10-Q 1 d10q.txt FORM 10-Q 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 April 30, 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 incorporation (I.R.S. Employer or organization) Identification No.) 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 June 13, 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 asat ofApril ~~October 31~~30, ~~2001~~2002 3and ~~Condensed Consolidated Balance Sheets - (Going Concern Basis) as of~~ January 31, ~~2001~~2002 43 Condensed Consolidated ~~Statements~~Statement of Changes in Net Assets in Liquidation for ~~The~~the ~~Three~~three ~~Months~~months ~~Ended~~ended ~~October~~April 3130, ~~2001~~2002 54 Condensed Consolidated ~~Statements~~Statement of Operations ~~- (Going Concern Basis)~~ for the ~~Six~~three ~~Months~~months ended ~~July~~April 3130, 2001(Going ~~and~~Concern ~~for~~Basis) ~~the~~5 ~~Three and Nine Months Ended October 31, 2000 6~~ Condensed Consolidated ~~Statements~~Statement of Cash Flows -for ~~(Going~~the ~~Concern~~three ~~Basis)~~months ~~Six~~ended ~~Months~~April ~~Ended July 31~~30, 2001(Going ~~and~~Concern ~~for~~Basis) ~~the~~6 ~~Nine Months Ended October 31, 2000 7~~ Notes to Condensed Consolidated Financial Statements 87-1210 Item 2. Management's Discussion and Analysis of Financial Condition and Status of Liquidation 1211-14 Item 3. Quantitative and Qualitative Disclosures About 14 Market Risk 14 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 APRIL 30, 2002 AND JANURY 31, 2002 (In thousands)

April 30, January 31, ~~2001~~2002 2002 ----~~------~~ ~~ASSETS~~ ------ ~~Current~~(unaudited) ~~assets:~~Assets Cash and cash equivalents $561,~~709~~291 $1,348 Marketable securities 86,~~961~~005 ~~Accounts receivable~~6,005 ~~net of allowances of $687 3,195~~ Receivables ~~from asset sales 5,973 Prepaid expenses~~ and other current assets ~~537~~692 884 ------- ~~Total current assets 75,375 Property and equipment, net 2,402 Product development costs, net 1,187 Long~~-~~term accounts receivable 90 Licensed technology and advances, net 948~~ ------- ~~TOTAL~~Total ~~ASSETS~~assets $807,~~002~~988 ~~=======~~$8,237 ~~LIABILITIES AND STOCKHOLDERS' EQUITY~~ ------ ------~~------------------------~~ ~~Current~~Liabilities ~~liabilities:~~ Accounts payable ~~$836 Accrued liabilities 9,371 Unearned revenue 1,508 ------- Total current liabilities 11,715 Commitments~~ and ~~contingencies~~accrued ~~Stockholders'~~expenses ~~equity: Preferred stock,~~ $~~.01 par value; 1~~2,~~000,000~~362 ~~shares authorized; none issued Common stock~~2,548 ~~$.01~~Estimated ~~par~~costs ~~value;~~to ~~50,000,000~~be ~~shares~~incurred ~~authorized;~~during ~~16,938,033~~liquidation ~~shares~~period ~~issued~~870 at989 ~~January~~------ ~~31,~~------ ~~2001.~~Total ~~169~~liabilities ~~Capital in excess of par value 157~~$3,~~712~~232 ~~Accumulated deficit (84~~$3,~~118)~~537 ------ ------ ~~73,763~~Net ~~Unamortized~~assets ~~value~~in ofliquidation ~~restricted shares (433) Notes receivable from stock purchase agreements (200) Treasury stock~~$4,756 ~~at cost 1,705,075 shares at January 31, 2001 (~~$4,~~843)~~700 ------- ~~Total stockholders' equity 68,287~~ ------~~- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $80,002 =======~~

See accompanying Notes to Condensed Consolidated Financial Statements 3 eBT INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION THREE MONTHS ENDED APRIL 30, 2002 Unaudited (In thousands) Net assets in liquidation at January 31, 2002 $ 4,700 Reduction in receivables and other current assets for cash received (248) Reduction in payables and accrued expenses for cash disbursed 186 Reduction in costs incurred during liquidation period for cash disbursed 119 Adjust assets and liabilities to fair value 56 Net changes in cash and cash equivalents (57) ------- Net assets in liquidation at April 30, 2002 $ 4,756 See accompanying Notes to Condensed Consolidated Financial Statements 4 eBT INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (GOING CONCERN BASIS) FOR THE THREE MONTHS ENDED APRIL 30, 2001 Unaudited (In thousands, except per share amount) April 30, 2001 ---- Revenues: Product licenses $ 219 Service 878 -------- Total revenues 1,097 Cost of revenues: Cost of product licenses 467 Cost of service 903 -------- Total cost of revenues 1,370 -------- Gross loss (273) Operating expenses: Sales and marketing 2,643 Product development 1,214 General and administrative 1,483 Restructuring charge (benefit) (101) Special charge 918 -------- Total operating expenses 6,157 -------- Operating loss (6,430) Non-operating income: Net investment and other income 857 -------- Net loss * $ (5,573) -------- Loss per common share $ (0.37) ======== Weighted average common shares outstanding 15,029 * Net loss equals comprehensive loss. See accompanying notes to condensed consolidated financial statements. 5 eBT INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (GOING CONCERN BASIS) THREE MONTHS ENDED APRIL 30, 2001 Unaudited (In thousands of dollars)

