -------- ---------- -------- --------------
Aubrey J. Ferrao TTEE
Aubrey J. Ferrao Living Trust
U/A/D 6/26/98(3).................. 6,962 6,962 0 0
Auerbach, A. Phillip................ 3,481 3,481 0 0
Aukstuolis, Jim G................... 6,962 6,962 0 0
Bachner Tally Polevoy 401K Profit
Sharing Plan
DTD 01/01/84 FBO Fran Stoller..... 1,393 1,393 0 0
Baily, Gary R....................... 3,481 3,481 0 0
Ballin, Scott....................... 3,481 3,481 0 0
Ballyhoo Partners................... 17,404 17,404 0 0
Barnes, Jr., Charles A.............. 3,481 3,481 0 0
Barrington Capital Corp.(4)......... 2,785 2,785 0 0
Basil J. Ascuitto IRA............... 1,393 1,393 0 0
Bauer, Thomas W. & Paula S.
JTROS(1).......................... 5,570 5,570 0 0
Beattie, Edwin J.................... 3,481 3,481 0 0
Beiser, John W. & Maureen W.
JTROS(1).......................... 13,924 13,924 0 0
Ben Joseph Partners................. 42,284 42,284 0 0
Bentley, Hugh P. & Jean J........... 3,481 3,481 0 0
Bentley, Italo...................... 6,962 6,962 0 0
Bentley, Mark....................... 3,481 3,481 0 0
Bentley, Richard.................... 27,846 27,846 0 0
Berger, Toby........................ 1,393 1,393 0 0
Berglund, Donald.................... 2,785 2,785 0 0
Berman, Marc G...................... 1,741 1,741 0 0
Bernard Kirsner Trust............... 3,481 3,481 0 0
Berney, L. Neal..................... 3,481 3,481 0 0
Bernstein, Howard & Sandra
JTROS(1).......................... 3,481 3,481 0 0
Bertoni, Christopher W.............. 6,962 6,962 0 0
Bettinger, Robert................... 6,962 6,962 0 0
Black, Lincoln Edward............... 1,741 1,741 0 0
Blank, Gerald....................... 1,393 1,393 0 0
Blitz, Craig & Annette JTROS(1)..... 16,544 16,544 0 0
Blomstedt, Jeffrey & Susan LaScala
JTROS(1).......................... 6,962 6,962 0 0
Bloom, Jack......................... 20,886 20,886 0 0
Bloom, Ron.......................... 2,574 2,574 0 0
Blue, Harold S.(5).................. 18,663 18,663 0 0
Blue, Robert & Ruth JTROS(1)........ 2,785 2,785 0 0
Blum, Gary.......................... 3,481 3,481 0 0
BNB Investment Associates L.P.(6)... 43,762 43,762 0 0
Bob K. Pryt TTEE BKP Capital
Management LLC 401(k) PSP & MPP,
DTD. 1/1/92 FBO Bob K. Pryt....... 17,404 17,404 0 0
(table continued on next page)
43
(table continued from previous page)
NUMBER OF
SHARES OF NUMBER OF
COMMON STOCK SHARES OF NUMBER OF SHARES PERCENTAGE
BENEFICIALLY COMMON STOCK OF COMMON STOCK OF OUR
OWNED BEING REGISTERED TO BE BENEFICIALLY OUTSTANDING
PRIOR TO IN THIS OWNED AFTER COMMON STOCK
SELLING SECURITYHOLDER OFFERING PROSPECTUS OFFERING AFTER OFFERING
---------------------- -------- ---------- -------- --------------
Bodmer, Hans C...................... 70,092 70,092 0 0
Bolding, Jeffrey O. & Deborah R.
JTROS(1).......................... 3,481 3,481 0 0
Bollag, Michael..................... 22,877 22,877 0 0
Bolognue, Joseph T.................. 3,481 3,481 0 0
Boris, David........................ 15,601 15,601 0 0
Boris, Marvin....................... 42,290 42,290 0 0
Boyd, John W. & Sandra L.
JTROS(1).......................... 2,785 2,785 0 0
Brackett, Robert.................... 18,000 18,000 0 0
Briggs, Tom P....................... 2,785 2,785 0 0
Brigl, Thomas J. & Brenda J.
JTROS(1).......................... 1,393 1,393 0 0
Brogan, Thomas R.................... 1,393 1,393 0 0
Brown, Raymond...................... 10,443 10,443 0 0
Brummer, Michael & Mary Jo
JTROS(1).......................... 6,962 6,962 0 0
Burgess, Paul....................... 3,481 3,481 0 0
Robert L. Burr and Catherine
Winchester-Burr, TTEES
The Burr Family Trust U/A
DTD 9/26/93(7).................... 1,741 1,741 0 0
Burtt R. Ehrlich, IRA............... 6,962 6,962 0 0
C.E. Unterberg Towbin Capital
Partners I, L.P.(8)............... 27,846 27,846 0 0
Callahan, Daniel J.................. 6,962 6,962 0 0
Cameron, Jeffrey S.................. 3,481 3,481 0 0
Campanella, Richard................. 9,926 9,926 0 0
Campos, Felix & Joyce JTROS(1)...... 20,885 20,885 0 0
Cardoso, Manuel..................... 2,785 2,785 0 0
Cardwell, J.A....................... 6,962 6,962 0 0
Cardwell, Jr., James A.............. 3,481 3,481 0 0
Cass, C. Wyllys & Ellen M.
JTROS(1).......................... 2,785 2,785 0 0
Cavanna, Kieran..................... 696 696 0 0
Chance, Albert & Doris JTROS(1)..... 3,481 3,481 0 0
Chandra-Sekar, Balasundaram......... 1,393 1,393 0 0
Chase, Arthur M..................... 2,785 2,785 0 0
Chesed Congregations of
America(9)........................ 891,481 891,481 0 0
Chimbel, Marvin & Arlene............ 1,393 1,393 0 0
Circle F. Ventures, LLC............. 5,222 5,222 0 0
Clark, Martin E. & Glenda F.
JTROS(1).......................... 2,089 2,089 0 0
Cohen Jonathan R. & Shapiro,
Nancy D. JTROS(1)................. 3,481 3,481 0 0
Cohen, Alan N....................... 3,481 3,481 0 0
Cohen, Dr. David.................... 9,747 9,747 0 0
(table continued on next page)
44
(table continued from previous page)
NUMBER OF
SHARES OF NUMBER OF
COMMON STOCK SHARES OF NUMBER OF SHARES PERCENTAGE
BENEFICIALLY COMMON STOCK OF COMMON STOCK OF OUR
OWNED BEING REGISTERED TO BE BENEFICIALLY OUTSTANDING
PRIOR TO IN THIS OWNED AFTER COMMON STOCK
SELLING SECURITYHOLDER OFFERING PROSPECTUS OFFERING AFTER OFFERING
---------------------- -------- ---------- -------- --------------
Collier,Timmy M. & Connie A.
JTROS(1).......................... 1,393 1,393 0 0
Collins, James C.................... 3,481 3,481 0 0
Commonwealth Associates L.P.(10).... 1,167,111 1,167,111 0 0
ComVest Capital Management,
LLC(11)........................... 1,030,226 1,030,226 0 0
Conzett Europa Invest Ltd........... 56,169 56,169 0 0
Cooper, Stephen..................... 3,481 3,481 0 0
Cooperman, Edwin.................... 1,385 1,385 0 0
Corbin, Bruce....................... 4,874 4,874 0 0
Corbin, Jeff........................ 696 696 0 0
Corbin, Richard..................... 4,874 4,874 0 0
Coventry, Brian..................... 82,372 82,372 0 0
Cramer Taos Partners................ 56,169 56,169 0 0
Cranshire Capital, L.P.............. 323,302 323,302 0 0
Crown, Robert & Barbara
JTROS............................. 10.443 10,443 0 0
Cunningham Stephen & Fleming,
Wendell, JTROS(1)................. 3,481 3,481 0 0
Danieli, Mark....................... 8,621 8,621 0 0
Jackson Robinson, Mary
Carstensen and Jonathan
Warberg, TTEES
Daphne Astor Grandchildren's
Trust(12)......................... 3,481 3,481 0 0
d'Autremont, Hugh................... 1,393 1,393 0 0
d'Autremont, Sloan.................. 3,481 3,481 0 0
Davenport, James A. & Rebecca C.
JTROS(1).......................... 9,747 9,747 0 0
David Thalheim c/f
Lindsay Thalheim.................. 1,393 1,393 0 0
David Thalheim c/f
Marc Thalheim..................... 1,393 1,393 0 0
David Thalheim TTEE
The David Thalheim Revocable
Living Trust(13).................. 3,481 3,481 0 0
DeAtkine, Jr., David................ 6,962 6,962 0 0
DellaValle, Anthony................. 2,089 2,089 0 0
Dercher, David J. & Su Ellen
JTROs(1).......................... 5,570 5,570 0 0
Deshmukh, Sunil M................... 13,924 13,924 0 0
DiCesare, Dominick.................. 3,481 3,481 0 0
DiCesare, Louis A................... 1,532 1,532 0 0
DiCesare, Paul...................... 1,532 1,532 0 0
Dickey, David L. & Susan M.
JTROS(1).......................... 1,393 1,393 0 0
DiFatta, Tony....................... 1,741 1,741 0 0
DiLeonardo, Frank L................. 3,481 3,481 0 0
(table continued on next page)
45
(table continued from previous page)
NUMBER OF
SHARES OF NUMBER OF
COMMON STOCK SHARES OF NUMBER OF SHARES PERCENTAGE
BENEFICIALLY COMMON STOCK OF COMMON STOCK OF OUR
OWNED BEING REGISTERED TO BE BENEFICIALLY OUTSTANDING
PRIOR TO IN THIS OWNED AFTER COMMON STOCK
SELLING SECURITYHOLDER OFFERING PROSPECTUS OFFERING AFTER OFFERING
---------------------- -------- ---------- -------- --------------
Dozier, Robert and Deborah G.
JTROS(1).......................... 3,482 3,482 0 0
Drapkin, Donald..................... 34,808 34,808 0 0
Dreyfuss, Jerome.................... 5,570 5,570 0 0
Duncan, John........................ 3,481 3,481 0 0
DW Trustees(BVI) Ltd. --
The Rectory Farm Settlement --
Children's Fund(14)............... 3,481 3,481 0 0
DW Trustees(BVI) Ltd.
Main Fund(14)..................... 6,962 6,962 0 0
DW Trustees(BVI) Ltd -- MRI
Astor Expectancy Trust(14)........ 6,962 6,962 0 0
Echo Capital Growth Corp............ 10,443 10,443 0 0
Edgewater Ventures LLC.............. 6,962 6,962 0 0
EDJ Limited......................... 112,413 112,413 0 0
Edward J. Rosenthal Profit Sharing
Plan.............................. 42,245 42,245 0 0
EFG Reads Trustees Ltd.............. 2,089 2,089 0 0
Elder, James........................ 1,393 1,393 0 0
Engfer, Jodi Abrams................. 1,393 1,393 0 0
Epstein, Frederick B................ 13,924 13,924 0 0
Erinch R. Ozada, IRA Rollover....... 10,443 10,443 0 0
Ernest J. Genco IRA dated 3/11/92... 1,393 1,393 0 0
Esformes, Joseph.................... 6,962 6,962 0 0
Evans, Sir Richard.................. 42,245 42,245 0 0
Falk, Michael S.(15)................ 666,577 666,577 0 0
Falk, Michael & Annie
JTROS(1)(16)...................... 13,467 13,467 0 0
Farzaneh, Hamid & Nildufar.......... 26,712 26,712 0 0
Faxon, David P. Jr.................. 1,741 1,741 0 0
Finkle, S. Marcus................... 6,962 6,962 0 0
Flavin, Blake Investors, L.P.(17)... 84,250 84,250 0 0
Flavin, John P...................... 24,607 24,607 0 0
Flom, Joseph H...................... 17,404 17,404 0 0
Flynn Corporation(18)............... 384,951 384,951 0 0
FM Grandchildren's Trust(19)........ 33,310 33,310 0 0
Fox, Karen A........................ 2,089 2,089 0 0
Frank B. Palazzolo, Jr. --
Profit Sharing Plan............... 1,393 1,393 0 0
French, Robert A.................... 2,089 2,089 0 0
Friedlander, Charles L.............. 3,481 3,481 0 0
Friedman, Philip & Rose
JTROS(1).......................... 13,924 13,924 0 0
Friedman, Ronald.................... 1,393 1,393 0 0
Friedman, Victor.................... 13,924 13,924 0 0
Fulton, Peter....................... 4,454 4,454 0 0
Funeral Financial Systems, Ltd...... 12,183 12,183 0 0
Gaba, Ilya & Alice JTROS(1)......... 1,393 1,393 0 0
(table continued on next page)
46
(table continued from previous page)
NUMBER OF
SHARES OF NUMBER OF
COMMON STOCK SHARES OF NUMBER OF SHARES PERCENTAGE
BENEFICIALLY COMMON STOCK OF COMMON STOCK OF OUR
OWNED BEING REGISTERED TO BE BENEFICIALLY OUTSTANDING
PRIOR TO IN THIS OWNED AFTER COMMON STOCK
SELLING SECURITYHOLDER OFFERING PROSPECTUS OFFERING AFTER OFFERING
---------------------- -------- ---------- -------- --------------
Gaffney, Michael F.................. 3,481 3,481 0 0
Gajeski, Donald K. & Phyllis M...... 1,393 1,393 0 0
Gallagher Investment Corporation.... 173,547 173,547 0 0
Gaylord, Gregg M.................... 3,481 3,481 0 0
Geller, Marshall.................... 34,808 34,808 0 0
Generation Capital Associates(20)... 8,354 8,354 0 0
George Fox University............... 3,481 3,481 0 0
Gerald I. Falke, IRA................ 1,393 1,393 0 0
Fleming (Jersey) Ltd. TTEE
Gerlach and Company(21)........... 6,962 6,962 0 0
Annie Falk TTEE
The Gianna Falk Trust DTD.
7/9/96(22)........................ 11,439 11,439 0 0
Giardina, Anthony J................. 13,336 13,336 0 0
Gilfand, David S.................... 1,393 1,393 0 0
Gittis, Howard...................... 34,808 34,808 0 0
Glaser, Bruce....................... 31,493 31,493 0 0
Glashow, Jonathan................... 10,443 10,443 0 0
Glasscock, Gary M................... 3,481 3,481 0 0
Goddu, Roger V...................... 27,846 27,846 0 0
Goebel, Gregg R. & Marilyn.......... 2,785 2,785 0 0
Goldberg, Ira....................... 6,962 6,962 0 0
Goldberg, Mark & Joanna
JTROS(1).......................... 3,481 3,481 0 0
Goldenheim, Paul D.................. 28,161 28,161 0 0
Gonchar, Andrew..................... 3,481 3,481 0 0
Gottesman, Noam & Geraldine......... 84,488 84,488 0 0
Gould, William S.................... 4,178 4,178 0 0
Grace, Roger........................ 1,671 1,671 0 0
Graves, Richard W. & Mary J.
JTROS(1).......................... 2,089 2,089 0 0
Greenspan, Burton E................. 1,741 1,741 0 0
Greiper, Scott L.................... 16,783 16,783 0 0
Gruber, John........................ 5,185 5,185 0 0
Gruber & McBaine Capital Management
Fiduciary Trust................... 13,924 13,924 0 0
Gruntal & Co., LLC(23).............. 155,905 155,905 0 0
Grunwald, J. Thomas................. 6,962 6,962 0 0
Gubitosa, Paul & Linda
JTROS(1).......................... 2,785 2,785 0 0
Hammerman, Alan H................... 24,630 24,630 0 0
Harrison, Judith P.................. 6,962 6,962 0 0
Hart, Andrew C...................... 3,481 3,481 0 0
Hart, Steven........................ 2,065 2,065 0 0
Hartman, Roland F................... 3,481 3,481 0 0
Hartman, Timothy.................... 2,089 2,089 0 0
Harvard Developments, Inc........... 21,126 21,126 0 0
(table continued on next page)
47
(table continued from previous page)
NUMBER OF
SHARES OF NUMBER OF
COMMON STOCK SHARES OF NUMBER OF SHARES PERCENTAGE
BENEFICIALLY COMMON STOCK OF COMMON STOCK OF OUR
OWNED BEING REGISTERED TO BE BENEFICIALLY OUTSTANDING
PRIOR TO IN THIS OWNED AFTER COMMON STOCK
SELLING SECURITYHOLDER OFFERING PROSPECTUS OFFERING AFTER OFFERING
---------------------- -------- ---------- -------- --------------
Hayden R. & LaDonna M. Fleming
Revocable Trust................... 5,222 5,222 0 0
Hayden, Michael D. & Velma J.
TIC(1)............................ 1,393 1,393 0 0
Heine, Spencer H. & Margaret
JTROS(1).......................... 13,924 13,924 0 0
Henry, William O. E................. 6,962 6,962 0 0
Herrmann, Frederick J. & Marilyn C.
JTROS(1).......................... 1,045 1,045 0 0
Hermann, Timothy.................... 4,129 4,129 0 0
Herscu, Robert...................... 6,962 6,962 0 0
HFR -- 07 Partners(24).............. 8,703 8,703 0 0
High View Ventures, LLC(25)......... 24,191 24,191 0 0
Aron David Truss, TTEE
The Carol R. Hill Spousal
Trust(26)......................... 147,845 147,845 0 0
Hirsch, Allen....................... 696 696 0 0
Hirsch, Marcia...................... 1,393 1,393 0 0
Hoagland, Gina & Lee JTROS(1)....... 3,481 3,481 0 0
Hodge, David........................ 3,481 3,481 0 0
Hoffman, Susan...................... 1,289 1,289 0 0
Holtvogt, Annette................... 3,481 3,481 0 0
Hornady, James Brooks............... 2,089 2,089 0 0
Hulas & Savita Kanodia Revocable
Living Trust...................... 17,404 17,404 0 0
Insalaco, Paul...................... 1,393 1,393 0 0
Intercontinental Investment......... 3,481 3,481 0 0
Isbell, Charles E................... 1,393 1,393 0 0
Iseli, Andre........................ 6,962 6,962 0 0
Jaber, Jim & Aileen JTROS(1)........ 5,570 5,570 0 0
Jacobs, Paul M...................... 3,481 3,481 0 0
Jahdi, Nasrollah & Farahnaz
JTROS(1).......................... 2,785 2,785 0 0
Jahn, Rosalie J..................... 4,178 4,178 0 0
Jajoor, Nagaraj O. & Sudha N........ 3,481 3,481 0 0
Jeffers Family Ltd.
Partnership(28)................... 1,393 1,393 0 0
Jensen, Eric & Julie Patricia
JTROS(1).......................... 696 696 0 0
J.F. Shea & Co., Inc.(29)........... 1,465,832 1,465,832 0 0
Johnson, Kimber & Susan
JTROS(1).......................... 2,089 2,089 0 0
Johnson, L. Wayne................... 6,962 6,962 0 0
Jonathan R. Cohen Retirement Plan... 1,393 1,393 0 0
Jordan, Bette P..................... 1,741 1,741 0 0
Jordan, Edward C.................... 1,393 1,393 0 0
Jordan, Peggy....................... 10,443 10,443 0 0
Joseph Cornacchio Retirement Plan... 4,178 4,178 0 0
Joseph, Dr. Ralph................... 2,785 2,785 0 0
JR Squared, LLC(30)................. 20,885 20,885 0 0
(table continued on next page)
48
(table continued from previous page)
NUMBER OF
SHARES OF NUMBER OF
COMMON STOCK SHARES OF NUMBER OF SHARES PERCENTAGE
BENEFICIALLY COMMON STOCK OF COMMON STOCK OF OUR
OWNED BEING REGISTERED TO BE BENEFICIALLY OUTSTANDING
PRIOR TO IN THIS OWNED AFTER COMMON STOCK
SELLING SECURITYHOLDER OFFERING PROSPECTUS OFFERING AFTER OFFERING
---------------------- -------- ---------- -------- --------------
Kabuki Partners(31)................. 44,458 44,458 0 0
Kalie, Manu......................... 173 173 0 0
Kane, Norman........................ 6,962 6,962 0 0
Kanuit, Gary........................ 3,481 3,481 0 0
Keating, Patrick N. & Julie S.
JTROS(1).......................... 3,481 3,481 0 0
Keeney, Thomas J. & Pamela C.
