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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended: January 31, 2002
Commission File Number: 000-23384
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eBT International, Inc.
(Exact name of registrant as specified in its charter)
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Delaware 04-3216243
(State or other
jurisdiction of
incorporation or (I.R.S. Employer
organization) Identification No.)
P.O. Box 1029, Scituate, MA
(Address of principal executive offices)
02047
(Zip code)
(781) 319-0460
(Registrant's telephone number, including area code)
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Securities Registered Pursuant to Section 12(g) of the Act: None
Common Stock, par value $.01 per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes: [X] No: [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
Outstanding at April 22,
Class 2002
----- ----
Common Stock (par value
$.01 per share) 14,685,001
As of April 22, 2002, the aggregate market value of common stock held by
non-affiliates of the registrant was $3,818,000.
Documents Incorporated by Reference--NONE
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Form 10-K
This report contains forward-looking statements. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes," "anticipates," "plans," "expects," and similar expressions
are intended to identify forward-looking statements. There are a number of
factors of which we are aware that may cause our estimate of the minimum net
proceeds available for distribution to shareholders to vary materially from
those forecasted or projected in any such forward-looking statement. Please see
"Risk Factors" for a discussion of certain, but not necessarily all, of the
factors that we believe could cause our estimate of the minimum net proceeds
available for distribution to shareholders to be materially less than those
forecasted or projected in any forward-looking statement.
Part I
Item 1. Business
eBT International, Inc. ("eBT", or "Company") formerly developed and
marketed enterprise-wide Web content management software solutions and
associate services. The Company was incorporated under the laws of the State of
Delaware.
The Board of Directors unanimously adopted a Plan of Complete Liquidation
and Dissolution ("Plan"), subject to stockholder approval on May 22, 2001. The
Board concluded that the Plan was in the best interests of eBT and its
stockholders after considering a number of factors. Among the factors the Board
considered were as follows:
. our recent unsatisfactory revenue performance, particularly the results
from the fiscal quarter ended April 30, 2001 when we did not generate any
revenue from the license of software products;
. the competitive nature of the content management industry and our
position within that industry;
. prevailing economic conditions both generally and within the content
management sector;
. our inability to identify a buyer or strategic alliance partner
acceptable to us;
. the significant risks associated with restructuring our business,
including the conclusion that positive operating cash flow or operating
income could not be achieved in a period of time satisfactory to the
. Board and that a significant amount of cash would be spent to fund our
operations prior to the achievement, if any, of potentially acceptable
financial results;
. the Board's belief that distribution of our assets in liquidation could
produce more value to our stockholders than if the stockholders held
shares of common stock; and
. Morgan Stanley's opinion dated May 22, 2001, that based upon and subject
to the considerations set forth in its opinion, the consideration to be
received by the holders of our common stock pursuant to the Plan was fair
to them from a financial point of view.
The Plan was approved by the holders of a majority of the Company's
outstanding shares on November 8, 2001. The key features of the Plan are (1)
the conclusion of all business activities, other than those related to the
execution of the Plan; (2) the sale or disposal of all of the Company's
non-cash assets; (3) the establishment of reasonable reserves to be sufficient
to satisfy the liabilities, expenses and obligations of eBT not otherwise paid,
provided for or discharged; (4) the periodic payment of per share liquidating
distributions to stockholders; and (5) the authorization of the filing of a
Certificate of Dissolution with the State of Delaware.
In connection with the adoption of the Plan and the anticipated liquidation,
the Company adopted the liquidation basis of accounting effective August 1,
2001, whereby assets are valued at their estimated net realizable cash values
and liabilities are stated at their estimated settlement amounts. Uncertainties
as to the
1
precise net value of eBT's assets (other than cash), and the ultimate amount of
its liabilities make it impracticable to predict the aggregate net value that
may ultimately be distributable to stockholders. Claims, liabilities and future
expenses for operations (including salaries, payroll and local taxes,
professional fees and miscellaneous office expenses), although currently
declining in the aggregate, will continue to be incurred with execution of the
Plan. These costs will reduce the amount of assets available for ultimate
distribution to stockholders. Although we do not believe that a precise
estimate of those expenses can currently be made, we believe that available
cash and amounts received for the collection of receivables will be adequate to
provide for eBT's obligations, liabilities, operating costs and claims
(including contingent liabilities), and to make cash distributions to
stockholders. If available cash and amounts received from the collection of
receivables are not adequate to provide for eBT's obligations, liabilities,
operating costs and claims, estimated future distributions of cash to eBT's
stockholders will be reduced.
The Company filed its Certificate of Dissolution on November 8, 2001 with
the State of Delaware. Pursuant to Delaware law, the Company will continue in
existence until November 8, 2004. During this period, the Company will attempt
to convert its estimated remaining net assets to cash for periodic distribution
to its stockholders. It is not permitted to continue the business of the
Corporation as a going concern.
On December 13, 2001, the Company returned the sum of $44,055,000 (or $3.00
per share, based upon 14,685,001 shares of common stock outstanding) to
stockholders of record as of December 7, 2001. We currently estimate that
stockholders may receive periodic additional liquidation proceeds totaling $.32
per share. The actual amount and timing of future distributions cannot be
predicted at this time although the Board currently expects to make a cash
distribution of approximately $.25 per share to stockholders in October, 2002.
The Board's final determination as to the amount of and date of this
distribution is subject to the conditions set forth in the October 3, 2001
Proxy Statement, including an assessment as to the adequacy of the estimated
litigation settlement costs reserve (see Notes 1 and 14 of "Notes to
Consolidated Financial Statements"). The actual nature, amount and timing of
future distributions will be determined by the Board in its sole discretion,
and will depend primarily upon eBT's ability to execute the Plan.
The Company's liquidation should be concluded on or before November 8, 2004
with a final liquidating distribution either directly to the stockholders or to
one or more liquidating trusts. Complete details regarding the Plan to
liquidate and dissolve the Company can be found in the Company's October 3,
2001 Proxy Statement filed with the Securities and Exchange Commission, and
mailed to Stockholders on October 4, 2001.
Red Bridge Interactive, Inc.
Effective July 1, 2001, the Company entered into an agreement with Red
Bridge Interactive, Inc., ("Interactive") whereby Interactive assumed our
maintenance and support obligations relating to DynaBase, engenda and entrepid
(see Item 1., Business, to the Company's Form 10-K for fiscal year ended
January 31, 2001 for a description of these products). In connection with that
agreement, we assigned Interactive our existing rights in the DynaBase and
engenda products and provided Interactive with a limited, non-exclusive license
of our rights to entrepid. Interactive was founded in June 2001 and is owned
and managed by former employees of eBT. Interactive is based in Providence, RI.
The terms of our agreement required the Company to provide Interactive with
$650,000 in cash over the period July 1, 2001 to March 1, 2002. The payments
were made monthly, generally declining in amount over this period, which
correspond to the customer maintenance and support contracts that we
transferred to Interactive. In the event of a default by Interactive, which
specifically includes performance of the obligations assumed by Interactive
under the Company's former maintenance and support business, we were entitled
to draw upon an irrevocable letter of credit provided by Interactive. This
letter of credit had an initial principal amount of $350,000 and declined over
the period July 31, 2001 to March 31, 2002, at which time it was terminated.
Our agreement with Interactive also provided for the payment of royalties to
eBT in the event Interactive earns gross revenue from the maintenance and
support business or from licensing of DynaBase, engenda and entrepid. The
royalty periods expire at various times through July 1, 2004. The Company's
Consolidated
2
Statement of Net Assets in Liquidation as of January 31, 2002 includes a
receivable from Interactive for royalties earned in the amount of $99,000, of
which $26,000 was paid to the Company in February 2002. Although we expect that
the Company will continue to receive royalties pursuant to its agreement with
Interactive, we have not included any amounts in the Consolidated Statement of
Net Assets in Liquidation other than the $99,000 referred to above.
Accordingly, we will continue to account for Interactive royalty income when
amounts due to the Company, if any, have been verified.
Risk Factors
The Company's plan is to continue to conclude the business activities of the
Company and distribute its net assets to stockholders. The timing of and
completion of these objectives are subject to a number of risks and
uncertainties, including those set forth below.
The Company no longer satisfies the requirements for continued listing of
its common stock on the Nasdaq National Market ("NASDAQ"). The Company has
received notice from NASDAQ that the Company will be delisted as of May 15,
2002. Commencing on that date, the Company's common stock will be traded on the
NASDAQ over-the-counter bulletin board. This change may adversely affect a
stockholder's ability to obtain price quotations and to buy or sell the
Company's shares.
The methods used by the Board and management in estimating the value of
eBT's net assets do not result in an exact determination of value nor are they
intended to indicate definitely the amount of cash a stockholder will receive
in liquidation. Some of eBT's assets may be difficult for us to convert into
cash, and we cannot assure you that we will receive any material amounts for
those assets. Conversely, the amount of royalty income ultimately paid by
Interactive to the Company may exceed, perhaps substantially, the amount
currently reflected in the Consolidated Statement of Net Assets in Liquidation.
The Company has established reserves for known and unknown liabilities, and the
adequacy of those reserves will be reviewed prior to making further cash
distributions to stockholders. We cannot assure you that the amount you will
receive during the period of liquidation will equal or exceed the price or
prices at which the common stock has recently traded or may trade in the future.
You could be liable to return some or all of the amount you receive form eBT
if the amount of our reserves do not cover all of our liabilities and expenses.
According to Delaware General Corporation law, eBT will continue to exist
for three years from November 8, 2001 or for a longer period if required by the
Delaware Court of Chancery, for the purpose of prosecuting and defending suits
against eBT and enabling us to dispose of our property, to discharge
liabilities and to distribute to our stockholders any remaining assets.
Under Delaware law, if eBT fails to create adequate reserves for payment of
our expenses and liabilities, including contingent obligations, you could be
held liable for payment to eBT's creditors of your proportional share of
amounts owed to creditors in excess of available reserves. In that regard, your
liability would be limited to the amounts previously received by you from eBT
(and from any liquidating trust). Accordingly, you could be required to return
all distributions previously made to you. Moreover, you could incur a net tax
cost if you paid taxes on the amounts received from eBT and then have to repay
such amounts back to eBT's creditors.
We cannot assure you that the reserves established by eBT will be adequate
to cover all of our expenses and liabilities, including contingent liabilities.
However, we believe that the reserves are adequate and that a return of amounts
previously distributed will not be required.
If the number of the Company's shareholders of record drops below 300, the
Company intends to deregister under the Securities Exchange Act of 1934, and
will no longer be subject to its rules, including those relating to reporting
and proxy solicitation.
3
Employees
As of April 22, 2002, the Company had two employees.
Item 2. Properties
As of November 30, 2001, the Company terminated the lease of its former
corporate headquarters in Providence, Rhode Island. A cash payment was made to
landlord in an amount that approximated the reserve established for this
settlement. The reserve was included in the determination of the Estimated Net
Proceeds Available for Distribution to Shareholders as shown on page 20 of the
October 3, 2001 Proxy Statement. The original terms of the terminated former
corporate headquarters lease obligated the Company through January 2007.
The Company terminated the leases on all of its satellite offices in Fiscal
Year 2002.
Item 3. Legal Proceedings
In late January 1998 the Company discovered that it would be necessary to
restate its financial results for the first three quarters of calendar year
1998. The Company immediately and voluntarily provided this information to the
U.S. Securities and Exchange Commission. On June 2, 1999, the Company was
informed that the U.S. Securities and Exchange Commission had issued a Formal
Order of Private Investigation in connection with matters relating to the
previously announced restatement of the Company's 1998 financial results.
On June 26, 2001 the Company received notice from the staff of the Boston
office of the Securities and Exchange Commission (the "Commission") that it had
completed its investigation of the Company pursuant to the Formal Order of
Private Investigation issued in connection with matters relating to the
restatement of the Company's 1998 financial results. The staff has advised the
Company that its preliminary findings with regard to the Company involve no
administrative sanctions or financial fines or penalties. However, these
findings are subject to the Commission's review. The staff subsequently
indicated that it has recommended the Commission pursue civil injunctive
actions with regard to three former officers of the Company. The Company is
obligated under its By-laws to indemnify these former officers for expenses
reasonably incurred in connection with the Commission's investigation,
including the defense costs for actions that may be pursued by the Commission
and resultant fines and penalties should they be assessed. However, the
Company's By-laws provide that an officer is not entitled to such
indemnification if it is adjudicated or determined that such officer did not
act in good faith or in a manner he or she reasonably believed to be in, or not
opposed to, the best interests of the Company. The Commission has not yet
determined whether it will pursue civil injunctive actions against all or some
of the former officers, and the staff's findings as to the Company remain
preliminary. On June 9, 1999, the bankruptcy estates of Microlytics, Inc. and
Microlytics Technology Co., Inc. (together "Microlytics") filed a complaint
against the Company in the United States Bankruptcy Court for the Western
District of New York. The lawsuit was captioned Microlytics, Inc. and
Microlytics Technology Co., Inc. v. Inso Corporation, Adversary Proceeding No.
99-217. The complaint sought turnover of purported property of the estates and
damages for the Company's alleged breaches of a license from Microlytics
relating to certain computer software databases and other information. The
complaint sought damages of at least $11,750,000. On August 19, 1999, the
Company filed its Answer and Demand for Jury Trial. Also, on August 19, 1999,
the Company filed a motion to withdraw the case from the Bankruptcy Court to
the United States District Court for the Western District of New York. On
December 15, 1999, the United States District Court granted the Company's
motion for the purposes of dispositive motions and trial. On August 29, 2001,
the Company agreed to settle the June 9, 1999 complaint filed by Microlytics.
The terms of the settlement, which were approved by the United States
Bankruptcy Court for the Western District of New York on September 21, 2001,
included the payment of 2,000,000 to Microlytics, which was accrued at July 31,
2001. The $2,000,000 payment was made in September 2001.
During February 2000, certain shareholders of the Company filed two
substantially similar putative class action complaints against the Company and
certain of the Company's officers and employees in the United States District
Court for the District of Massachusetts that are captioned as follows: Liz
Lindawati, et al. v. Inso Corp.,
4
et al., Civil Action No. 99-CV-10305GAO; Group One Limited, et al. v. Inso
Corp., et al., Civil Action No. 00- CV-10318GAO. These lawsuits were filed
following our preliminary disclosure of revenues for the fiscal year 2000
fourth quarter on February 1, 2000. They assert claims for violations of
Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 of the
Securities and Exchange Commission, as well as a claim for violation of Section
20(a) of the Exchange Act. On June 14, 2000, the District Court ordered that
both actions be consolidated into one lawsuit entitled In Re: Inso Corporation
Securities Litigation, Civil Action No. 00-103050-GAO. The plaintiffs filed a
consolidated amended complaint on February 21, 2001. The Plaintiffs alleged
that the defendants prepared and issued deceptive and materially false and
misleading statements to the investing public. They sought unspecified damages.
On April 9, 2001, the Company filed a motion to dismiss the lawsuit on the
grounds that the plaintiff's failed to state a claim under the relevant
securities laws. After receiving the Company's motion to dismiss, the
plaintiffs themselves moved to dismiss the lawsuit with prejudice on April 23,
2001. The plaintiffs received no consideration for, and the Company assented
to, the dismissal. On September 25, 2001 the United States District Court for
the District of Massachusetts approved the plaintiffs option to dismiss the
putative class action complaint filed against the Company.
We may also be subject to various legal proceedings and claims that may
arise during liquidation. We currently believe that any such proceedings and
claims will not have a material adverse impact on the Company's estimate of net
assets in liquidation.
Item 4. Submission of Matters to a Vote of Security Holders
On November 8, 2001, the Company held its Special Meeting of shareholders at
which it submitted to a vote of its shareholders a proposal to approve and
adopt the Plan of Complete Liquidation and Dissolution of the Company. The
number of votes in favor of the approval and adoption of the Plan was
9,546,122, the number of votes against was 53,292 and the number of abstentions
was 13,692.
Item 4A. Executive Officer of the Registrant
Stephen O. Jaeger, who is 57 years old and Chairman of the Board since
March, 1999, agreed to serve as the Company's Chief Executive Officer and
President, effective June 1, 2001. Mr. Jaeger added the posts of Treasurer and
Secretary in December 2001. Mr. Jaeger served as Chief Executive Officer of the
Company from the end of March 1999 to April 11, 2000, and has been a director
of the Company since its inception in November 1993. In mid-March 1999, after
serving as an independent consultant, Mr. Jaeger joined privately-held
PharmaCom Group, Inc. in February 1999 as a principal, director and officer.
From December 1997 to October 1998, Mr. Jaeger was Executive Vice President and
Chief Financial Officer and a director at Clinical Communications Group, Inc.
from March 1995 until September 1997, Mr. Jaeger served as Vice President and
Chief Financial Officer and Treasurer of The Perkin-Elmer Corporation. Mr.
Jaeger was Chief Financial Officer of Houghton Mifflin from 1988 until March
1995.
5
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The common stock of eBT is currently quoted on NASDAQ under the symbol EBTI.
The following table sets forth the high and low sale prices per share of eBT's
common stock for the fiscal periods listed below as reported on NASDAQ. Such
information reflects interdealer prices, without retail markup, markdown, or
commission, and may not represent actual transactions. Effective May 15, 2002,
the Company's common stock will be traded on the NASDAQ over-the-counter
bulletin board under the symbol EBTI. The Company was notified on February 14,
2002 that it will be delisted since the current stock price, which tracks its
estimated liquidation value, does not meet NASDAQ's minimum market value
requirements.
Fiscal 2002 Fiscal 2001
----------- -----------
Quarter Ended High Low High Low
------------- ----- ----- ----- ----
April 30.... $2.81 $1.53 39.38 3.69
July 31..... 2.84 1.95 8.44 3.06
October 31.. 3.00 2.95 6.94 2.69
January 31.. 3.18 .19 3.94 1.56
As of April 22, 2002, eBT's common stock was held by 358 holders of record.
eBT has paid no dividends on its common stock since inception. On December 13,
2001, the Company made an initial liquidation distribution under the Plan. A
total of $44,055,000 (or $3.00 per share based on 14,685,001 shares of common
stock outstanding) was made to stockholders of record on December 7, 2001. The
actual amount and timing of future distributions cannot be predicted at this
time although the Board expects to make at least one cash distribution prior to
October 31, 2002. At present, the Company estimates that the total of the
remaining periodic additional payments to stockholders will be $.32 per share.
The liquidation should be concluded by November 8, 2004 either directly to the
stockholders or to one or more liquidating trusts.
6
Item 6. Selected Financial Data
The following selected financial data of the Company as of and for the
periods indicated below are derived from the financial statements of the
Company. The information presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included as Item 7, the financial statements and related footnotes
included as Item 8 in this Form 10-K and the footnotes accompanying the tables.
