-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QJNGApgYFwtRKqt6ZWOg5vh5hOJyM39GOl7mwgQhhYXB1pNcEMHJPxz4XFOdAC+N JNqIMu0O73rlOEWItKSFdw== 0001045969-01-500389.txt : 20010517 0001045969-01-500389.hdr.sgml : 20010517 ACCESSION NUMBER: 0001045969-01-500389 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEBB INTERACTIVE SERVICES INC CENTRAL INDEX KEY: 0001011901 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 841293864 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-28462 FILM NUMBER: 1642001 BUSINESS ADDRESS: STREET 1: 1899 WYNKOOP SUITE 600 CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3032969200 MAIL ADDRESS: STREET 1: 1899 WYNKOOP SUITE 600 CITY: DENVER STATE: CO ZIP: 80202 FORMER COMPANY: FORMER CONFORMED NAME: ONLINE SYSTEM SERVICES INC DATE OF NAME CHANGE: 19960410 10QSB 1 d10qsb.txt FORM 10-QSB DATED 3/31/2001 FORM 10-QSB - Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of l934. For the period ended March 31, 2001. --------------- [_] 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 0-28462 . ---------------- WEBB INTERACTIVE SERVICES, INC. - ------------------------------- (Exact name of registrant as specified in its charter) COLORADO 84-1293864 - ---------------------------------------------------------------- (State or other jurisdiction I.R.S. Employer of incorporation or organization Identification No.) 1899 WYNKOOP, SUITE 600, DENVER, CO 80202 - --------------------------------------------- (Address of principal executive offices) (Zipcode) (303) 296-9200 - -------------- (Registrant's telephone number, including area code) 1800 GLENARM PLACE, SUITE 700, DENVER, CO 80202 - ------------------------------------------------ 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. [X] YES [_] NO APPLICABLE ONLY TO CORPORATE ISSUERS: As of May 10, 2001, Registrant had 10,619,303 shares of common stock outstanding. WEBB INTERACTIVE SERVICES, INC. AND SUBSIDIARIES Index -----
Page ------ Part I. Financial Information Item 1. Unaudited Financial Statements Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000 3 Consolidated Statements of Operations for the Three Months Ended March 31, 2001 and 2000 4 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2001 and 2000 5-6 Notes to Consolidated Financial Statements 7-15 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16-30 Part II. Other Information Items 1, 3- 5. Not Applicable 30 Item 2. Changes in Securities and Use of Proceeds 30 Item 6. Exhibits and Reports on Form 8-K 30-32 Signatures 33
______________________________ This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, and is subject to the safe harbors created by those sections. These forward-looking statements are subject to significant risks and uncertainties, including those identified in the section of this Form 10-QSB entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Factors That May Affect Future Operating Results," which may cause actual results to differ materially from those discussed in such forward-looking statements. The forward-looking statements within this Form 10- QSB are identified by words such as "believes," "anticipates," "expects," "intends," "may," "will" and other similar expressions. However, these words are not the exclusive means of identifying such statements. In addition, any statements which refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements which may be made to reflect events or circumstances occurring subsequent to the filing of this Form 10-QSB with the Securities and Exchange Commission ("SEC"). Readers are urged to carefully review and consider the various disclosures made by the Company in this report and in the Company's other reports filed with the SEC that attempt to advise interested parties of the risks and factors that may affect the Company's business. 2 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS WEBB INTERACTIVE SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31, 2001 2000 ------------- ------------ ASSETS Current assets: Cash and cash equivalents $ 1,566,250 $ 4,856,686 Restricted cash 525,000 525,000 Accounts receivable, net of allowance for doubtful accounts of $96,000 and $151,882, respectively 1,194,498 469,639 Prepaid expenses 658,285 301,657 Notes receivable from Company officers 171,992 198,444 Short-term deposits 35,991 370,522 ------------- ------------ Total current assets 4,152,016 6,721,948 Property and equipment, net of accumulated depreciation of $1,284,226 and $963,417, respectively 2,517,912 2,830,132 Intangible assets, net of accumulated amortization of $11,725,457 and $10,870,312, respectively 5,146,522 6,001,667 Deferred financing costs 89,159 104,893 Other assets 46,362 51,689 ------------- ------------ Total assets $ 11,951,971 $ 15,710,329 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Capital leases payable $ 117,315 $ 227,876 Accounts payable and accrued liabilities 1,484,984 2,142,731 Accrued salaries and payroll taxes payable 1,038,006 1,232,844 Accrued interest payable 69,479 63,014 Customer deposits and deferred revenue 295,310 174,522 ------------- ------------ Total current liabilities 3,005,094 3,840,987 10% convertible note payable, net of discount of $251,236 and $295,676, respectively 2,402,874 2,358,434 Minority interest in subsidiary 523,700 523,700 Commitments and contingencies Stockholders' equity Preferred stock, no par value, 5,000,000 shares authorized: Series C-1 convertible preferred stock, 2,500 and none shares issued and outstanding, respectively 2,450,000 - Series B-2 convertible preferred stock, 978 shares issued and outstanding 912,286 912,286 Common stock, no par value, 60,000,000 shares authorized, 10,354,473 shares issued and outstanding 90,518,089 85,986,641 Warrants and options 14,563,662 13,740,819 Deferred compensation (336,725) (402,137) Accumulated other comprehensive income 1,590 1,371 Accumulated deficit (102,088,599) (91,251,772) ------------- ------------ Total stockholders' equity 6,020,303 8,987,208 ------------- ------------ Total liabilities and stockholders' equity $ 11,951,971 $ 15,710,329 ============= ============
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets. 3 WEBB INTERACTIVE SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended March 31, --------------------------------------- 2001 2000 ------------ ------------ Net revenues $ 978,754 $ 812,553 Cost of revenues 1,314,974 645,813 ------------ ------------ Gross margin (336,220) 166,740 ------------ ------------ Operating expenses: Sales and marketing 604,879 454,451 Product development 1,745,479 1,122,604 General and administrative 1,776,430 1,762,321 Depreciation and amortization 1,064,336 2,174,012 ------------ ------------ 5,191,124 5,513,388 ------------ ------------ Loss from operations (5,527,344) (5,346,648) Interest income 113,640 161,887 Interest expense (2,539,448) (174,990) Loss on foreign currency transactions (14,632) - Loss on disposition of property and equipment (12,416) - ------------ ------------ Net loss from continuing operations (7,980,200) (5,359,751) Loss from discontinued operations - (34,791) ------------ ------------ Net loss (7,980,200) (5,394,542) Preferred stock dividends - (373,126) Accretion of preferred stock to stated value (2,856,627) (12,500,000) ------------ ------------ Net loss applicable to common stockholders $(10,836,827) $(18,267,668) ============ ============ Net loss applicable to common stockholders from continuing operations per share, basic and diluted $ (1.05) $ (2.11) ============ ============ Net loss applicable to common stockholders per share from discontinued operations, basic and diluted - - ============ ============ Net loss applicable to common stockholders per share, basic and diluted $ (1.05) $ (2.11) ============ ============ Weighted average shares outstanding, basic and diluted 10,354,473 8,667,640 ============ ============
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 4 WEBB INTERACTIVE SERVICES, INC. AND SUBSIDIARIESUP CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, --------------------------------------- 2001 2000 ------------ ------------ Cash flows from operating activities: Net loss $ (7,980,200) $ (5,394,542) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,178,327 2,270,898 Stock and stock options issued for services 168,842 175,170 Loss on sale and disposal of property and equipment 12,416 - Bad debt expense 14,030 - Accrued interest income on notes receivable (3,548) - Interest expense on 10% convertible note from beneficial conversion feature 2,394,234 - Amortization of 10% convertible note payable discount 44,440 50,381 Amortization of 10% convertible note payable financing costs 15,734 24,480 Changes in operating assets and liabilities: Increase in restricted cash - (453,624) Increase in accounts receivable (738,889) (516,604) (Increase) decrease in prepaid expenses (356,628) 127,003 Decrease (increase) in short-term deposits and other assets 339,858 (25,205) (Decrease) increase in accounts payable and accrued liabilities (657,746) 280,669 Increase in accrued salaries and payroll taxes payable (194,838) (223,306) Increase (decrease) in accrued interest payable 6,465 (30,136) Increase (decrease) in customer deposits and deferred revenue 120,788 (44,616) ------------ ------------ Net cash used in operating activities (5,636,715) (3,759,432) ------------ ------------ Cash flows from investing activities: Proceeds from the sale of property and equipment 8,500 - Purchase of property and equipment (31,878) (598,822) Collection of notes receivable from Company officers 30,000 - ------------ ------------ Net cash provided by (used in) investing activities 6,622 (598,822) ------------ ------------ Cash flows from financing activities: Payments on capital leases (110,561) (35,679) Proceeds from exercise of stock options and warrants - 6,165,461 Proceeds from issuance of series C-1 preferred stock and warrant 2,500,000 - Proceeds from issuance of series B preferred stock and warrants - 12,500,000 Preferred stock cash offering costs (50,000) (840,000) ------------ ------------ Net cash provided by financing activities 2,339,439 17,789,782 ------------ ------------ Net (decrease) increase in cash and cash equivalents (3,290,654) 13,431,528 Effect of foreign currency exchange rate changes on cash 218 - Cash and cash equivalents, beginning of period 4,856,686 4,164,371 ------------ ------------ Cash and cash equivalents, end of period $ 1,566,250 $ 17,595,899 ============ ============
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 5 WEBB INTERACTIVE SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (UNAUDITED)
Three Months Ended March 31, -------------------------------- 2001 2000 ------------ ------------ Supplemental disclosure of cash flow information: Cash paid for interest $ 78,575 $ 130,265 ============ =========== Supplemental schedule of non-cash investing and financing activities: Common stock and warrants issued in business combinations $ - $ 9,995,417 Accretion of preferred stock to stated value $2,856,627 $12,500,000 Preferred stock dividends paid in common stock $ - $ 373,126 Preferred stock and dividends converted to common stock $ - $ 1,023,028 10% note payable converted to common stock $ - $ 1,886,263