JTROS(1).......................... 1,741 1,741 0 0
Kennett, David R.................... 1,393 1,393 0 0
Kensington Partners II, L.P.(32).... 1,332 1,332 0 0
Kensington Partners, L.P.(32)....... 21,442 21,442 0 0
Keough, Thomas G.................... 2,089 2,089 0 0
Ketcham, Edward..................... 2,089 2,089 0 0
Keyway Investments Ltd.............. 69,615 69,615 0 0
Kim M. Beretta, TTEE,
Kim M. Beretta Trust
DTD 10/12/94(33).................. 3,481 3,481 0 0
Kirk, William F., Jr. & Lynn B.
JTROS(1).......................... 24,607 24,607 0 0
Kleidman, Carl(34).................. 73,599 73,599 0 0
Klein, Michael...................... 17,404 17,404 0 0
Knollmeyer, Paul P. & Phyllis M.
JTROS(1).......................... 3,481 3,481 0 0
Koch, Kevin & Susan................. 3,481 3,481 0 0
Koniver, Garth A.................... 3,481 3,481 0 0
Kraus, Dennis H. & Daryl B.
JTROS(1).......................... 1,393 1,393 0 0
Kwiat Capital Corp.(35)............. 6,962 6,962 0 0
L. Wayne Johnson SEP IRA............ 3,481 3,481 0 0
LAD Equity Partners................. 3,481 3,481 0 0
Ladouceur, Philip................... 1,385 1,385 0 0
Lagunitas Partners LP............... 55,692 55,692 0 0
Landers, James R.................... 3,481 3,481 0 0
Lantier, Brian...................... 1,660 1,660 0 0
Latour, Peter....................... 34,901 34,901 0 0
Lay Ventures, L.P................... 21,149 21,149 0 0
Lenzo, Christopher.................. 104,423 104,423 0 0
Leon, Martin B...................... 3,481 3,481 0 0
Lerner, Brian C..................... 6,266 6,266 0 0
Levitin, Eli........................ 34,226 34,226 0 0
Levy, Stuart J...................... 10,443 10,443 0 0
Lewis, Lindsay...................... 3,481 3,481 0 0
Liebro Partners LLC(36)............. 3,481 3,481 0 0
Lightman, Ezra...................... 2,089 2,089 0 0
Lin, Rong-Chung..................... 2,785 2,785 0 0
Linhart, Richard S.................. 42,245 42,245 0 0
Lipman, Beth........................ 14,349 14,349 0 0
Loegering, Charles J................ 20,886 20,886 0 0
(table continued on next page)
49
(table continued from previous page)
NUMBER OF
SHARES OF NUMBER OF
COMMON STOCK SHARES OF NUMBER OF SHARES PERCENTAGE
BENEFICIALLY COMMON STOCK OF COMMON STOCK OF OUR
OWNED BEING REGISTERED TO BE BENEFICIALLY OUTSTANDING
PRIOR TO IN THIS OWNED AFTER COMMON STOCK
SELLING SECURITYHOLDER OFFERING PROSPECTUS OFFERING AFTER OFFERING
---------------------- -------- ---------- -------- --------------
Longobardi, Vincent & Carmela Basile
JTROS(1).......................... 3,481 3,481 0 0
Luck, John.......................... 3,481 3,481 0 0
Luxenberg, Arthur................... 3,481 3,481 0 0
MacDonald, Allan & Eileen
JTROS(1).......................... 4,178 4,178 0 0
Mallis, Stephen..................... 1,393 1,393 0 0
Manhattan Group Funding(37)......... 17,404 17,404 0 0
Mann, Michael....................... 3,481 3,481 0 0
Manocherian, Jed.................... 3,481 3,481 0 0
Mardale Investments Ltd............. 33,320 33,320 0 0
Mark, Laurel Lester................. 2,785 2,785 0 0
Marsh, Frederic A................... 1,393 1,393 0 0
Martell, John A..................... 6,962 6,962 0 0
Martella, Richard R. & Jennifer K.
JTROS(1).......................... 1,741 1,741 0 0
Martin W. Gangel Roth IRA........... 6,962 6,962 0 0
Mateer, Richard B. & Margaret J.
JTROS(1).......................... 2,089 2,089 0 0
May, Gary D. & Deborah C.
JTROS(1).......................... 6,962 6,962 0 0
Mazzocchi, Leo F. & Nancy T.
JTROS(1).......................... 3,481 3,481 0 0
McCaffrey, William T................ 84,579 84,579 0 0
McCarthy, John J. & Donna P.
JTROS(1).......................... 12,670 12,670 0 0
McCleeary, Robert A................. 5,222 5,222 0 0
McGary, Lawrence W.................. 2,089 2,089 0 0
Meinershagen, Alan.................. 3,481 3,481 0 0
Mercy Radiologists of Dubuque,
PC Money Purchase Pension Plan &
Trust f/b/o Roger R. Stenlund,.... 1,393 1,393 0 0
Meringoff, Stephen J................ 6,962 6,962 0 0
Messana, Jerome..................... 18,291 18,291 0 0
Michael S. Falk IRA(15)............. 11,439 11,439 0 0
Annie Falk TTEE
The Mikaela Falk Trust DTD
2/16/94(22)....................... 11,439 11,439 0 0
Millstein, Gerald Jay............... 2,785 2,785 0 0
Misher, Sheldon..................... 63,156 63,156 0 0
Monie, Vijaykumar S................. 3,481 3,481 0 0
Moraes, Claude & Roshan
TEN ENT(1)........................ 1,393 1,393 0 0
Moran, Jr., Charles E............... 1,741 1,741 0 0
Moran, Timothy...................... 13,300 13,300 0 0
Morfesis, F.A. & Gail............... 5,570 5,570 0 0
Moriber, Lloyd A.................... 6,962 6,962 0 0
Moschetta, Ron...................... 25,395 25,395 0 0
(table continued on next page)
50
(table continued from previous page)
NUMBER OF
SHARES OF NUMBER OF
COMMON STOCK SHARES OF NUMBER OF SHARES PERCENTAGE
BENEFICIALLY COMMON STOCK OF COMMON STOCK OF OUR
OWNED BEING REGISTERED TO BE BENEFICIALLY OUTSTANDING
PRIOR TO IN THIS OWNED AFTER COMMON STOCK
SELLING SECURITYHOLDER OFFERING PROSPECTUS OFFERING AFTER OFFERING
---------------------- -------- ---------- -------- --------------
Mulkey II Limited Partnership(38)... 62,896 62,896 0 0
Mullery, Gregg Wm................... 1,393 1,393 0 0
Nancy Shapiro....................... 1,393 1,393 0 0
Nano-Cap Hyper Growth Partnership
L.P.(39).......................... 3,481 3,481 0 0
Nano-Cap New Millennium Growth Fund
L.P.(39).......................... 1,741 1,741 0 0
Neil A. Chapman, SEP IRA............ 2,089 2,089 0 0
Nelson, Jody........................ 2,089 2,089 0 0
Nemiroff, Karen..................... 696 696 0 0
Newmark, Amy L...................... 6,962 6,962 0 0
Norman, Gregory..................... 6,962 6,962 0 0
Notowitz, Allen..................... 3,481 3,481 0 0
Nowak, Greg A. & Lynn M.
TEN ENT(1)........................ 6,962 6,962 0 0
Nussbaum, Jeffrey Kahn.............. 2,089 2,089 0 0
Nussbaum, Samuel R.................. 6,962 6,962 0 0
Odlivak, Prudence & Andrew.......... 3,481 3,481 0 0
O'Donnell, Edmond................... 1,393 1,393 0 0
Odyssey Capital, L.P................ 152,564 152,564 0 0
O'Neill, William and Linda.......... 3,481 3,481 0 0
O'Sullivan, Robert.................. 66,133 66,133 0 0
Overdrive Capital Corp.(40)......... 27,847 27,847 0 0
Palmer, Richard & Lynne Marie
JTROS(1).......................... 3,481 3,481 0 0
Palmieri, Peter..................... 5,097 5,097 0 0
Pamela Equities Corporation(31)..... 10,443 10,443 0 0
Pannu, Jaswant Singh & Debra
JTROS(1).......................... 1,393 1,393 0 0
Parrish, Edward L................... 696 696 0 0
Partoyan, Garo A.................... 4,874 4,874 0 0
Patel, Sanjiv M..................... 3,481 3,481 0 0
Patil, Gangadhar.................... 3,481 3,481 0 0
Patil, Jayakumar & Purnima J.
JTROS(1).......................... 24,366 24,366 0 0
Patil, Nagaraja & Shantha
JTROS(1).......................... 3,481 3,481 0 0
Paulson, Timothy G.................. 3,481 3,481 0 0
Pecord, Carmen...................... 3,481 3,481 0 0
Perez, Michael...................... 1,393 1,393 0 0
Pesele, Robert...................... 1,393 1,393 0 0
Petrus, Paul F...................... 2,089 2,089 0 0
Piccolo, August..................... 3,481 3,481 0 0
Piccolo, John....................... 13,924 13,924 0 0
Pickett, George F. & Elizabeth H.
JTROS(1).......................... 3,481 3,481 0 0
Pinto, James J...................... 13,924 13,924 0 0
Pobiel, Ronald...................... 1,393 1,393 0 0
(table continued on next page)
51
(table continued from previous page)
NUMBER OF
SHARES OF NUMBER OF
COMMON STOCK SHARES OF NUMBER OF SHARES PERCENTAGE
BENEFICIALLY COMMON STOCK OF COMMON STOCK OF OUR
OWNED BEING REGISTERED TO BE BENEFICIALLY OUTSTANDING
PRIOR TO IN THIS OWNED AFTER COMMON STOCK
SELLING SECURITYHOLDER OFFERING PROSPECTUS OFFERING AFTER OFFERING
---------------------- -------- ---------- -------- --------------
Pocisk, Anna M...................... 4,874 4,874 0 0
Polyviu, P. Tony.................... 3,481 3,481 0 0
Porter Partners, L.P.(41)........... 168,614 168,614 0 0
Porter, Barry....................... 55,692 55,692 0 0
Porter, Jeffrey..................... 13,924 13,924 0 0
Potamianos, Constintine............. 194 194 0 0
Poujol, Michael A. & Angela G.
JTROS(1).......................... 6,962 6,962 0 0
Priddy, Robert(42).................. 890,642 890,642 0 0
Primo, Joseph C..................... 1,811 1,811 0 0
Prude, Randy........................ 6,962 6,962 0 0
Pryt, Bob........................... 17,404 17,404 0 0
R M L Burwick Family L.P.(43)....... 27,846 27,846 0 0
Radichel, William C................. 13,924 13,924 0 0
Radix Associates(44)................ 10,443 10,443 0 0
Rahn & Bodmer....................... 48,731 48,731 0 0
Rappaport, A.G...................... 27,847 27,847 0 0
Rasnick, James A. & MaryAnn
JTROS(1).......................... 3,481 3,481 0 0
Reese-Cole Partnership Ltd.(45)..... 10,443 10,443 0 0
Reichelt, Kurt V. & Laura M.
JTROS(1).......................... 5,570 5,570 0 0
Reichenbaum, Mark(46)............... 219,869 219,869 0 0
RHL Ventures LLC(47)................ 13,924 13,924 0 0
Rice, William A..................... 112,335 112,335 0 0
Richard Corbin IRA.................. 2,089 2,089 0 0
Richmond, Gerald & Amy
JTROS(1).......................... 6,962 6,962 0 0
Rion, James H., Jr.................. 4,148 4,148 0 0
RMC Capital, LLC.................... 1,691,436 1,691,436 0 0
Robert E. Gallucci DPM.............. 3,481 3,481 0 0
Roberts, Cindy D.................... 5,222 5,222 0 0
Rodler, Lawrence.................... 2,089 2,089 0 0
Rolling Investment Group............ 1,393 1,393 0 0
Ronco, Edmund....................... 1,393 1,393 0 0
Ronco, Edmund c/f Todd Ronco........ 1,390 1,390 0 0
Rosenblatt, Richard................. 24,262 24,262 0 0
Rosenbloom, Keith(49)............... 100,706 100,706 0 0
Rosenbloom, Dale.................... 13,924 13,924 0 0
Rosenbloom, Howard.................. 3,481 3,481 0 0
Rosenfield, Laurence................ 3,481 3,481 0 0
Ross, Adam Ross & Lisa Falk-
Ross JTROS(1)(50)................. 3,481 3,481 0 0
RS Emerging Growth Partners LP...... 30,634 30,634 0 0
RS Pacific Partners................. 69,676 69,676 0 0
RS Premium Partners................. 38,925 38,925 0 0
Rubin, Brett........................ 2,089 2,089 0 0
(table continued on next page)
52
(table continued from previous page)
NUMBER OF
SHARES OF NUMBER OF
COMMON STOCK SHARES OF NUMBER OF SHARES PERCENTAGE
BENEFICIALLY COMMON STOCK OF COMMON STOCK OF OUR
OWNED BEING REGISTERED TO BE BENEFICIALLY OUTSTANDING
PRIOR TO IN THIS OWNED AFTER COMMON STOCK
SELLING SECURITYHOLDER OFFERING PROSPECTUS OFFERING AFTER OFFERING
---------------------- -------- ---------- -------- --------------
Rubin, Jeffrey...................... 2,089 2,089 0 0
Rubinson, Brett..................... 696 696 0 0
Runckel, Douglas & Evelyn
JTROS(1).......................... 11,835 11,835 0 0
Russell, Donnie H................... 6,962 6,962 0 0
Russo, Paul & Sally JTROS(1)........ 20,885 20,885 0 0
Safier, Jacob....................... 307,383 307,383 0 0
Salas, Alexandra.................... 114 114 0 0
Salkind, Scott...................... 3,481 3,481 0 0
Sandhu, Avtar S..................... 1,393 1,393 0 0
Santolo, Dennis & Thomas,
JTROS(1).......................... 6,962 6,962 0 0
Sax Family Limited Partnership
JTROS(1).......................... 696 696 0 0
Scaglione, Domenic G. & Josephine... 1,741 1,741 0 0
Scalo, John T....................... 4,735 4,735 0 0
Scalo, John F. & Carole M.
JTROS(1).......................... 4,735 4,735 0 0
Schenker, Monroe H.................. 3,481 3,481 0 0
Schlank, Lionel..................... 3,481 3,481 0 0
Schneider, Sidney................... 3,481 3,481 0 0
Schoen, William R. & Barbara J.
JTROS(1).......................... 3,481 3,481 0 0
Schottenstein, Gary L............... 2,089 2,089 0 0
Schroeder, Charles F. A............. 1,741 1,741 0 0
Schultz, Gary & Lance............... 1,393 1,393 0 0
Schultz, Gary D. & Barbara A.
JTROS(1).......................... 9,747 9,747 0 0
Schwarzwaelder, Douglas............. 1,393 1,393 0 0
Schwencke, Kim M.................... 13,924 13,924 0 0
Schwickert, Kent.................... 3,481 3,481 0 0
Schwickert, Kim..................... 6,962 6,962 0 0
Scotto, Peter....................... 6,962 6,962 0 0
Seftel, Lawrence & Roslyn
JTROS(1).......................... 3,481 3,481 0 0
Serra, Jose E. & Cecilia P.
JTROS(1).......................... 6,962 6,962 0 0
Serubo, John........................ 1,741 1,741 0 0
Shagadelic Partners(51)............. 3,481 3,481 0 0
Shapiro, J.D........................ 696 696 0 0
Shaw, John J........................ 13,924 13,924 0 0
Sheats, Fred B...................... 3,481 3,481 0 0
Shrager, Jay J. & Carole B.
JTROS(1).......................... 12,531 12,531 0 0
Shroff, Burjis N. and Havovi B.
JTROS(1).......................... 2,089 2,089 0 0
Shubash, May S...................... 1,393 1,393 0 0
Sica, Joseph L., Jr. & Emilia M..... 6,962 6,962 0 0
(table continued on next page)
53
(table continued from previous page)
NUMBER OF
SHARES OF NUMBER OF
COMMON STOCK SHARES OF NUMBER OF SHARES PERCENTAGE
BENEFICIALLY COMMON STOCK OF COMMON STOCK OF OUR
OWNED BEING REGISTERED TO BE BENEFICIALLY OUTSTANDING
PRIOR TO IN THIS OWNED AFTER COMMON STOCK
SELLING SECURITYHOLDER OFFERING PROSPECTUS OFFERING AFTER OFFERING
---------------------- -------- ---------- -------- --------------
Siddiqi, Tariq S.................... 1,393 1,393 0 0
Signore, Claude M. & Marie.......... 1,393 1,393 0 0
Silverman, Robert & Lois B.......... 3,481 3,481 0 0
Simon Asset Management, LLC(52)..... 41,770 41,770 0 0
Singer, Michael..................... 10,443 10,443 0 0
SIRHC Holdings Limited.............. 5,570 5,570 0 0
Sivak, Cheryl R. and Gary Evan, M.D.
JT TEN(1)......................... 2,089 2,089 0 0
Sivak, George C., M.D............... 2,089 2,089 0 0
Sydney Goldstein, TTEE,
SJG Management, Inc. 1981
Amended and Restated Profit
Sharing Plan(53).................. 3,481 3,481 0 0
Skolnick, Kenneth B. & Melissa S.
JT TEN(1)......................... 42,245 42,245 0 0
Skoly, Jr., Stephen T............... 3,481 3,481 0 0
Smith , Harlan B.................... 4,595 4,595 0 0
Spencer, Robert J................... 3,481 3,481 0 0
Spiegelberg, Joan................... 1,393 1,393 0 0
Spielman , Melvin................... 6,962 6,962 0 0
Spigarelli, Anthony M. & Nancy
M. JT TEN(1)...................... 6,963 6,963 0 0
Spivak, Joel........................ 6,962 6,962 0 0
Stalker, Philip..................... 1,393 1,393 0 0
Starapoli, Fedele................... 1,393 1,393 0 0
Steele, Michael D................... 4,178 4,178 0 0
Stein, David........................ 3,118 3,118 0 0
Stellway, David L................... 6,962 6,962 0 0
Stern, Jeremy B. & Wendy B.......... 3,481 3,481 0 0
Steven B. Greenman IRA.............. 3,481 3,481 0 0
Stransky, Barry & Lauren A.......... 2,089 2,089 0 0
Strazzulla, Domenic M............... 5,570 5,570 0 0
Stuart Schapiro IRA Account......... 6,962 6,962 0 0
Sullivan, Jesse..................... 3,481 3,481 0 0
Sutton, Patrick..................... 1,741 1,741 0 0
Sybesma, William & Martha Jane
JT TEN(1)......................... 6,962 6,962 0 0
Sybesma Research LLC(54)............ 6,962 6,962 0 0
Ronald J. Prost and Jeffrey Verbin,
TTEES,
Syd Verbin Trust UA DTD
12/20/88(55)...................... 2,089 2,089 0 0
Tachibana , Glen.................... 2,785 2,785 0 0
Tallur, Inder....................... 40,350 40,350 0 0
Teirstein, Paul..................... 3,481 3,481 0 0
Thau, Clifford...................... 696 696 0 0
The Bald Eagle Fund Ltd.(56)........ 5,074 5,074 0 0
(table continued on next page)
54
(table continued from previous page)
NUMBER OF
SHARES OF NUMBER OF
COMMON STOCK SHARES OF NUMBER OF SHARES PERCENTAGE
BENEFICIALLY COMMON STOCK OF COMMON STOCK OF OUR
OWNED BEING REGISTERED TO BE BENEFICIALLY OUTSTANDING
PRIOR TO IN THIS OWNED AFTER COMMON STOCK
SELLING SECURITYHOLDER OFFERING PROSPECTUS OFFERING AFTER OFFERING
---------------------- -------- ---------- -------- --------------
Mellon Bank, N.A., TTEE,
The Dexter Corporation Grantor
Trust(57)......................... 6,962 6,962 0 0
The DotCom Fund, L.L.C.............. 34,808 34,808 0 0
The Leo J. Ambrogi II Trust
DTD 2/1/95........................ 2,089 2,089 0 0
The Rodney N. Schorlemmer SEP IRA... 5,570 5,570 0 0
The William S. Gould, Peter L. Gould
& Deborah Gould Cygler Irrevocable
Trust............................. 1,393 1,393 0 0
Thompson, George L.................. 3,481 3,481 0 0
Tickner, Todd....................... 3,481 3,481 0 0
Todywala, Sam & Lyla................ 696 696 0 0
Toombs, Walter F.................... 6,962 6,962 0 0
Tradex Commodities.................. 3,481 3,481 0 0
Treitel, David...................... 1,393 1,393 0 0
Trombone, Mario..................... 1,393 1,393 0 0
Trupiano, Salvatore................. 2,089 2,089 0 0
Uday, Kalpana A. & Udayashankar K.