Effective August 1, 2001, the Company adopted liquidation basis accounting and
as a result the selected financial data for fiscal year 2002 only reflects
operating activity through July 31, 2001.
Statement of Operations Data
(Going Concern Basis)
Years Ended Years Ended
January 31, December 31,
Six ------------------ -----------------
Months One Month
Ended Ended
July 31, January 31,
2001 2001(1) 2000(1) 1999(1) 1998(1) 1997(1)
-------- -------- -------- ----------- -------- -------
(In thousands except per share amounts)
Total revenues........................... $ 1,526 $ 21,696 $ 64,680 $ 3,180 $ 60,094 $81,869
Gross profit (loss)...................... (169) 12,060 42,470 (239) 47,444 72,058
Restructuring expenses (recovery) (4).... (135) 1,954 11,068 -- -- 5,848
Special charges (4)...................... 11,395 200 28,103 -- -- --
Purchased in-process research and
development............................ -- -- -- 500 21,900 6,100
Total operating expenses (3)............. 18,993 37,933 115,584 8,805 86,019 73,930
Operating loss........................... (19,162) (25,873) (73,114) (9,044) (38,575) (1,872)
Recovery/(write-down) of investments (5). -- 657 (2,655) -- -- --
Gains on sales of assets, net (2)........ -- 38,170 12,212 -- 13,289 --
Income (loss) before provision for income
taxes.................................. (17,029) 16,815 (61,836) (8,691) (20,604) 2,504
Provision (benefit) for income taxes..... -- 300 474 -- (1,035) 2,944
Net income (loss)........................ (17,029) 16,515 (62,310) (8,691) (19,569) (440)
Earnings (loss) per common share......... $ (1.14) $ 1.00 $ (3.98) $ (0.56) $ (1.30) $ (0.03)
Earnings (loss) per common share,
assuming dilution...................... $ (1.14) $ 0.98 $ (3.98) $ (0.56) $ (1.30) $ (0.03)
Consolidated Balance Sheet Data
Going Concern Basis and Consolidated Net Assets in Liquidation Data (January
31, 2002)
2002 2001 2000 1998 1997
------ ------- ------- -------- --------
(In thousands of dollars)
Current Assets........... $ -- $75,375 $58,921 $ 93,394 $108,163
Total Assets............. $8,237 $80,002 $80,589 $163,219 $138,083
Long-term debt........... $ -- $ -- $ 142 $ 450 $ --
Stockholders' Equity..... $ -- $68,287 $55,372 $109,174 $115,478
Net Assets in Liquidation $4,700 $ -- $ -- $ -- $ --
- --------
(1) eBT's 1997 results include the operations of Mastersoft, Inc., Level Five
Research, Inc., and Henderson Software, Inc. since their acquisition dates
of February 6, 1997, April 22, 1997, and November 24, 1997, respectively.
Level Five Research, Inc. was subsequently sold on April 23, 1998. eBT's
1998 results include the operations of ViewPort Development AB, MediaBank,
Sherpa Systems Corporation, and Venture Labs, Inc. since their acquisitions
dates of March 12, 1998, August 28, 1998, December 4, 1998 and December 22,
1998, respectively. eBT's fiscal 2000 results include the operations of its
PDM Division through January 2000 and the fiscal 2001 results include the
operations of the Information Exchange Division ("IED")
7
through July 2000 and the MediaBank product line through June 2000 (see
Notes 4 and 5 of "Notes to Consolidated Financial Statements").
(2) eBT's 1998 results include a gain of $13,289,000 on the sale of eBT's
linguistic software net assets to Lernout & Hauspie Speech Products N.V. on
April 23, 1998. eBT's fiscal 2000 results include a gain of $14,549,000 on
the sale of its DynaText/DynaWeb stand-alone technical publishing products
and its ViewPort browser technology, a loss of $2,337,000 on the sale of
the balance of its PDM Division (see Note 5 of "Notes to Consolidated
Financial Statements"). eBT's fiscal 2001 results include a gain of
$39,914,000 on the sale of IED to Stellent, Inc. on July 10, 2000, a
$3,735,000 loss on the sale of its MediaBank product line in June 2000, a
gain on the sale of its PDM Division and DynaText/DynaWeb stand-alone
technical publishing products and its ViewPort browser technology of
$1,991,000 (see Note 5 of "Notes to Consolidated Financial Statements").
(3) eBT's 1998 results include a charge of $4,000,000 relating to an
international distributor relationship (see Note 14 of "Notes to
Consolidated Financial Statements"). eBT's fiscal 2000 results include a
credit of $3,093,000 relating to a release from the 1998 agreement with the
international distributor.
(4) eBT's restructuring charges of $1,954,000,$11,068 ,000 and $5,848,000 in
fiscal 2001, 2000 and 1997 and the special charges of $11,395,000, $200,000
and $28,103,000 in the first six months of fiscal 2002, fiscal 2001 and
2000 are described in Notes 6 and 7 of "Notes to Consolidated Financial
Statements".
(5) See Note 5 of "Notes to Consolidated Financial Statements", Investment in
Information Please LLC.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company's Board of Directors unanimously adopted a Plan of Complete
Liquidation and Dissolution (the "Plan") on May 22, 2001. The Plan was approved
by the holders of a majority of the Company's shares on November 8, 2001. The
key features of the Plan are (1) the conclusions of all business activities,
other than those related to the execution of the Plan; (2) the sale or disposal
of all of the Company's non-cash assets; (3) the establishment of reserves to
be sufficient to satisfy the liabilities, expenses and obligations of eBT not
otherwise paid, provided for or discharged; (4) the periodic payment of per
share liquidating distributions to stockholders; and (5) the authorization of
the filing of a Certificate of Dissolution with the State of Delaware.
In connection with the adoption of the Plan and the anticipated liquidation,
the Company adopted the liquidation basis of accounting effective August 1,
2001, whereby assets are valued at their estimated net realizable cash values
and liabilities are stated at their estimated settlement amounts. Uncertainties
as to the precise net value of eBT's assets (other than cash), and the ultimate
amount of its liabilities make it impracticable to predict the aggregate net
value that may ultimately be distributable to stockholders. Claims, liabilities
and future operating costs (including salaries, payroll and local taxes,
professional fees and miscellaneous office expenses), although currently
declining in the aggregate, will continue to be incurred with execution of the
Plan. Although we do not believe that a precise estimate of the Company's net
assets can currently be made, we believe that available cash and cash
equivalent investments and amounts received for the collection of receivables
will be adequate to provide for eBT's obligations, liabilities, operating costs
and claims (including contingent liabilities), and to make future cash
distributions to stockholders.
In connection with the Board of Directors May 22, 2001 decision to implement
the Plan, the Company immediately began the orderly wind down of its operation,
including laying off most of its employees, seeking purchasers for the sale of
its intellectual property and other tangible and intangible assets and
providing for its outstanding and potential liabilities. These actions resulted
in a charge of $10,477,000 in the second fiscal quarter of 2002. The charge
consisted of $4,573,000 in severance and related costs including $473,000 of
non-cash stock compensation charges related to the accelerated vesting of
restricted stock and stock options for the majority of its employees and
executives, $2,904,000 related to the write-down of intangible assets,
capitalized software costs and fixed assets to their estimated fair values,
$2,050,000 related to a settlement agreement with Microlytics including legal
fees (See Note 14 of "Notes to Consolidated Financial Statements"), $495,000
related
8
to the write down of unrecoverable prepaid expenses and other current assets
and $455,000 related to professional and other fees incurred that were related
to the orderly wind down of the Company's operations.
Under Delaware law, the Company will remain in existence as a non-operating
entity until November 8, 2004 and is required to maintain a certain level of
liquid assets and reserves to cover any remaining liabilities and pay operating
costs during the dissolution period. During the dissolution period, the Company
will attempt to covert its remaining assets to cash and settle its liabilities
as expeditiously as possible.
Critical Accounting Policies
Receivables and Other Current Assets
At January 31, 2002, Receivables and Current Assets of $884,000 represented
10.7% of the Company's total estimated assets. Included in Receivables and
Other Current Assets is $154,000, which represents the Company's estimate of
future interest earnings over the liquidation period through November 8, 2004.
Accounts Payable and Accrued Expenses
At January 31, 2002, Accounts Payable and Accrued Expenses were $2,548,000.
Included in this amount are accrued income taxes in the amount of $746,000 and
known obligations totaling $591,000. The balance of $1,211,000 is comprised of
the following items:
Estimated Litigation Settlement Costs Reserve
Litigation settlement costs in the amount of $976,000 represent estimated
future legal fees, and amounts that may be payable under the Company's By-laws
to indemnify certain former officers for expenses reasonably incurred in
connection with the Securities and Exchange Commission's (the "Commission")
investigation of the restatement of the Company's results for the first three
calendar quarters of 1998. However, the Company's By-laws provide that an
officer is not entitled to such indemnification if it is adjudicated or
determined that such officer did not act in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Company. Further, in this instance, the Company may not be required to make any
further payments to the individuals and any remaining unpaid amounts will
result in an increase in the total net proceeds estimated as available for
distribution to shareholders. See Note 14 of "Notes to Consolidated Financial
Statements" for a summary of the Commission's investigation and its current
status.
General Contingency Reserve
In view of the duration of the liquidation period to November 8, 2004, and
provision in Delaware law that the Company maintain reserves sufficient to
allow for the payment of all its liabilities and obligations, including all
contingent, conditional and unmatured claims, the Company established a general
contingency reserve upon the adoption of liquidation basis accounting on August
1, 2001. The amount of reserve initially established was $900,000 and at
January 31, 2002 is $235,000. At January 31, 2002, the Company has no known
material claims against this reserve and will periodically assess whether
maintenance of a lower or higher general contingency reserve is required. In
the event there are no claims against this reserve then the amount of
liquidation proceeds that may be paid to stockholders will be increased.
Estimated Costs to be Incurred During Liquidation Period
At January 31, 2002, the Company estimates that there are $989,000 of costs
remaining, including compensation for liquidation personnel and Board fees
($400,000), professional fees ($549,000) and miscellaneous other costs
($40,000).
9
Liquidity and Capital Resources
The Company's primary objectives are to liquidate its assets in the shortest
time period possible while realizing the maximum values for such assets. The
actual nature, amount and timing of all future distributions will be determined
by the Board in its sole discretion, and will depend in part upon eBT's ability
to convert certain remaining assets into cash, settle certain obligations and
the amount of royalty income, if any, received pursuant to the Interactive
transaction. Although the liquidation is currently expected to be concluded
prior to the third anniversary of the filing of the Certificate of Dissolution
in Delaware, the period of time to liquidate the assets and distribute the
proceeds is subject to uncertainties and contingencies, many of which are
beyond the Company's control (see Item 1, "Risk Factors").
As of January 31, 2002, the Company's total assets were $8,237,000, of which
$7,353,000 is represented by cash, cash equivalents and marketable securities.
On December 13, 2001, the Company paid the sum of $44,055,000, equivalent to
$3.00 per common share to stockholders of record on December 7, 2001. The
Company currently estimates that stockholders may receive periodic additional
liquidation proceeds of $.32 per common share. This amount does not include any
benefit that might be realized if some or all of the estimated litigation
settlement costs and general contingency reserves are not required to pay
claims.
At January 31, 2002, the Company estimates that there are $989,000 of
operating costs to be incurred during the remaining liquidation period through
November 8, 2004. The estimated liabilities of the Company at January 31, 2002
total $2,548,000, including $976,000 for potential litigation settlement costs
(see Note 1 of "Notes to Consolidated Financial Statements") equivalent to
approximately $.066 per share and $235,000 in general contingency reserve (see
Note 1 of "Notes to Consolidated Financial Statements"), equivalent to
approximately $.016 per share.
Liquidation Basis Of Accounting
The consolidated financial statements for fiscal 2001 and 2000 and for the
six months ended July 31, 2001 were prepared on the going concern basis of
accounting, which contemplates realization of assets and satisfaction of
liabilities in the normal course of business. As a result of the adoption of
the Plan and the imminent nature of the liquidation, the Company adopted the
liquidation basis of accounting effective August 1, 2001. This basis of
accounting is considered appropriate when, among other things, liquidation of a
company is probable and the net realizable value of assets are reasonably
determinable. Under this basis of accounting, assets are valued at their
estimated settlement amounts. The conversion from the going concern to
liquidation basis of accounting has required management to make significant
estimates and judgements. In order to record assets at estimated net realizable
value and liabilities at estimated settlement amounts under liquidation basis
accounting, the Company recorded the following adjustments to record its assets
and liabilities to fair value as of August 1, 2001, the date of adoption of
liquidation basis accounting:
(In thousands
of dollars)
-------------
Adjust assets and liabilities to fair value:
Lease settlement costs, net of subrental income.................. $(2,732)
Litigation settlement costs...................................... (800)
Accrued income taxes............................................. 2,083
All other, net................................................... 164
--------
Total adjustment of assets and liabilities to fair value..... (1,285)
Accrued estimated net costs during liquidation:
Costs to be incurred during liquidation period................... $(2,078)
Future interest income........................................... 916
--------
Total estimated net costs during liquidation................. (1,162)
Total liquidation basis adjustments....................... $(2,447)
========
10
The amount and timing of future liquidating distributions will depend upon a
variety of factors including, but not limited to, the actual proceeds from the
realization of the Company's assets, the ultimate settlement amounts of the
Company's liabilities and obligations, actual costs incurred in connection with
carrying out the Plan, including salaries, administrative and operating costs
during the liquidation period.
Results Of Operations
Six Months Ended July 31, 2001 (the last period in which the Company had
operations).
Total Company revenues of $1,526,000 for the six months ended July 31, 2001
compared with revenues of $6,865,000 (excluding business disposed) in the
comparable preceding period. Given this performance, which included revenues of
only $429,000 in the fiscal quarter ended July 31, 2001, and the other factors
specified in the October 3, 2001 Proxy Statement, the Board of Directors
adopted the Plan.
Operating expenses in the six months ended July 31, 2001 totaled
$18,993,000, of which $11,395,000 were special charges. The special charge of
$10,477,000, taken in connection with the commencement of the orderly wind down
of the Company's operations, is discussed above in "Overview." The remaining
special charge of $918,000 was for the write-down of computer equipment,
purchased software and office equipment to their estimated fair values as of
April 30, 2001. This write-down was due in part to the poor operating results
reported for the first fiscal quarter of 2002 and revised future operating
performance. These assets, along with other assets and liabilities, were
further revalued with the adoption of liquidation basis accounting on August 1,
2001.
All other operating costs in the six months ended July 31, 2001 were
directly related to the Company's then business activities.
Year Ended January 31, 2001 Compared to Year Ended January 31, 2000
Company-wide revenues totaled $21,696,000 for the year ended January 31,
2001, a decline of $42,984,000 from the $64,680,000 Company-wide total reported
in the prior year. Excluding revenues of the disposed businesses, eBT revenues
totaled $12,615,000 for the year ended January 31, 2001, an increase of
$2,816,000, or 29%, over the prior year total of $9,799,000. This increase in
total revenues was a result of a growth in service revenue, offset by a 12%
decrease in product revenue. The decrease in product revenue reflects the
impact of the product transition to the engenda(TM) product, and also reflects
training and ramp-up time to transition our sales force to a solution-selling
approach. The balance of the change in total revenues related to revenues for
the disposed Product Data Management ("PDM"), MediaBank and Information
Exchange Division ("IED") businesses, which were a combined $9,081,000 in
fiscal 2001, a decline of $45,800,000 from the $54,881,000 reported in fiscal
2000. Fiscal 2000 revenues for these businesses included nearly one full year
of revenues, while there were no PDM revenues in fiscal 2001, and slightly less
than one half year's revenues for MediaBank and IED. PDM was sold in January
2000, MediaBank was sold in June 2000, and IED was sold in July 2000.
Company-wide gross profit was $12,060,000 for the year ended January 31,
2001, a decrease of $30,410,000 from the fiscal 2000 Company-wide gross profit
of $42,470,000. Excluding the gross profit of the disposed businesses, eBT
gross profit was $4,828,000 for the year ended January 31, 2001, a decrease of
$631,000, or 12%, from the comparable prior year total of $5,459,000. The
decrease in eBT's gross profit reflects the increase in service revenues as a
percentage of total revenue, and the impact of costs related to our expanding
professional services organization, including the use of third party
contractors. Since service revenues have lower margins than license revenues,
growth in our service business will result in lower gross profit if our license
revenues do not increase in the same period. Gross profit as a percentage of
revenues, excluding the revenues and gross profit associated with the divested
PDM and IED divisions, was 38% for the year ended January 31, 2001, compared to
56% for the year ended January 31, 2000.
The remaining decline in gross profit is attributable to the disposed
businesses, which reported gross profit of $7,232,000 for the year ended
January 31, 2001, a decrease of $29,779,000 from $37,011,000 for the year
11
ended January 31, 2000. Again, this decline is related to the timing of the
dispositions of these businesses, as the prior year results include nearly
twelve months of results for all of these businesses, compared to no results
for PDM in fiscal 2001 and slightly less than one-half year's revenues for both
MediaBank and IED in fiscal year 2001.
Company-wide total operating expenses were $37,933,000 for the year ended
January 31, 2001, a decrease of $77,651,000 from the prior year total of
$115,584,000. Excluding operating expenses of the disposed businesses, eBT
total operating expenses were $25,047,000 for the year ended January 31, 2001,
an increase of $7,392,000, or 42%, from $17,655,000 for the year ended January
31, 2000. This increase was primarily related to increases in sales and
marketing positions, marketing programs and the corporate related expenses
absorbed by eBT since the May 2000 closure of the Company's former Boston
headquarters.
The increase in eBT operating expenses was more than offset by a decline in
operating expenses attributable to the disposed businesses, and also to
decreased corporate operating expenses, resulting from the restructuring
actions taken from July 1999 to May 2000. Total operating expenses relating to
the disposed business and former corporate office were $12,886,000 for the year
ended January 31, 2001, a decline of $85,043,000, or 87%, from the $97,929,000
reported for the year ended January 31, 2000. Of this decline, $38,073,000
resulted from the disposed PDM division; $7,331,000 from the disposition of IED
and $2,865,000 from the disposed MediaBank product line. The balance of the
decline was attributable to the closure of the Boston office and to cost
savings generated from the restructuring actions taken since July 1999.