~~Six~~April ~~months Three months Nine months ended ended ended July 31~~30, ~~October 31, October 31,~~ 2001 ~~2000 2000~~ ----~~-------~~ ~~------------~~Cash ~~------------~~flows ~~Revenues:~~used ~~Product~~in ~~licenses~~operating $activities: -Net $loss ~~728~~ $~~11,896~~ ~~Services 429 1~~(5,~~804~~573) ~~6,581~~Adjustments ~~--------~~to ~~-------~~reconcile ~~-------~~net ~~Total~~loss ~~revenues~~to ~~429~~net ~~2,532~~cash ~~18,477~~used ~~Cost~~in ofoperating ~~revenues~~activities: ~~Product~~Depreciation ~~licenses~~326 Amortization 440 Non-cash ~~502~~stock ~~2,766~~compensation ~~Services~~expense ~~325~~68 ~~1,455~~Special ~~4,875~~charge ~~--------~~918 ------- -~~-------~~ ~~Total cost of revenues 325 1~~(3,~~957~~821) ~~7,641~~Changes ~~--------~~in ~~-------~~operating ~~--------~~assets ~~Gross~~and ~~profit~~liabilities: ~~104~~Accounts ~~575~~receivable 102,~~836~~290 ~~Operating~~Prepaid expenses: ~~Sales~~ and ~~marketing~~other ~~1,171~~current ~~3,006~~assets ~~11,940~~(469) ~~Product~~Accounts ~~development~~payable ~~416 1,675 9,197 General~~ and ~~administrative~~accrued ~~806~~liabilities (1,~~347~~514) ~~7,492~~Other ~~Amortization of intangible~~ assets -and -liabilities ~~561 Restructuring expenses~~ (34425) - ~~1,835 Special charges 10,477~~ - - -----~~---~~ ~~-------~~Net ~~--------~~cash ~~Total~~used in operating ~~expenses~~activities 12(3,~~836~~939) ~~6,028~~Cash ~~31,025~~flows ~~--------~~used ~~-------~~in ~~--------~~investing ~~Operating~~activities: ~~loss~~Property ~~(12,732)~~and ~~(5,453)~~equipment expenditures (~~20,189~~45) ~~Non-operating~~Proceeds ~~income:~~from ~~Net~~the ~~investment~~sale ~~and~~of ~~other~~assets ~~income~~197 ~~1,046~~Net ~~1,206~~purchases ~~2,345~~from ~~Gain~~sales ~~on sale~~ of ~~assets,~~marketable ~~net~~securities ~~230~~ (1,~~147~~617) ~~36,443~~ -------- ~~-------~~Net ~~--------~~cash ~~Income~~used ~~(loss)~~in ~~before~~investing ~~provision~~activities ~~for income taxes~~ (111,~~456~~465) ~~(3,100)~~Cash ~~18,599~~flows ~~Provision~~used ~~for~~in ~~income~~financing ~~taxes~~activities: -Purchases -of ~~300~~treasury ~~--------~~stock ~~-------~~(1,283) -------- Net ~~income~~cash ~~(loss)~~used ~~$(11,456)~~in $financing activities (31,~~100~~283) ~~$18,299~~Net ~~========~~decrease ~~=======~~in ~~=======~~cash ~~Earnings~~and cash equivalents (~~loss~~6,687) ~~per~~Cash ~~common~~and ~~share~~cash $equivalents ~~(0.77)~~at $beginning ~~(0.19)~~of $period ~~1.10~~56,709 ~~========~~-------- ~~=======~~Cash ~~=======~~and $cash ~~(0.77)~~equivalents $at ~~(0.19)~~end $of ~~1.07~~period ~~========~~$ ~~======~~50,022 ======= ~~Earnings (loss) per common share, assuming dilution Weighted average shares outstanding Basic 14,812 16,535 16,603 Diluted 14,812 16,535 17,157~~=

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 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 months ended April 30, 2002 and a going concern basis for the three months ended April 30, 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 months ended April 30, 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 of dollars) 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)