JTROS(1).......................... 3,481 3,481 0 0
Union Cattle Company(58)............ 3,481 3,481 0 0
Vainberg, Vladik.................... 10,817 10,817 0 0
Valentino, Barbara.................. 3,481 3,481 0 0
Van Le, Linda....................... 3,481 3,481 0 0
Vandewalle, John Joos-.............. 6,962 6,962 0 0
Ventana Partners, L.P............... 13,924 13,924 0 0
David R. Nelson and James Nelson,
TTEES, Virginia R. Nelson Trust
DTD. 1/10/87(59).................. 3,481 3,481 0 0
Voigt, Kevin J. & Cindy G.
JTROS(1).......................... 3,481 3,481 0 0
Voigt, TIC, Bryon & Jacelyn
TIC(1)............................ 4,178 4,178 0 0
Voss Limited Partnership(60)........ 1,393 1,393 0 0
Wasserstrum, Seymour................ 2,089 2,089 0 0
Waxman, David B. & Jeremy
JTROS(1).......................... 1,393 1,393 0 0
Wayne, Thom......................... 8,743 8,743 0 0
Wayne D. Eig Chartered Defined
Benefit Pension Trust............. 1,393 1,393 0 0
Weidenbener, Erich J. and Diane D.
JTROS(1).......................... 5,570 5,570 0 0
Weiskopf Silver & Co. L.P........... 10,443 10,443 0 0
Weitz, Perry........................ 3,483 3,483 0 0
Weksler, Luiz....................... 2,089 2,089 0 0
Westmont Venture Partners, LLC...... 34,808 34,808 0 0
Wilkins, Charles P.................. 6,962 6,962 0 0
Wilkins, Stuart B................... 3,481 3,481 0 0
(table continued on next page)
55
(table continued from previous page)
NUMBER OF
SHARES OF NUMBER OF
COMMON STOCK SHARES OF NUMBER OF SHARES PERCENTAGE
BENEFICIALLY COMMON STOCK OF COMMON STOCK OF OUR
OWNED BEING REGISTERED TO BE BENEFICIALLY OUTSTANDING
PRIOR TO IN THIS OWNED AFTER COMMON STOCK
SELLING SECURITYHOLDER OFFERING PROSPECTUS OFFERING AFTER OFFERING
---------------------- -------- ---------- -------- --------------
Wilson, Kenneth B................... 3,206 3,206 0 0
Wingate Investments Limited......... 69,615 69,615 0 0
Wisseman, Charles L., III........... 5,570 5,570 0 0
Wolf, Aizik L. & Robyn
JTROS(1).......................... 2,785 2,785 0 0
Wolfson Equities.................... 174,038 174,038 0 0
Wynne, Joanne....................... 2,089 2,089 0 0
Wynne, Joseph(61)................... 18,662 18,662 0 0
Yalen, Richard...................... 11,931 11,931 0 0
Zale, John H........................ 3,481 3,481 0 0
Lyons, Jerry........................ 1,596 1,596 0 0
Leeds, Carey........................ 14,985 14,985 0 0
Sperduto, Vito A.................... 2,500 2,500 0 0
MD Investors, Inc................... 3,547 3,547 0 0
Byrnes, Christopher................. 1,774 1,774 0 0
Cephas Capital...................... 689 689 0 0
Bengraff, Robert(62)................ 14,647 14,647 0 0
Blitzer, Alfred(62)................. 2,328 2328 0 0
Brown, Stephanie(62)................ 135 135 0 0
Edwards, Daniel(62)................. 135 135 0 0
Smith, Scott(62).................... 135 135 0 0
Sommer, Cindy(63)................... 39 39 0 0
Corliss, Robert(62)................. 444 444 0 0
Clark, Denis(62).................... 500 500 0 0
Donner Corp International........... 400 400 0 0
Gailus, Robert...................... 1,667 1,667 0 0
Fragetti, Gerard.................... 1,760 1,760 0 0
Sands Brothers & Co., Ltd........... 4,001 4,001 0 0
Trautman, Wasserman & Co............ 5,000 5,000 0 0
Virtual Ex', Inc.................... 1,800 1,800 0 0
Bengal Partners, LLC................ 1,728 1,28 0 0
Roccus Capital Partners, LLC........ 2,667 2,667 0 0
Adams Golf, Inc..................... 6,667 6,667 0 0
InterWorld Corporation.............. 412,653 412,653 0 0
McKinsey & Company LLC.............. 128,450 128,450 0 0
Hayes, Kevin(62).................... 22,237 22,237 0 0
Bentley, Joseph(62)................. 92,223 92,223 0 0
Biehler, Stephane(62)............... 3,334 3,334 0 0
Carley, Peter(62)................... 5,000 5,000 0 0
Cisario, Victor L.(62).............. 3,334 3,334 0 0
Blair, John(62)..................... 6,667 6,667 0 0
Hughes, John J.(62)................. 3,334 3,334 0 0
Berman, Michael(62)................. 9,080 9,080 0 0
Connors, James(62).................. 94,445 94,445 0 0
Twomey, Hopp & Gallanty L.P......... 14,512 14,512 0 0
Jenner & Block, LLC................. 13,334 13,334 0 0
Woodbourne Solutions, Inc........... 3,889 3,889 0 0
(table continued on next page)
56
(table continued from previous page)
NUMBER OF
SHARES OF NUMBER OF
COMMON STOCK SHARES OF NUMBER OF SHARES PERCENTAGE
BENEFICIALLY COMMON STOCK OF COMMON STOCK OF OUR
OWNED BEING REGISTERED TO BE BENEFICIALLY OUTSTANDING
PRIOR TO IN THIS OWNED AFTER COMMON STOCK
SELLING SECURITYHOLDER OFFERING PROSPECTUS OFFERING AFTER OFFERING
---------------------- -------- ---------- -------- --------------
Bacchi, Robert(64).................. 177,667 177,667 0 0
Bacchi, Debra....................... 53,334 53,334 0 0
Bacchi, Katherine................... 26,667 26,667 0 0
Dodier, Michael(65)................. 151,000 151,000 0 0
Dodier, Beth........................ 53,334 53,334 0 0
Dodier, Jason....................... 26,667 26,667 0 0
Dodier, Shelby...................... 26,667 26,667 0 0
TOTALS.......................... 19,037,094 0 0
- ---------
(1) The designations of JT TEN, TEN ENT, TIC, or JTROS indicate that the
securities are held by both named individuals jointly and that each have
shared voting and investment powers over the securities held by both of
them.
(2) Stephen J. Warner, the chief executive officer of the general partner, has
sole voting and investment power over these securities. Mr. Warner is one
of our directors.
(3) Aubrey J. Ferrao, as trustee, has sole voting and investment power over
these securities.
(4) Kenneth McCallion, as the sole shareholder, has sole voting and investment
power over these securities.
(5) Harold S. Blue is one of our directors and is also a senior officer of
Commonwealth Associates, L.P., one of our shareholders and a placement
agent for a number of offerings of our securities.
(6) Benjamin Bollaq, as president of Prime Parcel Two, Inc., the general
partner of BNB Investment Associates L.P., has sole voting and investment
power over these securities.
(7) Robert L. Burr and Catherine Winchester Burr, as co-trustees, each have
shared voting and investment power over these securities.
(8) Robert Matluck, as managing member of the general partner of this entity,
has sole voting and investment power over these securities.
(9) Jacob Safier, President, has sole voting and investment power over these
securities.
(10) Commonwealth Associates, L.P. a broker-dealer, and its affiliates have
acted as placement agents in all of our financings to date. Michael S.
Falk, one of our directors, Keith Rosenbloom and Robert Priddy each has
shared voting and investment power over these securities. Commonwealth
Associates, L.P. currently has the right to designate two members of our
board of directors. Michael Falk, chief executive officer of Commonwealth,
and Harold Blue, chief operating officer of Commonwealth, have been so
designated. When the holders of our Series B preferred stock no longer have
the right, voting as a class, to designate one member of our board,
Commonwealth receives the right to designate such member. Commonwealth's
right to designate this third board member and one of its two other
designees expires when all our Series C Preferred Stock has converted into
shares of common stock or there is otherwise less than 20% of the
originally issued shares of Series C preferred stock outstanding.
(11) Michael Falk, Keith Rosenbloom and Robert Priddy, as managers, have shared
voting and investment power over these securities.
(12) Jackson Robinson, Mary Carstensen and Jonathan Warberg, as co-trustees,
each have shared voting and investment power over these securities.
(13) David Thalheim, as trustee, has sole voting and investment power over these
securities.
(14) R. Butler-Adams and P.W. Goodwin, as co-trustees, each have shared voting
and investment power over these securities.
(footnotes continued on next page)
57
(footnotes continued from previous page)
(15) Michael S. Falk is one of our directors and is also the Chairman and Chief
Executive Officer of Commonwealth Associates, L.P., one of our major
shareholders and the placement agent for many of our financings.
(16) Annie Falk is the wife of Michael S. Falk. Annie Falk and Michael S. Falk
each have shared voting and investment power over these securities.
(17) Patrick B. Flavin, as president of Flavin, Blake & Co., Inc., the general
partner of Flavin, Blake & Co. L.P., the managing partner of Flavin, Black
Investors, L.P., has sole voting and investment power over these
securities.
(18) Timothy P. Flynn, as sole stockholder, has sole voting and investment power
over these securities. Mr. Flynn is one of our directors.
(19) Greg Manocherian, as trustee, has sole voting and investment power over
these securities.
(20) David A. Rapaport, Frank E. Hart and Fred A. Brasch each have shared voting
and investment power over these shares.
(21) Fleming (Jersey) Ltd., as trustee, has sole voting and investment power
over these securities.
(22) Annie Falk is the wife of Michael Falk, one of our directors. Mrs. Falk, as
trustee, has sole voting and investment power over these securities.
(23) Gruntal & Co., LLC is a broker-dealer which acted as a co-placement agent
in our Series C preferred stock and warrants private placement.
(24) Elias Hourani, Basil Hourani, Troy Farha, Todd Farha, Douglas Farha, Lindy
Andeel and Alberto Rodriguez, as partners, each share voting and investment
power over these securities.
(25) Richard Rosenblatt, as managing member, has sole voting and investment
power over these securities.
(26) Aron David Truss, as trustee, has sole voting and investment power over
these securities.
(27) Domenick G. Scaglione, as president and chief executive officer, has sole
voting and investment power over these securities.
(28) Robert G. Jeffers, as general partner, has sole voting and investment power
over these securities.
(29) John Shea, as president, and Edmund Shea and Peter Shea, as
vice-presidents, each share voting and investment power over these
securities.
(30) Jeffrey Markowitz, as managing member, has sole voting and investment power
over these securities.
(31) Greg Manocherian, Vice President, has sole voting and investment power over
these securities.
(32) Richard Keim, as general partner, has sole voting and investment power over
these securities.
(33) Kim M. Beretta, as trustee, has sole voting and investment power over these
securities.
(34) Carl Kleidman is a senior officer of Commonwealth Associates, L.P., one of
our major shareholders and the placement agent for many of our offerings.
(35) Lowell Kwiat and Sheldon Kwiat, as co-presidents, each have shared voting
and investment power over these securities.
(36) Ronald Liebowitz, as managing member, has sole voting and investment power
over these securities.
(37) Ronald I. Heller and David S. Nagelberg, as general partners, each have
shared voting and investment power over these securities.
(38) David A. Mulkey, as general partner, has sole voting and investment power
over these securities.
(39) Ailon Grushkin, as president and general partner, has sole voting and
investment power over these securities.
(40) David Chazen, President, and Sid Banon, Secretary and Chief Operating
Officer, each share voting and investment power over these securities.
(41) Jeffrey Porter has sole voting and investment power over these securities.
(42) Robert Priddy is a senior officer and director of Commonwealth Associates,
L.P., one of our major shareholders and the placement agent for most of our
financings. Robert Priddy, as the manager
(footnotes continued on next page)
58
(footnotes continued from previous page)
and principal member, has sole voting and investment power over the
securities owned by RMC Capital LLC.
(43) Robert Burwick and Michael Burwick, as general partners, each have shared
voting and investment power over these securities.
(44) Stuart Shapiro, as general partner, has sole voting and investment power
over these securities.
(45) Robert H. Cole, as general partner, has sole voting and investment power
over these securities.
(46) Mark Reichenbaum is one of our directors.
(47) Robert H. Lessin, as managing member, has sole voting and investment power
over these securities.
(48) Rodney Schorlemmer and Vikki Schorlemmer, as co-trustees, each share voting
and investment power of these securities.
(49) Keith Rosenbloom is a senior officer of Commonwealth Associates, L.P., one
of our major shareholders and the placement agent for most of our
financings.
(50) Lisa Falk-Ross is the sister of Michael Falk, one our directors.
(51) Greg Nanochenan, partner, has sole voting and investment power over these
securities.
(52) Howard Liebreich, as managing member, has sole voting and investment power
over these securities.
(53) Sydney J. Goldstein, as trustee, has sole voting and investment power over
these securities.
(54) William G. Sybesma, Presdient, has sole voting and investment power over
these securities.
(55) Ronald J. Prost and Jeffrey Verbin, as co-trustees, each share voting and
investment power over these securities.
(56) Richard Klein, as general partner, has sole voting and investment power
over these securities.
(57) Patrick Flavin, as president and chief investment officer of the general
partner of Flavin, Blake & Co., L.P., directs the trustee and, accordingly,
has sole voting and investment power over these securities.
(58) Rodney Schorlemmer, Timothy Dohmann and Vikki Schorlemmer, as officers,
each have shared voting and investment power over these securities.
(59) David R. Nelson and James Nelson, as co-trustees, each have shared voting
and investment power over these securities.
(60) Warren Voss and Doris Voss, as general partners, each have shared voting
and investment power over these securities.
(61) Joseph Wynne is a senior officer of Commonwealth Associates, L.P., one of
our major shareholders and the placement agent for most of our financings.
(62) Previously was employed by us, but is no longer our employee.
(63) Currently an employee.
(64) Robert Bacchi is our chief operating officer.
(65) Michael Dodier is our executive vice president -- sales.
59
DESCRIPTION OF SECURITIES
AUTHORIZED CAPITAL STOCK
Our authorized capital stock consists of 200,000,000 shares of common stock,
par value $.0001 per share, and 50,000,000 shares of preferred stock of which
2,000 shares have been designated as Series A preferred stock, par value $.0001
per share, 4,000,000 shares have been designated as Series B preferred stock,
par value $.0001 per share, 1,750,000 shares have been designated as Series C
preferred stock, par value $.0001 per share, and 95,000 shares have been
designated as Series D preferred stock, par value $.0001 per share. As of
March 15, 2002, there were approximately 3,000 stockholders of record of our
common stock, one stockholder of record of our Series A preferred stock,
approximately 520 stockholders of record of our Series B preferred stock, 33
stockholders of record of our Series C preferred stock and eight stockholders of
record of our Series D preferred stock.
The number of shares into which each Series of preferred stock is
convertible and the number of shares underlying warrants described below and the
exercise price thereof, as described under the heading 'Authorized Capital
Stock,' have been adjusted for anti-dilution adjustments resulting from our
various financings and our 1 for 15 reverse stock split effected in January
2002.
COMMON STOCK
As of March 20, 2002, there were approximately 1,862,443 shares of our
common stock issued and outstanding. Our common stock is currently listed on The
Nasdaq SmallCap Market under the trading symbol 'EBTB'. Holders of our common
stock are entitled to one vote for each share owned on all matters submitted to
a vote of stockholders. Holders of our common stock also are entitled to receive
cash dividends, if any, declared by our board of directors out of funds legally
available therefor, subject to the rights of any holders of preferred stock.
Holders of our common stock do not have subscription, redemption, conversion or
preemptive rights. Each share of our common stock is entitled to participate pro
rata in any distribution upon liquidation, subject to the rights of holders of
preferred stock.
SERIES A PREFERRED STOCK
We have designated 2,000 shares of preferred stock as 'Series A preferred
stock.' Our board of directors has the authority to increase or decrease the
number of authorized shares of Series A preferred stock. As of March 15, 2002,
there were seven shares of Series A Preferred stock issued and outstanding. The
material terms of the Series A preferred stock are as follows:
Dividends. Holders of Series A preferred stock are entitled to dividends
only to the extent that we declare or pay a dividend on our common stock, in
which case such holders of preferred stock will receive an amount of
dividends as if their shares had been converted to common stock.
Liquidation preference. Upon any liquidation, dissolution or winding up
of our company, the holders of Series A preferred stock shall be entitled to
payment of $1,000 per share plus an amount equal to any accrued and unpaid
dividends, before any distribution is made to the holders of our common
stock. If the assets to be distributed are insufficient to permit such
payment, then the entire assets to be so distributed shall be distributed
ratably among the holders of Series A preferred stock. The Series A
preferred stock is of equal rank with the Series B preferred stock described
below.
Optional conversion. A holder of shares of Series A preferred stock may
convert any or all of such shares, at the holder's option at any time, with
respect to each share of Series A preferred stock, into 358 shares of our
common stock (equivalent to $2.80 per common share).
Anti-dilution protection. If we issue or sell any shares of our common
stock for consideration less than the conversion price then in effect, the
conversion price shall be adjusted by dividing (i) the sum of (a) the number
of shares of common stock outstanding prior to such sale (including all
shares issuable upon conversion of the Series A preferred stock) multiplied
by the then existing conversion price and (b) the consideration received in
such sale by (ii) the number of shares of common stock outstanding after
such sale (including all shares issuable upon conversion of the Series A
preferred stock). Similarly, if we issue other convertible securities (other
than options
60
granted to our employees, officers, directors, consultants and/or vendors)
with a conversion price less than the then existing conversion price
applicable to the Series A preferred stock, such conversion price will be
appropriately adjusted.
Mandatory Conversion. If we complete an underwritten public offering
involving the sale of common stock at a price per share of not less than
$42.30 and providing proceeds of not less than $7,500,000, then the
Series A preferred stock shall be automatically converted into common stock
at the conversion price then in effect.
Voting Rights. On all matters submitted to a vote by our stockholders,
the holders of Series A preferred stock are entitled to one vote for each
share of common stock into which such share of Series A preferred stock is
then convertible.
SERIES B PREFERRED STOCK
We have designated 4,000,000 shares of preferred stock as 'Series B
preferred stock'. As of March 15, 2002, there were approximately 2,590,937
shares of Series B preferred stock issued and outstanding. The material terms of
the Series B preferred stock are as follows:
Dividends. Holders of Series B preferred stock are entitled to dividends
only to the extent that we declare or pay a dividend on our common stock, in
which case such holders will receive an amount of dividends as if their
shares had been converted to common stock.
Liquidation preference. Upon any liquidation, dissolution or winding up
of our company, the holders of Series B preferred stock shall be entitled to
payment of $10 per share plus an amount equal to any accrued and unpaid
dividends, before any distribution is made to the holders of our common
stock. If the assets to be distributed are insufficient to permit such
payment, then the entire assets to be so distributed shall be distributed
ratably among the holders of Series B preferred stock. The Series B
preferred stock is of equal rank with the Series A preferred stock,
described above.
Ranking. We will not create or authorize any series of stock ranking
senior to, or of equal rank with, the Series B preferred stock, without the
affirmative vote or the written consent of at least one-third of the
outstanding shares of Series B preferred stock.
Optional conversion. A holder of shares of Series B preferred stock may
convert any or all of such shares, at the holder's option at any time, into
approximately 1.1 shares of our common stock (subject to adjustment as
described below).
Mandatory conversion. The Series B preferred stock will automatically
convert into common stock upon a public offering of our securities raising
gross proceeds in excess of $20 million or the completion of a private
placement in an amount of at least $20 million, provided, in either case,
that at the closing of the public offering or private placement, our market
valuation is at least $122.5 million (determined by multiplying the number
of shares of common stock and common stock equivalents by the per share
offering price in the public offering or private placement) and provided
further that the per share offering price is at least $77.55 (subject to
adjustment).
Anti-dilution protection. The Series B preferred stock is protected
against dilution upon the occurrence of certain events, including but not
limited to, sales of shares of common stock for less than fair market value
or the then conversion price per share.
Voting rights. On all matters submitted to a vote by our stockholders,
the holders of Series B preferred stock are entitled to one vote for each
share of common stock into which such share of Series B preferred stock is
then convertible.
Right to elect director. The holders of the Series B preferred stock,
voting as a class, are entitled to elect one director out of seven.
61
SERIES C PREFERRED STOCK
We have designated 1,750,000 shares of preferred stock designated as
'Series C preferred stock'. There are currently 762,980 shares of Series C
preferred stock issued and outstanding. The material terms of the Series C
preferred stock are as follows:
Dividends. Holders of Series C preferred stock are entitled to dividends
only to the extent that we declare or pay a dividend on our common stock, in
which case such holders will receive an amount of dividends as if their
shares had been converted to common stock.