Included in total operating expenses for the year ended January 31, 2001
were net restructuring expenses and special charges of $2,154,000. These
charges consisted primarily of severance costs related to both the May 2000
relocation of our corporate offices to Providence, Rhode Island and the January
2001 workforce reduction. Included in total operating expenses for the year
ended January 31, 2000 were special charges of $28,103,000 and restructuring
expenses of $11,068,000. The special charges include expenses for costs
relating to the restatement of our 1998 financial results and the associated
SEC investigation; costs relating to the write-down of intangible assets and
capitalized software costs, substantially all attributable to the PDM division,
and net premium costs and related expenses for a major insurance carrier to
assume financial risk associated with the class action litigation initiated
against us in February 1999 (see Notes 7 and 14 to the "Notes to Consolidated
Financial Statements"). Restructuring expenses included costs relating to the
April and July 1999 charges in connection with the implementation of our new
divisional structure (see Note 6 to the "Notes to Consolidated Financial
Statements") and our October 1999 restructuring of the PDM division.
Additionally, the operating expenses for the year ended January 31, 2000 were
reduced by a credit of $3,093,000 to sales and marketing expenses for the
termination of a 1998 international distributor agreement, for which an accrual
of $4,000,000 was recorded in the year ended December 31, 1998.
Sales and marketing expenses consist primarily of salaries, commissions, and
bonuses for sales and marketing personnel and promotional expenses.
Company-wide sales and marketing expenses totaled $15,419,000 for the year
ended January 31, 2001, a decline of $9,140,000 from the $24,559,000 reported
in the year ended January 31, 2000. Excluding expenses of the disposed
businesses, eBT sales and marketing expenses increased $4,217,000 to
$11,712,000 for the year ended January 31, 2001, primarily due to our continued
investment in growing the eBT business. Such investment was evidenced primarily
through expanded marketing campaigns and increases in sales and sales-related
personnel and associated recruiting costs. The increases in expenses were
partially offset by reductions in certain incentive related compensation costs
as a result of the lower sales in the current year.
The remaining change in sales and marketing expenses is attributable to
decreases in expenses of the disposed businesses. Sales and marketing expenses
of the disposed businesses decreased $13,357,000 to $3,707,000 for the year
ended January 31, 2001, compared to $17,064,000 for the year ended January 31,
2000. The dispositions of PDM, IED and MediaBank accounted for decreases of
$6,817,000, $1,808,000 and $961,000, respectively. The balance of the decrease
in sales and marketing expenses relates to the cost savings resulting from the
restructuring actions taken in fiscal 2000.
12
Product development costs consist primarily of personnel costs and, to a
lesser extent, fees paid for outside software development and consulting
services. Company-wide product development expenses totaled $10,897,000 for the
year ended January 31, 2001, a decline of $15,182,000 from the $26,079,000
reported in the year ended January 31, 2000. Excluding expenses of the disposed
businesses, eBT product development expenses increased $439,000 to $7,310,000
for the year ended January 31, 2001. Additional costs associated with increased
headcount to support new product development initiatives were nearly offset by
decreases in outside contractor fees, resulting from the Company's effort to
decrease reliance on outside contractors, and decreases in certain incentive
related compensation costs.
The remaining $15,621,000 decrease in product development expenses is
attributable to the decreased expenses of the disposed businesses, combined
with cost savings generated through the restructuring actions taken since July
1999. The dispositions of PDM, IED and MediaBank accounted for decreases of
$8,443,000, $2,091,000 and $1,884,000, respectively. The balance of the
decrease in product development expenses relates to the costs savings generated
by the restructuring actions taken in fiscal 2000.
Amortization of intangible assets decreased $3,687,000 to $561,000 for the
year ended January 31, 2001 from $4,248,000 for the year ended January 31, 2000
due to the fiscal 2000 and 2001 divestitures. All of the intangible assets that
were being amortized related to businesses that were divested in fiscal 2000
and 2001.
Company-wide general and administrative expenses totaled $8,902,000 for the
year ended January 31, 2001, a decrease of $12,625,000 from the $21,527,000
reported in the prior year. eBT general and administrative expenses increased
$2,197,000 to $5,486,000, for the year ended January 31, 2001, primarily as a
result of the inclusion of certain expenses formerly considered corporate
unallocated expenses prior to the second quarter of fiscal 2001. The prior year
presentation has not been restated to reflect an allocation of corporate
expenses, as the structure of the Company was so different at that time that we
believe such an allocation would not be meaningful.
The remaining $14,822,000 decline in total general and administrative
expenses is largely attributable to the January, June and July 2000
dispositions of businesses. General and administrative expenses of the disposed
businesses decreased to $3,416,000 for the year ended January 31, 2001 compared
to $18,238,000 for the year ended January 31, 2000. The dispositions of PDM,
IED and MediaBank accounted for decreases of $5,968,000, $1,428,000 and
$20,000, respectively. The remaining decrease in general and administrative
expenses is attributable to the cost savings generated through the
restructuring actions taken in fiscal 2000 and 2001.
The restructuring charges reported in the fiscal year ended January 31, 2001
relate primarily to the April 2000 restructuring plan under which we began to
focus our energies on eBT's Web content management and workflow product line
and related services and pursue divestiture of certain assets, including IED.
The plan included the consolidation of our Boston headquarters into the
Providence, Rhode Island offices of the eBT division. In connection with this
reorganization, approximately 18 administrative employees and four executive
officers were terminated or resigned in April, May and June 2000. As a result
of this plan, we recorded a net charge of $1,835,000 in the first quarter of
fiscal year ending January 31, 2001. The charge was comprised primarily of
severance for those employees.
On January 31, 2001, the Company adopted a plan of restructuring aimed at
reducing current operating costs. In connection with this plan, 19 non-
management employees, primarily development and administrative positions, and
one executive level employee were terminated. As a result of this plan, we
recorded a charge of $539,000 for severance costs in the fourth quarter of
fiscal 2001 (see Note 6 to the "Notes to Consolidated Financial Statements"),
all of which remained unpaid at January 31, 2001.
Net credit adjustments of approximately $420,000 were recorded in fiscal
2001, related to the fiscal 2000 restructuring initiatives described below.
These adjustments were to reduce accrued amounts to reflect estimated remaining
balances to be paid out, (see Note 6 to the "Notes to Consolidated Financial
Statements").
13
The restructuring charges reported in the fiscal year ended January 31,
2000, totaling $11,086,000, related to three initiatives:
(1) A $480,000 charge in the first quarter of fiscal 2000 relating to the
closure of the Company's Kansas City location, primarily for severance for
11 terminated employees. As of January 31, 2001, there were no remaining
accrued liabilities relating to this restructuring charge.
(2) A $6,390,000 charge relating to the July 1999 plan of restructuring
aimed at reducing current operating costs, as well as supporting our new
divisional structure, which included a reduction of 105 employees, including
10 executive or management level employees. This plan also included the
closure and/or combination of domestic and international sales and
administrative facilities and the abandonment of leasehold improvements and
support assets associated with these locations. The charge included
approximately $2,372,000 of severance for employees in administrative, sales
and development positions; $925,000 for the closure and/or combination of
domestic and international sales and administrative facilities; $1,739,000
for the write-down of capitalized product development costs and intangibles
for certain discontinued products; and $1,354,000 for the write-off of
leasehold improvements and support assets associated with closed locations.
The capitalized product development costs and intangibles were written-down
to their estimated future discounted cash flows. At January 31, 2001, there
were no remaining accrued liabilities relating to this restructuring charge.
(3) A $4,198,000 charge related to the October 1999 plan of restructuring
aimed at reducing operating costs in our PDM division. The restructuring
plan included a PDM workforce reduction of 51 employees, including 9
executive or manager level employees. The plan also included the
consolidation of the PDM division's sales, service and support
organizations, the consolidation of PDM development facilities and the
abandonment of leasehold improvements and support assets associated with
these locations. The charge included a write-down of licensed technology for
discontinued development activities to their fair values, based upon their
estimated future cash flows. The charge included approximately $1,396,000 of
severance for employees in administrative, sales and development positions;
$490,000 for the consolidation of sales, service and support organizations
and development facilities; $1,923,000 for the write-down of licensed
technology for discontinued development activities; and $389,000 for the
write-off of leasehold improvements and support assets associated with
closed locations. At January 31, 2001, accrued liabilities of approximately
$11,000 remained relating to this restructuring charge (see Note 6 to the
"Notes to Consolidated Financial Statements").
For the year ended January 31, 2000, the Company incurred $28,103,000 of
special charges. Included in the special charges were $1,527,000 in
professional fees incurred in connection with the restatement of the Company's
results of operations for the first nine months of 1998. These professional
fees were for the Company's investigation of the circumstances surrounding
certain transactions leading to the restatement and for the formal
investigation initiated by the Securities and Exchange Commission following the
restatement. Also related to the restatement were $13,451,000 of net premium
costs and related professional advisory fees for a major insurance carrier to
assume financial risk associated with the class action litigation initiated
against the Company in February 1999, as well as $2,320,000 of severance costs
for certain employees who were terminated or resigned. Additionally,
approximately $10,805,000 of the special charges related to the write-down of
intangible assets and capitalized software costs primarily attributable to the
Company's PDM division, to their estimated fair values, determined based upon
estimated future cash flows. In connection with the Company's restructuring and
subsequent plan to divest of the PDM division, the intangible assets recorded
at the time of acquisition were re-evaluated. In connection with the future
plans and the anticipated future cash flows of the business, the intangible
assets were written down to their net realizable values, as determined from
estimated proceeds to be received upon a sale of the business. Approximately
$1,471,000 of these charges remained unpaid as of January 31, 2001.
In June 2000, we sold the MediaBank product line, which was formerly a
component of the eBT division, for contingent future consideration of up to
$2,000,000. As the consideration is contingent, we did not record any proceeds
on the sale, and we wrote off the net assets of the MediaBank business, taking
a net charge of
14
$3,735,000 in connection with the transaction. The majority of the charge,
approximately $3,548,000, was a non-cash charge related to licensed technology
that was sold, while approximately $386,000 related to severance and
professional fees incurred on the transaction. These amounts were partially
offset by the liabilities assumed by the buyer.
On July 10, 2000, we sold our IED division for a stated sale price of
$55,000,000, less amounts for retained rights under license and subject to
adjustment based on the net working capital of the IED business on the closing
date. The sale transaction was in the form of a merger. We received $48,000,000
of the proceeds in cash at the time of the closing. An additional $5,500,000
was placed in an escrow account, and, subject to our indemnification
obligations under the agreement, was released to us in July 2001. The net gain
from the transaction, as adjusted for final settlement of the working capital
requirements, was $39,914,000. The transaction created a capital gain for
federal income tax purposes, essentially all of which is offset by the capital
loss carryforwards generated in prior years.
On October 29, 1999, we sold our DynaText/DynaWeb stand-alone technical
document publishing component of our PDM Division, along with our ViewPort
browser technology assets, for $14,750,000. The transaction was in the form of
a stock purchase. We received proceeds on this sale of $9,000,000 in cash and
$5,750,000 in the form of a promissory note, due and payable by April 30, 2000.
We received payment of $4,500,000 on the promissory note in January 2000 and
final payment in July 2001. During fiscal year 2001 the Company recorded an
additional gain of $465,000 from the sale of the DynaText business in October
1999. This gain adjustment resulted from resolution of previously accrued
contingent liabilities in the Company's favor.
On January 5, 2000, we sold the remaining interest in our PDM division for
$6,000,000 in cash plus assumption of liabilities, subject to adjustment based
on the net worth of the business at the closing. The sale transaction was in
the form of a stock purchase by SDRC of all of the outstanding stock of our
subsidiaries Sherpa Systems Corporation and Inso France Development S.A. The
proceeds received from the sale totaled $5,000,000 in cash at the time of the
closing, and $1,000,000 was placed in a supplemental closing fund to be paid no
later than 90 days after the first anniversary of the closing date. The selling
price was subject to adjustment based on the net worth of the business at
closing. After direct transaction costs, the loss on the sale of PDM was
$2,337,000 at January 31, 2000. The transaction created a capital loss for
federal tax purposes, which will be carried forward to future periods. The net
worth of the business on the closing balance sheet, as agreed to by SDRC and
the Company in July 2000, net of certain other adjustments negotiated between
the Company and SDRC, resulted in an additional receipt from SDRC of
approximately $2,696,000, in final settlement of the net worth balances. This
amount was received in July 2000. In connection with this settlement, during
the second quarter of fiscal 2001, we adjusted the carrying amounts of certain
assets and liabilities, and recorded an additional loss of approximately
$637,000. The loss is included in the non-operating income section in the
accompanying statements of operations.
During the fourth quarter of fiscal 2001, the Company and SDRC reached a
settlement agreement under which SDRC remitted an additional net purchase price
adjustment amount of $1,971,000, according to the terms of the original
agreement, as modified in the final settlement agreement dated January 24,
2001. This additional net payment was comprised of additional proceeds based on
Qualifying Maintenance and License Revenue, as defined in the original
agreement, reduced by certain agreed upon amounts relative to remaining
contingent liabilities. With the exception of statutory severance amounts that
may become due to a former foreign employee of the Company, there are no
additional liabilities associated with the PDM sale to SDRC. The Company
estimated and accrued the amounts it believes may become due. The net results
of the monies received and adjustments recorded in connection with the
settlement agreement resulted in a $1,526,000 gain and this amount has been
included in the non-operating income section of the Company's Consolidated
Statements of Operations.
In October 2000, we received a $657,000 distribution related to our former
investment in Information Please LLC, which had been written down to net
realizable value, for which we recorded a charge of $2,655,000 in fiscal 2000.
15
Net investment and other income in fiscal 2001 totaled $3,861,000, an
increase of $2,140,000 over the prior year total of $1,721,000, due primarily
to the increased cash and investment balances resulting from the sale of IED.
As a result of net operating losses incurred in prior periods, and after
evaluating the Company's anticipated performance over its normal planning
horizon, we have provided a full valuation allowance for our net operating loss
carryforwards and other net deferred tax assets for federal tax purposes as of
January 31, 2001. In fiscal 2000, the net operating loss carryforwards and
other deferred tax assets in excess of deferred tax liabilities were also fully
reserved through a valuation allowance. The tax gain generated from the sale of
IED, almost all of which has been characterized as capital, was offset, for
federal income tax purposes, by our capital loss carryforwards. The Company
generates taxable income in many of the foreign jurisdictions in which it
transacts business. Accordingly, we recorded a tax provision of $300,000 for
the year ended January 31, 2001, for state and foreign income tax liabilities,
as compared to a provision of $474,000 for the year ended January 31, 2000.
Net income and diluted income per share were $16,515,000 and $0.98,
respectively, for the year ended January 31, 2001 as compared to net loss and
diluted loss per share of $62,310,000 and $3.98, respectively, for the year
ended January 31, 2000.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to the impact of interest rate fluctuations. Our cash
equivalents and available for sale investments are exposed to financial market
risk due to fluctuation in interest rates, which may affect the future cash
value of the assets available for distribution to shareholders. We manage the
exposure to financial market risk by performing periodic evaluations of our
investment portfolio and investing in investment grade corporate securities,
United States agency bonds, and asset backed securities all of which have
maturities before November 8, 2004. In addition, we do not use investments for
trading or other speculative purposes. We have performed a sensitivity analysis
assuming a certain hypothetical adverse fluctuation in interest rates. The
analysis indicated that any change in interest income would not have a material
adverse effect on our Consolidated Statement of Net Assets in Liquidation as of
January 31, 2002. However, actual interest income earned over the remaining
liquidation period may differ materially from our analysis.
We previously transacted business in various foreign currencies, primarily
in certain European countries, and were subjected to exposure from movements in
foreign currency exchange rates. For the first six months of fiscal 2002, we
did not have significant exposure to movements in foreign currency exchange
rates.
Item 8. Financial Statements and Supplementary Data
The Company's consolidated financial statements and supplementary data are
included under Item 14 of this Annual Report and incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
16
Part III
Item 10. Directors and Executive Officers of the Registrant
The Company has a classified Board of Directors currently consisting of two
Class I directors, one Class II director and one Class III director. The Class
I, Class II and Class III directors are elected to serve until the annual
meetings of stockholders to be held in 2003, 2004 and 2002, respectively, and
until their respective successors are duly elected and qualified. At each
annual meeting of stockholders, directors are elected for a full term of three
years to succeed those whose terms are expiring.
For each member of the Board of Directors, there follows information given
by each concerning his or her principal occupation and business experience for
the past five years, the names of other publicly-held companies of which he or
she serves as a director, his or her age and his or her length of service as a
director of the Company.
Class I Directors
(Terms Expiring at the Annual
Meeting to be held in 2003) Age Principal Occupation
- ----------------------------- --- --------------------
Samuel H. Fuller 55 Dr. Fuller has been a director of the Company since May 1996. Dr. Fuller
is currently Vice President, Research and Development, Analog Devices,
Inc. Prior to joining Analog Devices, Inc. in February 1998, Dr. Fuller
served as Vice President,Corporate Technology Strategy and Chief
Scientist for Digital Equipment Corporation from January 1996 until
January 1998. Dr.Fuller held various other positions with Digital
Equipment Corporation since 1978,and served as its Vice President of
Research from 1983 to January 1996. Dr. Fuller is also a director of Zaiq
Technologies, Inc.and Corporation for National Research Initiatives.
Edward Terino 48 Mr. Terino has been a director of the Company since September 1999. Mr.
Terino has been the Senior Vice President and Chief Financial Officer at
Art Technology Group, Inc.(ATG) since October 2001. Prior to joining
ATG, Mr. Terino served as Senior Vice President and Chief Financial
Officer for Applix, Inc. from April 1999 through September 2001. Prior to
joining Applix, Inc. Mr. Terino was Chief Financial Officer, Treasurer and
Secretary for Celerity Solutions, Inc. from November 1996 through March
1999. From July 1995 through November 1996, Mr. Terino served as Vice
President, Finance Planning and Operations for the Educational Publishing
Division of Houghton Mifflin Company. Mr. Terino is also a director of
Celerity Solutions, Inc.
Class II Director
(Term Expiring at the Annual
Meeting to be held in 2004) Age Principal Occupation
- ---------------------------- --- --------------------
Stephen O. Jaeger 57 Mr. Jaeger served as Chief Executive Officer of the Company from the end
of March 1999 to April 11, 2000 and from June 1, 2001 to the present, and
has been a director of the Company since its inception in November 1993.
Since June 1, 2001, Mr. Jaeger has also served as the Company's President
and has served as its Treasurer since December 2001. In mid-March 1999,
Mr. Jaeger was elected Chairman of the Board of Directors and continues
to serve in that capacity. After serving as an independent consultant, Mr.
Jaeger joined privately-held PharmaCom Group, Inc. in February 1999 as a
principal, director and officer. From December 1997 to October 1998, Mr.