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WEBB INTERACTIVE SERVICES, INC. AND SUBSIDIARIES MARCH 31, 2001 AND DECEMBER 31, 2000 (UNAUDITIED) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited interim consolidated financial statements include the accounts of Webb Interactive Services, Inc. and its subsidiaries (collectively "Webb" or the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation. The net loss attributable to the minority stockholders interests in our Jabber.com subsidiary, is allocated to Webb in the consolidated statements of operations until such time as the minority stockholders are obligated to fund Jabber.com losses. The consolidated financial statements have been prepared without audit pursuant to rules and regulations of the Securities and Exchange Commission and reflect, in the opinion of management, all adjustments, which are of a normal and recurring nature, necessary for a fair presentation of the financial position and results of operations for the periods presented. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities as well as disclosure of contingent assets and liabilities at the date of the accompanying financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. The interim financial statements should be read in connection with the financial statements included in our Annual Report on Form 10-KSB for the year ended December 31, 2000 filed with the Securities and Exchange Commission. The accompanying consolidated financial statements have been prepared assuming that Webb will continue as a going concern. Among other factors, we have incurred significant and recurring losses from operations, and such losses are expected to continue in the near future, which raises substantial doubt about the ability of Webb to continue as a going concern. Management's plans in regard to these matters are described in Management's Discussion and Analysis of Financial Condition and Results of Operations. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should we be unable to continue as a going concern. The report of Arthur Andersen LLP, our independent public accountants, included a paragraph expressing substantial doubt about our ability to continue as a going concern. We have not been profitable since inception. Our ability to become profitable depends on our ability to market our products and services and generate revenues sufficient to exceed our expenses. The success of our revenue model will depend upon many factors including the success of our distribution partners in marketing their products and services; and the extent to which consumers and businesses use our services and conduct e-commerce transactions and advertising utilizing our services. Because of the new and evolving nature of the Internet, we cannot predict whether our revenue model will prove to be viable, whether demand for our products and services will materialize at the prices we expect to charge, or whether current or future pricing levels will be sustainable. We are also highly dependent on certain key personnel. At March 31, 2001, we had $1,566,250 in cash and cash equivalents and $1,146,922 in working capital. We have expended significant funds to develop our current product offerings and we anticipate increased operating expenses and research and development expenditures in 2001, which we believe are necessary for us to further develop and market our products as well as to achieve market acceptance of our products in sufficient quantities to achieve positive cash flow from operations. Our continued viability depends, in part, on our ability to obtain additional profitable customer contracts and at some point in the future to obtain additional capital through debt or equity financing sufficient to fund our expected operations. We believe that our cash and cash equivalents and working capital are adequate to fund our AccelX business through May 2001. In addition, we expect the proceeds from the convertible note issued in May 2001 (See Note 9) to be adequate to sustain our Jabber.com operations through at least October 2001. In addition to the remaining $2.5 million which may be raised pursuant to the February 2001 preferred stock financing and the additional $4.5 million expected to be raised from the sale of 7 Jabber.com preferred stock, we are in discussions with strategic and institutional investors for an additional $10 million of financing which we believe would be sufficient to fund our operations through at least the first quarter of 2002. However, we have no commitments for the $10 million financing and the conditions to the private investor's obligation to purchase the additional $2.5 million worth of our preferred stock may not be satisfied and the additional sale of $4.5 million worth of Jabber.com's preferred stock may not occur. Therefore, there can be no assurances that any of these financings will be completed, or if completed, that the terms of any such financings will be acceptable to us. If we are not successful in obtaining funding in appropriate amounts or at appropriate terms, we would consider significant reductions in our operating activities, particularly those relating to our AccelX business, and/or the sale of all or a portion of either our AccelX or our Jabber.com businesses. NOTE 2 - REVENUE RECOGNITION Webb generates revenues from the license of its software products and from professional service arrangements. Software license revenue is recognized in accordance with the American Institute of Certified Public Accountants Statement of Position 97-2 "Software Revenue Recognition" ("SOP 97-2") and related interpretations and amendments as well as Technical Practice Aids issued from time to time by the American Institute of Certified Public Accountants. The Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101") in December 1999. As amended, SAB 101 provides further interpretive guidance for publicly traded companies on the recognition, presentation, and disclosure of revenue in the accompanying financial statements. In June 2000, the SEC issued SAB No. 101B, delaying the implementation of SAB 101 until the fourth quarter of 2000. The provisions of SAB 101 had no material impact on Webb's revenue recognition policies and presentation as reflected in the accompanying consolidated financial statements. We recognize revenue on software arrangements only when persuasive evidence of an agreement exists, customer acceptance, if any, has occurred, delivery has occurred, our fee is fixed or determinable, and collectibility is probable. Under certain circumstances, software license revenue is deferred until all criteria of SOP 97-2 are met. Certain arrangements contain provisions which result in the recognition of revenue from software licenses ratably over the term of the contract. In instances where we charge monthly license fees, revenue is recognized on a month-by-month basis as the fees are determined and become collectable. Revenue from professional services billed on a time and materials basis is recognized as the services are performed and amounts due from customers are deemed collectible and are contractually non-refundable. Revenue from fixed price long-term contracts is recognized on the percentage of completion method for individual contracts, commencing when progress reaches a point where experience is sufficient to estimate final results with reasonable accuracy. Revenues are recognized in the ratio that costs incurred bear to total estimated contract costs. The use of the percentage of completion method of revenue recognition requires estimates of percentage of project completion. Changes in job performance, estimated profitability and final contract settlements may result in revisions to costs and income in the period in which the revisions are determined. Provisions for any estimated losses on uncompleted contracts are made in the period in which such losses are determinable. In instances when the work performed on fixed price agreements is of relatively short duration, we use the completed contract method of accounting whereby revenue is recognized when the work is completed. Customer advances and billed amounts due from or collected from customers in excess of revenue recognized are recorded as deferred revenue. Revenue from maintenance and support agreements is recognized on a straight-line basis over the term of the related support and maintenance agreement. We follow the provisions of EITF 00-3, "Application of AICPA SOP 97-2, `Software Revenue Recognition,' to Arrangements That Include the Right to Use Software Stored on Another Entity's Hardware," for software arrangements that include provisions for hosting. Under the EITF consensus, if the customer has the contractual right to take possession of the software at anytime during the hosting period without significant penalty and it is feasible for the customer to either run the software on its own hardware or contract with another party not 8 related to Webb to host the software, then the software portion of the arrangement is accounted for under SOP 97-2. If the customer does not have this right, then the fee for the entire arrangement is recognized on a straight-line basis over the life of the related arrangement. For software arrangements with multiple elements, we apply the residual method prescribed by SOP 98-9. Revenue applicable to undelivered elements, principally software maintenance, training, hosting and limited implementation services, is deferred based on vendor specific objective evidence ("VSOE") of the fair value of those elements. VSOE is established by the price of the element when it is sold separately (i.e., the renewal rate for software maintenance and normal prices charged for training, hosting and professional services). Revenue applicable to the delivered elements is deemed equal to the remainder/residual amount of the fixed arrangement price. Assuming none of the undelivered elements are essential to the functionality of any of the delivered elements, we recognize the residual revenue attributed to the delivered elements when all other criteria for revenue recognition for those elements have been met. We believe our current revenue recognition policies and practices are consistent with the provisions of SOP 97-2, as amended by SOP 98-4 and SOP 98-9, which were issued by the American Institute of Certified Public Accountants, as well as other related authoritative literature. Implementation guidelines for these standards, as well as potential new standards, could lead to unanticipated changes in our current revenue recognition policies. Such changes could affect the timing of our future revenue and results of operations. Net revenues from continuing operations are comprised of the following: Three Months Ended March 31, -------------------------- 2001 2000 ---------- ---------- Net revenues: License $ 472,265 $ 681,727 Services 506,489 130,826 ---------- ---------- Total net revenues $ 978,754 $ 812,553 ========== ========== NOTE 3 - GOODWILL Long-Lived Assets, Intangible Assets and Goodwill In accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," ("SFAS 121"), we evaluate the carrying value of our long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment of assets to be held and used is calculated by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less the cost to sell the asset. Intangible assets and goodwill are being amortized on a straight-line basis over their estimated economic lives of three years. We recorded amortization expense of $855,145 and $2,037,255 for the three months ended March 31, 2001 and 2000, respectively. As of March 31, 2001, $252,046 of our intangible assets consisted of goodwill. Subsequent to acquisitions which result in intangible assets and goodwill, we continually evaluate whether later events and circumstances have occurred that indicate the remaining useful life of the intangible assets and goodwill may warrant revision or that the remaining balance may not be recoverable. When factors indicate that intangible assets and goodwill should be evaluated for possible impairment, we use an estimate of the undiscounted cash flows over the remaining life of the intangible assets and goodwill in measuring whether the intangible assets and goodwill are recoverable. 