Liquidation preference. Upon any liquidation, dissolution or winding up
of our company, the holders of Series C preferred stock shall be entitled to
payment of $13.33 per share in addition to an amount equal to any accrued
and unpaid dividends, before any distribution is made to the holders of our
common stock. If the assets to be distributed are insufficient to permit
such payment, then the entire assets to be so distributed shall be
distributed ratably among the holders of Series C preferred stock. The
Series C preferred stock is senior in rank to the Series B preferred stock
described above.
Ranking. We will not create or authorize any series of stock ranking
senior to, or of equal rank with, the Series C preferred stock, without the
affirmative vote or the written consent of at least one-half of the
outstanding shares of Series C preferred stock, provided that at least 20%
of the shares of Series C preferred stock remain outstanding.
Optional conversion. Subject to the conversion limitation, a holder of
shares of Series C preferred stock may convert any or all of such shares at
the holder's option at any time, with respect to each share of Series C
Preferred Stock, into 5.56 shares of our common stock ($1.80 per share),
subject to adjustment as described below.
Mandatory conversion upon qualified public offering. Subject to the
conversion limitation, the Series C preferred stock will automatically
convert into common stock upon a public offering of our securities raising
gross proceeds in excess of $25 million at a price per share in excess of
$30.00 provided (i) our common stock is then trading on either the Nasdaq
SmallCap, Nasdaq National Market or a national securities exchange;
(ii) either (x) a registration statement covering the conversion shares has
been declared effective by the Securities and Exchange Commission and
remains effective or (y) a proper exemption is available for resale of the
conversion shares; and (iii) the conversion shares are not subject to more
than a six-month lock-up agreement required by us or our underwriter.
Mandatory conversion based on bid price. We may force conversion of the
Series C preferred stock, subject to the conversion limitation, if (i) the
closing bid price per share of our common stock equals or exceeds 200% of
the conversion price or our common stock at such time; (ii) our common stock
is then trading on either the Nasdaq SmallCap, Nasdaq National Market or a
national securities exchange; (iii) either (x) a registration statement
covering the resale of the Conversion Shares has been declared effective by
the SEC and remains effective or (y) a proper exemption available for resale
of the conversion shares; and (iv) the conversion shares are not subject to
any lock-up agreement required by us or our underwriter or agent.
Anti-dilution protection. The Series C preferred stock is protected
against dilution upon the occurrence of certain events, including but not
limited to, sales of shares of common stock for less than fair market value
or the then current conversion price per share.
Voting rights. On all matters submitted to a vote by our stockholders,
the holders of Series C preferred stock are entitled to one vote for each
share of common stock into which such share of Series C preferred stock is
then convertible.
SERIES D PREFERRED STOCK
We have designated 95,000 shares of preferred stock as 'Series D preferred
stock'. There are currently 95,000 shares of Series D preferred stock issued and
outstanding. The material terms of the Series D preferred stock are as follows:
62
Dividends. The dividend rate on the Series D preferred stock is $1.20
per share per annum, which dividends are cumulative from the date of
issuance. In addition, holders of Series D preferred stock are entitled to
dividends to the extent that we declare or pay a dividend on our common
stock, in which case such holders will receive an amount of dividends as if
their shares had been converted to common stock.
Liquidation preference. Upon any liquidation, dissolution or winding up
of our company, the holders of Series D preferred stock shall be entitled to
payment of $10.00 per share in addition to an amount equal to any accrued
and unpaid dividends, before any distribution is made to the holders of our
common stock. If the assets to be distributed are insufficient to permit
such payment, then the entire assets to be so distributed shall be
distributed ratably among the holders of Series D preferred stock. The
Series D preferred stock is junior in rank to the Series B and Series C
preferred stock described above.
Redemption. If by November 30, 2002, we do not obtain the approval of
our stockholders to the acquisition of Bac-Tech Systems, Inc. and/or the
issuance of shares of Series D preferred stock in connection with that
acquisition, each share of Series D preferred stock is redeemable, at the
option of the holder, for $10.00 per share in cash, plus all accrued but
unpaid dividends.
Automatic conversion. Upon stockholder approval of the acquisition of
Bac-Tech and/or the issuance of shares of Series D preferred stock, each
share of Series D preferred stock outstanding inclusive as any accrued
dividends, will automatically convert into 3.5087719 shares of common stock.
Voting rights. On all matters submitted to a vote by our stockholders,
the holders of Series D preferred stock are entitled to one vote for each
share of common stock into which such share of Series D preferred stock is
then convertible.
CAPITAL RAISING TRANSACTIONS
All issuances of our securities prior to our April 2000 merger described
below were issued by former eB2B, and have been converted to equivalent
securities of our company pursuant to the terms of the April 2000 merger. All of
the share calculations under this heading have been adjusted for the 1 for 15
reverse stock split effected in January 2002, but do not reflect anti-dilution
adjustments resulting from our financings. The current conversion rates and
exercise prices, and the number of underlying shares of common stock of the
securities described below are set forth in 'Authorized Capital Stock' above.
In April 1999, former eB2B concluded a private placement offering of
Series A preferred stock and common stock to accredited investors for an
aggregate of $300,000. We issued approximately 300 shares of Series A preferred
stock at $1,000 per share, convertible into 26,600 shares of common stock. The
shares of common stock underlying the outstanding shares of Series A preferred
stock are registered for resale in this prospectus.
In October 1999, Michael Falk, a member of our board of directors, and
ComVest Partners LLC provided us with an aggregate of $375,000 of 'pre-bridge
financing,' which consisted of 7% promissory notes, and five-year, immediately
exercisable warrants to purchase an aggregate of 498,659 shares of former eB2B
common stock (equivalent to 88,429 shares of our common stock). The promissory
notes and warrants were replaced by promissory notes and warrants in the
subsequent 'bridge financing'.
In October 1999, former eB2B concluded a $1.0 million bridge financing,
which included the conversion of the promissory notes and warrants issued in the
pre-bridge financing. Former eB2B issued 7% promissory notes, which
automatically converted into shares of preferred stock in the subsequent Series
B preferred stock private placement, and seven-year immediately exercisable
'bridge warrants' to purchase an aggregate of 717,409 shares of former eB2B
common stock (equivalent to 127,221 shares of our common stock at an exercise
price equivalent to $22.50 per share). The shares of common stock underlying
these warrants, as well as additional shares resulting from anti-dilution
provisions, are registered for resale in this prospectus.
63
In November 1999, we issued to Commonwealth and its designees five-year
warrants to purchase 83,347 shares of common stock with an exercise price of
$31.05 per share in consideration for providing us with financial advisory
services during the April 2000 merger. These 'advisory warrants' vested upon
completion of the April 2000 merger, at which time they became immediately
exercisable. The shares of common stock underlying these warrants are registered
for resale in this prospectus.
In December 1999, we concluded a private placement offering of $33.0 million
in Series B preferred stock and warrants to accredited investors. We issued
approximately 3,300,000 shares of Series B preferred stock, convertible into
approximately 1,064,000 shares of common stock, and seven-year, immediately
exercisable warrants to purchase approximately 266,000 shares with an exercise
price of $31.05 per share. Holders of Series B preferred stock, voting as a
class, are entitled to elect one out of seven members of our board of directors.
The shares of common stock to which the Series B preferred stock may convert as
well as the shares of common stock underlying the Series B private placement
warrants, together with additional shares resulting from anti-dilution
provisions, are registered for resale in this prospectus.
In connection with the December 1999 private placement, we also issued
seven-year, immediately exercisable warrants to purchase an aggregate of
approximately 262,915 shares of common stock at an exercise price of $31.05 per
share to Commonwealth for acting as the placement agent in connection with the
private placement. The shares of common stock underlying these warrants,
together with additional shares resulting from anti-dilution provisions, are
registered for resale in this prospectus.
In May 2001, we completed a private placement of convertible notes and
warrants. The gross proceeds of this financing totaled $7.5 million. Pursuant to
the May 2001 financing, we issued $7,500,000 of principal amount of 7%
convertible notes, convertible into an aggregate of 1,000,000 shares of common
stock, and 'Series C warrants' to purchase an aggregate 1,000,000 shares of
common stock at an exercise price of $13.95 per share.
The convertible notes originally had a term of 18 months, but were
automatically converted, in September 2001, into Series C preferred stock after
receiving the requisite consent of the Series B preferred shareholders. Interest
on the notes was payable quarterly in cash, in identical convertible notes or in
shares of common stock, at our option. The Series C preferred stock is
convertible into common stock on the same basis as the convertible notes. The
Series C warrants are exercisable for a period of two years commencing September
2001. The shares of common stock into which the Series C preferred stock may
convert, as well as the shares of common stock underlying the Series C warrants,
together with additional shares resulting from anti-dilution provisions, have
been registered for resale in this prospectus.
In connection with the closing of the financing, we canceled a $2,050,000
line of credit issued in April 2001, pursuant to which we had not borrowed any
funds. We incurred a cash fee amounting to $61,500 in consideration of the
availability of the line of credit. In addition, the issuer of the line of
credit (namely, ComVest Venture Partners L.P.) was issued warrants to purchase
60,000 shares of common stock at an exercise price $7.50 per share for a
five-year period in consideration of the availability of such line. The shares
underlying the warrants, together with additional shares resulting from
anti-dilution provisions, are registered for resale in this prospectus.
In December 2001, we completed a bridge financing of convertible notes and
warrants. The gross proceeds of this financing totaled $2,000,000. Pursuant to
the December 2001 financing, we issued $2,000,000 of principal amount of senior
subordinated secured notes, having a 90 day maturity, which notes were
automatically convertible into securities issued in our next private placement
offering (subject to certain parameters), and warrants to purchase an aggregate
of 266,667 shares of common stock at an exercise price of $1.80 per share. The
shares underlying the warrants are registered for resale in this prospectus.
On January 11, 2002, we completed a private placement financing of units
consisting of five year 7% senior subordinated secured notes and two year
warrants. All notes purchased by holders in the December 2001 bridge financing
were converted into these units and no cash was raised in this transaction. The
notes have a five year term and are convertible into 826,444 shares of common
stock at a conversion price of $2.42 per share. The warrants are exercisable
into an aggregate of 826,439 shares
64
of common stock at an exercise price of $2.90 per share. The shares underlying
the notes and the warrants are registered for resale in this prospectus.
ADDITIONAL TERMS OF WARRANTS
In addition to the terms set forth above, each of the warrants underlying
shares of our common stock offered in this prospectus is subject to adjustments
under certain circumstances, including stock splits, recapitalizations and other
similar structural events or, in most cases, in the event we issue securities at
a price per share less than the current market price of our common stock or the
exercise price of the respective warrant. In addition, each warrant allows the
holder to exercise its warrant without making any cash payment. Such holder will
receive a reduced number of shares based on the fair market price of our common
stock on the date of exercise and the exercise price then in effect. Each
warrant holder may exercise all or any part of the warrants, at the holder's
option. In addition, each warrant provides the holder with demand and/or
'piggyback' registration rights.
PLAN OF DISTRIBUTION
PLAN OF DISTRIBUTION
The selling securityholders (and their respective pledgees, transferees,
donees or other successors in interest) may offer and sell the shares of common
stock owned by them or derived from the conversion of our preferred stock and
convertible notes and the exercise of warrants covered by this prospectus from
time to time as follows:
in the open market;
on the Nasdaq SmallCap Market;
in privately negotiated transactions;
in an underwritten offering; or
a combination of such methods or any other legally available means.
Such sales may be made at varying prices determined by reference to, among other
things:
market value prevailing at the time of the sale;
prices related to the then-prevailing market price; or
negotiated prices.
Negotiated transactions may include:
purchases by a broker-dealer as principal and resale by such broker-dealer
for its account pursuant to this prospectus;
ordinary brokerage transactions and transactions in which a broker solicits
purchasers; or
block trades in which a broker-dealer so engaged will attempt to sell the
shares as agent but may take a position and resell a portion of the block
as principal to facilitate the transaction.
In connection with distributions of our common stock, any selling securityholder
may:
enter into hedging transactions with broker-dealers and the broker-dealers
may engage in short sales of our common stock in the course of hedging the
positions they assume with the selling securityholders;
sell our common stock short and deliver the common stock to close out such
short positions;
enter into option or other transactions with broker-dealers that involve
the delivery of our common stock to the broker-dealers, which may then
resell or otherwise transfer such common stock; and
loan or pledge our common stock to a broker-dealer which may then sell our
common stock so loaned, and upon a default, the common stock may be sold or
otherwise transferred.
65
During such time as the selling securityholders may be engaged in a
distribution of the securities we are registering by this Registration
Statement, they are required to comply with the applicable provisions of the
Securities Exchange Act and the rules and regulations thereunder, including
Regulation M. Regulations M may limit the timing of purchases and sales of our
securities. These restrictions may affect the marketability of our common stock
and the ability of any person to engage in market-making activities with respect
to our common stock. The selling securityholders may, however, engage in short
sales in accordance with Rule 104 of Regulation M. Short sales, if engaged in by
the selling securityholders, may effect the market price of our common stock.
Regulation M specifically prohibits short sales that are the result of
fraudulent, manipulative or deceptive practices. Selling securityholders are
required to consult with their own legal counsel to ensure compliance with
Regulation M.
Broker dealers may receive commissions or discounts from the selling
securityholders in amounts to be negotiated immediately prior to the sale. The
selling securityholders and any broker executing selling orders on behalf of the
selling securityholders may be deemed to be an 'underwriter' within the meaning
of the Securities Act. Commissions received by any such broker may be deemed to
be underwriting commissions under the Securities Act.
LEGAL MATTERS
The validity of the common stock that we are offering will be passed upon
for us by Kaufman & Moomjian, LLC, Mitchel Field, New York.
EXPERTS
The financial statements of eB2B Commerce, Inc. as of December 31, 2000 and
December 31, 2001 and for the years then ended, included in this prospectus,
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein, and elsewhere in the registration statement
(which report expresses an unqualified opinion and includes an explanatory
paragraph referring to substantial doubt that exists regarding our Company's
ability to continue as a going concern), and have been so included in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2, including exhibits, schedules and amendments filed with
the registration statement, under the Securities Act with respect to the common
stock to be sold in this offering. This prospectus does not contain all of the
information set forth in this registration statement. For further information
about us and the shares of common stock to be sold in the offering, please refer
to the registration statement. For additional information, please refer to the
exhibits that have been filed with our registration statement on Form SB-2.
We are subject to the information and reporting requirements of the
Securities Exchange Act of 1934, and, in accordance with these requirements, we
file periodic reports, proxy statements and other information with the SEC.
You may read and copy all or any portion of the registration statement or
any other information that we file at the SEC's public reference room at 450
Fifth Street, N.W., Washington, D.C., 20549. You can request copies of these
documents upon payment of a duplicating fee, by writing to the SEC. Please call
the SEC at 1-800-SEC-0330 for further information about the public reference
rooms. Our filings, including the registration statement, are also available on
the SEC website (http://www.sec.gov).
66
ITEM 7. FINANCIAL STATEMENTS
EB2B COMMERCE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Reports............................... F-2
Consolidated Balance Sheets as of December 31, 2001 and
2000...................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 2001 and 2000................................ F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 2001 and 2000.................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2001 and 2000................................ F-6
Notes to the Consolidated Financial Statements.............. F-7
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders' of eB2B Commerce, Inc.:
We have audited the accompanying consolidated balance sheets of eB2B
Commerce, Inc. (the 'Company') as of December 31, 2001 and 2000, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
2001 and 2000, and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States of America.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 1 to the financial statements, the Company's recurring losses from
operations and negative cash flows from operations raise substantial doubt about
its ability to continue as a going concern. Management's plans concerning these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Deloitte & Touche LLP
New York, New York
April 15, 2002
F-2
EB2B COMMERCE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, DECEMBER 31,
2001 2000
---- ----
ASSETS
Current Assets
Cash and cash equivalents............................... $ 2,240 $ 8,209
Restricted Cash......................................... 1,441 1,441
Accounts receivable, net of allowance of $147 and $113
in 2001 and 2000, respectively........................ 993 1,530
Other current assets.................................... 276 409
--------- --------
Total current assets................................ 4,950 11,589
Property and equipment, net................................. 1,960 4,272
Goodwill, net of accumulated amortization of $314 and $8,852
in 2001 and 2000, respectively............................ 1,557 54,104
Other intangibles, net of accumulated amortization of $159
and $977 in 2001 and 2000 respectively.................... 815 2,259
Other assets................................................ 1,787 995
--------- --------
Total assets........................................ $ 11,069 $ 73,219
--------- --------
--------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable........................................ $ 1,562 $ 1,806
Accrued expenses and other current liabilities.......... 1,872 4,892
Lease termination costs................................. 1,299 --
Short-term debt......................................... -- 1,000
Deferred income......................................... 227 592
--------- --------
Total current liabilities........................... 4,960 8,290
Long-term debt, less current maturities..................... 1,781 1,250
Lease termination costs..................................... 595 --
Capital lease obligations, less current maturities.......... 104 212
Other....................................................... 991 381
--------- --------
Total liabilities................................... 8,431 10,133
--------- --------
Commitments and contingencies (Note 10)
Stockholders' Equity
Preferred stock, convertible Series A -- $.0001 par
value; 2,000 shares authorized; 7 shares issued and
outstanding at December 31, 2001 and 2000,
respectively.......................................... -- --
Preferred stock, convertible Series B -- $.0001 par
value; 4,000,000 shares authorized; 2,477,053 and
2,803,198 shares issued and outstanding at December
31, 2001 and 2000, respectively....................... -- --
Preferred stock, convertible Series C -- $.0001 par
value; 1,750,000 shares authorized; 763,125 shares
outstanding at December 31, 2001......................
Common stock -- $.0001 par value; 200,000,000 shares
authorized; 1,603,137 and 1,025,601 shares issued and
outstanding at December 31, 2001 and 2000,
respectively.......................................... 0 0
Additional paid-in capital.............................. 155,905 144,459
Unearned stock-based compensation....................... (768) (2,368)
Accumulated deficit..................................... (152,499) (79,005)
--------- --------
Total stockholders' equity.......................... 2,638 63,086
--------- --------
Total liabilities and stockholders' equity...... $ 11,069 $ 73,219
--------- --------
--------- --------
See accompanying notes to consolidated financial statements. All share and per
share amounts have been adjusted to reflect the 1 for 15 reverse split completed
in January 2002.
F-3
EB2B COMMERCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
YEAR ENDED
DECEMBER 31
---------------------
2001 2000
---- ----
Revenue..................................................... $ 6,816 $ 5,468
---------- --------
Costs and expenses:
Cost of revenue......................................... 3,070 2,839
Marketing and selling (exclusive of stock-based
compensation expense of $469 and $1,412 for the years
ended December 31, 2001 and 2000, respectively)....... 1,739 2,804
Amortization of product development costs (exclusive of
stock-based compensation expense of $9 and $362 for
the years ended December 31, 2001 and 2000,
respectively)......................................... 2,024 2,698
General and administrative (exclusive of stock-based
compensation expense of $1,444 and $14,253 for the
years ended December 31, 2001 and 2000,
respectively)......................................... 11,168 13,438
Amortization of goodwill and other Intangibles.......... 10,654 9,829
Stock-based compensation expense........................ 1,922 16,027
Restructuring charge.................................... 3,327 --
Impairment of goodwill and other intangible assets...... 43,375 --
---------- --------
Total costs and expenses................................ 77,279 47,635
---------- --------
Loss from operations.................................... (70,463) (42,167)
Interest income......................................... 172 1,130
Interest expense (including deferred financing costs of
$3,178 in 2001)....................................... (3,203) (191)
Other, net.............................................. -- (107)
---------- --------
Net loss............................................ $ (73,494) $(41,335)
---------- --------
Basic and diluted net loss per common share................. $ (58.88) $ (54.15)
---------- --------
---------- --------
Weighted average number of common shares outstanding........ 1,248,164 764,100
---------- --------
---------- --------
See accompanying notes to consolidated financial statements. All share and per
share amounts have been adjusted to reflect the 1 for 15 reverse stock split in
January 2002.