Jaeger was Executive Vice President and Chief Financial Officer and a
director at Clinical Communications Group, Inc. From March 1995 until
September 1997, Mr. Jaeger served as Vice President and Chief Financial
Officer and Treasurer of The Perkin-Elmer Corporation. Mr. Jaeger was
Chief Financial Officer of Houghton Mifflin from 1988 until March 1995.
17
Class III Director
(Term Expiring at the Annual
Meeting to be held in 2002) Age Principal Occupation
- ---------------------------- --- --------------------
Joanna T. Lau 43 Ms. Lau has been a director of the Company since March 1994. Ms. Lau
has been President and Chairman of the Board of Lau Technologies, Inc.,
which provides manufacturing services for electronic systems and
produces digitized imaging identification systems, since March 1990. Ms.
Lau held various management positions with Digital Equipment
Corporation and General Electric Company from 1981 until 1990.
Other than Mr. Jaeger, there are no other executive officers of the Company.
Directors' Compensation
Each director who is not an employee of the Company receives $2,500 per
quarter for Board and committee meetings held during the quarter, up to a
maximum of $10,000 per year (subject to adjustment by the Board in the event
that the number of meetings in the year is extraordinary).
Section 16 Beneficial Ownership Reporting Compliance
The following individuals who serve as directors and/or officers of the
Company have not yet filed Form 4s for the exercise on November 9, 2001 of
options held by each: Stephen O. Jaeger, Joanna T. Lau, Samuel H. Fuller and
Edward Terino.
Item 11. Executive Compensation
Summary Compensation Table
The following table sets forth information with respect to the compensation,
for the last three fiscal years, of each individual who served as Chief
Executive Officer of the Company during the fiscal year ended January 31, 2002
and two former executive officers, employed by the Company during the last
fiscal year, but who were not serving as executive officers on January 31, 2002
(collectively, the "Named Executive Officers").
Annual Compensation Long Term Compensation Awards
--------------------------- --------------------------------
Restricted Securities All other
Fiscal Stock Underlying Compensation
Name and Principal Position in Fiscal 2002 Year Salary($) Bonus($) Awards($) Options(#) ($)
- ------------------------------------------ ------ --------- -------- ---------- ---------- ------------
Stephen O. Jaeger,................. 2002 120,000 100,000 -- 10,000 --
Chief Executive Officer, 2001 140,000 150,000 -- 10,000 --
President and Treasurer(1) 2000 217,000(2) -- -- 100,000 --
James Ringrose,.................... 2002 76,154 -- -- 66,000 20,309(5)
Former President and 2001 212,154 -- 215,388(4) 51,200 --
Chief Executive Officer(3) 2000 172,557 75,000 -- 80,000 --
Christopher M. Burns,.............. 2002 94,769 55,000 -- 31,500 30,974(7)
Former Vice President, 2001 128,491 6,019 99,750(6) 40,000 5,486(8)
Chief Financial Officer, 2000 90,075 21,012 -- 35,000 5,168(8)
Treasurer and Secretary(9)
- --------
(1) Mr. Jaeger resigned as Chief Executive Officer as of April 11, 2000 and was
reinstated on June 1, 2001.
(2) Mr. Jaeger received $8,000 for Board service during 1999 prior to being
appointed Chief Executive Officer on March 25, 1999.
(3) Mr. Ringrose was appointed President and Chief Executive Officer of the
Company as of April 11, 2000 and resigned from that position May 30, 2001.
(4) Represents the market value of 51,200 shares on the date of grant. The
market value at the end of the 2002 fiscal year of Mr. Ringrose's
restricted stock awards was $11,776 using the January 31, 2002 last
reported sale price of the Company's Common Stock on that day of $0.23. Mr.
Ringrose's restricted stock is fully vested.
18
(5) Includes the accrued vacation pay paid in connection with Mr. Ringrose's
resignation.
(6) Represents the market value of 25,000 shares on the date of grant. The
market value at the end of the 2002 fiscal year of Mr. Burns' restricted
stock awards was $5,750 using the January 31, 2002 last reported sale price
of the Company's Common Stock on that day of $0.23. Mr. Burns' restricted
stock is fully vested.
(7) Includes $12,654 of accrued vacation pay paid in connection with Mr. Burns
resignation, $4,670 of matching contributions by the Company to the
Company's 401(k) plan and $13,650 in consulting fees paid following Mr.
Burns resignation.
(8) Consists of matching contributions by the Company to the Company's 401(k)
plan.
(9) Mr. Burns resigned as Chief Financial Officer and Treasurer on October 1,
2001 and as Secretary on December 31, 2001.
Stock Option Grants
The following table shows information with respect to stock options granted
to the Named Executive Officers during the year ended January 31, 2002. None of
such options is currently outstanding.
Option Grants in Last Fiscal Year
Individual Grants
------------------------------------------------------------------
Potential Realizable
% of Total Value at Assumed
Number of Options Annual Rates of Stock
Securities Granted to Exercise Price Appreciation for
Underlying Employees or Base Option Term (1)
Options in Fiscal Price Expiration ----------------------
Name Granted Year ($/share) Date 5%($) 10%($)
---- ---------- ---------- --------- ---------- ------ -------
Stephen O. Jaeger 10,000(2) 4.6% $1.60 4/11/11 10,062 25,500
James Ringrose... 66,000(3) 30.2% $1.83 4/12/11 75,958 192,492
Christopher Burns 31,500(3) 14.4% $1.83 4/12/11 36,253 91,871
- --------
... Amounts represent hypothetical gains that could have been achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the dates the respective options were granted to
their expiration dates. Both of Messrs. Ringrose and Burns exercised their
entire options during fiscal 2002.
... Option was fully vested on the date of grant.
... Option originally vested 33.3% on each of the first, second, and third
anniversaries of the date of grant, but became fully vested in connection
with their respective resignations from the Company on May 30, 2001 (with
respect to Mr. Ringrose) and September 1, 2001 (with respect to Mr. Burns).
Aggregated Option Exercises and Year-End Option Table
The following table shows information with respect to options that were
exercised during fiscal year 2002. As of January 31, 2002 all options held by
the Named Executive Officers were either exercised or forfeited prior to
January 1, 2002.
Number of Securities
Underlying Unexercised Value of Unexercised In-the-
Shares acquired Value Options at FY-End(#) Money Options at FY-End($)
Name upon exercise(#) realized($) (Exercisable/Unexercisable) (Exercisable/Unexercisable)(1)
---- ---------------- ----------- --------------------------- ------------------------------
Stephen O. Jaeger... 10,000 14,000 0/0 0/0
James Ringrose...... 66,000 52,800 0/0 0/0
Christopher M. Burns 31,500 34,020 0/0 0/0
Employment Agreements
Effective April 1, 1999, the Company entered into an Employment Agreement
with Stephen O. Jaeger, the Company's Chief Executive Officer at the time. Mr.
Jaeger's employment agreement was amended effective April 13, 2000 to provide
that, notwithstanding his resignation as Chief Executive Officer effective
April 2000,
19
Mr. Jaeger's annual base salary would continue to be $260,000 until such time
as the Company divested itself of its Information Exchange Division or the
Board determined otherwise. If the Information Exchange Division were divested,
the amended agreement provided that Mr. Jaeger's annual base salary would be
reduced to $120,000. In addition, pursuant to the amended agreement, the third
installment of Mr. Jaeger's 1999 option grant (an option to purchase 33,334
shares) was amended so that it vested upon the earlier to occur of March 31,
2002, or the date Mr. Jaeger was terminated by the Company as Chairman of the
Board; provided his termination is not for cause and the date of termination
was between April 1, 2001 and March 30, 2002.
The Company also entered into an agreement with Mr. Jaeger, effective
February 15, 2000, pursuant to which Mr. Jaeger was to be paid a one-time
transaction bonus of $150,000 upon consummation of a transaction in which a
Change of Control of the Company (as defined in the agreement) occurs, provided
that Mr. Jaeger was employed as either the Chairman or Chief Executive Officer
at the time of the execution of a definitive agreement which will result in a
Change of Control of the Company. The agreement was subsequently amended
effective April 13, 2000 to provide for payment of the transaction bonus to Mr.
Jaeger upon the earliest of a Change of Control of the Company or the sale by
the Company of its Information Exchange Division. On July 10, 2000, the Company
completed the sale of the Information Exchange Division and Mr. Jaeger was paid
the bonus on August 25, 2000 and his salary was reduced to $120,000 effective
July 31, 2000.
After Mr. Ringrose's resignation as the Company's President and Chief
Executive Officer, Mr. Jaeger agreed to serve once again as the Company's Chief
Executive Officer and President. Effective June 1, 2001, the Company entered
into a new Employment Agreement (the "2001 Agreement") with Mr. Jaeger. The
2001 Agreement replaced his April 1, 1999 employment agreement. The 2001
Agreement provided for the following compensation:
. A continuation of his annual base salary of $120,000 through the earlier
of March 1, 2002 or at such time as a third party is appointed by the
Board of Directors to complete the liquidation and distribution of the
Company's net assets pursuant to the Plan. If a third party is not
appointed by March 1, 2002, and he continues to serve as Chief Executive
Officer and President then the Board may reduce his base salary to an
amount commensurate with the requirement to complete the Plan.
. A bonus not to exceed $100,000 if the anticipated distribution to
stockholders pursuant to the Plan is determined by the Board of Directors
to be at least $3.10 per share of common stock.
. His April 11, 2001 option to acquire 10,000 shares of common stock at
$1.60 per share was deemed fully vested as of the date the Company's
stockholders approve the Plan.
. His employment as Chief Executive Officer and President may be terminated
other than for cause by the Company at any time upon 60 days notice. In
such event, he is entitled to receive a continuation of insurance
benefits for a period of 24 months plus the bonus, if any, referred to
above.
On March 18, 2002, Mr. Jaeger and the Company agreed to reduce his base
salary base to $90,000 per year effective as of March 1, 2002, and to provide
Mr. Jaeger with the opportunity to earn a bonus in fiscal 2003 of up to
$30,000, if the estimate of the payout to shareholders is in excess of $.28 per
share at January 31, 2003.
Termination and change-in-control arrangements
Prior to the Board's adoption of the Plan of Complete Liquidation and
Dissolution, the Company had entered into management retention agreements with
James Ringrose and Christopher Burns. These agreements had generally been in
place for the Company's executive officers and other key personnel since 1994.
The principal objective of such arrangements was to reinforce and encourage the
continued attention of the Company's key personnel to their assigned duties
without distraction in the face of potentially disturbing circumstances arising
from the possibility of a change of control of the Company. The retention
agreements were to expire on December 31, 2001.
The retention agreements generally provided that if the executive's
employment were terminated by the Company within a designated period following
certain change of control events, the executive would have been entitled to
receive:
20
. a lump-sum payment equal to (a) three times (one times in the case of Mr.
Stone) the executive's annual base salary, plus (b) one and one half
times the executive's annual target incentive bonus;
. continuation of insurance benefits for a period of 24 months; and
. immediate vesting of any options to purchase shares of common stock
previously granted and restricted stock previously awarded to the
executive under the Company's stock incentive plans.
In May 2001, Messrs. Ringrose and Burns entered into separation agreements
and general releases with the Company in place of the retention agreements.
Each separation agreement and general release provides for
. a severance payment equal to one times the officer's current annual base
salary, payable over the period ending December 31, 2001;
. continuation of insurance benefits for a period of up to one year;
. a lump sum payment of $10,000 in lieu of the provision of outplacement
services; and
. immediate vesting of any options to purchase shares of common stock
previously granted and restricted stock previously awarded to him under
eBT's Stock Incentive Plans on the date of his resignation.
In exchange for those benefits, each individual agreed to resign as an
officer and employee of the Company and release the Company from all claims he
may have against eBT. Messrs. Ringrose and Burns received as severance
payments, respectively, $220,000 and $140,000. Under the separation agreements,
Messrs. Ringrose resigned effective May 30, 2001 and Mr. Burns resigned with an
effective date of September 1, 2001, or as of a later date if Mr. Burns and the
Board agree.
Mr. Burns' separation agreement also provided for a lump sum retention bonus
of $15,000, which he has received for remaining employed by the Company through
September 1, 2001. He also has received an additional lump sum payment of
$15,000 for assisting in the successful filing of a preliminary proxy statement
with the SEC and managing the Company's assets in such a way that the
anticipated distribution to stockholders, as of the date of his termination,
remained not less than $3.10 per share, subject to certain adjustments.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Five Percent Beneficial Owners
The following table sets forth information relating to the beneficial
ownership of Common Stock by each person known by the Company to own
beneficially more than 5% of the Company's Common Stock as of the Record Date:
Amount and
Nature of Percent of
Beneficial Common
Name and Address of Beneficial Owner Ownership(1) Stock(2)
------------------------------------ ------------ ----------
Dimensional Fund Advisors Inc.(3)... 1,062,300 7.23%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Farhad Fred Ebrahimi(4)............. 768,900 5.24%
8821 Experimental Farm Road
Cheyenne, WY 82009-8814
Ironwood Capital Management, LLC(5). 1,093,450 7.45%
21 Custom House Street
Boston, MA 02109
Performance Specialist Group, LLC... 1,197,900 8.16%
14 Wall Street, 27th Floor
New York, NY 10005
Millen Co., L.P..................... 1,445,682 9.84%
666 Fifth Avenue
New York, NY 10103
21
(1) Unless otherwise noted, the nature of beneficial ownership is sole voting
and investment power. The information herein is based on the most recently
filed reports of beneficial ownership on Schedules 13D and 13G filed with
the SEC pursuant to the Securities Exchange Act of 1934.
(2) Percentage based upon 14,685,001 shares of the Common Stock of the Company
outstanding as of January 31, 2002.
(3) Dimensional Fund Advisors Inc. ("Dimensional"), an investment advisor
registered under Section 203 of the Investment Advisors Act of 1940,
furnishes investment advice to four investment companies registered under
the Investment Company Act of 1940, and serves as investment manager to
certain other commingled group trusts and separate accounts. These
investment companies, trusts and accounts are the "Funds". In its role as
investment adviser or manager, Dimensional possesses voting and/or
investment power over the securities of the Company that are owned by the
Funds. All securities reported in this table are owned by the Funds.
Dimensional disclaims beneficial ownership of such securities.
(4) The members of the Ebrahimi family share power to vote the 768,900 shares.
The members of the Ebrahimi family have dispositive power over the total
number of shares as follows: Farhad Fred Ebrahimi has shared dispositive
power with Farhad Alexander Ebrahimi over 100,000 shares, shared
dispositive power with Mary Wilkie Ebrahimi over 544,900 shares, and shared
dispositive power with Farah Alexandra Ebrahimi over 124,000. Mary Wilkie
Ebrahimi has shared dispositive power with Farhad Fred Ebrahimi over
544,900 shares. Farad Alexander Ebrahimi has shared dispositive power with
Farad Fred Ebrahimi over 100,000 shares. Farah Alexandra Ebrahimi has
shared dispositive power with Farhad Fred Ebrahimi over 124,000.
(5) Ironwood Capital Management, LLC ("Ironwood") shares beneficial ownership
over the shares with Warren J. Isabelle ("Isabelle"), Richard L. Droster
("Droster") and Donald Collins ("Collins"). Ironwood, Isabelle, Droster and
Collins share voting power over 554,550 shares and dispositive power over
1,093,450 shares.
Management's Stock Ownership
The following table sets forth information relating to the beneficial
ownership of Common Stock, by (i) each director of the Company, (ii) the Named
Executive Officers (as defined herein), and (iii) the directors and executive
officers of the Company as a group.
Percent of
Beneficial Common
Name of Beneficial Owner Ownership(1) Stock(2)
------------------------ ------------ ----------
Christopher M. Burns....................................... 12,555 *
Samuel H. Fuller........................................... 11,500 *
Stephen O. Jaeger.......................................... 19,333 *
Joanna T. Lau.............................................. 9,500 *
James Ringrose............................................. 0 *
Edward Terino.............................................. 18,700 *
All directors and executive officers as a group (4 persons) 71,588 *
- --------
(*) Less than 1%.
(1) Percentage based upon 14,685,001 shares of the Common Stock of the Company
outstanding as of January 31, 2002.
Item 13. Certain Relationships and Related Transactions
None, except as set forth in Item 12 of this Annual Report on Form 10-K.
22
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
EBT INTERNATIONAL, INC.
Registrant
Date: May 1, 2002 /S/ STEPHEN O. JAEGER
------------------------------------
Stephen O. Jaeger
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/S/ SAMUEL H. FULLER Director May 1, 2002
- -----------------------------
Samuel H. Fuller
/S/ STEPHEN O. JAEGER Chairman and Director May 1, 2002
- -----------------------------
Stephen O. Jaeger
/S/ JOANNA T. LAU Director May 1, 2002
- -----------------------------
Joanna T. Lau
/S/ EDWARD TERINO Director May 1, 2002
- -----------------------------
Edward Terino
23
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 10-K
(a) 1. Consolidated financial statements
The Consolidated Financial Statements listed in the accompanying Index
to Consolidated Financial Statements and Financial Statement Schedule
is filed as part of this Annual Report.
2. Consolidated financial statement Schedule
The Consolidated Financial Statement Schedule listed in the
accompanying Index to Consolidated Financial Statements and Financial
Statement Schedule is filed as part of this Annual Report.
3. Exhibits
The exhibits listed in the accompanying Exhibit Index are filed as part
of this Annual Report.
(b) Reports on Form 8-K filed in the fourth quarter of fiscal 2002.
None.
24
Item 14(a). Index to Consolidated Financial Statements and Financial Statement
Schedule
Page
-----
Report of Independent Auditors....................................................................... 26
Consolidated Statement of Net Assets in Liquidation at January 31, 2002.............................. 27
Consolidated Balance Sheet at January 31, 2001 (Going Concern Basis)................................. 28
Consolidated Statement of Changes in Net Assets in Liquidation for the six months ended
January 31, 2002.................................................................................... 29
Consolidated Statements of Operations for the six months ended July 31, 2001 and years
ended January 31, 2001 and 2000 (Going Concern Basis)............................................... 30
Consolidated Statements of Cash Flows for the six months ended July 31, 2001 and years ended
January 31, 2001 and 2000 (Going Concern Basis)..................................................... 31
Consolidated Statements of Changes in Stockholders' Equity for the six months ended July 31, 2001 and
years ended January 31, 2001 and 2000 (Going Concern Basis)........................................ 32
Notes to Consolidated Financial Statements........................................................... 33-57
Schedule for the six months ended July 31, 2001 and years ended January 31, 2001 and 2000
(Going Concern Basis):
Schedule II Valuation and Qualifying Accounts..................................................... 58
All other schedules have been omitted since the required information is not
present or the amounts are not sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements.