9 At each balance sheet date, we evaluate the carrying value of the remaining intangible assets for possible impairment. Such a review may indicate further impairment that would require us to record impairment losses in future periods and those losses could be substantial. NOTE 4 - NET LOSS PER SHARE Net loss per share is calculated in accordance with SFAS No. 128, "Earnings Per Share" ("SFAS 128"). Under the provisions of SFAS 128, basic net loss per share is computed by dividing net loss applicable to common shareholders for the period by the weighted average number of common shares outstanding for the period. Diluted net loss per share is computed by dividing the net loss for the period by the weighted average number of common and potential common shares outstanding during the period if the effect of the potential common shares is dilutive. As a result of our net losses, all potentially dilutive securities, as indicated in the table below, would be anti-dilutive and are excluded from the computation of diluted loss per share, and there are no differences between basic and diluted per share amounts for all years presented. March 31, -------------------------- 2001 2000 ---------- ---------- Stock options 3,966,525 3,365,691 10% convertible note payable 1,061,644 248,262 Warrants and underwriter options 1,231,845 785,682 Series C-1 preferred stock 1,000,000 - Series B-2 preferred stock 391,200 - Series B preferred stock - 625,000 ---------- ---------- Total 7,651,214 5,024,635 ========== ========== The number of shares excluded from the earnings per share calculation because they are anti-dilutive, using the treasury stock method, were 504,503 and 4,103,561 for the three months ended March 31, 2001 and 2000, respectively. NOTE 5 - SERIES C-1 PREFERRED STOCK On February 28, 2001, pursuant to a securities purchase agreement, we completed a private placement that resulted in gross proceeds of $2,500,000. We sold 2,500 shares of our series C-1 convertible preferred stock (the "series C-1 preferred stock"), including warrants to purchase 500,000 shares of our common stock. We received net proceeds totalling approximately $2,450,000 after deducting approximately $50,000 in offering costs. The series C-1 preferred stock is convertible into shares of our common stock at $2.50 per share. The conversion price is subject to anti-dilution protection in the event we issue common stock at prices less than the current conversion price for the preferred stock or the then current price for our common stock and for stock splits, stock dividends and other similar transactions. If the conversion price is reduced, we may be required to record additional charges against income and such charges may be significant. In addition, subject to certain conditions, including the Securities and Exchange Commission declaring the associated Registration Statement effective and the market capitalization for our common stock being at least $32.3 million , we have the right to sell 2,500 shares of our series C-2 convertible preferred stock (the "series C-2 preferred sock") to the investor for gross proceeds of $2,500,000. The initial conversion price of the series C-2 preferred stock will be equal to the lesser of 80% of the average closing bid price of our common stock for three trading days immediately preceding the issuance of the series C- 2 preferred stock, 80% of the closing bid price of our common stock on the trading day immediately preceding such issuance or $7.50 per share. If we consummate the sale of our series C-2 preferred stock, we will also issue a common stock purchase warrant to the investor. The number of shares issuable upon exercise of the warrant will be determined by the aggregate value of the series C-2 preferred stock divided by the initial conversion price multiplied by 20%. The exercise price of the warrant will be computed as the greater of 150% of the initial conversion price of the series C-2 preferred stock and the closing bid price on the trading day immediately preceding the issuance date. The issuance of the series C-2 preferred stock may result in significant charges to be recorded against net losses 10 applicable to common stockholders. We also issued a three-year warrant to purchase 500,000 shares of our common stock in connection with the series C-1 preferred stock. The warrant entitles the holder to purchase our common stock for a purchase price of $3.75 per share. The exercise price of the warrant is subject to anti-dilution protection should certain events transpire such as subdivision or combination of our common stock, distributions to holders of our common stock, or consolidations or mergers with another corporation. If the exercise price is reduced, we may be required to record additional charges against income and such charges may be significant. The warrant was valued at $735,279 determined based on the relative fair value of the warrant utilizing the Black-Scholes option pricing model using the following assumptions: Exercise price $3.75 Fair market value of common stock on measurement date $3.00 Option life 3 years Volatility rate 120% Risk free rate of return 6.0% Dividend rate 0% Due to the conversion feature associated with the series C-1 preferred stock, we recognized the beneficial conversion feature as an additional preferred stock dividend. The computed value of the beneficial conversion feature of $1,235,279 was initially recorded as a reduction of the series C-1 preferred stock and an increase to additional paid-in capital. The beneficial conversion feature reduction to the series C-1 preferred stock and the relative fair value of the warrant was accreted as a charge to income applicable to common stockholders on the date of issuance (the date on which the series C-1 preferred stock was first convertible) as follows: Beneficial conversion feature $1,235,279 Relative fair value of common stock purchase warrant 735,279 ---------- Total accretion expense $1,970,558 ========== As a result of the issuance of the series C-1 preferred stock, in accordance with terms of the original agreements, the conversion prices for the 10% note payable and our series B-2 preferred stock as well as the exercise prices for the 10% note payable and series B preferred stock warrants were reset as indicated below:
Conversion or Exercise Price Conversion or Immediately Exercise Price Preceding Series C-1 Immediately After Preferred Stock Series C-1 Preferred Issuance Stock Issuance - -------------------------------------------------------------------- -------------------- 10% convertible note payable $ 10.07 $ 2.50 Series B-2 preferred stock $10.20408 $ 2.50 Series B common stock purchase warrants $ 3.875 $3.75374 10% note payable common stock purchase warrant $ 10.264 $9.33431
As a result of the reset provisions, we recorded additional non-cash expenses in February 2001, totalling $3,314,499 as summarized below: 10% convertible note payable $2,394,234 Series B-2 preferred stock 886,069 Series B common stock purchase warrants 2,264 10% note payable common stock purchase warrant 31,932 ---------- Total expense $3,314,499 ========== 11 NOTE 6 - STOCK BASED COMPENSATION EXPENSE During the three months ended March 31, 2001, we issued options to purchase our common stock as described below and recorded expense as set forth in the following table: Number of Shares or Deferred Warrants Compensation Issued Expense Expense - ---------------------------------- --------- --------- ----------- Stock options issued to consulting company 120,000 $ 4,340 $ 151,905 Amortization of previous years deferred compensation - 164,502 184,820 --------- --------- ----------- 120,000 $ 168,842 $ 336,725 ========= ========= =========== In March 2001, we issued a three-year option to purchase 120,000 shares of our common stock at an exercise price of $2.813 per share to a consulting company in connection with investor relation services to be rendered to Webb. The options vest one third on the grant date and one third on each of the next two anniversary dates of the agreement. The option agreement provides for accelerated vesting dates for the unvested options provided the consulting company meets certain specified objectives. We valued the options, and applied variable plan accounting pursuant to SFAS 123 and related interpretation EITF- 96-18 to the 80,000 unvested options, at $156,245 utilizing the Black-Scholes option pricing model using the following assumptions:
40,000 Options 80,000 Options -------------- -------------- Exercise price $2.813 $2.813 Fair market value of common stock on valuation date $2.813 $1.500 Option life 3 years 3 years Volatility rate 121% 119% Risk-free rate of return 6.0% 6.0% Dividend rate 0% 0%
Because variable plan accounting requires us to revalue the unvested options at each balance sheet date, the value of the option and related expense in future periods may increase significantly as our stock price increases. NOTE 7 - DISCONTINUED OPERATIONS In September 2000, our e-banking segment was sold to a privately held company. The sale of this segment is reflected as a sale of discontinued operation in the accompanying consolidated financial statements. Accordingly, revenues, costs and expenses of this discontinued operation have been excluded from the respective captions in the Consolidated Statement of Operations and have been reported as "Loss from discontinued operations" for all periods presented. Summarized financial information for the discontinued operation is as follows: Three Months Ended March 31, ------------------------ 2001 2000 -------- -------- Net revenues $ - $197,269 Loss from operations $ - $(34,791) NOTE 8 - BUSINESS SEGMENT INFORMATION 12 Webb develops and supports products and services for local markets by providing an interactive framework of local commerce and community-based services comprised of publishing, content management, community-building and communications. In addition, our subsidiary, Jabber.com, is engaged in the early stages of several projects that are implementing the Jabber.org XML-based open-source instant messaging platform for portal services, enterprise messaging, financial services applications and enhanced mobile and telephony integration. We have two reportable business segments: AccelX and Jabber.com. AccelX consists of XML-based online commerce and communication solutions for small business, with a particular emphasis on local commerce interaction. Jabber.com consists of XML-based open-source Internet application products which incorporates instant messaging as a key application for commerce-oriented dialogs between businesses and consumers.