F-4
EB2B COMMERCE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE DATA)
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
SERIES A SERIES B SERIES C COMMON STOCK ADDITIONAL
--------------- ------------------ ---------------- ------------------- PAID IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
------ ------ ------ ------ ------ ------ ------ ------ -------
Balance at January 1, 2000.... 300 $ -- 3,299,999 $ -- -- $ -- 483,588 0 $ 67,501
Netlan merger................. -- -- -- -- -- -- 21,667 0 3,347
DynamicWeb reverse
acquisition.................. -- -- -- -- -- -- 320,798 0 58,648
Conversion of Series A
preferred stock.............. (293) -- -- -- -- -- 25,980 -- --
Conversion of Series B
preferred stock.............. -- -- (496,801) -- -- -- 160,181 -- --
Exercise of stock options and
warrants..................... -- -- -- -- -- -- 7,847 -- 144
Unearned stock-based
compensation................. -- -- -- -- -- -- -- -- 14,523
Amortization of unearned
stock-based compensation..... -- -- -- -- -- -- -- -- --
Other......................... -- -- -- -- -- -- 5,543 -- 296
Net loss...................... -- -- -- -- -- -- -- -- --
---- ------ --------- ------ ------- ------ --------- ------- --------
Balance at December 31,
2000......................... 7 $ -- 2,803,198 $ -- -- -- 1,025,604 $ 0 $144,459
Conversion of Series B
Preferred.................... -- -- (326,145) -- -- -- 146,728 -- --
April & May private
placement.................... -- -- -- -- -- -- -- -- 7,884
Conversion of convertible
notes........................ -- -- -- -- 763,125 -- -- -- 1,531
Unearned stock-based
compensation................. -- -- -- -- -- -- -- -- 322
Amortization of unearned
stock-based compensation..... -- -- -- -- -- -- -- -- --
Issuance of common stock to
settle vendor and other
obligations.................. -- -- -- -- -- -- 398,738 -- 1,624
Issuance of stock in lieu of
interest payment on
convertible notes............ -- -- -- -- -- -- 30,339 -- 85
Other issuances of common..... -- -- -- -- -- -- 1,728 -- --
Net loss...................... -- -- -- -- -- -- -- -- --
---- ------ --------- ------ ------- ------ --------- ------- --------
Balance at December 31,
2001......................... 7 $ -- 2,477,053 $ -- 763,125 $ -- 1,603,137 $ 0 $155,905
---- ------ --------- ------ ------- ------ --------- ------- --------
---- ------ --------- ------ ------- ------ --------- ------- --------
UNEARNED
STOCK BASED ACCUMULATED TOTAL
COMPENSATION DEFICIT EQUITY
------------ ------- ------
Balance at January 1, 2000.... $ (1,822) $ (37,670) $28,009
Netlan merger................. (2,050) -- 1,297
DynamicWeb reverse
acquisition.................. -- -- 58,649
Conversion of Series A
preferred stock.............. -- -- --
Conversion of Series B
preferred stock.............. -- -- --
Exercise of stock options and
warrants..................... -- -- 144
Unearned stock-based
compensation................. (14,523) -- --
Amortization of unearned
stock-based compensation..... 16,027 -- 16,027
Other......................... -- -- 296
Net loss...................... -- (41,335) (41,335)
-------- --------- -------
Balance at December 31,
2000......................... $ (2,368) $ (79,005) $63,086
Conversion of Series B
Preferred.................... -- -- --
April & May private
placement.................... -- -- 7,884
Conversion of convertible
notes........................ -- -- 1,531
Unearned stock-based
compensation................. (322) -- --
Amortization of unearned
stock-based compensation..... 1,922 -- 1,922
Issuance of common stock to
settle vendor and other
obligations.................. -- -- 1,624
Issuance of stock in lieu of
interest payment on
convertible notes............ -- -- 85
Other issuances of common..... -- -- --
Net loss...................... -- (73,494) (73,494)
-------- --------- -------
Balance at December 31,
2001......................... $ (768) $(152,499) $ 2,638
-------- --------- -------
-------- --------- -------
See accompanying notes to Consolidated Financial Statements. All share and per
share amounts have been adjusted to reflect the 1 for 15 reserve stock split
completed in January 2002.
F-5
EB2B COMMERCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED
DECEMBER 31,
-------------------
2001 2000
---- ----
(IN THOUSANDS)
Operating Activities
Net loss.................................................. $(73,494) $(41,335)
Adjustments to reconcile net loss to net cash used in
operating activities:
Impairment of goodwill and other intangibles............ 43,375 --
Depreciation and amortization........................... 14,558 13,086
Stock-based compensation expense........................ 1,922 15,991
Non-cash interest for amortization of deferred financing
terms................................................. 3,120
Other................................................... -- 57
Shares, options and warrants issued for services........ -- 36
Management of operating assets and liabilities
Accounts receivable, net................................ 537 (277)
Accounts payable........................................ (242) (327)
Accrued expenses and other liabilities.................. (939) 3,645
Lease termination....................................... 1,894 --
Other................................................... (260) (292)
-------- --------
Net cash used in operating activities............... (9,529) (9,416)
-------- --------
Investing Activities
Acquisitions, net of cash acquired........................ -- (978)
Proceeds (purchases) of investments available-for-sale,
net..................................................... -- 15,986
Purchase of software...................................... -- (2,527)
Purchase of property and equipment........................ (596) (1,075)
Product development expenditures.......................... (1,695) (2,331)
Other investing activities................................ -- --
-------- --------
Net cash provided by (used in) investing
activities........................................ (2,291) 9,075
-------- --------
Financing Activities
Proceeds from borrowings and issuance of convertible
notes, net.............................................. 6,467 2,500
Repayment of borrowings................................... (2,250) (2,366)
Proceeds from bridge notes, net........................... 1,743 --
Payment of capital lease obligations...................... (108) (194)
Restriction of cash in line of credit for security
deposits................................................ -- (1,441)
Proceeds from exercise of options and warrants............ -- 144
-------- --------
Net cash provided by financing activities........... 5,851 (1,357)
-------- --------
Net (decrease) increase in cash and cash equivalents........ (5,969) (257)
Cash and cash equivalents at beginning of year.............. 8,209 9,907
-------- --------
Cash and cash equivalents at end of year.................... $ 2,240 $ 8,209
-------- --------
-------- --------
Supplemental Disclosures of Non-Cash Activities:
Common stock, options and warrants issued or exchanged in
connection with acquisitions............................ $ -- $ 61,996
Shares, options and warrants issued for services.......... $ -- $ 398
Equipment acquired under capital lease.................... $ -- $ 346
Preferred stock issued in exchange for note payable....... $ -- $ --
Common stock issued to settle liabilities................. $ 2,081 $ --
Common stock issued in exchange for domain name........... $ -- $ --
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest.................................... $ 136 $ 148
See accompanying notes to consolidated financial statements. All share and per
share amounts have been adjusted to reflect the 1 for 15 reverse stock split
completed in January 2002
F-6
EB2B COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 1. ORGANIZATION AND PLAN OF OPERATIONS
eB2B Commerce, Inc. (the 'Company') utilizes proprietary software to provide
a technology platform for large buyers and large suppliers to transfer business
documents via the Internet to their small and medium-sized trading partners.
These documents include, but are not limited to, purchase orders, purchase order
acknowledgements, advanced shipping notices and invoices. The Company provides
access via the Internet to its proprietary software, which is maintained on its
hardware and on hosted hardware. The Company also offers professional services,
which provide consulting expertise to the same client base, as well as to other
businesses that prefer to operate or outsource the transaction management and
document exchange of their business-to-business relationships. In addition, the
Company provides authorized technical education to its client base, and also
designs and delivers custom computer and Internet-based training seminars.
Since its inception, the Company has experienced significant losses from
operations and negative cash flows from operations, which raises substantial
doubt about its ability to continue as a going concern. For the years ended
December 31, 2001 and 2000, the Company incurred losses of approximately $73.5
million and $41.3 million, respectively. During 2001 and 2000, the Company
generated negative cash flows from operations of approximately $9.5 million and
$9.4 million, respectively.
To address the continuing loss from operations and negative cash flows from
operations, management enacted a plan for the Company, which includes various
cost cutting measures during the third and fourth quarter of 2000 and into 2001.
Entering into agreements to settle approximately $425,000 in severance and
other contractual obligations through the issuance of shares of our common
stock during the fourth quarter of 2001 and the restructuring of a current
accrued liability of $262,500 through the issuance a five year 7% senior
subordinated secured convertible notes during January 2002, based on an
agreement reached in December 2001;
The settlement of certain liabilities in December 2001 for approximately
$400,000 less than what was previously owed; and
The average savings of approximately $475,000 in monthly cash expenses as a
result of a restructuring plan we initiated during the second quarter of
2001, which included principally staffing reductions and discretionary
spending reductions in selling, marketing, general and administrative
expenses.
The Company is prepared to take the following actions to improve its cash
position and fund its operating losses:
additional cost reduction measures, which the Company believes will further
reduce annual salaries by approximately $1,000,000; in this respect, in
April 2002, the Company's staff was reduced by five employees;
sell its training business, subject to finding a suitable buyer; and
raise additional capital, for which there can be no assurance of obtaining.
NOTE 2. 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 and
an SEC registrant ('DWeb'), with the surviving company using the name 'eB2B
Commerce, Inc.' (the 'Company'). Pursuant to the Agreement and Plan of Merger
between eB2B and DWeb (the 'Merger'), the shareholders of DWeb retained their
shares in DWeb, while the shareholders of eB2B received shares, or securities
convertible
F-7
EB2B COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
into shares, of common stock of DWeb representing approximately 89% of the
equity of the Company, on a fully diluted basis. The transaction was accounted
for as a reverse acquisition.
The reverse acquisition was accounted for as a 'purchase business
combination' in which eB2B was the accounting acquirer and DWeb was the legal
acquirer. The management of eB2B remained the management of the Company. As a
result of the reverse acquisition, (i) the financial statements of eB2B are the
historical financial statements of the Company; (ii) the results of the
Company's operations include the results of DWeb after the date of the Merger;
(iii) the acquired assets and assumed liabilities of DWeb were recorded at their
estimated fair market value at the date of the Merger; (iv) all references to
the financial statements of the 'Company' apply to the historical financial
statements of eB2B prior to the Merger and to the consolidated financial
statements of the Company subsequent to the Merger; (v) any reference to eB2B
applies solely to eB2B Commerce, Inc., a Delaware corporation, and its financial
statements prior to the Merger, and (vi) the Company's year-end is December 31,
that of the accounting acquirer, eB2B.
In the opinion of management, all material adjustments, consisting of normal
recurring adjustments, considered necessary for a fair presentation have been
included in the accompanying consolidated financial statements. All significant
inter-company balances and transactions have been eliminated in consolidation.
Certain other prior period balances have been reclassified to conform to the
current year.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING PRINCIPLES
The consolidated financial statements and accompanying notes are prepared in
accordance with accounting principles generally accepted in the United States of
America ('generally accepted accounting principles').
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 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.
REVENUE RECOGNITION
Revenue from transaction processing is recognized on a per transaction basis
when a transaction occurs between a buyer and a supplier. The fee is based
either on the volume of transactions processed during a specific period,
typically one month, or calculated as a percentage of the dollar volume of the
purchase related to the documents transmitted during a similar period. Revenue
from related implementation, if any, annual subscription and monthly hosting
fees are recognized on a straight-line basis over the term of the contract with
the customer. Deferred income includes amounts billed for implementation, annual
subscription and hosting fees, which have not been earned.
For related consulting arrangements on a time-and-materials basis, revenue
is recognized as services are performed and costs are incurred in accordance
with the billing terms of the contract. Revenues from related fixed price
consulting arrangements are recognized using the percentage-of-completion
method. Progress towards completion is measured using efforts-expended method
based upon management estimates. Fixed price consulting arrangements are mainly
short-term in nature and the Company does not have a history of incurring losses
on these types of contracts. If the Company were to incur a loss, a provision
for the estimated loss on the uncompleted contract would be recognized in the
period in which such loss becomes probable and estimable. Billings in excess of
F-8
EB2B COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
revenue recognized under the percentage-of-completion method on fixed price
contracts is included in deferred income.
Revenue from training and client educational services is recognized upon the
completion of the seminar and is based upon class attendance. If a seminar
begins in one period and is completed in the next period, the Company recognizes
revenue based on the percentage of completion method for the applicable period.
Deferred income includes amounts billed for training seminars and classes that
have not been completed.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash, money market investments and other
highly liquid investments with original maturities of three months or less. As
of both December 31, 2001 and 2000, the Company has also included approximately
$1,441,000 of cash as security on a $1,300,000 line of credit with the banks,
the equivalent of 109% of the line of credits. The line secures approximately
$1,441,000 of letters of credit in relation to our leased facilities and other
equipment at December 31, 2001 and 2000, which is included on its consolidated
balance sheets as restricted cash. The Company is currently in negotiations with
its landlord to terminate this lease and is in arrears for three months rent
based on a verbal agreement with the landlord. It is expected that this security
deposit will be used to offset the rent in arrears and potentially other costs
that may be incurred to terminate the lease. (See Note 8).
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization, and are depreciated or amortized using the straight-line method
over the following estimated useful lives:
Computer and communications equipment............ 2 to 3 years
Purchased software............................... 2 years
Office equipment and furniture................... 4 to 5 years
Leasehold improvements........................... Shorter of useful life or lease term
GOODWILL AND OTHER INTANGIBLES
During 2000, goodwill was amortized using the straight-line method from the
date of acquisition over the period of expected benefit, or five years. Other
intangibles resulting from the Company's purchase business combinations,
including assembled workforce and customer list, are also amortized over the
straight-line method from the date of acquisition over the period of expected
benefit, or three years. In September 2001, the Company recorded an impairment
charge to goodwill and reduced the related amortization period to three years to
more appropriately reflect the expected period of benefit. (See Note 5).
IMPAIRMENT OF LONG-LIVED ASSETS
The Company's long-lived assets, including property and equipment, goodwill
and other intangibles, are reviewed for impairment whenever events or changes in
circumstances indicate that the net carrying amount may not be recoverable. When
such events occur, the Company measures impairment by comparing the carrying
value of the long-lived asset to the estimated undiscounted future cash flows
expected to result from use of the assets and their eventual disposition. If the
sum of the expected undiscounted future cash flows were less than the carrying
amount of the assets, the Company would recognize an impairment loss. The
impairment loss, if determined to be necessary, would be measured as the amount
by which the carrying amount of the asset exceeds the fair value of the asset.
F-9
EB2B COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
PRODUCT DEVELOPMENT
In accordance with the provisions of Statement of Position ('SOP') 98-1,
'Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use', the Company capitalizes qualifying computer software costs
incurred during the application development stage. All other costs incurred in
connection with internal use software are expensed as incurred. The useful life
assigned to capitalized product development expenditures is based on the period
such product is expected to provide future utility to the Company. As of
December 31, 2001 and 2000, capitalized product development expenditures, which
have classified as other assets in the Company's Balance Sheets were $1,695,000
and $2,331,000, respectively.
INCOME TAXES
The Company records income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and the tax effect of net operating loss carry-forwards. A valuation
allowance is recorded against deferred tax assets if it is more likely than not
that such assets will not be realized.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, accounts receivable,
accounts payable, deferred income and the current portion of long-term debt
approximate fair value due to the short maturities of such instruments. The
carrying value of the long-term debt and capital lease obligations approximate
fair value based on current rates offered to the Company for debt with similar
collateral and guarantees, if any, and maturities.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk are cash and cash equivalents and accounts receivable. Cash and
cash equivalents are deposited with high credit quality financial institutions.
The Company's accounts receivable are derived from revenue earned from customers
located in the United States of America and are denominated in U.S. dollars.
Portions of the Company's accounts receivable balances are settled either
through customer credit cards or electronic fund transfers. The Company
maintains an allowance for doubtful accounts based upon the estimated
collectibility of accounts receivable. The Company recorded provisions
(additions) to the allowance of $226,000 and $211,000, respectively, and
write-offs (deductions) against the allowance of $192,000 and $98,000 during the
years ended December 31, 2001 and 2000, respectively.
In the years ended December 31, 2001 and 2000, one customer from the
Company's transaction processing and related services' segment, Toy R Us,
accounted for approximately 21% and 17%, respectively, of the Company's total
revenue. As of December 31, 2001 and 2000, the same customer accounted for
approximately 22% and 14%, respectively, of accounts receivable.
NET LOSS PER COMMON SHARE
Basic net loss per common share is computed by dividing net loss by the
weighted-average number of common shares outstanding during the period. Diluted
net loss per common share is the same as basic net loss per common share since
the assumed conversion of options, warrants and preferred shares would have been
anti-dilutive. Had the Company reported net earnings at December 31, 2001 and
2000, options and warrants to purchase 9,076,210 and 1,436,807 common shares,
and preferred shares convertible into 6,920,222 and 904,440 common shares,
respectively, and debt convertible into 934,922 common shares would have been
included in the computation of diluted earnings per common share, to the extent
they were not anti-dilutive.
F-10
EB2B COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
Net loss per common share and the weighted average number of shares
outstanding has been restated for all periods presented to give effect to the 1
for 15 reverse stock split completed in January 2002.
The unaudited pro forma net loss per common share presented in Note 4 herein
has been computed in the same manner as net loss per common share.
The weighted-average number of shares outstanding for purposes of presenting
net loss per common share on a comparative basis has been retroactively restated
to the earliest period presented to reflect the 2.66 to 1 exchange ratio in the
reverse acquisition described in Note 4 herein.
STOCK-BASED COMPENSATION
Stock-based compensation is recognized using the intrinsic value method in
accordance with the provisions of Accounting Principles Board ('APB') Opinion
No. 25, 'Accounting for Stock Issued to Employees'. For warrants issued to non
employees, the Company utilizes the fair value method prescribed within
Statement of Financial Accounting Standards ('SFAS') No. 123, 'Accounting for
Stock-Based Compensation.' The Company also utilizes the disclosure presentation
prescribed within SFAS No. 123 as if the fair value method had been applied.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, SFAS No. 133, 'Accounting for Derivative Instruments and
Hedging Activities', was issued. SFAS No. 133 established accounting and
reporting for derivatives and for hedging activities. The Company adopted SFAS
No. 133 on January 1, 2001 in accordance with SFAS No. 137, which delayed the
required implementation of SFAS No. 133 for one year. Additionally, in
June 2000, SFAS No. 138, 'Accounting for Certain Derivative Instruments and
Certain Hedging Activities, an Amendment of SFAS No. 133' was issued. The
Company adopted SFAS No. 133 and 138 in fiscal 2001, and the impact on the
Company's Consolidated Financial Statements was not material.
In March 2000, Emerging Issues Task Force ('EITF') No. 00-2, 'Accounting for
Web Site Development Costs', and EITF No. 00-3, 'Application of AICPA Statement
of Position 97-2 to Arrangements That Include the Right to Use Software Stored
on Another Entity's Hardware', were issued. The Company adopted both EITF
No. 002 and EITF No. 00-3, which did not have a material impact on the Company's
consolidated financial statements.
In June 2001, the Financial Accounting Standards Board ('FASB') issued SFAS
No. 141, 'Business Combinations'. SFAS No. 141 applies prospectively to all
business combinations initiated after June 30, 2001 and to all business
combinations accounted using the purchase method for which the date of
acquisition is July 1, 2001, or later. This statement requires all business
combinations to be accounted for using one method, the purchase method. Under
previously existing accounting rules, business combinations were accounted for
using one of two methods, the pooling of interests method or the purchase
method.
In June 2001, the FASB issued SFAS No. 142, 'Goodwill and Other Intangible
Assets'. SFAS No. 142 addresses financial accounting and reporting for acquired
goodwill and other intangible assets. Under SFAS No. 142, goodwill and some
intangible assets will no longer be amortized but rather reviewed for impairment
on a periodic basis. The provisions of this Statement are required to be applied
at the beginning of the Company's fiscal year and to be applied to all goodwill
and other intangible assets recognized in its financial statement at that date.
Impairment losses for goodwill and certain intangible assets that arise due to
the initial application of this Statement are to be reported as resulting from a
change in accounting principle. Goodwill and intangible assets acquired after
June 30, 2001, will be subject immediately to the provisions of this Statement.
The Company is currently evaluating the impact of the new accounting standard on
existing goodwill and other intangible assets
F-11
EB2B COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
and plans to adopt the new accounting standard in its financial statements for
the fiscal year ending December 2002. The Company is required to complete the
initial step of a transitional impairment test within six months of adoption of
SFAS 142, and to complete the final step of the transitional impairment test by
the end of the fiscal year.
In June 2001, the FASB issued SFAS No. 143, 'Accounting for Asset Retirement
Obligations', which addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
retirement costs. SFAS No. 143 applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition, construction,
development and (or) the normal operation of long-lived assets, except for
certain obligations of lessees. The provisions of this Statement are required to
be applied starting with fiscal years beginning after June 15, 2001. Earlier
application is encouraged. The Company is currently evaluating the impact of the
new accounting standard and plans to adopt the new accounting standard in its
financial statements for the fiscal year ending December 2002.
