Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended July 31, 2002
-------------------------------------------------
or
(_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------------- -------------------------
Commission File Number: 000-23384
---------------------------------------------------------
eBT INTERNATIONAL, INC.
------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3216243
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
P.O. Box 1029 Scituate, MA 02047
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(781)319-0460
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 29, 2002
- --------------------------------------- ------------------------------
Common Stock (par value $.01 per share) 14,685,001
eBT INTERNATIONAL, INC.
FORM 10-Q INDEX
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statement of Net Assets in Liquidation at July 31, 2002
and January 31, 2002 3
Condensed Consolidated Statement of Changes in Net Assets in Liquidation for the three
and six months ended July 31, 2002 4
Condensed Consolidated Statement of Operations for the three and six months ended
July 31, 2001(Going Concern Basis) 5
Condensed Consolidated Statement of Cash Flows for the six months ended
July 31, 2001(Going Concern Basis) 6
Notes to Condensed Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Status of Liquidation 11-14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
Part II. Other Information
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
2
eBT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION
JULY 31, 2002 AND JANUARY 31, 2002
(In thousands)
July 31, January 31,
2002 2002
---- ----
(unaudited)
Assets
Cash and cash equivalents $4,419 $1,348
Marketable securities 3,000 6,005
Receivables and other current assets 520 884
------ ------
Total assets $7,939 $8,237
------ ------
Liabilities
Accounts payable and accrued expenses $2,295 2,548
Estimated costs to be incurred during liquidation period 735 989
------ ------
Total liabilities $3,030 $3,537
------ ------
Net assets in liquidation $4,909 $4,700
------ ------
See accompanying Notes to Condensed Consolidated Financial Statements
3
eBT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN NET ASSETS IN LIQUIDATION
THREE AND SIX MONTHS ENDED JULY 31, 2002
Unaudited
(In thousands)
THREE MONTHS SIX MONTHS
ENDED JULY 31, ENDED JULY 31,
2002 2002
---- ----
Net assets in liquidation at beginning of period $ 4,756 $ 4,700
Reduction in receivables and other current assets
for cash received (319) (567)
Reduction in payables and accrued expenses for cash disbursed 67 253
Reduction in costs incurred during liquidation period for
cash disbursed 135 254
Adjust assets and liabilities to fair value 147 203
Net changes in cash, cash equivalents and
marketable securities 123 66
------- -------
Net assets in liquidation at July 31, 2002 $ 4,909 $ 4,909
See accompanying Notes to Condensed Consolidated Financial Statements
4
eBT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (GOING CONCERN BASIS)
FOR THE THREE AND SIX MONTHS ENDED JULY 31, 2001
Unaudited
(In thousands except per share amount)
THREE MONTHS SIX MONTHS
ENDED ENDED
JULY 31, JULY 31,
2001 2001
-------- --------
Revenues:
Product licenses $ - $ 219
Service 429 1,307
-------- --------
Total revenues 429 1,526
Cost of revenues:
Cost of product licenses - 467
Cost of service 325 1,228
-------- --------
Total cost of revenues 325 1,695
-------- --------
Gross profit (loss) 104 (169)
Operating expenses:
Sales and marketing 1,171 3,814
Product development 416 1,630
General and administrative 806 2,289
Restructuring charge (benefit) (34) (135)
Special charges 10,477 11,395
-------- --------
Total operating expenses 12,836 18,993
Operating loss (12,732) (19,162)
Non-operating income:
Net investment and other income 1,046 1,903
Gain on sale of assets, net 230 230
-------- --------
Net loss (11,456) (17,029)
Loss per common share $ (0.77) $ (1.14)
======== ========
Weighted average shares outstanding 14,812 14,919
See accompanying notes to condensed consolidated financial statements.