March 31, December 31, 2001 2000 ------------ ------------ Assets - ------------------------------------------------ AccelX $ 11,203,561 $ 14,749,962 Jabber.com 3,714,737 4,016,533 Eliminations (2,966,327) (3,056,166) ------------ ------------ Total assets $ 11,951,971 $ 15,710,329 ============ ============ Property and equipment, net - ------------------------------------------------ AccelX $ 2,270,675 $ 2,566,359 Jabber.com 247,237 263,773 ------------ ------------ Total $ 2,517,912 $ 2,830,132 ============ ============ Three Months Ended March 31, ---------------------------- 2001 2000 ------------ ------------ Net revenues from continuing operations - ------------------------------------------------ AccelX $ 878,929 $ 812,553 Jabber.com 99,825 - ------------ ------------ Total net revenues from continuing operations $ 978,754 $ 812,553 ============ ============ Net loss from continuing operations - ------------------------------------------------ AccelX $ (8,063,901) $ (5,359,751) Jabber.com (1,999,970) - Eliminations 2,083,671 - ------------ ------------ Total net loss from continuing operations $ (7,980,200) $ (5,359,751) ============ ============ Depreciation and amortization - ------------------------------------------------ AccelX $ 1,040,170 $ 2,174,011 Jabber.com 385,809 - Eliminations (361,643) - ------------ ------------ Total depreciation and amortization expense $ 1,064,336 $ 2,174,011 ============ ============ Property and equipment additions - ------------------------------------------------ AccelX $ 24,248 $ 598,822 Jabber.com 7,630 - ------------ ------------ Total $ 31,878 $ 598,822 ============ ============
13 NOTE 9 - SUBSEQUENT EVENTS Investment in Jabber.com- On May 2, 2001, Webb, Jabber.com, Inc., a subsidiary of Webb ("Jabber.com"), France Telecom and France Telecom Technologies, a wholly-owned subsidiary of France Telecom ("FTT"), entered into a nonbinding series B convertible preferred stock Summary of Terms (the "Letter of Intent"). The Letter of Intent provides for the purchase by FTT (or an affiliated entity) of up to $7 million of series B preferred stock of Jabber.com, which would represent approximately 23% of the issued and outstanding capital stock of Jabber.com. A definitive agreement is expected to be completed by July 2, 2001 As contemplated by the Letter of Intent, FTT loaned Jabber.com $2.5 million pursuant to a convertible promissory note. This amount, together with interest which accrues at an annual rate of 9.5%, is convertible into series B preferred stock of Jabber.com: (i) at the time FTT enters into a binding stock purchase agreement pursuant to which it agrees to acquire equity securities of Jabber.com with a purchase price of at least $5 million including the loan amount converted (or such lesser amount as is agreed in writing to by Jabber.com and FTT); or (ii) at the option of FTT prior to the maturity date of the loan. Unless earlier converted, the loan is due on demand any time after May 2, 2002. The obligations of Jabber.com are secured by: (i) a security interest in substantially all of the assets of Jabber.com; (ii) a guaranty given by Webb; and (iii) a pledge by Webb of the stock it holds in Jabber.com. In the event that the loan is not converted into preferred stock as contemplated in the letter of intent and we or Jabber.com are not able to repay the loan in accordance with the terms, France Telecom Technologies could sell all or a portion of this stock, or take other actions to satisfy the interest and principal due on the note. The loss of all or a portion of this stock could have a material adverse effect on our consolidated results of operations or financial condition. The Letter of Intent contemplates that FTT's $2.5 million loan, plus accrued interest, will be converted to series B preferred stock of Jabber.com on or before July 2, 2001, at the time the parties enter into a definitive stock purchase agreement. The stock purchase agreement will provide that FTT will purchase $2.5 million of series B preferred stock on or about September 1, 2001, at the price determined in the stock purchase agreement. On or prior to January 31, 2002, FTT will be required to purchase additional shares of Jabber.com series B preferred stock, depending upon Jabber.com's 2001 net revenues. If Jabber.com's 2001 net revenues are equal or greater than $3,962,000, then: (i) Jabber.com will have the option to require FTT to purchase an additional $2 million worth of series B preferred stock at the price determined in the stock purchase agreement; and (ii) FTT will have the option to purchase an additional $2 million of series B preferred stock at the price determined in the stock purchase agreement. If Jabber.com's 2001 net revenues are either less than $3,962,000 or greater than $6,603,000, then Jabber.com and FTT may mutually decide whether FTT will purchase $2 million of series B preferred stock at a price to be determined by the parties. Notwithstanding the foregoing, if Jabber.com's 2001 revenues are less than $3,962,000, then FTT will have the option to purchase $2 million of series B preferred stock at the price determined in the stock purchase agreement, and if Jabber.com's 2001 net revenues are greater than $6,603,000, then Jabber.com will have the option to require FTT to purchase $2 million of series B preferred stock at the price determined in the stock purchase agreement. Conversion of Series B-2 Preferred Stock- During April and May, 2001, the holder of our series B-2 preferred stock converted 528 shares of the series B-2 preferred stock into 211,200 shares of our common stock at conversion prices of $2.50 per share as summarized in the following table: Number of Shares ---------------------------- Series B-2 Preferred Conversion Date Stock Common Stock - ----------------------------- ---------- ------------ April 26, 2001 250 100,000 May 7, 2001 160 64,000 May 8, 2001 80 32,000 May 10, 2001 38 15,200 ---------- ------------ Total 528 211,200 ========== ============ 14 Conversion of 10% Convertible Note Payable- During May, 2001, the holder of our 10% convertible note payable converted $125,000 of the outstanding 10% convertible note payable, including $9,075 of principal-in-kind notes, into 53,630 shares of or common stock at a conversion price of $2.50 per share. Issuance of Common Stock and Options for Services- In April 2001, we entered into a six-month agreement with a consulting company to provide Webb with investor relation services. In connection with the agreement, the consulting company will receive 2,500 restricted shares of our common stock at the end of each month commencing April 2001. In addition, we also issued three-year stock options to purchase 100,000 shares of our common stock at exercise prices ranging from $2.50 to $5.00 per share. The options vest ratably over the term of the agreement. 15 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Webb provides innovative advanced online commerce and communication solutions for businesses. Our AccelX product line of XML-based commerce and buyer-seller interaction products and services provides businesses with powerful web-site development and communication tools to attract customers, generate leads, increase buyer-seller interaction and strengthen customer relationship management. Our Jabber.com, Inc. subsidiary is building a business around commercializing Jabber.org open-source technologies for real time XML-based communications. Jabber.com is currently focused on developing and marketing commercial-grade instant messaging software, solutions and hosting for large enterprises, service providers and independent software vendors. We distribute our AccelX products and services on a private-label basis to high-volume distribution partners such as yellow page directory publishers, newspapers, city guides, vertical market portals and other aggregators of local businesses. Our AccelX products may be either licensed or delivered on an application service provider business model whereby we would host the software on our servers and expect to deliver and manage the service on behalf of our distribution partners. Generally, these services are provided on a revenue- share basis providing us with recurring revenues as our distribution partners sell these services to their small business customers. This distribution model is designed to provide us with a growing base of businesses using one or more of our services who are ideal customers for additional AccelX services. Prior to January 2000, we were organized around our primary market focus on local commerce services, with an additional business unit dedicated to e-banking services. During the third quarter of 2000, we discontinued our e-banking business. In January 2000, we formed a new subsidiary in order to commercialize separately the Jabber.org instant messaging system from our AccelX business. We intend to seek participation from external partners, such as France Telecom Technologies, to help us maximize the value of our instant messaging business. During July 2000, we completed a business plan for our Jabber.com subsidiary. The plan focuses Jabber.com's business development efforts on three areas: . Providing professional services to help companies implement, customize and host instant messaging applications; . Developing instant messaging services for businesses, which may be either licensed or delivered on an application service provider business model; and . Developing open gateway services through strategic relationships with companies in the areas of Internet protocol telephony, mobile services, customer services and exchange services. On March 1, 2001, Jabber.com introduced the Jabber Commercial Server 2.0, a highly scaleable Jabber server that provides the foundation for current and future server products. Jabber Commercial Server 2.0 provides enterprises and service providers with enhanced performance, scalability, reliability and security compared to the Jabber open-source software. To date, Jabber.com's activities have focused primarily on promoting the wide-spread use of the Jabber open-source instant messaging protocol (XMPP), providing professional services to businesses desiring to test the Jabber open-source platform and developing the Jabber Commercial Server 2.0 software. 16 We have incurred losses from operations since inception. At March 31, 2001, we had an accumulated deficit of approximately $102 million. The accumulated deficit at March 31, 2001, included approximately $57.5 million of non-cash expenses related to the following: . Beneficial conversion features related to the 10% convertible note payable, preferred stock and preferred stock dividends; . Reset of warrant exercise prices; . Stock and stock options issued for services; . Warrants issued to customers; . Interest expense on the 10% convertible note paid by the issuance of similar notes; . Amortization of intangible assets acquired in consideration for the issuance of our securities; . Impairment loss on acquired intangible assets and goodwill; and . Write-off of securities received for our e-banking business. As a result of the $2.5 million preferred stock private placement we completed in February 2001, we recorded an additional non-cash expense totalling approximately $2 million associated with issuance of our series C-1 preferred stock. In addition, we recorded additional non-cash expenses totalling approximately $3.3 million associated with the reset of conversion prices for our series B-2 preferred stock and 10% convertible note payable as well as the reset of exercise price for certain warrants issued in connection with our series B preferred stock private placement. If we issue shares of our series C- 2 preferred stock and warrants, we will record substantial additional non-cash charges. The accompanying consolidated financial statements have been prepared assuming that Webb will continue as a going concern. Among other factors, we have incurred significant and recurring losses from operations, and such losses are expected to continue in the near future, which raises substantial doubt about our ability to continue as a going concern. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should we be unable to continue as a going concern. The report of Arthur Andersen LLP, our independent public accountants, issued with regard to our financial statements for the year ended December 31, 2000, included a paragraph expressing substantial doubt about our ability to continue as a going concern. We have not been profitable since inception. Our ability to become profitable depends on our ability to market our products and services and generate revenues sufficient to exceed our expenses. The success of our revenue model will depend upon many factors including the success of our distribution partners in marketing their products and services; and the extent to which consumers and businesses use our services and conduct e-commerce transactions and advertising utilizing our services. Because of the new and evolving nature of the Internet, we cannot predict whether our revenue model will prove to be viable, whether demand for our products and services will materialize at the prices we expect to charge, or whether current or future pricing levels will be sustainable. 17 RESULTS OF OPERATIONS Revenues: Components of net revenues from continuing operations and cost of revenues are as follows: Three Months Ended March 31, -------------------------- 2001 2000 ---------- ---------- Net revenues: Licenses $ 472,265 $ 681,727 Services 506,489 130,826 ---------- ---------- Total net revenues 978,754 812,553 ---------- ---------- Cost of revenues: Cost of licenses 182,046 199,226 Cost of services 1,132,928 446,587 ---------- ---------- Total cost of revenues 1,314,974 645,813 ---------- ---------- Gross margin $ (336,220) $ 166,740 ========== ========== License revenues represent fees earned for granting customers licenses to use our software products. While our basic distribution model is to provide services to aggregators of small business who agree to pay us a portion of their future revenues, thereby providing us with the expectation of future revenues as our distribution partners sell our services to their small business customers, late in 1999 we began offering perpetual software licenses. In addition, during 2000, we began to license our AccelX software products under a hybrid model whereby our customers purchase a fixed number of licenses under a perpetual license arrangement and purchase additional licenses on a recurring revenue share basis. Software license fees may continue to represent a significant portion of license revenue for at least the next several quarters as these fees are generally significantly larger than are the initial fees paid by those distribution partners who agree to pay us a portion of their future revenues. We estimate that it will take those distribution partners up to one year or more after they commence distribution of our AccelX services to develop a significant base of small businesses using these services for the recurring revenues to become significant. Additionally, our license fee revenue may vary significantly from quarter to quarter due to the relative significance of individual contracts to our total revenue. During the three months ended March 31, 2001, we recognized $426,117 from the sale of initial software licenses compared with $438,900 for the similar 2000 period. The software license revenues in 2001 were primarily from a sale to SwissOnline AG, a European yellow page publisher. In addition to the initial license fee, we will earn recurring monthly license revenues for each small business subscriber in excess of 5,000 subscribers. The software license revenues in 2000 were primarily from a sale to Vetconnect, Inc., a vertical portal that provides Internet services for veterinarians. This contract contained up-front license fees without a recurring revenue component. We recognized $46,148 in recurring license fees for the three months ended March 31, 2001, compared with $242,827 for the similar 2000 period. The decrease between periods is a result of $200,000 in fees we earned in the 2000 period, net of $50,000 allocated to support and maintenance, from Switchboard, Inc. in the form of quarterly guaranteed minimum payments required to maintain limited exclusivity for our Site Builder product for a segment of the United States market. Switchboard's exclusivity rights terminated on June 30, 2000, and Switchboard will not, therefore, pay quarterly guaranteed minimum payments in the future. Services revenues consist principally of revenue derived from professional services for the customization of our software to customer specifications, assisting our customers in configuring and integrating our software applications, hosting fees and fees for ongoing maintenance and support. Our net revenues from services were $506,489 for the three months ended March 31, 2001, which represents an increase of 287% when compared with the similar 2000 period. The increase is primarily due to professional service revenue we earned in connection with the integration of our software products with our customers; increases in revenue recognized from support and 18 maintenance agreements for our AccelX software; and service revenues during 2001 totalling $89,825 for our Jabber.com subsidiary. During the fourth quarter of 2000, it became apparent that most large aggregators of small businesses were delaying software and technology purchase decisions due to uncertainties with regard to the domestic economy, a reluctance to make significant investments in new Internet-related products and services and management changes or reorganizations at many of these companies. These factors appear to be continuing to cause a slow down in purchase decisions by many of our potential domestic customers and may continue to do so for much of 2001. This could result in lower domestic sales of our products and services, particularly for our AccelX products and services, than contemplated in our business plan for the year. In addition, to the extent that purchase decisions are made, they may be for lower up-front license fees and professional services in order to reduce our customers' financial commitments and to put a greater emphasis on revenue sharing arrangements. This also could result in lower revenues in 2001 than contemplated in our business plan. Cost of Revenues: Cost of revenues as a percentage of net revenues from continuing operations was 134% for the three months ended March 31, 2001, compared to 79% for the similar 2000 period. Cost of license revenues - Cost of license revenues consists of compensation costs associated with personnel who assist our customers in delivering services to end users, third party content software license fees, and third party transaction fees. Cost of license revenues were $182,046 for the three months ended March 31, 2001, or 39% of net license revenues, compared with $199,226, or 29% of net license revenues for the similar 2000 period. The absolute dollar decrease was primarily attributable to (i) incurring $25,726 less in costs associated with delivering software enhancements for which we earn monthly license fees; and (ii) incurring $62,500 in the 2000 period for the amortization of a one-year third-party software license we purchased in 1999 to integrate directory functionality into our AccelX products. These decreases were partially off-set by an increase of $71,589 in costs , primarily for compensation and contractor expenses, associated with our client services organization, which commenced operating activities during the second half of 2000 to assist our distribution partners in the sell-through of our products and services to small business. Since our business plan is heavily dependent on recurring revenue from our distribution partners, we will continue to incur costs in assisting our distribution partners in obtaining market penetration and sell-through of our products and services and these costs may be significant. Cost of service revenues - Cost of service revenues consists of compensation costs and consulting fees associated with performing custom programming, installation and integration services for our customers and support services as well as costs for hosting services which consist of costs to operate our network operating center and other direct and indirect costs. Cost of service revenues was $1,132,928 for the three months ended March 31, 2001, or 224% of net service revenues, compared with $446,587, or 341% of net service revenues for the similar 2000 period. During the third quarter of 2000, we established separate professional services and customer support organizations to better service our customers. Consequently, with the formation of these two organizations, we incurred $360,535 more in costs in the 2001 period for professional services infrastructure expenses, including $71,799 for our Jabber.com subsidiary; and $177,245 more in costs in the 2001 period for customer support infrastructure costs, including $88,222 for our Jabber.com subsidiary. Infrastructure costs for these two organizations include employee compensation and other employee related costs. We expect these infrastructure expenses to increase only to the extent that revenue from professional services and support services increase in future periods. In addition, the absolute dollar increase was attributable to providing a higher volume of professional services to our customers. These increases were partially off-set by a reduction of $96,256 in costs associated with our network operating center, from $377,715 in the 2000 period to $281,459 in the 2001 period, primarily as a result of decreases in rent, third-party support costs and other lease expenses. Our network operating center has 19 been built to accommodate our current customer base as well as significant additional projected growth. Consequently, the current cost to operate the network operating center is high compared to current revenues and will remain relatively high for at least the next several quarters as we continue to execute on our business plan. We also anticipate that cost of service revenues will increase in absolute dollars as well as a percentage of service revenues for at least the next several quarters as we build the support infrastructure for our Jabber.com subsidiary. Operating Expenses: Sales and marketing expenses consist primarily of employee compensation, cost of travel, advertising and public relations, trade show expenses, and costs of marketing materials. Sales and marketing expenses were $604,879 for the three months ended March 31, 2001, or 62% of net revenues compared with $454,451, or 56% of net revenues for the similar 2000 period. These expenses included $212,101 in 2001, for our Jabber.com subsidiary. The increase in absolute dollars was primarily attributable to (i) $222,899 more in employee compensation costs including sales commissions; and (ii) a $54,093 increase in travel costs primarily associated with opening European markets. These increases were partially off-set by (i) a $43,417 decrease in fees paid to marketing and research consultants; and (ii) a $47,000 decrease in employee recruiting expenses as we did not incur such expense in the 2001 period. We expect sales and marketing expenses to increase on an absolute dollar basis in future periods but decrease as a percentage of net revenues as our revenues increase from current levels as we continue to market our products and services. Product development expenses consist primarily of employee compensation and programming fees relating to the development and enhancement of the features and functionality of our software products and