In August 2001, the FASB issued SFAS No. 144, 'Accounting for the Impairment
or Disposal of Long-Lived Assets'. SFAS No. 144 addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. SFAS No. 144
supersedes FASB Statement No. 121, 'Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed of', and the accounting and
reporting provisions of APB Opinion No. 30, 'Reporting the Results of
Operations -- Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions', for
the disposal of a segment of a business. This Statement also amends ARB No. 51,
'Consolidated Financial Statements', to eliminate the exception to consolidation
for a subsidiary for which control is likely to be temporary. The provisions of
this Statement are required to be applied starting with fiscal years beginning
after December 15, 2001. The Company is currently evaluating the impact of the
new accounting standard on existing long-lived assets and plans to adopt the new
accounting standard in its financial statements for the fiscal year ending
December 2002.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to current year
presentation.
NOTE 4. ACQUISITIONS
NETLAN ENTERPRISES, INC.
On February 22, 2000, eB2B completed its acquisition of Netlan Enterprises,
Inc. and subsidiaries ('Netlan'). Pursuant to the Agreement and Plan of Merger
(the 'Netlan Merger'), Netlan's stockholders exchanged 100% of their common
stock for 8,334 shares of Company common stock, valued at the market value of
DWeb's common stock on January 7, 2000, the date at which the parties signed the
letter of intent. Additionally, 13,333 shares of Company common stock were
issued, placed into an escrow account, and may be released to certain former
shareholders of Netlan upon successful completion of escrow requirements,
including continued employment with the Company. The aggregate value of such
shares, or $2,050,000, was treated as stock-based compensation and was amortized
over the one-year vesting period from the date of acquisition. In connection
with this acquisition, eB2B incurred transaction costs consisting primarily of
professional fees of approximately $332,000, which have been included in the
purchase price of the Netlan Merger. In accordance with the purchase method of
accounting, the purchase price was allocated to those assets acquired and
liabilities assumed based on the estimated fair value of Netlan's net assets as
of February 22, 2000. At that date, assets acquired and liabilities assumed had
fair values that approximated their historic book values. A total of
approximately $334,000 of the purchase consideration was allocated to other
intangibles, including assembled workforce. The remaining purchase
consideration, or approximately $4,896,000, was
F-12
EB2B COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
recorded as goodwill. The results of operations of Netlan have been included in
the Company's results of operations since March 1, 2000.
The following is a summary of the allocation of the purchase price in the
Netlan Merger (in thousands):
Purchase price.............................................. $ 1,297
Acquisition costs........................................... 332
-------
Total purchase price.................................... $ 1,629
-------
-------
Historical net liabilities assumed.......................... $(2,490)
Write-down of property and equipment, and intangible
assets.................................................... (753)
Liabilities for restructuring and integration costs......... (358)
Identifiable intangible assets.............................. 334
Goodwill.................................................... 4,896
-------
Total purchase price.................................... $ 1,629
-------
-------
DYNAMICWEB ENTERPRISES, INC.
As described in Note 2 herein, the Merger of eB2B with and into DWeb was
accounted for as a reverse acquisition, utilizing the purchase business
combination method of accounting, in which eB2B acquired control of DWeb for
accounting purposes and DWeb acquired eB2B for legal purposes. Each share of
common stock of DWeb remained outstanding and each share of eB2B common stock
was exchanged for the equivalent of 2.66 shares of DWeb's common stock. In
addition, shares of eB2B preferred stock, warrants and options were exchanged
for like securities of DWeb, reflective of the 2.66 to 1 exchange ratio.
The purchase price of the Merger was approximately $59.1 million, which
primarily represents (i) the number of shares of DWeb's common stock outstanding
as of April 18, 2000, the date of the Merger, valued based on the average quoted
market price of DWeb's common stock in the three-day period before and after
December 1, 1999, the date at which the parties signed the definitive merger
agreement, or $31.9 million; (ii) the number of shares of DWeb's common stock
issuable under existing stock option and warrant agreements as of April 18, 2000
valued using the Black-Scholes option pricing model, or $6.4 million; (iii) the
aggregate market value of the shares of common stock and warrants principally
issued to a financial advisor (the 'Financial Advisor'), or $10.2 million; and
(iv) the market value of warrants issued to the Financial Advisor in
consideration for the advisory services rendered during the Merger, or $10.1
million. In connection with this acquisition, eB2B also incurred transaction
costs consisting primarily of professional fees of approximately $363,000, which
have been included in the purchase price of the Merger. The purchase price was
allocated to those assets acquired and liabilities assumed based on the
estimated fair value of DWeb's net assets as of April 18, 2000. At that date,
assets acquired and liabilities assumed had fair values that approximated their
historic book values. A total of approximately $2.9 million of the purchase
consideration was allocated to other intangibles, including assembled workforce
and customer list. Also, the Company recorded liabilities totaling $1.0 million
principally in relation to severance provided to certain employees as well as
the settlement of a claim existing at the time of the Merger. The remaining
purchase consideration, or $58.1 million, was recorded as goodwill. The results
of operations of DWeb have been included in the Company's results of operations
since April 19, 2000.
F-13
EB2B COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
The following is a summary of the allocation of the purchase price in the
acquisition of DWeb (in thousands):
Purchase price.............................................. $58,724
Acquisition costs........................................... 363
-------
Total purchase price.................................... $59,087
-------
-------
Historical net assets acquired.............................. $ 10
Write-down of property and equipment, and intangible
assets.................................................... (838)
Liabilities for restructuring and integration costs......... (1,047)
Identifiable intangible assets.............................. 2,902
Goodwill.................................................... 58,060
-------
Total purchase price.................................... $59,087
-------
-------
At December 31, 2001 and 2000, accumulated amortization related to the
goodwill and other intangibles acquired in the Netlan and DWeb acquisitions
totaled approximately $465,000 and $9.8 million, respectively.
The following represents the summary unaudited pro forma condensed
consolidated results of operations for the year ended December 31, 2000 as if
the acquisitions had occurred at the beginning of the period presented (in
thousands, except per share data):
YEAR ENDED
DECEMBER 31, 2000
-----------------
Revenue.................................................... $ 7,073
Net loss attributable to common stockholders............... $(48,705)
Basic and diluted net loss per common share................ $ (56.55)
The pro forma results are not necessarily indicative of what would have
occurred if the acquisitions had been in effect for the periods presented. In
addition the pro forma results are not necessarily indicative of the results
that will occur in the future and do not reflect any potential synergies that
might arise from combined operations.
NOTE 5. IMPAIRMENT OF GOODWILL AND OTHER INTANGIBLES
Based upon the Company's history of recurring operating losses and its
market capitalization being less than its stockholders' equity as of
September 30, 2001, management assessed the carrying value of goodwill and other
intangibles and determined that such value may not be recoverable. The
impairment loss is measured as the amount by which the carrying amount of the
goodwill and other intangibles exceeds the fair value of the assets, as
calculated utilizing the discounted future cash flows. In accordance with this
policy, the Company recorded an impairment charge of $43,375,000.
The net book values of goodwill and other intangibles associated with the
Dweb and Netlan acquisitions as of the date of the impairment charge,
September 30, 2001, were as follows (amounts in thousands):
F-14
EB2B COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
DWEB NETLAN TOTAL
---- ------ -----
Goodwill
Balance -- September 30, 2001............... $ 41,283 $ 3,380 $ 44,663
Reclass from other intangibles.............. 425 159 584
Impairment charge........................... (40,088) (3,287) (43,375)
-------- ------- --------
Adjusted Balance........................ $ 1,620 $ 252 $ 1,872
-------- ------- --------
-------- ------- --------
Other Intangibles
Balance -- September 30, 2001............... $ 1,376 $ 159 $ 1,535
Reclass of workforce as goodwill............ (425) (159) (584)
-------- ------- --------
Adjusted Balance........................ $ 951 $ -- $ 951
-------- ------- --------
-------- ------- --------
Amortization expense related to goodwill for the nine-month period ended
September 30, 2001 was approximately $9,441,000. The Company also changed the
amortization period from five years to three years. The Company recorded
goodwill amortization in the 4th quarter of 2001 of $314,000. Commencing
January 1, 2002, goodwill will no longer be amortized, but rather reviewed for
impairment in compliance with SFAS No. 142.
Remaining other intangibles after the impairment review relate to a customer
list acquired in April 2000 of $2,188,000, a non-compete agreement of $75,000
and the cost of acquiring the Company's domain name and establishing the
Company's web-site in 2000 and 2001 of $22,000. Amortization expense related to
other intangibles for the nine-month period ended September 30, 2001 was
$747,000 prior to the impairment review. In the fourth quarter, the Company
recorded additional amortization expense related to other intangible assets of
$151,000.
NOTE 6. RESTRUCTURING
To address the continuing loss from operations and negative cash flows from
operations, management enacted a plan for the Company. During the third and
fourth quarters of 2000 and continuing into 2001, the Company reduced
discretionary spending in selling, marketing, general and administrative areas.
In the second and third quarters of 2001, the Company's Board of Directors
approved and the Company announced a restructuring plan that streamlined the
organizational structure and reduced monthly cash charges by approximately
$475,000 and planned for the anticipated exit of its current corporate office
lease to a more modest facility. The restructuring plan called for the following
cost cutting measures (in thousands) on a per month basis:
SELLING & GENERAL & LEASE
MARKETING ADMINISTRATIVE OTHER TERMINATION TOTAL
--------- -------------- ----- ----------- -----
Salaries & benefits.................. $125 $190 $ -- $ -- $315
Rent................................. -- -- -- 95 95
Fees to outside contractors(1)....... -- 50 70 -- 120
Other expenses(2).................... 20 15 5 -- 40
---- ---- ---- ---- ----
Total............................ $145 $255 $ 75 $ 95 $570
---- ---- ---- ---- ----
---- ---- ---- ---- ----
- ---------
(1) Including hosting, consulting, legal and recruiting.
(2) Including travel, entertainment, trade shows, advertising, dues &
subscriptions and public relations.
-------------------
As a result of this reorganization the Company recorded a restructuring
charge of $3,327,000 in the year ended December 31, 2001, consisting of
(i) severance and contract termination costs totaling $1,145,000 and $418,000,
respectively and (ii) lease termination costs of $1,765,000. The lease
termination costs relate to (i) the expected surrender of the Company's security
deposit of $1,200,000,
F-15
EB2B COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
including unpaid rent of approximately $300,000 for October through
December 2001; (ii) $770,000 in additional consideration expected to be paid to
the landlord in cash or shares of the Company's common stock and (iii) the
write-off of $162,000 in leaseheld improvements, net of accumulated
amortization. The severance costs related to the elimination of 40 full-time
positions representing approximately 46% of the Company's workforce. The
contract termination costs related primarily to expenses incurred as part of the
cancellation of certain long-term research subscription contracts and a contract
with the Company's website hosting provider.
The following is a summary of the restructuring charge recognized in the
year ended December 31, 2001 and the remaining accruals (in thousands):
AMOUNTS PAID
WRITEOFF AS OF BALANCE AT
RESTRUCTURING OF LEASEHOLD DECEMBER 31, DECEMBER 31,
CHARGE IMPROVEMENTS 2001 2001
------ ------------ ---- ----
Lease termination................... $1,765 $162 $ 0 $1,603
Severance for 40 employees.......... 1,145 -- 1,065 80
Contract termination Settlement..... 417 -- 237 180
------ ---- ------ ------
Total Charges................... $3,327 $162 $1,302 $1,863
------ ---- ------ ------
------ ---- ------ ------
The remaining restructuring liabilities above are included within lease
termination costs and accrued expenses and other current liabilities.
In December 2001, the Company issued 156,667 shares to two former employees
to satisfy $282,000 in severance claims. The remaining amount accrued for
severance is based on written agreements. The remaining contract termination
costs were paid in the first quarter of 2002.
NOTE 7. PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of December 31:
2001 2000
---- ----
(IN THOUSANDS)
Computer and communications equipment....................... $ 2,166 $ 2,420
Purchased software.......................................... 2,564 2,014
Office equipment and furniture.............................. 647 614
Leasehold improvements...................................... 28 226
------- -------
5,405 6,174
Accumulated depreciation and amortization................... (3,445) (1,902)
------- -------
$ 1,960 $ 4,272
------- -------
------- -------
As of December 31, 2001, the cost of assets under capital leases,
principally computer and communications equipment, was approximately $725,000.
The depreciation expense for 2001 and 2000 was $1,920,000 and $1,840,000,
respectively.
F-16
EB2B COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 8. ACCRUED EXPENSES, OTHER CURRENT LIABILITIES AND OTHER
Accrued expenses and other current liabilities consist of the following as
of December 31:
2001 2000
---- ----
(IN THOUSANDS)
Accrued software development costs.......................... $ 157 $2,439
Accrued severance........................................... 206 748
Accrued professional fees................................... 532 559
Accrued compensation and related costs...................... 337 467
Accrued purchases and sub-contractors costs................. 180 --
Current maturities of capital lease obligations............. 129 191
Other....................................................... 331 488
------ ------
$1,872 $4,892
------ ------
------ ------
During December 2001, the Company renegotiated a potential $1,200,000
liability with a creditor. The Company had previously issued 145,986 shares of
common stock to this party for amounts then owing. The Company had agreed that
in the event this party received gross proceeds less than the amount originally
owed, the Company would reimburse this party for the shortfall. In December
2001, this agreement was amended whereby the creditor agreed to be issued up to
266,667 shares of the Company's common stock to offset any deficiency, and to
the extent this amount is insufficient, the creditor would be paid one-half the
remaining balance in cash no earlier than April 2003, with the other half
forgiven. The Company has $228,614 recorded in accrued expenses for other long
term liabilities as of December 31, 2001 to cover the potential cash shortfall
to this vendor.
NOTE 9. BRIDGE FINANCING AND LONG-TERM DEBT
In February 2000, eB2B obtained a $2,500,000 term loan from a bank (the
'Bank'). The term loan had a term of three years, was interest-only until
December 1, 2000, and bears interest at a rate equal to LIBOR plus 1%. Beginning
December 1, 2000, the term loan required ten quarterly principal payments of
$250,000. The proceeds from the term loan were primarily used to refinance the
$2,116,000 debt of Netlan paid by eB2B in connection with the Netlan Merger.
On May 2, 2001, the Company completed a private placement of convertible
notes and warrants (the 'Financing'). The gross proceeds of the Financing
totaled $7.5 million. Pursuant to the Financing, the Company issued $7,500,000
of principal amount of 7% convertible notes (the 'Convertible Notes'), which was
convertible into an aggregate of 1,000,000 shares of Company common stock at a
price of $7,50, and warrants to purchase an aggregate 1,000,000 shares of
Company common stock at $13.95 per share (the 'Private Warrants') prior to
adjustment for dilutive financings.
The Convertible Notes had a term of 18 months, which period may be
accelerated in certain events. Interest was payable quarterly in cash, in
identical Convertible Notes or in shares of common stock, at the option of the
Company. With respect to the initial quarterly interest payment related to the
June 30, 2001 quarter, the Company elected to pay interest in the form of 30,355
shares of common stock valued at approximately $85,000. In September 2001, the
Company issued additional Convertible Notes which was subsequently converted
into Series C Preferred Stock of approximately $131,000 in relation to the
quarterly interest due for the period from July 1, 2001 to September 28, 2001,
the date the Convertible Notes were converted into Series C Preferred Stock as
described in Note 11 below. The proceeds of this financing were used to pay off
the balance outstanding on the $2,500,000 term loan.
In December 2001, the Company raised gross proceeds of $2,000,000 through
the issuance of 90 day, 7% Senior Subordinated Secured Notes ('Bridge Notes')
and warrants to purchase an aggregate of 266,670 shares of the Company's common
stock at a price of $1.80 per share. These warrants were valued at $218,875
using the Black-Scholes model assuming an expected life of two years, volatility
of 80 percent, and a risk free borrowing rate of 4.88 percent and will be
charged to interest
F-17
EB2B COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
expense over the life of the debt commencing in 2002. In connection with this
financing, the Company paid a cash private placement fee of $200,000 and
incurred approximately $85,000 in indirect fees consisting of primarily legal
expenses. This will also be amortized and charged to interest expense over the
life of the debt.
In January 2002, the Bridge Notes were exchanged for five year 7% senior
subordinated secured convertible notes ('7% Notes'), which are due to be repaid
in January 2007. The Company also restructured a $263,000 long-term liability
through the issuance of these 7% Notes. The 7% Notes are convertible into an
aggregate of 934,922 shares of common stock at a price of $2.42 per share. The
holders of the Bridge Notes also received, in exchange for the Bridge Notes,
warrants to purchase 826,439 shares of our common stock at a price of $2.90 per
share. The Company also issued warrants to purchase 165,289 shares of our common
stock at a price of $2.90 per share to our placement agent in connection with
the issuance of the 7% Notes. The warrants issued to our placement agent and to
the investors will be valued in January 2002 using the Black-Scholes model and
will be charged to interest expense over the life of the debt. The proceeds of
this financings are being used to (i) fund operating and working capital needs
and (ii) to fund the $250,000 upfront cash portion of the Bac-tech acquisition.
Since the $2,000,000 of Bridge Notes and $263,000 of a payable to a vendor
were refinanced and exchanged for the 7% Notes, which are not due to be repaid
until January 2007, the aggregate of $2,263,000, less $218,875 allocated to the
warrants, has been reflected as long-term liability on the Company's Balance
Sheet at December 31, 2001.
The 7% Notes mature in January 2007. No cash payments of principal is
required prior to the maturity date. Interest on the 7% Notes is payable
quarterly in either cash or shares of the Company's common stock.
NOTE 10. COMMITMENTS AND CONTINGENCIES
LEASES AND OTHER COMMITMENTS
The Company has several capital leases with various financial institutions
for computer and communications equipment used in operations with lease terms
ranging from 2 to 3 years. Also, during the third quarter of 2000, the Company
entered into a lease for new office space that will expire in 2007. According to
the terms of the lease agreements, the Company is required to maintain letters
of credit in the aggregate amount of approximately $1.2 million. The line of
credit with the Bank secures such letters of credit.
Future minimum rental commitments under noncancellable leases as of
December 31, 2001 were as follows:
CAPITAL OPERATING
LEASES LEASES
------ ------
(IN THOUSANDS)
2002........................................................ 129 1,192
2003........................................................ 101 1,162
2004........................................................ -- 1,166
2005........................................................ -- 1,175
2006........................................................ -- 1,183
----- ------
Thereafter.................................................. -- 1,567
----- ------
Total....................................................... $ 230 $7,729
----- ------
----- ------
Less: amounts representing interest......................... (11)
Less: current maturities.................................... (115)
-----
Long-term capital lease obligations......................... $ 104
-----
-----
For the years ended December 31, 2001 and 2000, the Company rent expense was
$1,633,536, and $1,031,052, respectively.
F-18
EB2B COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
EMPLOYMENT AGREEMENTS
The Company maintains employment agreements with four of its officers,
including one director. These employment agreements provide for (i) minimum
aggregate annual base salaries of $730,000 and (ii) minimum bonuses totaling
$75,000 for each year of employment of these four individuals.
LITIGATION
The Company is party to certain legal proceedings and claims, which arise in
the ordinary course of business. In the opinion of management, the amount of an
ultimate liability with respect to these actions will not materially affect our
financial position, results of operations or cash flows.
In October 2000, Cintra Software & Services Inc. commenced a civil action
against the Company in New York Supreme Court, New York County. The complaint
alleges that we acquired certain software from Cintra upon the authorization of
the Company's former Chief Information Officer. Cintra is seeking damages of
approximately $856,000. The Company has filed an answer denying the material
allegations of the complaint. The Company believes it has meritorious defenses
to the allegations made in the complaint and intends to vigorously defend the
action.
In March 2001, a former employee commenced a civil action against the
Company and two members of its management in New York Supreme Court, New York
County, seeking, among other things, compensatory damages in the amount of $1.0
million and additional punitive damages of $1.0 million for alleged defamation
in connection with his termination, as well as a declaratory judgment concerning
his alleged entitlement to stock options to purchase 5,000 shares of the
Company's common stock. The Company subsequently filed a motion to dismiss,
which was granted as to the defamation action on January 7, 2002. The former
employee has a right to appeal the action. The Company disputes the remainder of
these claims, which do not involve substantial amounts and intends to defend the
action.
In December 2001, a former officer of the Company commenced a civil action
against our company in New York Supreme Court New York County, seeking $85,000,
plus liquidated damages, attorneys' fees and costs, for alleged bonuses owing to
her. The Company subsequently filed a motion to dismiss the action. The Company
disputes this claim and intends to vigorously defend the action.