5
eBT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (GOING CONCERN BASIS)
SIX MONTHS ENDED JULY 31, 2001
Unaudited
(In thousands of dollars)
July 31,
2001
--------
Cash flows used in operating activities:
Net loss $(17,029)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 330
Amortization 440
Stock compensation expense 102
Special charges 4,790
--------
(11,367)
Changes in operating assets and liabilities:
Accounts receivable 3,082
Accounts payable and accrued liabilities 447
Other assets and liabilities (2,248)
--------
Net cash used in operating activities (10,086)
Cash flows provided by investing activities:
Property and equipment expenditures (80)
Proceeds from asset sales 5,942
Net purchases from sales of marketable securities (5,638)
--------
Net cash provided by investing activities 224
Cash flows used in financing activities:
Proceeds from employee stock plans 248
Purchases of treasury stock (1,283)
--------
Net cash used in financing activities (1,035)
Net decrease in cash and cash equivalents (10,897)
Cash and cash equivalents at beginning of period 56,709
--------
Cash and cash equivalents at end of period $ 45,812
========
See accompanying notes to condensed consolidated financial statements.
6
eBT INTERNATIONAL, INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
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 and a certificate of dissolution was
filed with the State of Delaware on November 8, 2001.
The approval of the Plan was preceded by a series of divestitures,
restructuring activities and special charges, which left the Company with a
single active business unit on July 10, 2000. The principal focus of that
Providence, RI based 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 (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.
The accompanying financial statements, notes and discussions should be
read in conjunction with the consolidated financial statements, related notes
and discussions contained in the Company's Annual Report on Form 10-K for the
year ended January 31, 2002 and eBT's October 3, 2001 Proxy Statement.
The interim financial information contained herein is unaudited,
however, in the opinion of management, all adjustments necessary for the fair
presentation of such financial information on a liquidation basis for the three
and six months ended July 31, 2002 and a going concern basis for the three and
six months ended July 31, 2001 have been included.
The January 31, 2002 consolidated statement of net assets in
liquidation data presented herein was derived from the Company's audited
financial statements, but does not include all disclosures required by generally
accepted accounting principles.
The condensed consolidated financial statements for the three and 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 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:
Adjust assets and liabilities to fair value: (In thousands)
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)
=======
7
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 July 31, 2002 condensed consolidated financial statements on
a liquidation basis follows:
Receivables and Other Current Assets
At July 31, 2002, Receivables and Current Assets of $520,000
represented 6.5% of the Company's total assets. Included in Receivables and
Other Current Assets is $81,000, representing the Company's current estimate of
future interest earnings over the liquidation period through November 8, 2004.
Accounts Payable and Accrued Expenses
At July 31, 2002, Accounts Payable and Accrued Expenses were
$2,295,000. Included in this amount are accrued income taxes of $746,000, other
payables and accruals totaling $338,000 and $1,211,000 which is comprised of the
following items:
Estimated Litigation Settlement Costs Reserve
Accrued litigation settlement costs in the amount of $976,000 at July
31, 2002 (unchanged from April 30, 2002) 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 3 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, which was
subsequently adjusted to $235,000 at January 31, 2002. The reserve remains
$235,000 at July 31, 2002 (unchanged from April 30, 2002). The Company currently
has no known material claims against this reserve and will continue to
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 total amount of liquidation proceeds that may be paid to stockholders will
be increased.
8
Estimated Costs to be Incurred During Liquidation Period
At July 31, 2002, the Company estimates that there are $735,000 of
costs remaining, including compensation for liquidation personnel and Board
retainers ($298,000), professional fees ($416,000) and miscellaneous other costs
($21,000).
Note 2. 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 Going Concern periods,
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.
Note 3. Commitments and Contingencies
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 (the "Commission"). On June 2, 1999, the
Company was informed that the 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.
The staff of the Boston office informed the Company on July 10, 2002
that the Commission's investigation as to the Company had been terminated and no
enforcement or other actions against the Company had been recommended.