services. During the 2001 and 2000 periods, all product development costs were expensed as incurred. Product development expenses were $1,745,479 for the three months ended March 31, 2001, or 178% of net revenues compared with $1,122,604 or 138% of net revenues for the similar 2000 period. Product development expenses in 2001 include the development of our AccelX software products and our Jabber.com instant messaging products, which we began developing in the second quarter of 2000. During the three months ended March 31, 2001, we incurred expenses totalling $1,090,500 developing our AccelX products and $654,979 developing our Jabber products. The increase in absolute dollars was due primarily to (i) $449,896 more in employee compensation costs primarily as a result of 25 employees in our Jabber.com subsidiary which were hired during the third and forth quarters of 2000; (ii) incurring $100,000 for the purchase of source code for an ad generator software product which we expect to take to market in the second quarter of 2001; and (iii) an increase of $32,538 in contract labor costs we incurred to augment our employee-base development teams. These increases were partially off-set by a $72,412 reduction in employee recruiting expenses as we paid less fees to third- party recruiting firms as the result of hiring a part-time recruiter. We believe that significant investments in product development are critical to attaining our strategic objectives and, as a result, we expect product development expenses to increase in future periods. General and administrative expenses consist primarily of employee compensation, consulting expenses, fees for professional services, and non-cash expense related to stock and warrants issued for services. General and administrative expenses were $1,776,430 for the three months ended March 31, 2001, or 181% of net revenues compared with $1,762,322, or 216% of net revenues for the similar 2000 period. These expenses include $612,914 for 2001, for our Jabber.com subsidiary. The increase in absolute dollars was primarily attributable to (i) $143,301 more in office rent expense as we moved to a new office in May 2000 at a higher monthly rent, including office rent for our Jabber.com subsidiary; and (ii) $54,407 more in travel costs related to international travel. We expect general and administrative expenses to decrease as a percentage of revenues as our revenues increase. Depreciation and amortization was $1,064,336 for the three months ended March 31, 2001, compared to $2,174,011 for the similar 2000 period. We recorded $1,182,110 less in amortization expense, from $2,037,255 in the 2000 period to $855,145 in the 2001 period, related to the intangible assets and goodwill we acquired in the Durand Communications, NetIgnite, and Update Systems acquisitions as we reduced the basis of these assets during the forth quarter of 2000 as a result of recording an impairment loss. Because our business has never been profitable, and due to the other risks and uncertainties discussed herein, it is possible that an analysis of these long-lived assets in future periods could result in a conclusion that they are impaired, and the amount of the impairment 20 could be substantial. If we determine that these long-lived assets are impaired, we would record a charge to earnings, which could be as much as the remaining net book value of the assets. Other Income and Expenses: Interest income was $113,640 for the three months ended March 31, 2001, compared to $161,887 for the similar 2000 period. We earn interest by investing surplus cash in highly liquid investment funds or AAA or similarly rated commercial paper. Interest expense was $2,539,448 for the three months ended March 31, 2001, compared to $174,990 for the similar 2000 period. We recorded the following interest expense related to the 10% convertible note payable: Three months ended March 31, ---------------------------- 2001 2000 ---------- ---------- Amortization of discount $ 44,440 $ 50,381 Amortization of financing costs 15,734 24,480 Beneficial conversion feature 2,394,234 - ---------- ---------- Total non-cash interest expense 2,454,408 74,861 Interest expense payable in cash 69,479 95,890 ---------- ---------- Total 10% note payable interest expense $2,523,887 $ 170,751 ========== ========== The 10% convertible note payable was initially convertible into shares of our common stock at a conversion price of $10.07 per share. The conversion price is subject to anti-dilution protection in the event we issue common stock at prices less than the conversion price for the 10% convertible note payable or the then current price for our common stock and for stock splits, stock dividends and other similar transactions. As a result of the private placement of preferred stock we completed in February 2001, the conversion price was reset to $2.50 per share. As a result, we recorded non-cash interest expense totalling $2,394,234 in the first quarter of 2001. If the conversion price is further reduced, we may be required to record additional charges against income and such charges may be significant. As a result of the $2.5 million note payable agreement executed on May 2, 2001, between our subsidiary Jabber.com and France Telecom (See Note 9 to Notes to Consolidated Financial Statements for information regarding the issuance of this note), we will record additional interest expense in future periods at a rate of 9.5% per annum until the note is paid in full or converted into preferred stock. Discontinued Operations: On September 12, 2000, we sold our e-banking segment to a privately held company. The sale of this segment is reflected as a sale of discontinued operation in our consolidated financial statements. Accordingly, the revenues, costs and expenses of these discontinued operations have been excluded from the respective captions in the Consolidated Statement of Operations and have been reported as "Loss from discontinued operations" for all years presented. Summarized financial information for the discontinued operations is as follows: Three Months Ended March 31, -------------------------- 2001 2000 ---------- ---------- Net revenues $ - $ 197,269 Cost of revenues and operating expenses $ - $ 117,112 Loss from operations $ - $ 34,791 21 Preferred Stock Accretion Expense and Dividends: The terms of our preferred stock grant the holders the right to convert the preferred stock into shares of our common stock at specified conversion prices. In each issuance of preferred stock, the conversion price has included a beneficial conversion feature because the value of the common stock resulting from a theoretical conversion of the preferred stock on the issuance date is greater than the allocated value of the preferred stock. In addition, if the conversion price of the preferred stock is reduced in future periods, accounting principles generally accepted in the United States require us to re-compute the beneficial conversion feature on the then outstanding shares of preferred stock. Accounting principles generally accepted in the United States require us to record the beneficial conversion feature, the value of warrants and, in most instances, the cash offering costs as additional preferred stock dividends. This non-cash charge to net loss applicable to common stockholders is labeled "Accretion of preferred stock to stated value". During the 2001 period, we recorded accretion expense totalling $2,856,627, including $1,970,558 related to the issuance of our series C-1 preferred stock and $886,069 related to the reset of the conversion price of our series B-2 preferred stock on February 28, 2001. The series B-2 and series C-1 preferred stock are currently convertible into shares of our common stock at $2.50 per share. The conversion prices are subject to anti-dilution protection in the event we issue common stock at prices less than the current conversion price for the preferred stock or the then current price for our common stock and for stock splits, stock dividends and other similar transactions. If the conversion prices are reduced, we may be required to record additional charges against income and such charges may be significant. We may also incur additional preferred stock accretion expense in future periods as a result of the convertible preferred stock we issue in connection with the investment contemplated by France Telecom Technologies in our Jabber.com subsidiary. We will also record preferred stock dividends at the rate of 8% per annum on such preferred stock. We may also record additional preferred stock accretion expense if we issue our series C-2 preferred stock as contemplated in the securities purchase agreement we entered into on February 28, 2001. The accretion expense in future periods as a result of these two transactions, if any, maybe significant. Net Loss Applicable to Common Stockholders: Net loss allocable to common stockholders was $10,836,827 for the three months ended March 31, 2001, compared to $18,267,668 for the similar 2000 period. We recorded non-cash expenses for the following items:
Three months ended March 31, ---------------------------- 2001 2000 ------------ ------------ Amortization of intangible assets and goodwill $ 855,145 $ 2,037,255 Stock and warrants issued for services 168,842 175,170 Beneficial conversion feature, amortization of discount and placement fees to interest expense and non-cash interest related to the 10% convertible note payable 2,454,408 74,861 Preferred stock dividends - 373,126 Accretion of preferred stock 2,856,627 12,500,000 ------------ ------------ Total $ 6,335,022 $ 15,160,412 ============ ============
The increase in losses reflect losses from Jabber.com totalling $1,999,970 for the three months ended March 31, 2001, and expenses in the sales and marketing, product development, and general and administrative areas that have increased at a faster rate than revenues. This is due to the time-lag associated with product development and market introduction as well as the long sales cycle for most of our products and services. We expect to continue to experience increased operating expenses during 2001, from Jabber.com and as we continue to 22 develop new product offerings and the infrastructure required to support our anticipated growth. We expect to report operating and net losses for 2001 and for one or more years thereafter. LIQUIDITY AND CAPITAL RESOURCES As of March 31, 2001, we had cash and cash equivalents of $1,566,250 and working capital of $1,146,922. We financed our operations and capital expenditures and other investing activities during 2001 primarily through the sale of securities (See Note 5 to Notes to Consolidated Financial Statements for information regarding these sales of securities). We used $5,636,715 in cash to fund our operations for the three months ended March 31, 2001, compared to $3,759,432 for the similar 2000 period. The increase in net cash used in 2001 resulted primarily from cash used by the operations of Jabber.com which totalled approximately $1.8 million. We received $6,622 in cash from investing activities, including $30,000 from the collection of notes receivable from Company officers. The cash received was partially offset by purchases of property and equipment totalling $31,878 during the three months ended March 31, 2001, compared to $598,822 for the similar 2000 period. We plan to purchase an additional $1.8 million of property and equipment during the balance of 2001. In order to maintain operations and business and product development efforts at planned levels for our AccelX business, we will need to raise additional capital by June 2001. The timing of the need for this capital has been accelerated due to our continuing to internally fund the development of our Jabber.com business through April 2001. As an alternative to the remaining $2.5 million which may be raised pursuant to