NOTE 11. PREFERRED STOCK
In April 1999, eB2B authorized 2,000 shares of Series A Convertible
Preferred Stock ('Series A') with a par value of $.0001 per share, and issued
300 shares of Series A for $300,000. Each share of Series A is convertible into
the number of shares of common stock by dividing the purchase price for the
Series A by the conversion price in effect resulting in approximately 26,600
shares of Company common stock. The Series A have anti-dilution provisions,
which can change the conversion price in certain circumstances if additional
shares of common stock were to be issued by the Company. The holders have the
right to convert the shares of Series A at any time into common stock. Upon
liquidation, dissolution or winding up of the Company, the holders of the
Series A are entitled to receive $1,000 per share plus any accrued and unpaid
dividends before distributions to any holder of the Company's common stock. As
of December 31, 2001, 293 shares of Series A issued in April 1999 had been
converted into 25,980 shares of Company common stock.
In December 1999, eB2B authorized 4.0 million shares of Series B Convertible
Preferred Stock ('Series B') with a par value of $.0001 per share, and issued
approximately 3.3 million shares for $33.0 million in gross proceeds ($29.4
million in net proceeds), in a private placement conducted by eB2B. Each share
of Series B is convertible into the number of shares of common stock that
results from dividing the purchase price by the conversion price per share in
effect resulting in 1,066,667 shares of Company common stock valued at $124.4
million based on the average quoted market price of DWeb's
F-19
EB2B COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
common stock in the three-day period before and after December 1, 1999, the date
at which the parties signed the definitive merger agreement. As this value was
significantly greater than the net proceeds received in the private placement of
Series B preferred stock, the net proceeds received were allocated to the
convertible feature and amortized as a deemed dividend on preferred stock,
resulting in a corresponding charge to retained earnings and a credit to
additional paid-in capital within stockholders' equity as of December 31, 1999.
The Series B have anti-dilution provisions, which can change the conversion
price in certain circumstances if additional shares of common stock were to be
issued by the Company. The holders have the right to convert the shares of
Series B at any time into common stock. Upon liquidation, dissolution or winding
up of the Company, the holders of the Series B are entitled to receive $10.00
per share plus any accrued and unpaid dividends before distributions to any
holder of the Company's common stock. As of December 31, 2001, 1,423,303 shares
of Series B issued in December 1999 had been converted into 306,910 shares of
Company common stock.
In the event the Company declares a cash dividend on the common stock, the
Company will at the same time, declare a dividend to the Series A and B
stockholders equal to the dividend which would have been payable if the
Series A and B stock had been converted into common stock. The holders of the
Series A and B are entitled to one vote for each share of the Company's common
stock into which such share of Series A and B is then convertible. In addition,
upon any liquidation of the Company, holders of shares of Series A and Series B
shall be entitled to payment of the purchase price before distributions to any
holder of the Company's common stock.
On September 28, 2001, the $7.5 million of Convertible Notes plus $131,000
in accrued interest were automatically converted into Series C preferred stock
when the Company received the required consent from the holders of the Company's
Series B preferred stock for the issuance of this new series. The Series C
preferred stock is convertible into common stock on the same basis as the
Convertible Notes. The Series C preferred stock has (i) full ratchet
anti-dilution provisions until April 16, 2002 with weighted average
anti-dilution protection thereafter, (ii) a liquidation preference and
(iii) could be automatically converted by the Company in certain circumstances.
The Private Warrants will be exercisable for a period of two years from
October 17, 2001.
In connection with the closing of the Financing, the Company cancelled a
$2,050,000 line of credit used in April 2001 (the 'Line of Credit'), pursuant to
which it had not borrowed any funds. In connection with the Line of Credit, the
Company paid a cash fee amounting to $61,500 in consideration of the
availability of the Line of Credit. In addition, the issuer of the Line of
Credit was issued warrants to purchase 104,167 shares of Company common stock at
$4.32 per share for a period of five years in consideration of the availability
of such line (adjusted for subsequent anti-dilution events). These warrants were
valued using the Black-Scholes option-pricing model at $549,000. The $61,500
cash fee paid and the non-cash amount related to the warrants of $549,000 were
recorded as interest expense in the Company's statement of operations for the
year ended December 31, 2001.
In connection with the Financing as compensation to the placement agents,
the Company paid a cash fee amounting to $750,000 and issued (i) warrants to
purchase 310,929 shares of the Company's common stock with an exercise price of
$6.73 per share for a period of five years and (ii) unit purchase options to
purchase Series C preferred stock convertible into an aggregate of 625,000
shares of Company common stock with an exercise price of $1.80 per share for a
period of five years. These warrants have been adjusted for subsequent
anti-dilution events. These warrants and unit purchase options were valued at
the time of issuance using the Black-Scholes option-pricing model at $675,000
and $810,000, respectively. Additionally, other expenses directly related to the
Financing, principally legal and accounting fees, were approximately $309,000.
The $750,000 cash fee paid, the other direct expenses of $309,000, and the
non-cash amounts related to the warrants of $675,000 and the unit purchase
options of $810,000 have been capitalized as debt issuance costs in the
Company's balance sheet for an aggregate value of $2,554,000 and were amortized
as interest expense in the Company's
F-20
EB2B COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
statement of operations over the term of the Convertible Notes. The remaining
unamortized balance of $1,853,000 of debt issuance cost was charged to
additional paid-in capital on September 30, 2001, at the date of the conversion
of the Convertible Notes into Series C Preferred.
The Company allocated $2,400,000 of the $6,750,000 net proceeds from the
Financing to the Private Warrants using the Black-Scholes option-pricing model
and recorded such amount as a discount on the Convertible Notes. The discount on
the Convertible Notes was accreted as interest expense in the Company's
statement of operations over the term of the Convertible Notes. During 2001, the
Company recorded interest expense of $658,000 related to such discount. The
remaining unamortized balance of the discount on the Convertible Notes of
$1,742,000, was charged to additional paid-in capital at September 28, 2001. The
remaining unallocated portion of the proceeds was used to determine the value of
the 4,238,900 shares of Company common stock underlying the Convertible Notes
subsequently converted into Series C Preferred stock, or $4.35 per share. Since
this value was $3.45 lower than the fair market value of the Company's share of
common stock as listed on NASDAQ on May 2, 2001, the date at which the Financing
was closed, the $3,450,000 intrinsic value of the conversion option resulted in
an additional reduction to the carrying amount of the Convertible Notes and a
credit to additional paid-in capital in the Company's stockholders' equity.
During 2001, the Company recorded amortization expense of $1,137,000 related to
such conversion feature. The remaining unamortized balance of the conversion
feature, $2,313,000, was charged to additional paid-in capital on September 28,
2001 at the date of the conversion of the Convertible Notes into Series C
Preferred.
The assumptions used by the Company in determining the fair value of the
above warrants and unit purchase options were as follows: dividend yield of 0%,
risk-free interest of 6.5%, expected volatility of 80%, and expected life of 2
to 5 years.
NOTE 12. COMMON STOCK AND WARRANTS
As of December 31, 2001, there were 1,603,137 common shares outstanding.
In 2000, the Company issued 21,667 shares of its common stock in relation to
the acquisition of Netlan and 320,798 shares of its common stock as part of the
reverse acquisition of Dynamic Web.
In 2001, the Company issued 398,738 shares of its common stock to settle
vendor and severance obligations with the former officers of the Company The
Company also issued 30,339 shares of its common stock in consideration for an
interest payment of $85,000 on the Convertible Notes prior to the September 28,
2001 conversion to Series C preferred stock.
On April 18, 2000, the number of shares of DWeb's common stock issuable
under existing warrants agreements became warrants to purchase shares of the
Company's common stock. As of December 31, 2001, 27,384 of such warrants were
outstanding.
In 2000, the Company issued 20,000 warrants to purchase shares of Company
common stock at an exercise price of $58.65 per share to a business partner,
which vest in three equal installments, on each of the annual anniversary of the
warrant agreement date (the 'Business Partner Warrants'). The Business Partner
Warrants have been valued at $900,000 using the Black-Scholes option pricing
model and their value will be amortized ratably over three years. During the
years ended December 31, 2001 and 2000, the Company recognized business partner
warrant expenses in the amount of $300,000 and $89,000, respectively, which have
been classified as stock-based compensation expense in the Company's
consolidated statement of operations.
The assumptions used by the Company in determining the fair value of the
above warrants were as follows: dividend yield of 0%, risk-free interest rate of
6.5% in 2000 and 2001, expected volatility of 80%, and expected life of 3 to 7
years depending on the actual life of the respective warrants.
F-21
EB2B COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
The following table summarizes the status of the above warrants at
December 31, 2001 as adjusted for anti-dilution events through January 11, 2002
(the conversion date of the Bridge Notes):
WARRANTS OUTSTANDING
--------------------------------------
WEIGHTED WARRANTS
RANGE OF AVERAGE EXERCISABLE
EXERCISE REMAINING -----------
PRICE PER NUMBER LIFE NUMBER
SHARE OF SHARES (IN YEARS) OF SHARES
----- --------- ---------- ---------
Original Bridge Warrants............................. $1.80 1,590,267 4.8 1,590,267
Merger & Advisory Warrants........................... $31.05 123,691 2.8 123,691
Credit Line Warrants................................. $4.32 104,167 4.0 104,167
Series C Investor Warrants........................... $6.73 2,072,824 4.3 1,256,757
Series C Agent Warrants -- Preferred................. $1.80 625,009 4.3 625,009
Series C Agent Warrants -- Common.................... $6.73 310,929 4.3 310,929
December 2001 Bridge Warrants........................ $1.80 266,670 5.0 266,670
Series B Investor Warrants........................... $8.55 964,850 3.0 964,850
Series B Agent Warrants.............................. $8.55 953,791 3.0 953,791
Other................................................ $15 - $58.65 137,362 5.3 137,362
--------- ---------
Total................................................ 7,149,560 7,149,560
--------- ---------
--------- ---------
In addition, in January 2002, the Company issued warrants to purchase common
shares of 826,439 and 165,289 to the 7% Note holders and its Placement Agent,
respectively.
NOTE 13. STOCK OPTION AND DEFINED CONTRIBUTION PLANS
STOCK OPTIONS PLANS
The Company has stock-based compensation plans under which outside
directors, certain employees and consultants received stock options and other
equity-based awards. The shareholders of the Company approved the 2000 stock
option plan. All options outstanding under either eB2B's or DWeb's prior plans
at the time of the Merger remained in effect, but the plans have been retired as
of April 18, 2000, the date of the Merger. Stock options under the Company's
2000 stock option plan are generally granted with an exercise price equal to
100% of the market value of a share of common on the date of the grant, have 10
year terms and vest within 2 to 4 years from the date of the grant. Subject to
customary antidilution adjustments and certain exceptions, the total number of
shares of common stock authorized for option grants under the plan was
approximately 10.0 million shares at December 31, 2001. At that date,
approximately 9.2 million shares were available for grant.
In connection with the Merger, outstanding options held by DWeb employees
became exercisable, according to their terms, for Company common stock effective
at the acquisition date. These options did not reduce the shares available for
grant under the 2000 stock option plan. The fair value of these options, valued
using the Black-Scholes pricing model, were included in the purchase price of
the Merger. There were no unvested options held by employees of companies
acquired in a purchase combination.
The former Chief Executive Officer and current Chairman of the Board of
Directors of the Company was granted options to purchase 88,667 shares of the
Company's common stock at an exercise price of $31.05 per share. These options
vested upon the completion of the Merger on April 18, 2000. In connection with
such options, the Company recorded a one-time charge classified as stock-based
compensation expense of approximately $8.8 million in the year ended
December 31, 2000. There was no charge related to this item in 2001.
In connection with certain consulting services rendered during 2000, the
Company granted 4,334 stock options in exchange for services. These options were
valued, utilizing the Black-Scholes option
F-22
EB2B COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
pricing model, at approximately $70,000, of which $36,000 was charged to
stock-based compensation expense in the year ended December 31, 2000. The
assumptions used by the Company in determining the fair value of these options
were consistent with the assumptions described in Notes 9, 11 and 12.
The Company has adopted the disclosure requirements of SFAS No. 123 and, as
permitted under SFAS 123, applies APB 25 and related interpretations in
accounting for its plans. Compensation expense recorded under APB 25 was
approximately $2.0 million and $16.0 million for the years ended December 31,
2001 and 2000, respectively. If the Company had elected to adopt optional
recognition provisions of SFAS 123 for its stock option plans, net loss and net
loss per share would have been changed to the pro forma amounts indicated below:
YEARS ENDED
DECEMBER 31,
---------------------
2001 2000
---- ----
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Net loss attributable to common stockholders
As reported............................................. $(73,494) $(41,335)
Pro forma............................................... $(76,288) $(50,909)
Net loss per common share -- basic and diluted
As reported............................................. $ (54.88) $ (54.15)
Pro forma............................................... $ (61.12) $ (66.63)
The fair value of stock options used to compute pro forma net loss and net
loss per common share disclosures is the estimated fair value at grant date
using the Black-Scholes pricing model with the following assumptions:
YEARS ENDED
DECEMBER 31,
---------------------
WEIGHTED-AVERAGE ASSUMPTIONS 2001 2000
- ---------------------------- ---- ----
Dividend yield.............................................. 0% 0%
Expected volatility......................................... 80% 80%
Risk-free interest rate..................................... 4.8% - 6.5% 6.5%
Presented below is a summary of the status of the Company employee and
director stock options and the related transactions for the years ended December
31, 2001 and 2000:
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
(IN THOUSANDS) PER SHARE
-------------- ---------
Options outstanding at January 1, 2000................. 137 $11.70
Granted/assumed(1)................................. 519 $41.70
Exercised.......................................... 5 $40.35
Forfeited/expired.................................. 76 $39.60
--- ------
Options outstanding at December 31, 2000............... 575 $34.80
Granted............................................ 513 $ 5.97
Exercised.......................................... -- --
Forfeited/expired.................................. 322 $39.88
--- ------
Options outstanding at December 31, 2001............... 766 $15.49
- ---------
(1) Includes options converted in DWeb acquisition.
DEFINED CONTRIBUTION PLAN
The Company has a defined contribution savings plan (the 'Plan'), which
qualifies under Section 401(k) of the Internal Revenue Code. Participants may
contribute up to 20%, which is currently $10,500 of their gross wages, not to
exceed, in any given year, a limitation set by Internal Revenue Service
regulations. The Plan provides for discretionary contributions to be made by the
Company as
F-23
EB2B COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
determined by its Board of Directors. As of December 31, 2001, the Company has
not made any contributions to the Plan.
NOTE 14. INCOME TAXES
The components of the net deferred tax asset as of December 31, 2001 and
2000 consist of the following:
2001 2000
---- ----
(IN THOUSANDS)
Deferred tax assets:
Net operating loss carryforwards............................ $ 13,700 $ 6,900
Stock-based compensation.................................... 8,200 7,500
Other miscellaneous......................................... 600 --
-------- --------
22,500 14,400
Valuation allowance......................................... (22,500) (14,400)
-------- --------
-------- --------
Net deferred tax asset...................................... $ -- $ --
-------- --------
-------- --------
Deferred income taxes reflect the net effects of temporary differences
between carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which temporary
differences representing net future deductible amounts become deductible. Due to
the uncertainty on the Company's ability to realize the benefit of the deferred
tax assets, the deferred tax assets are fully offset by a valuation allowance at
December 31, 2001 and 2000.
As of December 31, 2001, the Company had approximately $30 million of net
operating loss (NOL) carryforwards for federal income tax purposes. The NOL
carryforwards will begin expiring in 2019 if not utilized. During 2000, the
Company may have experienced an ownership change as that term is defined in
Section 382 of the Internal Revenue Code. Under that section, when there is an
ownership change, the pre-ownership-change loss carryforwards are subject to an
annual limitation which could reduce or defer the utilization of these losses.
Therefore, the Company's pre-ownership change tax losses may be severely limited
and may expire without being utilized.
The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate to income before provision for income
taxes. The sources and tax effects of the differences are as follows:
YEAR ENDED
DECEMBER 31,
-------------------
2001 2000
---- ----
(IN THOUSANDS)
Federal income tax, at statutory rate....................... $(24,400) $(14,400)
State income tax, net of federal benefit.................... (2,100) (2,400)
Non-deductible expenditures, including goodwill amortization
and other................................................. 18,400 4,083
Change in valuation allowance............................... 8,100 12,317
-------- --------
Income taxes, as recorded................................... $ -- $ --
-------- --------
-------- --------
NOTE 15. SEGMENT REPORTING
The Company has two reportable operating segments. The Company utilizes
proprietary software to provide a technology platform for large buyers and large
suppliers to transfer business documents via the Internet to their small and
medium-sized trading partners. The Company also offers professional services,
which provide consulting expertise to the same client base, as well as to other
businesses that
F-24
EB2B COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
prefer to operate or outsource the transaction management and document exchange
of their business-to-business relationships. The Company's transaction
processing technology platform and professional services comprise one reportable
segment defined as 'transaction processing and related services.' In addition,
the Company designs and delivers custom technical education through delivery of
custom computer and Internet-based on line training seminars. This second
reportable segment is defined as 'training and client educational services.'
The following information is presented in accordance with SFAS No. 131,
'Disclosures about Segments of an Enterprise and Related Information', which
established standards for reporting information about operating segments in the
Company's financial statements:
YEAR ENDED
DECEMBER 31,
-------------------
2001 2000
---- ----
(IN THOUSANDS)
Revenue from external customers
Transaction processing and related services............. $ 4,333 $ 3,039
Training and client educational services................ 2,483 2,429
-------- --------
$ 6,816 $ 5,468
-------- --------
-------- --------
EBITDA (excluding restructuring and impairment charges)(1)
Transaction processing and related services............. $ (8,108) $(13,467)
Training and client educational services................ (15) 363
-------- --------
EBITDA.............................................. (8,123) (13,104)
Depreciation and amortization........................... (13,644) (10,445)
Stock-related compensation.............................. (1,922) (16,027)
Interest, net........................................... (3,031) 939
Restructuring Charge.................................... (1,563) --
Impairment Charge....................................... (43,375) --
-------- --------
Net Loss................................................ $(71,628) $(41,335)
-------- --------
-------- --------
Identifiable assets
Transaction processing and related services............. $ 8,030 $ 15,201
Training and client educational services................ 818 1,310
Corporate, mainly goodwill and other intangibles........ 2,637 56,708
-------- --------
$ 11,485 $ 73,219
-------- --------
-------- --------
Capital expenditures, including product development
Transaction processing and related services............. $ 2,253 $ 5,892
Training and client educational services................ 38 41
-------- --------
$ 2,291 $ 5,933
-------- --------
-------- --------
- ---------
(1) EBITDA is defined as net income (loss) adjusted to exclude: (i) provision
(benefit) for income taxes, (ii) interest income and expense, (iii)
depreciation, amortization and write-down of assets, (iv) stock-related
compensation, and (v) product development costs.
EBITDA is presented because management considers it an important indicator
of the operational strength and performance of its business. The Company
evaluates the performance of its operating segments without considering the
effects of (i) debt financing interest expense and investment interest income,
and (ii) non-cash charges related to depreciation, amortization and
stock-related compensation, which are managed at the corporate level.
NOTE 16. SUBSEQUENT EVENTS
In January 2002, the Company completed a one-for-fifteen reverse stock
split. All shares and per share amounts have been adjusted to reflect this
reverse stock split.
In January 2002, the Company acquired Bac-Tech Systems, Inc., a New York
City-based privately-held e-commerce business, through a merger. Pursuant to the
merger agreement, the Company paid an
F-25
EB2B COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
aggregate of $250,000 in cash and issued an aggregate of 200,000 shares of
common stock and 95,000 shares of Series D preferred stock to the two
stockholders of Bac-Tech. The Series D preferred stock, inclusive for any
accrued dividend, is automatically convertible into an aggregate of 333,334
shares of common stock upon stockholders approval of the acquisition and/or the
issuance of the Series D preferred stock in connection with the acquisition. If
such approval is not obtained by November 30, 2002, the Series D preferred stock
is redeemable, at the option of the holders, for $10 per share in cash, plus
accrued dividends. The Company expects this vote to occur before the end of the
third quarter of 2002. If the vote to convert does not occur, a cash payment of
approximately $980,000 would be required to be paid to the Bac-Tech
shareholders. The Company also issued secured notes to the Bac-Tech stockholders
in the aggregate amount of $600,000, payable in three equal installments in
2003, 2004 and 2005.
F-26
________________________________________________________________________________
PROSPECTIVE INVESTORS MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE PROSPECTIVE INVESTORS WITH
DIFFERENT OR ADDITIONAL INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR
IS IT SEEKING AN OFFER TO BUY IN ANY JURISDICTION WHERE SUCH OFFER, OR SALE IS
NOT PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT ONLY AS
OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR ANY SALE OF THESE SHARES.