25
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
eBT International, Inc.
We have audited the accompanying consolidated balance sheet of eBT
International, Inc. as of January 31, 2001, the related consolidated statements
of operations, stockholders' equity, and cash flows for each of the two years
ended January 31, 2001 and 2000, and the consolidated statements of operations,
stockholders' equity and cash flows for the six months ended July 31, 2001. In
addition, we have audited the consolidated statement of net assets in
liquidation as of January 31, 2002 and the related consolidated statement of
changes in net assets in liquidation for the six months ended January 31, 2002.
Our audits also included the financial statement schedule listed in the Index
at Item 14(a). These financial statements and schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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.
As described in Note 1 to the consolidated financial statements, the
stockholders of eBT International, Inc. approved a plan of complete liquidation
and dissolution of the Company, and the Company commenced liquidation shortly
thereafter. As a result, the Company has changed its basis of accounting for
periods subsequent to July 31, 2001 from the going-concern basis to a
liquidation basis.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of eBT
International, Inc. as of January 31, 2001, the consolidated results of its
operations and its cash flows for each of the two years ended January 31, 2001
and 2000 and for the six months ended July 31, 2001, its consolidated net
assets in liquidation as of January 31, 2002 and the consolidated changes in
net assets in liquidation for the six months ended January 31, 2002, in
conformity with accounting principles generally accepted in the United States
applied on the bases described in the preceding paragraph. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ Ernst & Young LLP
Boston, Massachusetts
March 5, 2002
26
eBT INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION
JANUARY 31, 2002
(In thousands)
Assets
Cash and cash equivalents................................ $1,348
Marketable securities.................................... 6,005
Receivables and other current assets..................... 884
------
Total assets......................................... $8,237
Liabilities
Accounts payable and accrued expenses.................... $2,548
Estimated costs to be incurred during liquidation period. 989
------
Total liabilities.................................... $3,537
------
Net assets in liquidation................................... $4,700
======
See accompanying Notes to Consolidated Financial Statements.
27
eBT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET (GOING CONCERN BASIS)
JANUARY 31, 2001
(In thousands, except share amounts)
January 31,
2001
-----------
ASSETS
Current assets:
Cash and cash equivalents............................................................ $ 56,709
Marketable securities................................................................ 8,961
Accounts receivable, net of allowance of $687........................................ 3,195
Receivables from asset sales......................................................... 5,973
Prepaid expenses and other current assets............................................ 537
--------
Total current assets............................................................. 75,375
Property and equipment, net............................................................. 2,402
Product development costs, net of accumulated amortization of $7,519.................... 1,187
Long-term accounts receivable........................................................... 90
Licensed technology and advances, net................................................... 948
--------
TOTAL ASSETS............................................................................ $ 80,002
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................................... $ 836
Accrued liabilities.................................................................. 9,371
Unearned revenue..................................................................... 1,508
--------
Total current liabilities........................................................ 11,715
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized; none issued............ --
Common stock, $.01 par value; 50,000,000 shares authorized; 16,938,033 shares issued. 169
Capital in excess of par value....................................................... 157,712
Accumulated deficit.................................................................. (84,118)
--------
73,763
Unamortized value of restricted shares.................................................. (433)
Note receivable from stock purchase agreement........................................... (200)
Treasury stock, at cost, 1,705,075 shares............................................... (4,843)
--------
Total stockholders' equity....................................................... 68,287
--------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............................................. $ 80,002
========
See accompanying Notes to Consolidated Financial Statements.
28
eBT INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
SIX MONTHS ENDED JANUARY 31, 2002
(In thousands)
Stockholders' equity at August 1, 2001............ $ 50,774
Liquidation basis adjustments:
Adjust assets and liabilities to fair value.... (1,285)
Accrued estimated net costs during liquidation. (1,162)
--------
Net assets in liquidation on August 1, 2001....... 48,327
Cash received from sale of fixed assets........... 274
Purchases of common stock......................... (784)
Shareholder payment on December 13, 2001.......... (44,055)
Adjust assets and liabilities to fair value....... 938
--------
Net assets in liquidation at January 31, 2002..... $ 4,700
========
See accompanying Notes to Consolidated Financial Statements.
29
eBT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (GOING CONCERN BASIS)
FOR THE SIX MONTHS ENDED JULY 31, 2001,
AND YEARS ENDED JANUARY 31, 2001 and 2000
(In thousands, except per share amounts)
Years Ended January 31,
Six Months Ended ----------------------
July 31, 2001 2001 2000
---------------- -------- --------
Revenues:
Product licenses................................ $ 219 $ 13,739 $ 40,781
Service......................................... 1,307 7,957 23,899
--------- -------- --------
Total revenues.................................. 1,526 21,696 64,680
Cost of revenues:
Cost of product licenses........................ 467 3,434 10,262
Cost of service................................. 1,228 6,202 11,948
--------- -------- --------
Total cost of revenues.......................... 1,695 9,636 22,210
--------- -------- --------
Gross profit (loss)................................ (169) 12,060 42,470
Operating expenses:
Sales and marketing............................. 3,814 15,419 24,559
Product development............................. 1,630 10,897 26,079
Amortization of intangible assets............... -- 561 4,248
General and administrative...................... 2,289 8,902 21,527
Restructuring expenses, (benefit)............... (135) 1,954 11,068
Special charges................................. 11,395 200 28,103
--------- -------- --------
Total operating expenses.................... 18,993 37,933 115,584
--------- -------- --------
Operating loss..................................... (19,162) (25,873) (73,114)
Non-operating income (expense):
Net investment and other income................. 1,903 3,861 1,721
Recovery (write-down) of investment............. -- 657 (2,655)
Gain on sale of assets, net..................... 230 38,170 12,212
--------- -------- --------
Income (loss) before provision for income taxes.... (17,029) 16,815 (61,836)
Provision for income taxes......................... -- 300 474
--------- -------- --------
Net income (loss).................................. $(17,029) $ 16,515 $(62,310)
========= ======== ========
Earnings (loss) per common share................... ($ 1.14) $ 1.00 $ (3.98)
========= ======== ========
Earnings (loss) per common share, assuming dilution ($ 1.14) $ 0.98 $ (3.98)
========= ======== ========
See accompanying Notes to Consolidated Financial Statements.
30
eBT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (GOING CONCERN BASIS)
SIX MONTHS ENDED JULY 31, 2001,
AND YEARS ENDED JANUARY 31, 2001 and 2000
(In thousands of dollars)
Years Ended
January 31,
Six months ended ------------------
July 31, 2001 2001 2000
---------------- -------- --------
Cash flows used in operating activities:
Net income (loss)................................................. $(17,029) $ 16,515 $(62,310)
Adjustments to reconcile net (loss) to net cash used in operating
activities:.....................................................
Depreciation.................................................. 330 1,608 3,440
Amortization.................................................. 440 3,823 12,246
Provisions for doubtful accounts.............................. -- 1,625 2,008
Non-cash stock compensation expense........................... 102 172 1,482
Non-cash restructuring expenses............................... -- -- 5,490
Non-cash special charges expenses............................. 4,790 -- 10,805
(Recovery) write-down of investment........................... -- (657) 2,655
Gain on sale of assets, net................................... -- (38,170) (12,212)
-------- -------- --------
(11,367) (15,084) (36,396)
Changes in operating assets and liabilities:
Accounts receivable............................................... 3,082 4,273 5,773
Accounts payable and accrued liabilities.......................... 447 (3,389) (2,977)
Other assets and liabilities...................................... (2,248) (669) (873)
-------- -------- --------
Net cash used in operating activities...................... (10,086) (14,869) (34,473)
Cash flows provided by investing activities:
Property and equipment expenditures............................... (80) (1,015) (2,128)
Capitalized product development costs............................. -- (1,140) (3,746)
Payments related to 1998 acquisitions............................. -- -- (5,685)
Net (purchases) proceeds from sales of marketable securities...... (5,638) (4,359) 38,212
Proceeds from the sale of assets, net............................. 5,942 50,798 18,066
-------- -------- --------
Net cash provided by investing activities.................. 224 44,284 44,719
Cash flows provided by (used in) financing activities:
Net proceeds from issuance of common stock........................ 248 707 11,543
Proceeds from the payment of notes receivable underlying
Stock Purchase Agreements....................................... -- -- 1,105
Purchases of treasury stock....................................... (1,283) (4,785) --
Payments under capital lease obligations.......................... -- (36) (1,003)
-------- -------- --------
Net cash (used in) provided by financing activities........ (1,035) (4,114) 11,645
Net increase (decrease) in cash and cash equivalents................. (10,897) 25,301 21,891
Cash and cash equivalents at beginning of period..................... 56,709 31,408 9,517
-------- -------- --------
Cash and cash equivalents at end of period........................... $ 45,812 $ 56,709 $ 31,408
======== ======== ========
See accompanying Notes to Consolidated Financial Statements.
31
eBT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
GOING CONCERN BASIS
(In thousands except share amounts)
Capital Unamortized Notes
Common stock in excess value of receivable Treasury stock
------------------ of par Accumulated restricted from stock -----------------
Shares Amount value deficit shares purchase Shares Amount Total
---------- ------ --------- ----------- ----------- agreements --------- ------- --------
Balance at January 31, 1999...... 15,515,840 $155 $140,288 $ (38,323) $(102) $(1,305) 5,075 $ (58) $100,655
Issuance of shares pursuant to
Employee Stock Purchase Plan.... 184,323 2 1,076 1,078
Proceeds from Notes Receivable
from Stock Purchase
Agreements...................... 1,105 1,105
Stock options exercised.......... 851,466 8 10,111 10,119
Cancellation of restricted shares (3,750) (23) 23 --
Issuance of warrants............. 2,010 2,010
Exercise of warrants............. 34,644 346 346
Other issuances and repurchases.. 6,250 546 546
Acceleration of stock options.... 1,744 1,744
Amortization of restricted shares 79 79
Net loss*........................ (62,310) (62,310)
---------- ---- -------- --------- ----- ------- --------- ------- --------
Balance at January 31, 2000...... 16,588,773 $165 $156,098 $(100,633) $ -- $ (200) 5,075 $ (58) $ 55,372
Issuance of shares pursuant to
Employee Stock Purchase Plan.... 188,210 2 499 501
Issuance of restricted shares.... 177,300 2 763 (765) --
Stock options exercised.......... 34,850 -- 206 206
Cancellation of restricted shares (51,100) -- (215) 215 --
Purchases of treasury stock...... 1,700,000 (4,785) (4,785)
Other issuances and repurchases.. 361 (55) 306
Amortization of restricted shares 172 172
Net income*...................... 16,515 16,515
---------- ---- -------- --------- ----- ------- --------- ------- --------
Balance at January 31, 2001...... 16,938,033 $169 $157,712 $ (84,118) $(433) $ (200) 1,705,075 $(4,843) $ 68,287
Issuance of shares pursuant to
Employee Stock Purchase Plan.... 28,105 61 61
Stock options exercised.......... 102,000 1 186 187
Purchases of treasury stock...... 506,200 (1,283) (1,283)
Other issuances and repurchases.. (26) 55 29
Acceleration of restricted shares 144 276 420
Amortization of restricted shares 102 102
Net income*...................... (17,029) (17,029)
---------- ---- -------- --------- ----- ------- --------- ------- --------
Balance at July 31, 2001......... 17,068,138 $170 $158,077 $(101,147) $ -- $ (200) 2,211,275 $(6,126) $ 50,774
========== ==== ======== ========= ===== ======= ========= ======= ========
* Net income (loss) equals comprehensive income (loss) for each period
presented.
See accompanying Notes to Consolidated Financial Statements.
32
eBT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Nature of Business
On May 22, 2001 the Board of Directors of the Company approved a plan to
liquidate and dissolve the Company (the "Plan"). The Plan was approved by a
majority of the Company's stockholders on November 8, 2001.
The approval of the Plan was preceded by a series of divestitures,
restructuring activities and special charges (see Notes 5, 6 and 7) which left
the Company with a single active business unit in the middle of the fiscal year
2001. The principal focus of that unit was the development and marketing of
enterprise-wide Web content management software solutions and associated
services. Following a detailed review of the results of operations of that
business for the first fiscal quarter of 2002, and future prospects, the Board
concluded that adoption of the Plan was in the best interests of eBT and its
stockholders. The key features of the Plan are (i) the conclusion of all
business activities, other than those related to the execution of the Plan; (2)
the sale or disposal of all of the Company's non-cash assets; (3) the
establishment of reasonable reserves to be sufficient to satisfy the
liabilities, expenses and obligations of eBT not otherwise paid, provided for
or discharged; (4) the periodic payment of per share liquidating distributions
to stockholders; and (5) the authorization of the filing of a Certificate of
Dissolution with the State of Delaware.
Liquidation Basis of Accounting
The consolidated financial statements for fiscal 2001 and 2000 and for the
six months ended July 31, 2001 were prepared on the going concern basis of
accounting, which contemplates realization of assets and satisfaction of
liabilities in the normal course of business. As a result of the adoption of
the Plan and the imminent nature of the liquidation, the Company adopted the
liquidation basis of accounting effective August 1, 2001. This basis of
accounting is considered appropriate when, among other things, liquidation of a
company is probable and the net realizable value of assets are reasonably
determinable. Under this basis of accounting, assets are valued at their
estimated net realizable values and liabilities are stated at their estimated
settlement amounts. The conversion from the going concern to liquidation basis
of accounting has required management to make significant estimates and
judgements. In order to record assets at estimated net realizable value and
liabilities at estimated settlement amounts under liquidation basis accounting,
the Company recorded the following adjustments to record its assets and
liabilities to fair value as of August 1, 2001, the date of adoption of
liquidation basis accounting:
(In thousands
of dollars)
-------------
Adjust assets and liabilities to fair value:
Lease settlement costs, net of subrental income.................. $(2,732)
Litigation settlement costs...................................... (800)
Accrued income taxes............................................. 2,083
All other, net................................................... 164
-------
Total adjustment of assets and liabilities to fair value..... (1,285)
Accrued estimated net costs during liquidation:
Costs to be incurred during liquidation period................... $(2,078)
Future interest income........................................... 916
-------
Total estimated net costs during liquidation................. (1,162)
Total liquidation basis adjustments....................... $(2,447)
=======
33
eBT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The amount and timing of future liquidating distributions will depend upon a
variety of factors including, but not limited to, the actual proceeds from the
realization of the Company's assets, the ultimate settlement amounts of the
Company's liabilities and obligations, actual costs incurred in connection with
carrying out the Plan, including salaries, administrative and operating costs
during the liquidation period, and the timing of the liquidation and
dissolution. A summary of significant estimates and judgements utilized in
preparation of the January 31, 2002 consolidated financial statements on a
liquidation basis follows:
Receivables and Other Current Assets
At January 31, 2002, Receivables and Current Assets of $884,000 represented
10.7% of the Company's total assets. Included in Receivables and Other Current
Assets is $154,000 which represents the Company's estimate of future interest
earnings over the liquidation period.
Accounts Payable and Accrued Expenses
At January 31, 2002, Accounts Payable and Accrued Expenses were $2,548,000.
Included in this amount are accrued income taxes in the amount of $746,000 and
known obligations totaling $591,000. The balance of $1,211,000 is comprised of
the following items:
Estimated Litigation Settlement Costs Reserve
Litigation settlement costs in the amount of $976,000 represent estimated
future legal fees, and amounts that may be payable under the Company's By-laws
to indemnify certain former officers for expenses reasonably incurred in
connection with the Securities and Exchange Commission's (the "Commission")
investigation of the restatement of the Company's results for the first three
calendar quarters of 1998. However, the Company's By-laws provide that an
officer is not entitled to such indemnification if it is adjudicated or
determined that such officer did not act in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Company. Further, in this instance, the Company may not be required to make any
further payments to the individuals and any remaining unpaid amounts will
result in an increase in the total net proceeds estimated as available for
distribution to shareholders. See Note 14 for a summary of the Commission's
investigation and its current status.
General Contingency Reserve
In view of the duration of the liquidation period to November 8, 2004, and
provision in Delaware law that the Company maintain reserves sufficient to
allow for the payment of all its liabilities and obligations, including all
contingent, conditional and unmatured claims, the Company established a general
contingency reserve upon the adoption of liquidation basis accounting on August
1, 2001. The amount of reserve initially established was $900,000 and at
January 31, 2002 is $235,000. At January 31, 2002, the Company has no known
material claims against this reserve and will periodically assess whether
maintenance of a lower or higher general contingency reserve is required. In
the event there are no claims against this reserve then the amount of
liquidation proceeds that may be paid to stockholders will be increased.
Estimated Costs to be Incurred During Liquidation Period
At January 31, 2002, the Company estimates that there are $989,000 of costs
remaining, including compensation for liquidation personnel and Board fees
($400,000), professional fees ($549,000) and miscellaneous other costs
($40,000).
34
eBT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Change in Year End
In November 1998, the Board of Directors approved a change in the Company's
fiscal year to February 1 through January 31, effective for the twelve-month
period ending January 31, 2000. Through December 31, 1998, the Company reported
results on a calendar year basis.
Cash and Cash Equivalents
The Company considers highly liquid investments with maturities of three
months or less at the time of purchase to be cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the net realizability of assets and estimated costs
to be incurred during the liquidation period and disclosure of contingent
assets and liabilities at the date of the financial statements. Actual results
could differ from those estimates.
Additional Cash Flow Statement Information
Years Ended
Six months January 31,
ended -------------
July 31, 2001 2001 2000
------------- ------ ------
(In thousands)
Supplemental disclosures of cash flow information:
Cash paid for income taxes..................... $-- $ 24 $ 408
Non-cash investing and financing information:
Receivables from asset sales................... -- 5,973 5,723
Investments
The Company accounts for its investments in securities, including certain
cash equivalents and marketable securities, in accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities."
Foreign Currency Translation
The financial statements of foreign subsidiaries have been translated into
U.S. dollars in accordance with Statement of Financial Accounting Standards No.
52, "Foreign Currency Translation". All balance sheet accounts have been
translated using the exchange rate in effect at the balance sheet date. Income
statement amounts were translated using average exchange rates in effect during
the period presented. The gains and losses resulting from the changes in
exchange rates from period to period were insignificant for all periods
presented. Additionally, the effect on the statements of operations for
transaction gains and losses was insignificant for all periods presented.
35
eBT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fair Value of Financial Instruments
The Company's cash equivalents, marketable securities and accounts
receivables are carried at cost, which approximates fair value.