the preferred stock financing, we have a non-binding commitment from an institutional investor to provide from $1.25 to $2.5 million in the event that we are not able to satisfy the conditions required to be met to obtain the balance of the preferred stock financing. We expect to finalize this commitment within the next ten days. An additional $2.5 million would fund our AccelX business to at least September 2001. In addition to the foregoing financing alternatives, we are continuing our discussions with strategic and institutional investors for additional financing for our AccelX business. We believe that the initial $2.5 million investment by France Telecom Technologies in our Jabber.com subsidiary will be sufficient to fund Jabber.com's activities through October 2001. In addition, the $4.5 million additional investment in Jabber.com which is contemplated that France Telecom Technologies will make will be adequate to fund our Jabber.com operations through at least the first quarter of 2002. In addition to the funds that France Telecom Technologies is expected to provide, we intend to seek up to an additional $3 million to fund Jabber.com's business from other investors on terms similar to those for France Telecom Technologies. In the event that we are not able to obtain additional operating capital for our AccelX business, we will be required to (i) substantially reduce or to cease operations relating to this business, (ii) sell all or a portion of this business, or (iii) sell all or a portion of our interest in Jabber.com to raise additional working capital for our AccelX business. In addition, in the event that we are not able to complete the Jabber.com-France Telecom Technologies transaction as contemplated in the letter of intent, we could be required to substantially reduce operations relating to this business or to sell all or a portion of our interest in Jabber.com to raise the additional capital required to fund this business. The sale of all or a portion of our interest in Jabber.com should the France Telecom Technologies transaction not be completed could be difficult due to the pledge of our Jabber.com securities to secure the payment of the France Telecom Technologies note. A reduction in any of our operations or a sale of any of our assets could have a material adverse effect on our operating results and financial condition. In its report accompanying the audited financial statements for fiscal 2000, Arthur Andersen LLP expressed substantial doubt about our ability to continue as a going concern. EXPOSURE TO FOREIGN CURRENCY RISK During 2000, we expanded our operations to include customers located in Europe and we opened an office in Amsterdam. As a result, we are subject to exposure resulting from changes in the Euro (our subsidiary's functional currency) and other currencies related to the United States dollar. Further, from time to time, we may agree to accept a receivable denominated in currencies other than our functional currencies (i.e., the United States Dollar and the Euro). During 2001, we recorded $14,632 of transaction loss related to exchange rate changes between the Euro and the U.S. Dollar on receivables from customers denominated in the Euro. 23 FACTORS THAT MAY AFFECT FUTURE RESULTS Factors that may affect our future results include, but are not limited to, the following items as well as the information in "Item 1 - Financial Statements - - Notes to the Consolidated Financial Statements" and "Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations." Our limited operating history could affect our business. We were founded in March 1994 and commenced sales in February 1995. Subsequently, our business model has changed periodically to reflect changes in technology and markets. Accordingly, we have a limited operating history for our current business model upon which you may evaluate us. Our business is subject to the risks, exposures and difficulties frequently encountered by companies with a limited operating history including: . Limited ability to respond to competitive developments; . Exaggerated effect of unfavorable changes in general economic and market conditions; . Difficulty in attracting and retaining qualified personnel; . Limited ability to develop and introduce new product and service offerings; . Limited ability to adjust the business plan to address marketplace and technological changes; and . Difficulty in obtaining operating capital. There is no assurance we will be successful in addressing these risks. If we are unable to successfully address these risks our business could be significantly adversely affected. We have accumulated losses since inception and we anticipate that we will continue to accumulate losses for the foreseeable future. We have incurred net losses since inception totalling approximately $102 million through March 31, 2001. In addition, we expect to incur additional substantial operating and net losses in 2001 and for one or more years thereafter. We expect to incur these additional losses because: . We currently intend to increase our capital expenditures and operating expenses to cover the increasing activities of our Jabber.com, Inc. subsidiary; and . We recorded goodwill and other intangible assets totalling approximately $885,000 in the first quarter of 2001in connection with the acquisitions of three businesses and we will record amortization expense of approximately $2.5 million during the remainder of 2001 and $2.6 million in 2002. A review of these assets in future periods may indicate that the assets are impaired which would require us to record a charge to earnings and that charge may be significant. The accumulated deficit at March 31, 2001, included approximately $57.5 million of non-cash expenses related to the issuance of preferred stock and warrants in financing transactions, stock and stock options issued for services, warrants issued to four customers, interest expense on 10% convertible notes payable and amortization of assets acquired through the issuance of our securities. The current competitive business and capital environments likely will result in our issuance of similar securities in future financing transactions or to other companies as an inducement for them to enter into a business relationship with us. While these transactions represent non-cash charges, they will increase our expenses and net loss and our net loss applicable to common stockholders. If we are unable to raise additional working capital funds, we may not be able to sustain our operations. We believe that our present cash and cash equivalents, working capital available for our AccelX business is adequate to sustain this business only until June 2001. The funds raised in May 2001 from the investment by France Telecom Technologies in our Jabber.com subsidiary will be adequate to sustain Jabber.com's current level of operations only until November 2001. We will, therefore, need to obtain additional capital to fund our businesses. There is no assurance that we will be able to raise additional funds in amounts required or upon acceptable terms. If we cannot raise additional funds when needed, we may be required to curtail or scale back our operations or sell some of our assets. These actions could have a material adverse effect on our business, financial condition or results of operations. The pledge of our shares of Jabber.com, Inc. stock could result in our loss of all or a portion of this stock. We have pledged all of our shares of Jabber.com stock to secure a $2.5 million loan to Jabber.com by France Telecom Technologies. In the event that the loan is not converted into preferred stock as contemplated in the letter of intent and we or Jabber.com are not able to repay the loan in accordance with the terms, France Telecom Technologies could sell all or a portion of this stock, or take other actions to satisfy the to pay the interest and principal due on the note. The loss of all or a portion of this stock could have a material adverse effect on our consolidated results of operations or financial condition. 24 We may never become or remain profitable. Our ability to become profitable depends on the ability of our products and services to generate revenues in excess of our expenses. The success of our revenue model will depend upon many factors including: . The success of our distribution partners in marketing their products and services; and . The extent to which consumers and businesses use our products and services. Because of the new and evolving nature of the Internet, we cannot predict whether our revenue model will prove to be viable, whether demand for our products and services will materialize at the prices we expect to charge, or whether current or future pricing levels will be sustainable. Additionally, our customer contracts may result in significant license or development revenue in one quarter, which will not recur in the next quarter for that customer. As a result, it is likely that components of our revenue will be volatile, which may cause our stock price to be volatile as well. Our business depends on the growth of the Internet and its acceptance as a platform for business commerce and communication. Our business plan assumes that the Internet will develop into a significant source of business-related communication and communication interactivity. However, the Internet market is new and rapidly evolving and there is no assurance that the Internet will develop in this manner. If the Internet does not develop in this manner, our business, operating results and financial condition would be materially adversely affected. Numerous factors could prevent or inhibit the development of the Internet in this manner, including: . The failure of the Internet's infrastructure to support Internet usage or electronic commerce; . The failure of businesses developing and promoting Internet commerce to adequately secure the confidential information, such as credit card numbers, needed to carry out Internet commerce; and . Regulation of Internet activity. Use of many of our products and services will be dependent on distribution partners. Because we have elected to partner with other companies for the distribution of many of our products and services, many users of our products and services are expected to obtain or utilize them through our distribution partners. As a result, our distribution partners, and not us, will substantially control the customer relationship with these users. If the business of the companies with whom we partner is adversely affected in any manner, our business, operating results and financial condition could be materially adversely affected. We may be unable to develop desirable products. Our products are subject to rapid obsolescence and our future success will depend upon our ability to develop new features, products and services that meet changing customer and marketplace requirements. There is no assurance that we will be able to successfully: . Identify new product and service opportunities; or . Develop and introduce new products and services to market in a timely manner. In addition, even if we are able to identify new opportunities, our working capital constraints may not permit us to pursue them. If we are unable to identify and develop and introduce new products and services on a timely basis, our business, operating results and financial condition could be materially adversely affected. Our products and services may not be successful. A suitable market for our products and services may not develop or, if it does develop, it may take years for the market to become large enough to support significant business opportunities. Even if we are able to successfully identify, develop, and introduce new products and services there is no assurance that a market for these products and services will materialize to the size and extent that we