7 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) ======= 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 judgments utilized in preparation of the April 30, 2002 condensed consolidated financial statements on a liquidation basis follows: Receivables and Other Current Assets At April 30, 2002, Receivables and Current Assets of $692,000 represented 8.7% of the Company's total assets. Included in Receivables and Other Current Assets is $71,000, which represents the Company's estimate of future interest earnings over the liquidation period through November 8, 2004. Accounts Payable and Accrued Expenses At April 30, 2002, Accounts Payable and Accrued Expenses were $2,362,000. Included in this amount are accrued income taxes in the amount of $746,000 and known obligations totaling $405,000. 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 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 and at April 30, 2002 is $235,000. 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 8 At April 30, 2002, the Company estimates that there are $870,000 of costs remaining, including compensation for liquidation personnel and Board retainers ($346,000), professional fees ($498,000) and miscellaneous other costs ($26,000). 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 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. 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. 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 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. 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 Charge (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 $1,930,000 was provided in connection with this restructuring plan. During fiscal 2002, the Company decreased the charge by $101,000, due to a change in estimated obligations. Note 5. Special Charge 9 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 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. 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 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. 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 April 30, 2002 includes a receivable from Interactive for royalties in the amount of $83,000. 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 $83,000 referred to above. Accordingly, we will continue to account for Interactive royalty income when amounts due to the Company, if any, have been verified. 11 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 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 April 30, 2002, Receivables and Current Assets of $692,000 represented 8.7% of the Company's total assets. Included in Receivables and Other Current Assets is $71,000, which represents the Company's estimate of future interest earnings over the liquidation period through November 8, 2004. Accounts Payable and Accrued Expenses At April 30, 2002, Accounts Payable and Accrued Expenses were $2,362,000. Included in this amount are accrued income taxes in the amount of $746,000 and known obligations totaling $405,000. 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 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 and at April 30, 2002 is $235,000. At April 30, 2002, the Company has no known material claims against this reserve and will periodically assess whether maintenance of a lower or higher general 12 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 April 30, 2002, the Company estimates that there are $870,000 of costs remaining, including compensation for liquidation personnel and Board retainers ($346,000), professional fees ($498,000) and miscellaneous other costs ($26,000). 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 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 April 30, 2002, the Company's total assets were $7,988,000, of which $7,296,000 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 April 30, 2002, the Company estimates that there are $870,000 of operating costs to be incurred during the remaining liquidation period through November 8, 2004. The estimated other liabilities of the Company at April 30, 2002 total $2,362,000, 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 $4,756,000 at April 30, 2002 is primarily due to two transactions: (1) an increase in royalties due from Interactive ($20,000); and (2) the collection of a fully reserved obligation ($34,000) related to a prior divestiture. LIQUIDATION BASIS OF ACCOUNTING The condensed consolidated financial statements for the three months ended April 30, 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 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 13 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 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 months Ended April 30, 2001 Total Company revenues of $1,097,000 for the three months ended April 30, 2001 compared with revenues of $3,934,000 (excluding businesses disposed) in the comparable preceding period, a decrease of $2,837,000 or 72%. Given this unsatisfactory performance, plus that of the Company in the period through May 22, 2001, and other factors specified in the October 3, 2001 Proxy Statement, the Board of Directors adopted the Plan. Operating expenses in the three months ended April 30, 2001 totaled $6,157,000, including a special charge in the amount of $918,000 that was due in part to the poor revenue and operating results reported for the quarter ended April 30, 2001. The special charge included the write-down to estimated fair value of computer equipment, purchased software and office equipment. These assets, along with other assets and liabilities, were further revalued with the adoption of liquidation basis accounting effective as of August 1, 2001. All other operating costs, with the exception of a $101,000 restructuring benefit (see Note 4 of "Notes to the Company's Condensed Consolidated Financial Statements"), were directly related to the Company's then business activities. 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. 14 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: None (b) Reports on Form 8-K Registrant filed no reports on Form 8-K during the quarter ended April 30, 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. By: /s/ Stephen O. Jaeger --------------------- Stephen O. Jaeger President, Chief Executive Officer and Chief Accounting Officer 16

Six months Nine months ended ended July 31, October 31, 2001 2000 -------- -------- Cash flows (used in) provided by operating activities: Net income (loss) $(17,029) $ 18,299 Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 330 1,251 Amortization 440 3,258 Stock compensation expense 102 177 Non-cash restructuring expenses - 196 Impairment and special charges 4,659 - Sale of assets, net - (36,443) -------- -------- (11,498) (13,262) Changes in operating assets and liabilities: Accounts receivable 3,082 5,688 Prepaid expenses and other current assets (609) 1,178 Accounts payable and accrued liabilities 447 (4,383) Other assets and liabilities (1,508) (2,095) -------- -------- Net cash used in operating activities (10,086) (12,874) Cash flows provided by (used in) investing activities: Property and equipment expenditures (55) (686) Capitalized product development costs - (1,138) Proceeds from asset sales 5,942 51,421 Net (purchases) proceeds from sales of marketable securities (5,638) 4,602 -------- -------- Net cash provided by investing activities 249 54,199 Cash flows provided by (used in) financing activities: Proceeds from employee stock plans 223 479 Purchases of treasury stock (1,283) (1,714) Payments under capital lease obligations - (37) ------- -------- Net cash provided by (used in) financing activities (1,060) (1,272) Net increase (decrease) in cash and cash equivalents (10,897) 40,053 Cash and cash equivalents at beginning of period 56,709 31,408 -------- -------- Cash and cash equivalents at end of period $ 45,812 $ 71,461 ======== ======== Supplemental disclosure of non-cash financing activities: Issuance of restricted stock as employee compensation - $ (734)

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