Revenue Recognition
The Company derived its revenues from licenses of its software products and
from services the Company provided to its customers. Revenue from software
licensing and services fees was recognized in the periods through July 31, 2001
in accordance with Statement of Position ("SOP") 97-2, "Software Revenue
Recognition", and SOP 98-9, "Software Revenue Recognition with Respect to
Certain Transactions".
Typically, the Company's software licenses did not include significant
post-delivery obligations to be fulfilled by the Company and payments were due
within a twelve-month period from date of delivery. Consequently, license fee
revenue was generally recognized when the product was shipped. Royalty revenues
were generally recognized in the quarter in which the amounts due to the
Company had been determined. Revenue from training, consulting and
implementation services was recognized as the services were performed. Revenue
for license renewals was recognized when all the criteria under SOP 97-2 were
met.
Product Development Costs
Software and other costs incurred in connection with product development
were charged to expense until such time as specific product technological
feasibility had been established. Thereafter, product development costs
specific to the product were capitalized.
Amortization of capitalized product development costs began when the related
product was available for general release to customers. These costs were
amortized using the shorter of the estimated future product revenue streams or
the straight-line method over periods not exceeding three years.
Acquired developed software was capitalized as part of the allocation of the
purchase price on the basis of the estimated fair market value. Acquired
developed software was amortized on a straight-line basis over estimated useful
lives ranging from two to ten years.
Amortization of $292,000, $2,397,000 and $6,456,000 for the six months ended
July 31, 2001 and the years ended January 31, 2001 and 2000, respectively, was
included as a component of cost of revenues.
Licensed Technology and Advances
Licensed technology and royalty advances, which pertain to payments by the
Company for the license of technology used in the Company's products, were
stated at cost less royalty amounts expensed based on revenues recognized over
the lives of the related agreement. Costs of purchased licenses were amortized
using the greater of (a) the straight-line method over their estimated economic
lives, generally one to five years, or (b) current period revenue to
anticipated total revenues during the license period.
Property and Equipment
Property and equipment were stated at cost. Depreciation was provided on
leasehold improvements using the straight-line method over the economic life of
the asset or the lease term, whichever was shorter.
36
eBT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Intangible Assets
Intangible assets, including excess costs over net assets acquired, were
amortized on a straight-line method over their estimated economic lives for
periods ranging from one to ten years.
Impairment of Long-Lived Assets
In accordance with the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of", if facts and circumstances suggest that
an impairment may have occurred, the unamortized balances of these assets are
reviewed. In the six months ended July 31, 2001 and fiscal year ended January
31, 2000, certain of the Company's intangible assets were determined to be
impaired, and the carrying amounts were reduced, as appropriate (see Notes 6
and 7).
Concentration of Credit Risk
The Company performed ongoing credit evaluations of its customers and
maintained reserves for potential credit losses.
The Company licensed its products primarily to customers in North America.
Revenues from foreign customers accounted for 22%, 28% and 33% of total net
revenue for the six months ended July 31, 2001 and the years ended January 31,
2001 and 2000.
Stock-Based Compensation
The Company elected to account for its stock-based compensation plans
following Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB 25) and related interpretations rather than the
alternative fair value accounting provided under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
123). Accordingly, the Company did not generally recognize compensation expense
for its stock option plans and its stock purchase plan. However, in fiscal
2000, in connection with the sale of its DynaText product line and PDM division
(see Note 5), the Company accelerated vesting of options held by employees of
the PDM division, which resulted in charges for compensation expense in the
amount of $1,744,000.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities," as amended by Statement of Financial Accounting Standards No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities-an amendment to FASB Statement No 133" (collectively FAS 133). FAS
133, which was effective for the Company's fiscal year beginning February 1,
2001, provides a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities. The adoption of FAS 133 did
not have a significant impact on our financial position, results of operations
or liquidation basis accounting.
37
eBT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 2. Available for Sale Investments
The Company's available-for-sale investments are carried at cost, which
approximates fair value, and are included in cash equivalents and marketable
securities. Following are the components of the available-for-sale investments:
As of January 31,
-------------------------
2002 2001
------ -------
(In thousands of dollars)
Commercial paper.......... $ -- $44,149
Corporate issues.......... 6,005 3,009
Money market funds........ 1,168 11,097
United States agency bonds -- 3,961
------ -------
Total..................... $7,173 $62,216
====== =======
Interest on securities classified as available-for-sale of $1,379,000,
$3,261,000 and $1,472,000 is included in net investment and other income in the
six months ended July 31, 2001 and years ended January 31, 2001 and 2000,
respectively. The gross realized gains and losses on those sales were
immaterial to the Company's financial results.
The Company's available-for-sale securities have the following maturities:
As of
January 31, 2002
----------------
(In thousands)
Due in one year or less $4,173
Due within two years... 3,000
------
Total.................. $7,173
======
Note 3. Property and Equipment
Property and equipment are summarized as follows:
As of
January 31, 2001
----------------
(In thousands of dollars)
Leasehold improvements........................ $ 400
Computer equipment and software............... 7,370
Furniture and fixtures........................ 1,178
-------
8,948
Less accumulated amortization and depreciation (6,546)
-------
$ 2,402
=======
Subsequent to the adoption of the liquidation basis of accounting on August
1, 2001, the Company sold or otherwise disposed of its property and equipment.
38
eBT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 4. Acquisitions and Investments
AIS Software, S.A.
On January 12, 1999, the Company acquired AIS Software S.A. ("AIS Software")
from Berger-Levrault S.A., a French publisher, for approximately $3,000,000
using available cash. AIS Software, based in Paris, France was the developer of
Balise, an SGML and XML transformation tool and scripting language, as well as
Dual Prism, a Web-based XML and SGML publishing system. AIS Software operated
as part of the Company's Product Data Management Division until its divestiture
on January 5, 2000 (see Note 5).
Venture Labs, Inc.
On December 22, 1998, the Company acquired all of the outstanding stock of
privately held Venture Labs, Inc. and its subsidiary Paradigm Development
Corporation (collectively "Paradigm") for a total value of $4,800,000. The
Company paid $4,300,000 in cash and assumed certain liabilities, Paradigm
operated as part of the Company's Information Exchange Division, which was
divested on July 10, 2000 (see Note 5).
Sherpa Systems Corporation
In December 1998, the Company acquired all of the outstanding stock of
privately held Sherpa Systems Corporation ("Sherpa"). Sherpa was a provider of
product data management solutions that manage mission-critical information. The
acquisition was accounted for as a purchase and was included in the
consolidated financial statements from the date of acquisition until its
disposition on January 5, 2000. The total consideration paid at the time of the
acquisition was $36,000,000, consisting of $28,700,000 of cash and warrants
("Original Warrants") to purchase 1,456,458 shares of the Company's common
stock. The Original Warrants, at the time of the acquisition, were valued at
$5.00 per warrant, or $7,282,000. The Original Warrants had a 24-month term and
the right to purchase shares of the Company's common stock at an exercise price
of $23.50 per share.
Subsequent to the Company's announcement on February 1, 1999 that it would
restate its financial results (see Note 14), the Company began discussions with
the warrant holders to reprice the Original Warrants or exchange them for cash,
with the objective of meeting the intention under the original agreement. On
June 22, 1999, the Company entered into an agreement with the holders of the
Original Warrants that provided, among other things, a) for the cancellation of
all of the outstanding Original Warrants, b) the issuance of new warrants, with
a 36-month term and an exercise price of $10.00 per share, to purchase a
proportionate share of 1,000,000 shares of the Company's Common stock and c)
the payment of a proportionate share of $3,000,000 in cash. The new warrants
were valued at $2.01 per warrant. As a result of the agreement, the value of
the consideration paid by the Company for the Sherpa acquisition was reduced by
approximately $2,272,000, with an offsetting reduction to goodwill.
The acquisition also included estimated costs of approximately $5,800,000
for direct transaction costs and costs relating to the elimination of excess
and duplicative activities as a result of the merger. Since December 31, 1998,
payments against the accrual consisted of the following: approximately
$1,635,000 for employee severance for elimination of duplicate functions and
closure of duplicate and excess operations; approximately $400,000 for
professional fees consisting principally of appraisal, legal, and accounting
fees; and $39,000 for other out-of-pocket expenses related to the acquisition.
During fiscal 2000, the Company reevaluated the estimated costs and reduced the
related accrual and goodwill by approximately $3,629,000, primarily due to a
reduction in estimated costs to exit a long term, fixed fee professional
service agreement and reductions in estimated severance costs.
MediaBank
On August 28, 1998, the Company acquired the intellectual property and
certain other assets of Bitstream Inc.'s MediaBank media asset management
system and related technologies for $11,900,000 using available
39
eBT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
cash. The transaction also included a license to Bitstream's Page Flex page
composition technology for an additional $600,000, MediaBank operated as part
of the Company's eBusiness Technologies Division until its divestiture in June
2000 (see Note 5).
ViewPort Development AB
On March 12, 1998, the Company acquired all of the outstanding capital stock
of privately held ViewPort Development AB for $2,500,000 using available cash.
ViewPort Development AB operated as part of the Company's Product Data
Management Division until its sale to Enigma on October 29, 1999 (see Note 5).
Note 5. Divestitures
eBT Products
Effective July 1, 2001, the Company entered into an agreement with Red
Bridge Interactive, Inc. ("Interactive") whereby Interactive assumed our
maintenance and support obligations relating to DynaBase, engenda and enterpid.
In connection with that agreement, we assigned Interactive our existing rights
in the DynaBase and engenda products and provided Interactive with a limited,
non-exclusive license of our rights to entrepid. Interactive was founded in
June 2001 and is owned and managed by former employees of eBT. Interactive is
based in Providence, RI.
The terms of our agreement required the Company to provide Interactive with
$650,000 in cash over the period July 1, 2001 to March 1, 2002. The payments
were made monthly, generally declining in amount over this period, which
corresponded to the customer maintenance and support contracts that we
transferred to Interactive. In the event of a default by Interactive, which
specifically includes performance of the obligations assumed by Interactive
under the Company's former maintenance and support business, we were entitled
to draw upon an irrevocable letter of credit provided by Interactive. This
letter of credit had an initial principal amount of $350,000 and declined over
the period July 31, 2001 to March 31, 2002, at which time it was terminated.
Our agreement with Interactive also provided for the payment of royalties to
eBT in the event Interactive earns gross revenue from the maintenance and
support business or from licensing of DynaBase, engenda, and entrepid. The
royalty periods expire at various times through July 1, 2004. The Company's
Consolidated Statement of Net Assets in Liquidation as of January 31, 2002
includes a receivable from Interactive for royalties earned in the amount of
$99,000, of which $26,000 was paid to the Company in February 2002. Although we
expect that the Company will continue to receive royalties pursuant to its
agreement with Interactive, we have not included any amounts in the
Consolidated Statement of Net Assets in Liquidation other than the $99,000
referred to above. Accordingly, we will continue to account for Interactive
royalty income when amounts due to the Company, if any, have been verified.
There was no gain or loss incurred in connection with the Interactive
transaction and no royalty income was earned prior to the adoption of
liquidation basis accounting.
Sale of DynaText
On October 29, 1999, the Company sold its DynaText/DynaWeb stand-alone
technical document-publishing component of its PDM Division, along with its
ViewPort browser technology assets, for $14,750,000. The sale was in the form
of a stock purchase by Enigma Information System Ltd. and its subsidiary,
Enigma Information Retrieval Systems, Inc., (collectively "Enigma") of all of
the outstanding stock of Inso Providence Corporation and ViewPort Development
AB. In connection with the disposition, the Company retained the accounts
40
eBT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
receivable directly associated with the DynaText/DynaWeb and ViewPort browser
technologies. The proceeds of the sale were $9,000,000 in cash and $5,750,000
in the form of a promissory note, due and payable by April 30, 2000. The
promissory note was secured by a Stock Pledge Agreement of the stock of Inso
Providence Corporation. In connection with this transaction, the Company
recorded direct transaction costs and other accruals for costs directly
associated with the sale. As a result, the Company reported a gain of
$14,549,000.
On January 27, 2000 the Company and Enigma amended the terms of the
agreement and related promissory note. Enigma paid $4,500,000 in cash and
deposited $1,200,000 into an interest bearing escrow account. In return, we
released the security for the promissory note. In July 2000, we received
approximately $909,000 of the escrow after certain adjustments in final
settlement of all purchase price amounts due from Enigma. In connection with
this settlement we adjusted the carrying amounts of certain assets and
liabilities resulting in a net gain of $465,000 in 2000, which is included in
the Non-operating income section of the Company's Consolidated Statements of
Operations.
Sale of PDM Division
On January 5, 2000, we sold the remaining interest in our PDM Division to
Structural Dynamics Research Corporation ("SDRC") for $6,000,000 in cash plus
assumption of liabilities. The transaction was in the form of a stock purchase
of all of the outstanding stock of the Company's subsidiaries; Sherpa Systems
Corporation and Inso France Development S.A. (formerly AIS Software, S.A.). The
proceeds received from the sale totaled $5,000,000 in cash at the time of the
closing, and $1,000,000 was placed in a supplemental closing fund to be paid no
later than 90 days after the first anniversary of the closing date. The selling
price was subject to adjustment based on the net worth of the business at
closing. After direct transaction costs, the loss on the sale of PDM was
$2,337,000 at January 31, 2000. The net worth of the business on the closing
balance sheet, as agreed to by SDRC and the Company in July 2000, net of
certain other adjustments negotiated between the Company and SDRC, resulted in
an additional receipt from SDRC of approximately $2,696,000, in final
settlement of the net worth balances. This amount was received in July 2000. In
connection with this settlement, during the second quarter of fiscal 2001, we
adjusted the carrying amounts of certain assets and liabilities, and recorded
an additional loss of approximately $637,000. The loss is included in the
Non-operating income section in the accompanying statements of operations.
During the fourth quarter of fiscal 2001, the Company and SDRC reached a
settlement agreement under which SDRC remitted an additional net purchase price
adjustment amount of $1,971,000, according to the terms of the original
agreement, as modified in the final settlement agreement dated January 24,
2001. This additional net payment was comprised of additional proceeds based on
qualifying maintenance and license revenue, as defined in the original
agreement, reduced by certain agreed upon amounts relative to remaining
contingent liabilities. The Company had estimated and accrued the amounts it
believed may become due. The net results of the monies received and adjustments
recorded in connection with the settlement agreement was a $1,526,000 gain in
2001 and this amount is included in the Non-operating income section of the
Company's Consolidated Statements of Operations. At January 31, 2002 no amounts
are accrued.
Investment in Information Please LLC
In fiscal 2000, the Company determined that the value of its equity
investment in Information Please LLC, an organization engaged in the
development and marketing of the Information Please Almanac product line, was
impaired. This assessment was based on the Company's review of Information
Please LLC's operating results and business plan and the Company's anticipated
future cash flows from its investment. Accordingly, the investment was written
down to its net realizable value, resulting in a charge of $2,655,000 in fiscal
2000. In the
41
eBT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
third quarter of fiscal 2001, we received a $657,000 distribution due to the
liquidation of our former investment in Information Please LLC.
Sale of MediaBank
In June 2000, we sold our MediaBank product line, which was formerly a
component of the eBusiness Technologies ("eBT") division, for contingent future
consideration of up to $2,000,000. As the consideration is contingent, no
proceeds were recorded on the sale, and a loss on the disposition of the net
assets of the MediaBank business in the amount of $3,735,000 was charged
against income in connection with the transaction in fiscal year 2001. The
majority of the charge, approximately $3,548,000, was a non-cash charge related
to licensed technology that was sold, while approximately $386,000 related to
severance and professional fees incurred as a result of the transaction. These
amounts were partially offset by the liabilities assumed by the buyer. This
loss is included in the Non-operating income section of the Company's
Consolidated Statements of Operations. Through January 31, 2002, no
consideration had been received.
Sale of Information Exchange Division
On July 10, 2000, the Company sold its Information Exchange Division ("IED")
to IntraNet Solutions, Inc. (now Stellent, Inc., "Stellent") for a stated sale
price of $55,000,000, less amounts for retained rights under license and
subject to adjustment based on the net working capital of the IED business on
the closing date. The transaction was in the form of a merger of two wholly
owned subsidiaries of Stellent with the Company's subsidiaries, Inso Chicago
Corporation and Inso Kansas City Corporation, which generally comprised the IED
business. We received $48,000,000 of the proceeds in cash at the time of the
closing. An additional $5,500,000 was placed in an escrow account, and subject
to our indemnification obligations under the agreement, was to be released to
us on the first anniversary of the closing date. The net gain initially
recorded in the second fiscal quarter of 2001 from the transaction was
$39,312,000. Under terms of the agreement, the purchase price was to be
adjusted for the net working capital, delivered to Stellent, as agreed to by
both parties. As a result of these adjustments and the estimated resolution of
certain obligations, the net gain recorded in fiscal 2001 was $39,914,000. The
escrowed funds of $5,500,000 plus interest in the amount of $295,000 were paid
by Stellent on July 11, 2001. An additional gain of $230,000 was recorded in
the quarter ended July 31, 2001 to reflect adjustments to certain obligations
incurred by the Company as a result of this disposition.
Note 6. Restructuring Expenses
On January 31, 2001, the Company adopted a plan of restructuring aimed at
reducing current operating cost. In connection with this plan, 19
non-management employees, primarily development and administrative positions,
and one executive level employee were terminated. As a result of this plan, we
recorded a charge of $539,000 for severance costs in the fourth quarter of
fiscal 2001. Total payments against this plan in fiscal 2002 were $505,000. The
remaining balance of $34,000 was credited against restructuring expenses in the
second quarter of fiscal 2002.
On April 11, 2000, we adopted a restructuring plan under which we would
focus our energies on our eBusiness Technologies' ("eBT") Web Content
Management and Workflow product line, and pursue divestiture of certain assets,
including the Information Exchange Division. The plan included the
consolidation of our Boston, Massachusetts' headquarters into the Providence,
Rhode Island offices of our eBT division. In connection with this
reorganization, approximately 18 administrative employees and four executive
officers were terminated or resigned in April, May and June 2000. As a result
of this plan, we recorded a charge of $1,930,000 for severance costs in the
first quarter of fiscal 2001. The charge was reduced by net proceeds received
on the
42
eBT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
disposal of certain fixed assets located at the Boston headquarters in
connection with the move of $95,000, resulting in a net charge of $1,835,000 in
the first quarter of fiscal 2001. Payments made for severance during the year
totaled $1,021,000 resulting in a remaining accrued salary balance of $909,000
at January 31, 2001. During fiscal 2002, the Company paid out $808,000 for
severance and adjusted the charge, decreasing it by $101,000, due to a change
in estimated obligations.