In a Complaint filed on June 21, 2002 in the United States District
Court, District of Massachusetts ("Federal District Court") the Commission in an
enforcement action alleged that two former officers of the Company violated
various sections of the Securities Act and the Exchange Act, and Rules there
under. In the Complaint the Commission requests that the Federal District Court
issue a Final Judgment of Permanent Injunction and Order of Permanent Relief
against the two former officers. The Complaint also alleged that one other
former officer was liable as a Control Person for certain uncharged violations
under certain sections of the Exchange Act and Rules there under. This
individual, without admitting or denying any of the allegations set forth in the
Complaint, consented to the entry of a Final Judgment in this matter which was
entered by the Federal District Court on June 24, 2002. 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. 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 Company has been advised by one of the former officers that he
intends to defend the Commission's proposed action in Federal District Court.
The legal fees and related costs of such defense have been estimated by the
former officer's defense counsel to exceed 40% of the Company's present reserve
of $976,000. The Company has not been contacted by the other former officer and
does not know if the Commission's allegations will be challenged by this
individual in Federal District Court or otherwise resolved. Until such time as
the course of action for both former officers regarding the disposition of the
Commission's allegations is known, the Company will maintain the Litigation
Settlement Reserve, which at July 31, 2002 was $976,000.
9
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 net assets in
liquidation.
Note 4. Restructuring Charges (Benefit)
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. A net charge of $1,835,000 was provided in connection with
this restructuring plan. During the first quarter of fiscal 2002, the Company
decreased the charge by $101,000, due to a change in estimated obligations.
On January 31, 2001, the Company adopted a plan of restructuring aimed
at reducing its then current operating costs. In connection with this plan, 20
employees were terminated and a charge of $539,000 for severance costs was
provided. Total payments against this plan were $505,000, and the remaining
balance of $34,000 was credited to operating expenses in the fiscal quarter
ended July 31, 2001.
Note 5. Special Charge
As a direct result of the Company's unsatisfactory first quarter
operating results for the quarter ended April 30, 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 as a special charge in the Condensed
Consolidated Statement of Operations.
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 recorded a special charge in the second
fiscal quarter of 2002 of $10,477,000. 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 the settlement agreement with
Microlytics, 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 cash charge components of this plan totaled $6,605,000
and were fully paid as of January 31, 2002.
10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND STATUS
OF LIQUIDATION
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 and a certificate of
dissolution was filed with the State of Delaware 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 (see
Note 5 of "Notes to Condensed Consolidated Financial Statements").
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
(the Company's former 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 included 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 July 31,
2002 includes a receivable from Interactive for royalties in the amount of
$19,500. Although we expect that the Company will continue to receive royalties
pursuant to its agreement with Interactive, we will continue to account for
Interactive royalty income when
11
amounts due to the Company, if any, can be determined. Royalty income earned
through July 31, 2002 pursuant to the agreement with Interactive totaled
$126,000.
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 $.334
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 at least $.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 3 of "Notes to Condensed 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.
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 convert its remaining assets to cash and
settle its liabilities as expeditiously as possible.
Critical Accounting Policies
Receivables and Other Current Assets
At July 31, 2002, Receivables and Current Assets of $520,000
represented 6.5% of the Company's total assets. Included in Receivables and
Other Current Assets is $81,000, which represents the Company's current estimate
of future interest earnings over the liquidation period through November 8,
2004.
Accounts Payable and Accrued Expenses
At July 31, 2002, Accounts Payable and Accrued Expenses were
$2,295,000. Included in this amount are accrued income taxes of $746,000, other
payables and accruals totaling $338,000 and $1,211,000 which is comprised of the
following items:
Estimated Litigation Settlement Costs Reserve
Accrued litigation settlement costs in the amount of $976,000 at July
31, 2002, 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 Commission's 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 3 of
"Notes to Condensed 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, which was
subsequently reduced to $235,000 at January 31, 2002. The reserve
12
remains $235,000 at July 31, 2002. The Company currently has no known material
claims against this reserve and will continue to 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 total amount of
liquidation proceeds that may be paid to stockholders will be increased.