-------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary.......................................... 1
Risk Factors................................................ 3
Forward-Looking Statements.................................. 11
Use of Proceeds............................................. 12
Price Range of Common Stock................................. 12
Dividend Policy............................................. 12
Selected Financial Data..................................... 13
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 14
Business.................................................... 24
Management.................................................. 33
Beneficial Ownership of Securities.......................... 38
Certain Transactions........................................ 40
Selling Securityholders..................................... 41
Description of Securities................................... 60
Plan of Distribution........................................ 65
Legal Matters............................................... 66
Experts..................................................... 66
Where you can Find Additional Information................... 66
Index to Consolidated Financial Statements.................. F-1
________________________________________________________________________________
19,037,094 SHARES
EB2B COMMERCE, INC.
--------------------
PROSPECTUS
--------------------
, 2002
________________________________________________________________________________
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's amended and restated certificate of incorporation provides
that the Company will indemnify any person who is or was a director, officer,
employee or agent of the Company to the fullest extent permitted by the New
Jersey Business Corporation Act, and to the fullest extent otherwise permitted
by law. The New Jersey law permits a New Jersey corporation to indemnify its
directors, officers, employees and agents against liabilities and expenses they
may incur in such capacities in connection with any proceeding in which they may
be involved, unless a judgment or other final adjudication adverse to the
director, officer, employee or agent in question establishes that his or her
acts or omissions (a) were in breach of his or her duty of loyalty (as defined
in the New Jersey law) to the Company or its stockholders, (b) were not in good
faith or involved a knowing violation of law or (c) resulted in the receipt by
the director, officer, employee or agent of an improper personal benefit.
Pursuant to the Company's amended and restated certificate of incorporation
and the New Jersey law, no director or officer of the Company will be personally
liable to the Company or to any of its stockholders for damages for breach of
any duty owed to the Company or its stockholders, except for liabilities arising
from any breach of duty based upon an act or omission (i) in breach of such
director's or officer's duty of loyalty (as defined in the New Jersey law) to
the Company or its stockholders, (ii) not in good faith or involving a knowing
violation of law or (iii) resulting in receipt by such director or officer of an
improper personal benefit.
In addition, the Company's bylaws include provisions to indemnify its
officers and directors and other persons against expenses, judgments, fines and
amounts incurred or paid in settlement in connection with civil or criminal
claims, actions, suits or proceedings against such persons by reason of serving
or having served as officers, directors, or in other capacities, if such person
acted in good faith, and in a manner such person reasonably believed to be in or
not opposed to the best interests of the Company and, in a criminal action or
proceeding, if he had no reasonable cause to believe that his/her conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent will
not, of itself, create a presumption that the person did not act in good faith
and in a manner which he or she reasonably believed to be in or not opposed to
the best interests of the Company or that he or she had reasonable cause to
believe his or her conduct was unlawful. Indemnification as provided in the
bylaws will be made only as authorized in a specific case and upon a
determination that the person met the applicable standards of conduct.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses of the distribution, all of which are to be borne by
the Registrant, are as follows:
SEC Registration Fee........................................ $9,929
Blue Sky Fees and Expenses*................................. *
Accounting Fees and Expenses*............................... *
Legal Fees and Expenses*.................................... *
Miscellaneous............................................... *
------
Total................................................... $ *
------
------
- ---------
* To be provided by amendment.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
All issuances of our securities prior to our April 2000 merger were issued
by former eB2B Commerce, Inc., a Delaware corporation ('former eB2B'), and have
been converted to equivalent securities of the Registrant pursuant to the terms
of the April 2000 merger. All of the share calculations
II-1
set forth in this Item have been adjusted for the 1 for 15 reverse stock split
effected in January 2002, but do not reflect anti-dilution adjustments resulting
from our financings.
In April 1999, former eB2B concluded a private placement offering of Series
A preferred stock and common stock to 13 accredited investors for an aggregate
of $300,000. Investors were issued 300 shares of Series A preferred stock at
$1,000 per share, convertible into an aggregate of 26,600 shares of common
stock. The issuance of these shares was exempt from registration pursuant to
Rule 506 promulgated under Section 4(2) of the Securities Act.
In October 1999, Michael Falk, a member of the Registrant's board of
directors, and ComVest Partners LLC, each an accredited investor, in exchange
for $375,000, received 7% promissory notes and five-year, immediately
exercisable warrants to purchase an aggregate of 498,659 shares of former eB2B
common stock (equivalent to 88,429 shares of Registrant's common stock with an
exercise price equivalent to $22.50 per share). These promissory notes and
warrants were replaced by promissory notes and warrants in the subsequent bridge
financing. The issuance of these securities was exempt from registration
pursuant to Rule 506 promulgated under Section 4(2) of the Securities Act.
In October 1999, in exchange for an aggregate of $1 million (which included
the replacement of promissory notes and warrants previously issued in the
pre-bridge financing) ComVest Partners LLC, Commonwealth and nine additional
accredited investors were issued 7% promissory notes automatically convertible
into the shares of preferred stock in the subsequent Series B preferred stock
private placement and seven-year immediately exercisable warrants to purchase an
aggregate of 717,409 shares of former eB2B common stock (equivalent to 127,221
shares of common stock at an exercise price equivalent to $22.50 per share). The
issuance of these securities was exempt from registration pursuant to Rule 506
promulgated under Section 4(2) of the Securities Act.
In November 1999, Commonwealth and its designees were issued five-year
warrants to purchase the equivalent of 83,347 shares of the Registrant's common
stock at an exercise price equivalent to $31.05 per share in consideration for
providing former eB2B with financial advisory services. These warrants vested
upon completion of the Registrant's April 2000 merger, at which time they became
immediately exercisable. The granting of these warrants was exempt from
registration pursuant to Rule 506 promulgated under Section 4(2) of the
Securities Act.
In December 1999, the Registrant concluded a private placement offering of
$33 million in Series B preferred stock and warrants to approximately 530
accredited investors. The Registrant issued approximately 3,300,000 shares of
Series B preferred stock, convertible into approximately 2,678,822 shares of
common stock, and seven-year, immediately exercisable warrants to purchase
approximately 209,413 shares with an exercise price of $31.05 per share. The
issuance of these securities was exempt from registration pursuant to Rule 506
promulgated under Section 4(2) of the Securities Act.
In connection with the December 1999 private placement, the Registrant also
issued seven-year, immediately exercisable warrants to purchase an aggregate of
approximately 262,915 shares of common stock to Commonwealth for acting as the
placement agent in connection with such private placement with an exercise price
of $31.05 per share. The granting of these warrants was exempt from registration
pursuant to Rule 506 promulgated under Section 4(2) of the Securities Act.
In connection with the Series B private placement, the Registrant also
engaged Commonwealth as a finder in connection with merger and acquisition
transactions. As part of the finder's fee agreement and upon completion of the
April 2000 merger, the Registrant issued Commonwealth 48,019 shares of common
stock and seven-year immediately exercisable warrants to purchase 33,493 shares
of common stock with an exercise price of $31.05 per share. The issuance of
these securities was exempt from registration by Rule 506 promulgated under
Section 4(2) of the Securities Act.
In May 2001, the Registrant completed a private placement of convertible
notes and warrants to 33 accredited investors. Pursuant to the financing, the
Registrant issued $7,500,000 of principal amount of 7% convertible notes,
convertible into an aggregate of 1,000,000 shares of common stock, and warrants
to purchase an aggregate of 1,000,000 shares of common stock at an exercise
price of $13.95 per share. In September 2001, the 7% convertible notes were
automatically converted into an aggregate of 750,000 shares of Series C
preferred stock, after receiving the requisite consent of the Series B
shareholders. The Series C preferred stock is convertible into common stock on
the same basis as the convertible
II-2
notes. The issuance of these securities was exempt from registration by Rule 506
promulgated under Section 4(2) of the Securities Act.
In connection with the closing of the May 2001 financing, the Registrant
canceled a line of credit issued by ComVest Venture Partners L.P., an affiliate
of Commonwealth. In consideration of the availability of the line of credit, the
Registrant issued five-year warrants to ComVest Venture Partners L.P., an
accredited investor, to purchase 106,946 shares of common stock at an exercise
price of $7.50 per share. The issuance of these securities was exempt from
registration by Rule 506 promulgated under Section 4(2) of the Securities Act.
In May 2001, the Registrant issued 19,978 and 145,986 shares of common
stock, respectively, to McKinsey & Company, Inc. United States and Interworld
Corporation as payment for services provided to us. The issuance of these shares
to these accredited investors was exempt from registration by Rule 506
promulgated under Section 4(2) of the Securities Act.
In December 2001, the Registrant completed a bridge financing of units
consisting of convertible notes and warrants to six accredited investors.
Pursuant to the financing, the Registrant issued $2,000,000 of principal amount
of 7% senior subordinated secured notes, having a 90 day maturity, which notes
were automatically convertible into securities issued in the Registrant's next
private placement financing (subject to certain parameters) and warrants to
purchase an aggregate of 266,667 shares of common stock at an exercise price of
$1.80 per share. The issuance of these securities was exempt from registration
by Rule 506 promulgated under Section 4(2) of the Securities Act.
In January 2002, the Registrant completed a private financing of units
consisting of five year 7% senior subordinated secured notes and two year
warrants. All notes purchased by holders in the December 2001 bridge financing
were converted into these units and no cash was raised in this transaction. The
notes have a five year term and are convertible into 826,444 shares of common
stock at a conversion price of $2.42 per share. The warrants are exercisable
into an aggregate of 826,439 shares of common stock at an exercise price of
$2.90 per share. The issuance of these securities was exempt from registration
by Rule 506 promulgated under Section 4(2) of the Securities Act.
Based on an agreement reached in December 2001, we restructured a liability
of $262,500 through the issuance of a five year 7% senior subordinated secured
convertible note to a creditor during January 2002. The issuance as these
securities was exempt from registration by Rule 506 promulgated under
Section 4(2) of the Securities Act.
In December 2001 and January 2002, the Registrant issued 188,401 shares of
common stock to accredited investors in connection with the settlement of
outstanding severance and other contractual obligations. The issuance of these
securities was exempt from registration by Rule 506 promulgated under
Section 4(2) of the Securities Act.
Effective January 2, 2002, the Registrant acquired Bac-Tech Systems, Inc.
through a merger pursuant to which the Registrant issued to the stockholders of
Bac-Tech an aggregate of 200,000 shares of common stock and 95,000 shares of
Series D preferred stock, which preferred stock is automatically convertible
into 333,336 shares of common stock upon the approval by the Registrant's
stockholders to the acquisition and/or the issuance of such Series D preferred
stock. The issuance of these securities was exempt from registration by Rule 506
promulgated under Section 4(2) of the Securities Act.
ITEM 27. EXHIBITS
NUMBER DESCRIPTION
- ------ -----------
2.1 --Agreement and Plan of Merger by and between eB2B Commerce, Inc. and DynamicWeb
Enterprises, Inc., dated December 1, 1999, and as amended, dated February 29, 2000
(incorporated by reference to Exhibit 2.1 and Exhibit 2.2 filed with the Registrant's
Registration Statement on Form S-4 filed on January 24, 2000 and amended on March 20, 2000
('Form S-4')).
2.2 --Agreement and Plan of Merger by and between eB2B Commerce, Inc., Netlan Merger
Corporation and Netlan Enterprises, Inc., dated February 22, 2000 (incorporated by
reference to Exhibit 2.5 filed with the Registrant's Form S-4).
II-3
NUMBER DESCRIPTION
- ------ -----------
2.3 --Agreement and Plan of Merger among eB2B Commerce, Inc.,
Bac-Tech Systems, Inc., Robert Bachhi and Michael Dodier,
dated as of January 2, 2002 (incorporated by reference to
Exhibit 2.1 as filed with the Registrant's Form 8-K, dated
January 2, 2002)
3.1 --Certificate of Incorporation, as filed with the Secretary
of State of New Jersey on August 7, 1979 together with
subsequently filed Amendments and Restatements through
April 2001, inclusive of terms and designations for Series
A and Series B preferred stock (incorporated by reference
to Exhibits 3.1.1 through Exhibit 3.1.13 filed with the
Registrant's Form S-4) and Amendments filed from May 2001
through February 2002, inclusive of terms and designations
of Series C and Series D preferred stock (incorporated by
reference to Exhibit 3.1 as filed with the Registrant's
Annual Report on Form 10-KSB for the year ended December
31, 2001 ('2001 Form 10-KSB')).
3.2 --Bylaws adopted August 7, 1979 including all subsequently
filed Amendments and Restatements (incorporated by
reference to Exhibit 3.2.1 through Exhibit 3.2.4 filed
with the Registrant's Form S-4).
5.1 --Opinion and Consent of Kaufman & Moomjian, LLC regarding
the legality of the securities being registered.
10.1 --Agreement of Sub-Lease between 757 Third Avenue LLC and
eB2B Commerce, Inc., dated July 28 2000 (incorporated by
reference to Exhibit 10.1 filed with the Registrant's
Annual Report on Form 10-KSB for the year ended December
31, 2000 ('2000 Form 10-KSB')).
10.2 --Employment Agreement between Peter J. Fiorillo and eB2B
Commerce, Inc., dated effective as of December 1, 1998
(incorporated by reference to Exhibit 10.3 filed with the
Registrant's Form S-4) and amendment thereto effective as
of April 2001 (incorporated by reference to Amendment No.
1 to the Registrant's Registration Statement on
Form SB-2).
10.3 --Employment Agreement between Richard S. Cohan and eB2B
Commerce, Inc., dated effective as of May 4, 2001
(incorporated by reference to Amendment No. 1 to the
Registrant's Registration Statement on Form SB-2).
10.4 --Employment Agreement between eB2B Commerce, Inc. and
Steven Rabin, dated effective as of October 31, 2000
(incorporated by reference to Exhibit 10.6 as filed with
the Registrant's 2000 Form 10-KSB) and amendment thereto
effective as of April 2001 (incorporated by reference to
Amendment No. 1 the Registrant's Registration Statement on
Form SB-2).
10.5 --Form of Series A Preferred Stock Subscription Agreement
(incorporated by reference to Amendment No. 1 to the
Registrant's Registration Statement on Form SB-2) and
schedule related thereto (incorporated by reference to
Exhibit 10.5 as filed with Registrant's 2001
Form 10-KSB).
10.6 --Form of Unit Subscription Agreement relating to Series B
preferred stock and warrants (incorporated by reference to
Amendment No. 1 to the Registrant's Registration Statement
on Form SB-2) and schedule related thereto (incorporated
by reference to Exhibit 10.6 as filed with Registrant's
2001 Form 10-KSB).
10.7 --Form of Unit Subscription Agreement relating to
convertible notes and warrants issued in April/May 2001
(incorporated by reference to Amendment No. 1 to the
Registrant's Registration Statement on Form SB-2) and
schedule related thereto (incorporated by reference to
Exhibit 10.7 as filed with Registrant's 2001
Form 10-KSB).
10.8 --Form of Unit Subscription Agreement relating to
convertible notes and warrants issued in December 2001 and
schedule related thereto (incorporated by reference to
Exhibit 10.8 as filed with Registrant's 2001
Form 10-KSB).
10.9 --Form of Unit Subscription Agreement relating to
convertible notes and warrants issued in January 2002 and
schedule related thereto (incorporated by reference to
Exhibit 10.9 as filed with Registrant's 2001
Form 10-KSB).
10.10 --Form of 7% Senior Subordinated Secured Convertible Note
(incorporated by reference to Exhibit 10.10 as filed with
Registrant's 2001 Form 10-KSB).
II-4
NUMBER DESCRIPTION
- ------ -----------
10.11 --Software License Agreement between InterWorld Corporation
and eChannel Ventures Inc., dated December 11, 1998,
Addendum thereto dated September 30, 1999, Letter
Agreement amending the Addendum, dated February 21, 2001,
Amendment No. 1, dated April 12, 2001 and Amendment No. 2,
dated December 24, 2001 (incorporated by reference to
Exhibit 10.11 as filed with Registrant's 2001
Form 10-KSB).
10.12 --eB2B Commerce, Inc. 2000 Stock Option Plan, as amended
July 3, 2001 (incorporated by reference to Exhibit 10.12
as filed with Registrant's 2001 Form 10-KSB).
10.13 --Promissory Note, dated January 2, 2002, issued by eB2B
Commerce, Inc. in favor of Robert Bacchi (incorporated by
reference to Exhibit 10.1 as filed with the Registrant's
Form 8-K, dated January 2, 2002).
10.14 --Promissory Note, dated January 2, 2002, issued by eB2B
Commerce, Inc. in favor of Michael Dodier (incorporated by
reference to Exhibit 10.2 as filed with the Registrant's
Form 8-K, dated January 2, 2002).
10.15 --Security Agreement, dated January 2, 2002, between eB2B
Commerce, Inc. and each of Robert Bacchi and Michael
Dodier (incorporated by reference to Exhibit 10.3 as filed
with the Registrant's Form 8-K, dated January 2, 2002).
10.16 --Registration Rights Agreement, dated January 2, 2002,
between eB2B Commerce, Inc. and each of Robert Bacchi and
Michael Dodier (incorporated by reference to Exhibit 10.4
as filed with the Registrant's Form 8-K, dated January 2,
2002).
10.17 --Employment Agreement, dated January 2, 2002, between eB2B
Commerce, Inc., and Robert Bacchi (incorporated by
reference to Exhibit 10.5 as filed with the Registrant's
Form 8-K, dated January 2, 2002).
10.18 --Employment Agreement, dated January 2, 2002, between eB2B
Commerce, Inc. and Michael Dodier (incorporated by
reference to Exhibit 10.6 as filed with the Registrant's
Form 8-K, dated January 2, 2002).
10.19 --Non-Competition Agreement, dated January 2, 2002, between
eB2B Commerce, Inc. and Robert Bacchi (incorporated by
reference to Exhibit 10.7 as filed with Registrant's
Form 8-K, dated January 2, 2002).
10.20 --Non-Competition Agreement, dated January 2, 2002, between
eB2B Commerce, Inc. and Michael Dodier (incorporated by
reference to Exhibit 10.8 as filed with Registrant's
Form 8-K, dated January 2, 2002).
23.1 --Independent Auditors' Consent -- Deloitte & Touche LLP.
23.2 --Consent of Kaufman & Moomjian, LLC (included in legal
opinion filed as Exhibit 5.1).
24 --Power of Attorney (incorporated by reference to Amendment
No. 1 to the Registrant's Registration Statement on
Form SB-2).
ITEM 28. UNDERTAKINGS
The Registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts of events which,
individually or together, represent a fundamental change in the
information in the registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment as a new registration statement for the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
II-5
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the 'Act') may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-6
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Amendment No. 2
to this Registration Statement to be signed on its behalf by the undersigned, in
the City of New York, State of New York on the 13th day of May, 2002.
EB2B COMMERCE, INC.
By /s/ RICHARD S. COHAN
.................................
RICHARD S. COHAN
CHIEF EXECUTIVE OFFICER AND
PRESIDENT
Each person whose signature appears below constitutes and appoints Richard
S. Cohan, with full power of substitution, his/her true and lawful
attorney-in-fact and agent to do any and all acts and things in his/her name and
on his/her behalf in his/her capacities indicated below which he may deem
necessary or advisable to enable eB2B Commerce, Inc. to comply with the
Securities Act of 1933, as amended, and any rules, regulations and requirements
of the Securities and Exchange Commission, in connection with this Registration
Statement, including specifically, but not limited to, power and authority to
sign for him/her in his/her name in the capacities stated below, any and all
amendments (including post-effective amendments) thereto, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in such connection, as
fully to all intents and purposes as we might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities
indicated on May 13, 2002.
SIGNATURE TITLE
--------- -----
/s/ RICHARD S. COHAN Chief Executive Officer and President (Principal Executive
......................................... Officer and Principal Financial and Accounting Officer)
(RICHARD S. COHAN) and Director
/s/ STEPHEN J. WARNER Director
.........................................
(STEPHEN J. WARNER*)
/s/ HAROLD S. BLUE Director
.........................................
(HAROLD S. BLUE*)
Director
.........................................
(MICHAEL S. FALK)
/s/ BRUCE J. HABER Director
.........................................
(BRUCE J. HABER*)
/s/ MARK REICHENBAUM Director
.........................................
(MARK REICHENBAUM*)
Director
.........................................
(TIMOTHY J. FLYNN)
*By: /S/ RICHARD S. COHAN
.........................................
RICHARD S. COHAN
AS ATTORNEY-IN-FACT AND AGENT
II-7