The Company incurred $480,000 in the first quarter of fiscal 2000 relating
to the closure of the Company's Kansas City location, primarily for severance
for 11 terminated employees. As of January 31, 2000, the entire balance had
been paid in full.
In July 1999, the Company adopted a plan of restructuring aimed at reducing
current operating costs, as well as supporting a new divisional structure. The
Company's restructuring plan included a reduction of more than 20%, or 105
employees, including 10 executives or managers, from staff levels at the end of
1998. The plan also included the closure and/or combination of domestic and
international sales and administrative facilities and the abandonment of
leasehold improvements and support assets associated with these locations,
which were removed from service shortly after the implementation of the plan.
The plan also called for a change in focus away from certain products. As a
result of the restructuring plan, the Company recorded an initial charge of
$6,234,000 to the fiscal 2000 results. Subsequent to the initial recording, net
adjustments totaling $156,000 were recorded during fiscal 2000, increasing the
charge to $6,390,000. The capitalized product development costs and intangibles
were written-down to fair values, determined based upon their estimated future
cash flows. The components of the charge, as well as the Company's payments
made against the accruals are as follows:
Fiscal 2000 Fiscal 2001
---------------------- -------------
January 31, January 31,
Initial Adjust- Pay- 2000 Adjust- Pay- 2001
Charges ments ments Balance ments ments Balance
------- ------- ------ ----------- ------- ----- -----------
(In thousands of dollars)
Cash charges:
Severance.............................. $2,184 $188 $2,158 $214 $(122) $ 92 $--
Closure/combination of facilities...... 957 (32) 733 192 (59) 133 --
------ ---- ------ ---- ----- ---- ---
Subtotal............................... $3,141 $156 $2,891 $406 $(181) $225 $--
------ ---- ------ ---- ----- ---- ---
Non-cash charges:
Write-downs of capitalized product
development costs and intangibles for
certain discontinued products........ 1,739 -- -- -- -- -- --
Write-downs of assets associated with
closed locations..................... 1,354 -- -- -- -- -- --
------ ---- ------ ---- ----- ---- ---
Total.................................. $6,234 $156 $2,891 $406 $(181) $225 $--
====== ==== ====== ==== ===== ==== ===
In October 1999, the Company adopted a plan of restructuring aimed at
reducing current operating costs at the Company's Product Data Management
("PDM") division. The restructuring plan included a PDM workforce reduction of
approximately 40%, or 51 employees, including 9 executives or managers. The
plan also included the consolidation of the PDM division's sales, service and
support organizations, the consolidation of PDM development facilities and the
abandonment of leasehold improvements and support assets associated with these
locations. The plan also called for a change in focus away from certain
development activities. Therefore, the charge included a write-down of licensed
technology for discontinued development activities to their fair values, based
upon their estimated future cash flows. As a result of the restructuring plan,
the Company recorded an initial charge of $4,290,000 to the fiscal 2000
results. Subsequent to the initial recording, net adjustments totaling
43
eBT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
$92,000 were recorded during fiscal 2000, reducing the charge to $4,198,000.
Additionally, in connection with evaluations made at the time of the
restructuring, the Company recorded a $10,000,000 charge for the write-down of
certain PDM intangible assets and capitalized software based on their estimated
future discounted cash flows. This charge was included in the special charges
line in the accompanying consolidated statements of operations (see Note 7).
The components of the restructuring charge, as well as the Company's payments
made against the accruals are as follows:
Fiscal 2000 Fiscal 2001
---------------------- -------------
January 31, January 31,
Initial Adjust- Pay- 2000 Adjust- Pay- 2001
Charges ments ments Balance ments ments Balance
------- ------- ------ ----------- ------- ----- -----------
(In thousands of dollars)
Cash charges:
Severance............................... $1,030 $ 366 $ 766 $630 $(239) $380 $11
Consolidation of facilities............. 690 (200) 490 -- -- -- --
------ ----- ------ ---- ----- ---- ---
Subtotal................................ $1,720 $ 166 $1,256 $630 $(239) $380 $11
------ ----- ------ ---- ----- ---- ---
Non-cash charges:
Write-downs of licensed technology...... 1,923 -- -- -- -- -- --
Write-downs of support assets associated
with closed locations................. 647 (258) -- -- -- -- --
------ ----- ------ ---- ----- ---- ---
Total................................... $4,290 $ (92) $1,256 $630 $(239) $380 $11
====== ===== ====== ==== ===== ==== ===
There was no outstanding balance at January 31, 2002.
Note 7. Special Charges
For the year ended January 31, 2000, the Company incurred $28,103,000 of
special charges. Included in the special charges were $1,527,000 in
professional fees incurred in connection with the restatement of the Company's
results for the first nine months of 1998. These professional fees were for the
Company's investigation of the circumstances surrounding certain transactions
leading to the restatement and for the formal investigation initiated by the
Securities and Exchange Commission following the restatement. Also related to
the restatement were special charges for net premium costs and related
professional advisory fees for a major insurance carrier to assume financial
risk associated with the class action litigation initiated against the Company
in February 1999, as well as severance costs of certain employees who were
terminated or resigned. Additionally, approximately $10,805,000 of the special
charges related to the write-down of intangible assets and capitalized software
costs, substantially all attributable to the Company's PDM division, to their
estimated fair values, determined based upon estimated future cash flows. In
connection with the Company's restructuring and subsequent plan to divest of
the PDM division, the intangible assets recorded at the time of acquisition
were reevaluated. In connection with the future plans and the anticipated
future cash flows of the business, the intangible assets were written down to
their estimated fair values, as determined from estimated proceeds to be
received upon a sale of the business. The components of the special charges, as
well as the Company's payments made against the accruals are as follows:
44
eBT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fiscal 2000 Fiscal 2001
--------------- --------------
January 31, January 31,
Initial Pay- 2000 Adjust- Pay- 2001
Charges ments Balance ments ments Balance
------- ------- ----------- ------- ------ -----------
(in thousands of dollars)
Cash charges:
Professional fees associated with restatement of
1998 results, lawsuits and SEC
investigation................................... $ 1,527 $ 1,027 $ 500 $ 300 $ 548 $ 252
Net insurance premiums and other costs related
to class action litigation initiated against the
Company in February 1999........................ 13,451 12,451 1,000 -- -- 1,000
------- ------- ------ ----- ------ ------
Severance......................................... 2,320 1,248 1,072 (100) 753 219
------- ------- ------ ----- ------ ------
Subtotal.......................................... $17,298 $14,726 $2,572 $ 200 $1,301 $1,471
------- ------- ------ ----- ------ ------
Non-cash charges:
Write-downs of capitalized development costs
and intangibles................................. 10,805 -- -- -- -- --
------- ------- ------ ----- ------ ------
Total............................................. $28,103 $14,726 $2,572 $ 200 $1,301 $1,471
======= ======= ====== ===== ====== ======
Severance and insurance premiums totaling $1,219,000 were paid during fiscal
2002. The balance in unpaid professional fees at July 31, 2001 was $183,000,
which has been carried forward to the liquidation basis financial statements.
As a direct result of the Company's unsatisfactory first quarter operating
results for fiscal 2001 and revised forecasted operating performance,
management evaluated for impairment of certain long-lived assets. Based upon
estimated future undiscounted cash flows management determined that certain of
its property and equipment were not recoverable over their remaining estimated
useful lives. As a result, these assets, consisting of computer equipment,
purchased software and office equipment were written down to their estimated
fair value, as of April 30, 2001. This write-down resulted in an impairment
charge of $918,000, reflected in special charges in the Consolidated Statement
of Operations.
Plan Related Special Charges
On May 22, 2001, the Board of Directors approved a plan to liquidate and
dissolve the Company subject to the approval of the holders of a majority of
its shares (which was received on November 8, 2001). In connection with the
Board of Directors plan to liquidate, the Company immediately began the orderly
wind down of its operations, including laying off most of its employees,
seeking purchasers for the sale of its intellectual property and other tangible
and intangible assets and providing for its outstanding and potential
liabilities. As a result of this action the Company has recorded a special
charge in the second fiscal quarter of 2002 of $10,477,000. The charge consists
of $4,573,000 in severance and related costs including $473,000 of non-cash
stock compensation charges related to the accelerated vesting of restricted
stock and stock options for the majority of its employees and executives,
$2,904,000 related to the write-down of intangible assets, capitalized software
costs and fixed assets to their estimated fair values, $2,050,000 related to
the settlement agreement with Microlytics (see Note 14), including legal fees,
$495,000 related to the write down of unrecoverable prepaid expenses and other
current assets and $455,000 related to professional and other fees incurred
related to the orderly wind down of the Company's operations. The activity
impacting the accrual related to this aforementioned charge as of July 31, 2001
is summarized in the following table:
45
eBT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Payments Accrual Balance
Charge Made July 31, 2001
------- -------- ---------------
(In thousands of dollars)
Cash charges:
Settlement of Microlytics, including legal fees............... $ 2,050 $ -- $2,050
Professional and other fees................................... 455 351 104
Severance and related......................................... 4,100 2,388 1,712
------- ------ ------
Subtotal...................................................... $ 6,605 $2,739 $3,866
Non-cash charges:
Accelerated vesting of restricted stock and stock options..... $ 473 -- --
Write-downs of capitalized development costs, intangibles, and
fixed assets................................................ 2,904 -- --
Write-down of unrecoverable prepaid expenses.................. 495 -- --
------- ------ ------
Total......................................................... $10,477 $2,739 $3,866
======= ====== ======
The outstanding July 31, 2001 accrual balance of $3,866,000 had been fully
paid as of January 31, 2002.
Note 8. Accrued Liabilities
Accrued liabilities are summarized as follows:
As of January 31, 2001
-------------------------
(In thousands of dollars)
Accrued expenses........................ $2,333
Accrued income taxes.................... 2,670
Accruals for special charges............ 1,471
Accruals for restructuring charges...... 1,459
Accrued expenses related to dispositions 699
Accrued salary, commissions and bonuses. 739
------
$9,371
======
See Note 1 for a description of liquidation basis liabilities as of
January 31, 2002.
Note 9. Income Taxes
Pre-tax income (loss) from continuing operations is taxed in the following
jurisdictions:
Six months Years Ended January 31,
Ended ----------------------
July 31, 2001 2001 2000
------------- ------- --------
(In thousands of dollars)
Domestic $(16,378) $16,747 $(56,192)
Foreign. (651) 68 (5,644)
-------- ------- --------
Total... $(17,029) $16,815 $(61,836)
======== ======= ========
46
eBT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The provision for income taxes comprised the following:
Six months Years Ended January 31,
Ended -----------------------
July 31, 2001 2001 2000
------------- ---- ----
(In thousands of dollars)
Current:..................
Federal.................. $ -- $ -- $ --
Foreign.................. -- 137 390
State.................... -- 163 84
---- ---- ----
Total current...... -- 300 474
---- ---- ----
Deferred:
Federal.................. -- -- --
State.................... -- -- --
---- ---- ----
Total deferred..... -- -- --
---- ---- ----
Total provision........... -- $300 $474
==== ==== ====
During the six months ended January 31, 2002, the Company recorded as an
adjustment to the net assets in liquidation, a reduction of accrued income
taxes in the amount of $2,083,000 due to a change in estimate of amounts due
for income taxes.
The Company has available net operating loss carry forwards and other tax
credits totaling approximately $130,000,000, which expires in the fiscal years
2011 to 2022. Capital loss carry forwards of approximately $7,300,000 are also
available to the Company. These loss carry forwards expire in fiscal 2005.
Because of acquisitions the Company has consummated and due to certain
provisions of the Internal Revenue Code concerning changes in ownership, the
use of the Company's net operating loss carry forwards may be limited.
The Company's net deferred tax asset at January 31, 2002 approximated
$50,000,000 compared to 43,566,000 at January 31, 2001, representing
principally net operating loss and capital loss carryforwards This amount has
been fully reserved in the liquidation basis financial statements. The Company
does not expect to realize any material future benefit from this fully reserved
asset.
Note 10. Common and Preferred Stock
At January 31, 2002, there were 14,685,001 and 0 shares, respectively, of
common and preferred stock issued.
Subsequent to July 31, 2001, the Company purchased 248,300 shares of common
stock pursuant to the share buyback program announced on November 19, 2001. The
total cost of the shares repurchased was $784,000, or $3.16 per share. Since
the repurchase of these shares occurred prior to the December 13, 2001
shareholder liquidation payment, the net cost of the shares repurchased, after
adjustment for the $3.00 per share liquidation payment, was $38,800, or $.16
per share. The Company has not repurchased any shares subsequent to January 31,
2002. The remaining authorization is 4,751,700 common shares.
On July 11, 1997, the Board of Directors adopted a Shareholders' Rights Plan
and declared a dividend distribution of one preferred stock purchase right (a
"Right") for each outstanding share of the Company's
47
eBT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Common Stock to stockholders of record at the close of business on July 24,
1997 (the "Record Date"). Each Right entitles the registered holder to purchase
from the Company a unit consisting of one one-thousandth of a share (a "Unit")
of Series A Junior Participating Preferred Stock, $0.01 par value per share
(the "Preferred Stock"), at a purchase price of $145 in cash per Unit (the
"Purchase Price"), subject to adjustment. The description and terms of the
Rights are set forth in a Rights Agreement dated as of July 11, 1997, as
amended in Amendment Number 1 to the Rights Agreement, dated October 27, 1999
(the "Rights Agreement"), between the Company and State Street Bank & Trust
Company, as Rights Agent.
The Rights will become exercisable after a person or group has acquired or
obtained the right to acquire beneficial ownership of 20% or more of the
outstanding common stock, or following the commencement of a tender or exchange
offer that would result in a person or group owning 30% or more of the shares
of common stock. Generally, if any person becomes the beneficial owner of 20%
or more of the shares of Common Stock of the Company, except pursuant to a
tender or exchange offer for all shares at a fair price as determined by the
outside Board members, each Right not owned by the 20% or more stockholder will
enable its holder to purchase that number of shares of the Company's Common
Stock, in lieu of preferred stock, which equals the exercise price of the Right
divided by one-half of the current market price of such Common Stock at the
date of the occurrence of the event. In addition, if the Company is involved in
a merger or other business combination transaction with another person or group
in which it is not the surviving corporation or in connection with which its
Common Stock is changed or converted, or it sells or transfers 50% or more of
it assets or earning power to another person, each Right that has not
previously been exercised will entitle its holder to purchase that number of
shares of Common Stock of such other person which equals the exercise price of
the Right divided by one-half of the current market price of such Common Stock
at the date of the occurrence of the event. In general, the Company may redeem
the Rights in whole, but not in part, at a price of $0.01 per Right, payable in
cash, in shares of common stock, or in any other form of consideration or any
combination of the foregoing deemed appropriate by the Board of Directors, at
any time prior to the earlier of (1) the tenth day after a public announcement
that a person or group has acquired, or obtained the right to acquire, 20% or
more of the outstanding common stock, or (2) the tenth day following the
commencement of a tender offer or exchange offer that would result in a person
or group owning 30% or more of the outstanding common stock. The Rights will
expire in July 2007. At January 31, 2002, 14,685,001 Rights were outstanding.
Note 11. Earnings (Loss) Per Common Share
Earnings (loss) per common share is calculated based on the weighted average
number of common shares outstanding during the period. Earnings (loss) per
common share, assuming dilution, had been calculated using the weighted average
number of common shares outstanding during the period, plus the dilutive effect
of potential common shares which consisted of stock options, stock purchase
warrants, unissued shares subscribed under the employee stock purchase plan and
unvested shares of restricted stock.
48
eBT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table sets forth the computations of earnings (loss) per share.
Year Ended January 31,
---------------------
Six
Months Ended
July 31, 2001 2001 2000
---------------- ------- --------
(in thousands, except per share data)
Earnings (loss) per common share:
Net income (loss).................................. $(17,029) $16,515 $(62,310)
Weighted average shares outstanding................ 14,919 16,447 15,668
Income (loss) per common share..................... $ (1.14) $ 1.00 $ (3.98)
Earnings (loss) per common share, assuming dilution:
Net income (loss).................................. $(17,029) $16,515 $(62,310)
Weighted average shares outstanding................ 14,919 16,447 15,668
Dilutive effect of potential common shares......... -- 421 --
-------- ------- --------
Total diluted weighted average shares.............. 14,919 16,868 15,668
Income (loss) per common share..................... $ (1.14) $ 0.98 $ (3.98)
Securities that were excluded from earnings (loss) per share, assuming
dilution, because they would have been anti-dilutive are listed below:
Six Year Ended January 31,
Months Ended ----------------------
July 31, 2001 2001 2000
------------- --------- ---------
Stock options outstanding 1,576,246 2,716,836 4,831,581
Warrants outstanding..... 965,356 926,682 965,356
Note 12. Stock Compensation Plans
Stock Incentive Plans
The Company reserved 3,000,000 shares for issuance under the 1993 Stock
Incentive Plan ("1993 Plan") and 5,000,000 shares for issuance under the 1996
Stock Incentive Plan, as amended ("1996 Plan"). The 1993 Plan and the 1996 Plan
("the Plans") provided for the issuance of incentive stock options,
non-qualified stock options, unrestricted stock, restricted stock, and
performance share awards. Under the Plans, both incentive options and
non-qualified options were granted to employees and consultants. The option
exercise price was not less than 100% of the fair market value of the shares on
the date of grant in the case of incentive options and was not less than 85% of
the fair market value of the shares on the date of grant in the case of
non-qualified options. The Plans also provided for the grant of performance
share awards to employees, entitling the recipient to receive shares of common
stock based upon achievement of individual or Company performance goals. The
term of each option and the vesting periods for options and stock awards were
fixed by the Compensation Committee of the Company's Board of Directors. The
term for incentive stock option grants did not exceed 10 years from the date of
grant.
The Company's 1996 Non-employee Director Plan, as amended ("Director Plan")
provided for the automatic grant of non-qualified stock options and
unrestricted stock to members of the Board of Directors who are not employees
of the Company. The Director Plan was terminated in connection with the Plan to
liquidate and dissolve the Company. As of January 31, 2002 there are no options
outstanding under this plan.
49
eBT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note Receivable from Stock Purchase Agreement
As of January 31, 2001 and 2000, the Company held a note receivable for a
total of $200,000, before certain tax benefits had been deducted, from one of
its former corporate officers, which the Company provided to effect the
purchase of shares of the Company's common stock, pursuant to the 1996 Stock
Incentive Plan. In connection with the officer's separation from the Company,
the term of this note was extended through December 31, 2002, or 30 days from
the date at which the Company's common stock averages $10.25 per share over a
period of 30 consecutive days, whichever comes first. This loan, which was
shown as a reduction to stockholders' equity on the balance sheet was adjusted
to its fair market value upon adoption of liquidation basis accounting and
subsequently settled with the former officer at fair market value.