Estimated Costs to be Incurred During Liquidation Period
At July 31, 2002, the Company estimates that there are $735,000 of
costs remaining, including compensation for liquidation personnel and Board
retainers ($298,000), professional fees ($416,000) and miscellaneous other costs
($21,000).
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 additional royalty proceeds, 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" to The Company's Form 10-K for the year ended January 31, 2002).
As of July 31, 2002, the Company's total assets were $7,939,000, of
which $7,419,000 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 totaling $.334 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 July 31, 2002, the Company estimates that there are $735,000 of
operating costs to be incurred during the remaining liquidation period through
November 8, 2004. The estimated other liabilities of the Company at July 31,
2002 total $2,295,000, including $976,000 for potential litigation settlement
costs (see Note 1 of "Notes to Condensed Consolidated Financial Statements")
equivalent to approximately $.066 per share and $235,000 in general contingency
reserve (see Note 1 of "Notes to Condensed Consolidated Financial Statements"),
equivalent to approximately $.016 per share.
The increase in net assets in liquidation from $4,700,000 at January
31, 2002 to $4,909,000 at July 31, 2002 is primarily due to four items: (1)
Interactive royalty income ($26,000); (2) the collection of a fully reserved
obligation ($34,000) related to a prior divestiture; (3) the receipt of workers
compensation dividend and audit proceeds ($47,000); and (4) an increase in
estimated future interest income ($95,000).
LIQUIDATION BASIS OF ACCOUNTING
The condensed consolidated financial statements for the three and 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 present its assets at estimated net
13
realizable value and liabilities at estimated settlement amounts under
liquidation basis accounting, the Company recorded certain adjustments to record
its assets and liabilities to fair value as of August 1, 2001, the date of
adoption of liquidation basis accounting (see Note 1 of "Notes to Condensed
Consolidated Financial Statements").
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.
Risk Factors
This report, and other reports, proxy statements and other
communications to stockholders, as well as oral statements by the Company's
officers or its agents, may contain forward-looking statements with respect to,
among other things, the Company's future royalty receipts, other net cash flows
and the liquidation and dissolution. Factors that may cause actual results to
differ materially from these forward-looking statements include the following:
the timing and amount of payments to shareholders and the resolution of
indemnification claims and unknown liabilities, which may be asserted in
connection with the liquidation. Please refer to the Company's Annual Report on
Form 10-K for the fiscal year ended January 31, 2002 and the Company's proxy
statement dated October 3, 2001 for a description of certain additional factors
that may cause the Company's actual results to vary materially from those
forecasted or projected in any such forward-looking statements.
The Company's common stock was delisted from the Nasdaq National Market
("Nasdaq") on May 24, 2002. The Company's common stock now trades 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 common shares.
Results of Operations
Three and Six Months Ended July 31, 2001 (the last periods 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.
With the exception of the restructuring benefits totaling $135,000 (see
Note 4 of "Notes to the Company's Consolidated Financial Statements"), all other
operating costs in the three and six month periods ended July 31, 2001 were
directly related to the Company's then business activities.
14
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk disclosures set forth in its fiscal 2002
Annual Report filed on Form 10-K have not changed significantly.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
A description of legal proceedings in which the Company is involved may
be found in and is incorporated herein by reference to Note 3, "Commitments and
Contingencies" to the Company's Condensed Consolidated Financial Statements set
forth in Part I of this Quarterly Report on Form 10-Q.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: The following are filed as exhibits to this Form 10-Q:
Exhibit 99.1 Statement under Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
Registrant filed no reports on Form 8-K during the quarter ended
July 31, 2002.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
eBT INTERNATIONAL INC.
Date: August 29, 2002 By: /s/ Stephen O. Jaeger
--------------------------------------
Stephen O. Jaeger
President, Chief Executive Officer
and Chief Accounting Officer
16