The following table summarizes the stock option activity under the 1993
Plan, the 1996 Plan, and the Director Plan:
Weighted
Available Options Average
for Grant Outstanding Price
---------- ----------- --------
At January 31, 1999....... 2,744,962 4,361,031 $15.54
2000
Granted................... (3,490,300) 3,490,300 $ 7.86
Exercised................. -- (851,466) $11.88
Forfeited................. 2,168,284 (2,168,284) $13.73
Unrestricted stock grant.. (6,000) -- $41.00
---------- ---------- ------
At January 31, 2000....... 1,416,946 4,831,581 $11.04
2001
Granted................... (954,200) 954,200 $ 6.08
Exercised................. -- (34,850) $ 5.77
Forfeited................. 2,410,129 (2,410,129) $10.93
Restricted stock grant.... (177,300) -- $ 4.32
Restricted stock forfeited 51,100 -- $ 4.20
---------- ---------- ------
At January 31, 2001....... 2,746,675 3,340,802 $ 9.70
2002
Granted................... (218,450) 218,450 $ 1.89
Exercised................. -- (197,950) $ 1.92
Forfeited................. 2,618,071 (2,618,071) $ 8.18
---------- ---------- ------
At January 31, 2002....... 5,146,296 743,231 $12.23
========== ========== ======
50
eBT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Related information for options outstanding and exercisable as of January
31, 2002 under the Plans is as follows:
Options Outstanding Options Exercisable
---------------------------- -------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Contractual Exercise Exercise
Ranges of Exercise Prices Shares Life Price Shares Price
------------------------- ------- ----------- -------- ------- --------
$3.50-$5.50........ 17,000 .1 $ 5.46 17,000 $ 5.46
$5.51-$7.50........ 214,167 3.8 6.16 176,501 6.22
$8.38-$12.25....... 189,063 3.5 10.48 162,146 10.64
$16.80-$18.00...... 323,001 1.6 17.63 323,001 17.63
------- --- ------ ------- ------
Total........... 743,231 2.7 $12.23 678,648 $12.69
======= =======
The market value of the restricted shares awarded was recorded as unearned
compensation and is shown as a separate component of stockholders' equity.
Unearned compensation was being amortized to expense over the vesting periods
that range from one to five years. Amortization totaled $102,000 for the six
months ended July 31, 2001 and $172,000, and $79,000 for the years ending
January 31, 2001 and 2000 respectively.
Stock Purchase Plan
Under the Company's 1993 Stock Purchase Plan, employees had the opportunity
to purchase the Company's common stock. The price at which the employee could
purchase the common stock was 85% of the last reported sale price of the
Company's common stock on the Nasdaq National Market on the date the offering
period commenced or concluded, whichever was lower. A total of 1,100,000 shares
of common stock were reserved under this plan. Employees purchased 28,105
shares under the plan for the six months ending July 31, 2001 and 188,210, and
184,323 shares under the plan in fiscal 2001 and 2000, respectively, generating
proceeds to the Company of $61,000 in the period ending July 31, 2001 and
$501,000 and $1,078,000 in fiscal 2001 and 2000, respectively. The stock
purchase plan was terminated on June 1, 2001.
Fair Value
Pro forma information regarding net income (loss) and net income (loss) per
share has been determined as if the Company had accounted for its employee
stock plans based on the fair value method provided under SFAS 123. The fair
value for the options described below was estimated at the date of grant using
a Black-Scholes option pricing model with the following weighted average
assumptions for awards granted in fiscal 2001 and 2000.
2001 2000
--------- ---------
Risk-free interest rate 5.96% 5.37%
Expected life.......... 3.0 years 3.0 years
Expected volatility.... 116% 99%
Expected dividends..... 0.0% 0.0%
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options, which have no vesting restriction and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options had characteristics significantly
different from those of traded options, and because
51
eBT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
changes in the subjective input assumptions can materially affect the fair
value estimate, in management's opinion, the existing models did not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
The total value of the awards granted during the years ended January 31,
2001 and 2000, were computed as approximately $12,314,000 and $13,856,000,
respectively, which would be amortized over the vesting period of the options.
The weighted average fair value of awards granted in fiscal 2001 and 2000 was
estimated to be $5.76 and $4.62, respectively. If the Company had accounted for
these awards in accordance with fair value accounting proscribed under SFAS
123, the Company's pro forma net income (loss) and income (loss) per share
would have been as follows:
Years Ended January 31,
------------------------
2001 2000
------ --------
(In thousands of dollars,
except per share amounts)
Pro forma net income (loss)........................... $4,201 $(76,166)
Pro forma earnings (loss) per share, assuming dilution $ .25 $ (4.86)
Note 13. Benefit Plan
The Company maintained a 401(k)-retirement savings plan ("401(k) Plan") that
covered substantially all of the Company's domestic employees. Eligible
employees were permitted to make pre-tax contributions, up to 15% of their
compensation subject to an annual limit. Under the 401(k) Plan, the Company was
permitted to make contributions either in cash or common stock of the Company
at the discretion of the Company's Board of Directors. The Company had
authorized 100,000 shares for issuance under the Plan ("401(k)"). During the
six months ended July 31, 2001 and the years ended January 31, 2001 and 2000,
the Company's total matching cash contributions amounted to approximately
$150,000, $556,000 and $1,137,000, respectively. In connection with the Plan
the board discontinued the Company's matching contributions for its active
employees on Sept 30, 2001.
Note 14. Commitments and Contingencies
Leases
The Company previously held various lease agreements for office space that
expired between 2002 and 2007. During fiscal 2000, in connection with the May
2000 restructuring (see Note 6) the Company reduced the size and location of
the Boston office space then under lease, terminating the existing leases and
providing for a new lease for a smaller space, effective May 1, 2000. The
Company remains the primary obligor under this lease. This smaller space has
been subleased for the entire lease term, at rates in excess of the minimum
lease payments. The Company received $121,000 and $203,000 in net rental income
during the six-month period ended July 31, 2001 and fiscal 2001 and $174,000
during the period August 1, 2001 through January 31, 2002 for the Boston
sublease. The Company expects to receive and pay the following total amounts in
the periods after January 31, 2002, with respect to this property:
Amounts to Amounts to
be paid be received Net receivable
---------- ----------- --------------
Total $800,000 $1,087,000 $287,000
Rent expense was $321,000, $1,086,000 and $3,473,000, for the six months
ended July 31, 2001 and the years ended January 31, 2001 and 2000, respectively.
52
eBT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Commitments under Distributor Agreement
During 1998, the Company entered into a distribution agreement with an
international distributor that provided the distributor with guaranteed levels
of net receipts, as defined by the agreement, for specified geographic areas
(primarily Australia, New Zealand, and certain countries in the Far East), of
$2,000,000 for each calendar year ended December 31, 1999 and 2000. At December
31, 1998 the Company had outstanding irrevocable stand-by letters of credit
with terms of one to two years totaling $4,004,000 supporting this guarantee.
As of December 31, 1998, management concluded that the distributor would not be
able to achieve the defined level of net receipts from the agreement territory
in either year; therefore, the Company recorded a charge to sales and marketing
expense of $4,000,000. On September 14, 1999, the Company negotiated a release
of the outstanding commitments with the international distributor. Under this
release, the Company paid the international distributor $606,000 from available
cash and cancelled the distribution agreement. Additionally, the stand-by
letters of credit were terminated. Furthermore, as a result of the release, the
Company took a credit to sales and marketing expenses in the third quarter of
fiscal 2000 of approximately $3,093,000 for the expenses recorded in 1998.
Litigation
In late January 1998 the Company discovered that it would be necessary to
restate its financial results for the first three quarters of calendar year
1998. The Company immediately and voluntarily provided this information to the
U.S. Securities and Exchange Commission. On June 2, 1999, the Company was
informed that the U.S. Securities and Exchange Commission had issued a Formal
Order of Private Investigation in connection with matters relating to the
previously announced restatement of the Company's 1998 financial results.
On June 26, 2001 the Company received notice from the staff of the Boston
office of the Securities and Exchange Commission (the "Commission") that it had
completed its investigation of the Company pursuant to the Formal Order of
Private Investigation issued in connection with matters relating to the
restatement of the Company's 1998 financial results. The staff has advised the
Company that its preliminary findings with regard to the Company involve no
administrative sanctions or financial fines or penalties. However these
findings are subject to the Commission's review. The staff subsequently
indicated that it has recommended the Commission pursue civil injunctive
actions with regard to three former officers of the Company. The Company is
obligated under its By-laws to indemnify these former officers for expenses
reasonably incurred in connection with the Commission's investigation,
including the defense costs for actions that may be pursued by the Commission
and resultant fines and penalties should they be assessed. However, the
Company's By-laws provide that an officer is not entitled to such
indemnification if it is adjudicated or determined that such officer did not
act in good faith or in a manner he or she reasonably believed to be in, or not
opposed to, the best interests of the Company. The Commission has not yet
determined whether it will pursue civil injunctive actions against all or some
of the former officers, and the staff's findings as to the Company remain
preliminary. On June 9, 1999, the bankruptcy estates of Microlytics, Inc. and
Microlytics Technology Co., Inc. (together "Microlytics") filed a complaint
against the Company in the United States Bankruptcy Court for the Western
District of New York. The lawsuit was captioned Microlytics, Inc. and
Microlytics Technology Co., Inc. v. Inso Corporation, Adversary Proceeding No.
99-217. The complaint sought turnover of purported property of the estates and
damages for the Company's alleged breaches of a license from Microlytics
relating to certain computer software databases and other information. The
complaint sought damages of at least $11,750,000. On August 19, 1999, the
Company filed its Answer and Demand for Jury Trial. Also, on August 19, 1999,
the Company filed a motion to withdraw the case from the Bankruptcy Court to
the United States District Court for the Western District of New York. On
December 15, 1999, the United States District Court granted the Company's
motion for the purposes of dispositive motions and trial. On August 29, 2001,
the Company agreed to settle the June 9, 1999 complaint filed by Microlytics.
The terms of the settlement, which were approved by the United States
Bankruptcy Court for the
53
eBT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Western District of New York on September 21, 2001, included the payment of
2,000,000 to Microlytics, which was accrued at July 31, 2001. The $2,000,000
payment was made in September 2001.
We may also be subject to various legal proceedings and claims that may
arise during liquidation. We currently believe that any such proceedings and
claims will not have a material adverse impact on the Company's estimate of net
assets in liquidation.
Note 15. Operations by Industry Segment and Geographic Area
For the years ended January 31, 2001 and 2000, the Company managed two and
three operating segments, respectively. The PDM segment information below for
all periods presented includes the operations of the DynaText/DynaWeb and
ViewPort browser technologies until their sale to Enigma on October 29, 1999
(see Note 5). The balance of the PDM division was sold effective January 5,
2000 (see Note 5). The IED segment was sold to Stellent. on July 10, 2000 (see
Note 5). The operating results of the MediaBank product line, which was sold in
June 2000 (see Note 5), are included in the eBT segment results through the
date of sale.
As a result of the dispositions, the Company had only one operating segment
at January 31, 2001. We have not restated the historical segment information to
conform to presentation of the eBT results as a single line of business, which
now includes all corporate operating expenses, but rather have disclosed the
corporate office expenses as a reconciling item to the consolidated financial
statement amounts.
Each segment's profit and loss for the years ended January 31, 2001 and
2000, reflects all income and losses, except for the items shown in the
reconciliation information below. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies.
Segment Disclosure
Year Ended January 31, 2001
--------------------------
eBT IED Totals
-------- ------ --------
(In thousands of dollars)
Revenues from external customers..... $ 13,311 $8,385 $ 21,696
Depreciation and amortization expense 3,192 1,846 5,038
Segment profit (loss)................ (20,217) 27 (20,190)
Segment assets....................... 80,002 -- 80,002
Year Ended January 31, 2000
------------------------------------
eBT IED PDM Totals
-------- ------- -------- --------
(In thousands of dollars)
Revenues from external customers..... $ 12,329 $26,255 $ 26,096 $ 64,680
Depreciation and amortization expense 4,245 3,760 6,589 14,594
Segment profit (loss)................ (16,679) 6,263 (12,997) (23,413)
Segment assets....................... 15,038 17,631 -- 32,669
54
eBT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Enterprise-Wide Disclosures
Geographic Information
Six Months
Ended
July 31, 2001 2001 2000
------------- ------- -------
(In thousands of dollars)
Revenues:
United States..... $1,189 $15,569 $43,482
Foreign countries. 337 6,127 21,198
------ ------- -------
Consolidated Total $1,526 $21,696 $64,680
====== ======= =======
Revenues are attributed to countries based on the location of the customer.
As of January 31, 2001 and 2000, the Company's long-lived assets were
primarily located in the Company's United States operations. The long-lived
assets located in foreign countries were less than 5% of consolidated assets.
Reconciliation Information
Profit or loss
2001 2000
-------- --------
(In thousands of dollars)
Total external profit or loss for reportable segments....... $(20,190) $(23,413)
Restructuring expenses...................................... (1,954) (11,068)
Special charges............................................. (200) (28,103)
Net investment and other income............................. 3,861 1,721
Recovery (write-down) of Information Please LLC............. 657 (2,655)
Gain on sale of assets, net................................. 38,170 12,212
Unallocated corporate and other expenses.................... (3,529) (10,530)
-------- --------
Consolidated income (loss) before provision for income taxes $ 16,815 $(61,836)
======== ========
Reconciliation Information
Assets
2001
-------------
(In thousands
of dollars)
Total assets for reportable segments $80,002
-------
Consolidated total assets........... $80,002
=======
55
eBT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Unaudited Quarterly Financial Data
Quarter Ended
------------------------------------------
April 30, July 31, October 31, January 31,
--------- -------- ----------- -----------
Six Months Ended July 31, 2001 (6)
Revenues.................................... $ 1,097 $ 429 -- --
Gross profit (loss)......................... (273) 104 -- --
Restructuring and special charges (4,5)..... 817 10,443 -- --
Gain on sale of assets, net................. -- 230 -- --
Net loss.................................... (5,573) (11,456) -- --
Loss per share.............................. (0.37) (0.77) -- --
Loss per share, assuming dilution........... (0.37) (0.77) -- --
Fiscal 2001
Revenues.................................... 10,290 5,655 2,532 3,219
Gross profit................................ 7,379 2,882 575 1,224
Restructuring and special charges........... 1,835 -- -- 319
Gain on sale of assets, net (1,2,3)......... -- 35,296 490 2,384
Recovery on IPLLC........................... -- -- 657 --
Net income (loss)........................... (6,772) 28,171 (3,100) (1,784)
Earnings (loss) per share................... (0.41) 1.69 (0.19) (0.11)
Earnings (loss) per share, assuming dilution (0.41) 1.68 (0.19) (0.11)
The above table presents our unaudited quarterly results of operations up to
and including the quarter ended July 31, 2001. The unaudited results of
operations have been prepared on substantially the same basis as the audited
statements of operations contained in this Form 10-K and include all
adjustments, consisting of normal recurring accruals, that we consider
necessary to present this information fairly when read in conjunction with our
financial statements and accompanying notes appearing elsewhere in this Form
10-K. The operating results in any quarter are not necessarily indicative of
the results that may be expected for subsequent periods. As a result we believe
that period-to-period comparisons of our results of operations will not be
meaningful.
(1) eBT's second quarter results for fiscal year 2001 include a gain of
$39,312,000 on the sale of it's Information Exchange Division, a loss of
$3,749,000 for the disposition of it's Mediabank product line, a gain of
$370,000 for the sale of it's Dynatext product line, and a loss of
$637,000 for the sale of it's PDM division. (See Note 5 of "Notes to
Consolidated Financial Statements").
(2) eBT's third quarter results for fiscal year 2001 include a gain of
$435,000 related to the sale of it's Information Exchange Division, a
loss of $40,000 for the disposition of it's Mediabank product line, and
a gain of $95,000 for the sale of it's Dynatext product line. (See Note
5 of "Notes to Consolidated Financial Statements").
(3) eBT's fourth quarter results for fiscal year 2001 include a gain of
$167,000 related to the sale of it's Information Exchange Division, a
gain of $54,000 for the disposition of it's Mediabank product line, and
a gain of $2,163,000 for the sale of it's PDM division. (See Note 5 of
"Notes to Consolidated Financial Statements").
(4) As a result of the Company's first quarter operating results and revised
forecasted operating performance management determined that certain of
its property and equipment would not recoverable over their remaining
estimated useful life. These assets were written down resulting in an
impairment
56
eBT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
charge of $918,000. This charge was offset by a decrease in severance of
$101,000 due to a change in estimated obligations. (See Notes 6 and 7 of
"Notes to Consolidated Financial Statements").
(5) On May 22, 2001, the Board of Directors adopted a plan of complete
liquidation and dissolution of the Company. The special charge of
$10,477,000 related to that action. (See Notes 1, and 7 of "Notes to
Consolidated Financial Statements").
(6) The Company adopted the liquidation basis of accounting on August 1,
2001 and no longer operates as a going concern. (See Note 1 of "Notes to
Consolidated Financial Statements").
57
eBT INTERNATIONAL, INC.
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
Six Months ended July 31, 2001 and Years ended January 31, 2001 and 2000
Balance at Additions Balance
beginning charged to costs Amounts Reductions at end
of period and expenses written off due to sales of period
---------- ---------------- ----------- ------------ ----------
2002
Allowance for doubtful accounts.. $ 385,000 $ -- $ (385,000) $ -- $ --
Allowance for returns and refunds 302,000 -- (302,000) -- --
---------- ---------- ----------- ----------- ----------
Total......................... $ 687,000 $ -- $ (687,000) $ -- $ --
2001
Allowance for doubtful accounts.. $1,460,000 $1,435,000 $(1,416,000) $(1,094,000) $ 385,000
Allowance for returns and refunds 1,679,000 190,000 (466,000) (1,101,000) 302,000
---------- ---------- ----------- ----------- ----------
Total......................... $3,139,000 $1,625,000 $(1,882,000) $(2,195,000) $ 687,000
2000
Allowance for doubtful accounts.. $1,938,000 $1,217,000 $ (751,000) $ 944,000 $1,460,000
Allowance for returns and refunds 2,041,000 791,000 (1,153,000) -- 1,679,000
---------- ---------- ----------- ----------- ----------
Total......................... $3,979,000 $2,008,000 $(1,904,000) $ (944,000) $3,139,000
========== ========== =========== =========== ==========
58
Item 14(a)
3. Exhibit Index
Exhibit Description Page
23.1 Consent of Ernst & Young LLP *
- --------
* Incorporated herein by reference.
59