anticipate. If a market does not materialize as we anticipate, our business, operating results, and financial condition could be materially adversely affected. The following factors could affect the success of our products and services and our ability to address sustainable markets: . The failure of our business plan to accurately predict the rate at which the market for Internet products and services will grow; 25 . The failure of our business plan to accurately predict the types of products and services the future Internet marketplace will demand; . Our limited experience in marketing our products and services; . Our limited working capital may not allow us to commit the resources required to adequately support the introduction of new products and services. . The failure of our business plan to accurately predict our future participation in the Internet marketplace; . The failure of our business plan to accurately predict the estimated sales cycle, price and acceptance of our products and services; . The development by others of products and services that renders our products and services noncompetitive or obsolete; or . Our failure to keep pace with the rapidly changing technology, evolving industry standards and frequent new product and service introductions that characterize the Internet marketplace. The intense competition that is prevalent in the Internet market could have a material adverse effect on our business. Our current and prospective competitors include many companies whose financial, technical, marketing and other resources are substantially greater than ours. There is no assurance that we will have the financial resources, technical expertise or marketing, sales and support capabilities to compete successfully. The presence of these competitors in the Internet marketplace could have a material adverse effect on our business, operating results or financial condition by causing us to: . Reduce the average selling price of our products and services; or . Increase our spending on marketing, sales and product development. There is no assurance that we would be able to offset the effects of any such price reductions or increases in spending through an increase in the number of our customers, higher sales from premium services, cost reductions or otherwise. Further, our financial condition may put us at a competitive disadvantage relative to our competitors. If we fail to, or cannot, meet competitive challenges, our business, operating results and financial condition could be materially adversely affected. A limited number of our customers generate a significant portion of our revenues. We had four customers representing 82% of revenues for the three months ended March, 2001, and four customers representing 97% of revenues from continuing operations for the three months ended March 31, 2000. There is no assurance that we will be able to attract or retain major customers. The loss of, or reduction in demand for products or services from major customers could have a material adverse effect on our business, operating results, cashflow and financial condition. The sales cycle for our products and services is lengthy and unpredictable. While our sales cycle varies from customer to customer, it typically has ranged from two to nine months or more. Our pursuit of sales leads typically involves an analysis of our prospective customer's needs, preparation of a written proposal, one or more presentations and contract negotiations. We often provide significant education to prospective customers regarding the use and benefits of our Internet technologies and services. Our sales cycle may also be affected by a prospective customer's budgetary constraints and internal acceptance reviews, over which we have little or no control. In order to quickly respond to, or anticipate, customer requirements, we may begin development work prior to having a signed contract, which exposes us to the risk that the development work will not be recovered from revenue from that customer. It may take one or more years for our business model to generate significant revenues which could increase our requirement for investment capital and could have an adverse effect on our ability to become profitable. Many of our products and services, particularly our AccelX products and services, are offered on a revenue-share basis. Once we have sold our products and services, it may take three or more months for them to be integrated into our customers' businesses and product offerings. Further, even after our customers have begun to market our products and services to their customers, our limited operating history does not enable us to predict how 26 long it generally will take before their customers will begin to use our products and services in sufficient quantity to provide us with significant recurring revenues. As a result, even if significant business for our products and services does develop, we may not recognize meaningful revenues from this business for many months or possibly even for one or more years. This could require that we raise significant additional investment capital to sustain our operations and could have a materially adverse effect on our ability to become profitable within the next one or more years. We may not be able to offer proprietary products based on the Jabber.org open-source movement without jeopardizing our relationship with the Jabber.org or other open-source communities. An important element of the business model for our Jabber.com, Inc. subsidiary is based upon Jabber.com's ability to offer proprietary products compatible with the Jabber.org open-source instant messaging systems. A key element of open-source software development movements is that the software and its code be offered to other developers and users free, provided that any one who makes an improvement or modification to the software and who intends to commercialize the improvement or modification, makes them available for free to the community and other users. In the event that the Jabber.org open-source community or other open-source communities withdraw their support for either Jabber.com or Jabber instant messaging products due to Jabber.com's sale of proprietary products or for any other reason, our and Jabber.com's business, financial condition or results of operations could be materially adversely affected, and may limit our ability to raise capital around this product. We may be unable to adjust our spending to account for potential fluctuations in our quarterly results. As a result of our limited operating history, we do not have historical financial data for a sufficient number of periods on which to base planned operating expenses. Therefore, our expense levels are based in part on our expectations as to future sales and to a large extent are fixed. We typically operate with little backlog and the sales cycles for our products and services may vary significantly. As a result, our quarterly sales and operating results generally depend on the volume and timing of and the ability to close customer contracts within the quarter, which are difficult to forecast. In addition, individual customers may account for a large portion of our revenues during one or more quarters which could result in a high degree of volatility in our revenues from one fiscal period to another. We may be unable to adjust spending in a timely manner to compensate for any unexpected sales shortfalls. If we were unable to so adjust, any significant shortfall of demand for our products and services in relation to our expectations would have an immediate adverse effect on our business, operating results and financial condition. Further, we currently intend to increase our capital expenditures and operating expenses to fund the operations of our Jabber.com, Inc. subsidiary. To the extent that such expenses precede or are not subsequently followed by increased sales, our business, operating results and financial condition will be materially adversely affected. We may be unable to retain our key executives and research and development personnel. Our future success also depends in part on our ability to identify, hire and retain additional personnel, including key product development, sales, marketing, financial and executive personnel. Competition for such personnel is intense and there is no assurance that we can identify or hire additional qualified personnel. Executives and research and development personnel who leave us may compete against us in the future. We generally enter into written nondisclosure and nonsolicitation agreements with our officers and employees which restrict the use and disclosure of proprietary information and the solicitation of customers for the purpose of selling competing products or services. However, we generally do not require our employees to enter into non-competition agreements. Thus, if any of these officers or key employees left, they could compete with us, so long as they did not solicit our customers. Any such competition could have a material adverse effect on our business. We may be unable to manage our expected growth. If we are able to implement our growth strategy, we will experience significant growth in the number of our employees, the scope of our operating and financial systems and the geographic area of our operations. There is no assurance that we will be able to implement in whole or in part our growth strategy or that our management or other resources will be able to successfully manage any future growth in our business. Any failure to do so could have a material adverse effect on our operating results and financial condition. We may be unable to protect our intellectual property rights. Intellectual property rights are important to our success and our competitive position. There is no assurance that the steps we take to protect our intellectual property rights will be adequate to prevent the imitation or unauthorized use of our intellectual property rights. 27 Policing unauthorized use of proprietary systems and products is difficult and, while we are unable to determine the extent to which piracy of our software exists, we expect software piracy to be a persistent problem. In addition, the laws of some foreign countries do not protect software to the same extent as do the laws of the United States. Even if the steps we take to protect our proprietary rights prove to be adequate, our competitors may develop services or technologies that are both non-infringing and substantially equivalent or superior to our services or technologies. Computer viruses and similar disruptive problems could have a material adverse effect on our business. Our software and equipment may be vulnerable to computer viruses or similar disruptive problems caused by our customers or other Internet users. Our business, financial condition or operating results could be materially adversely affected by: . Losses caused by the presence of a computer virus that causes us or third parties with whom we do business to interrupt, delay or cease service to our customers; . Losses caused by the misappropriation of secured or confidential information by a third party who, in spite of our security measures, obtains illegal access to this information; . Costs associated with efforts to protect against and remedy security breaches; or . Lost potential revenue caused by the refusal of consumers to use our products and services due to concerns about the security of transactions and commerce that they conduct on the Internet. Future government regulation could materially adversely affect our business. There are currently few laws or regulations directly applicable to access to, communications on, or commerce on the Internet. Therefore, we are not currently subject to direct regulation of our business operations by any government agency, other than regulations applicable to businesses generally. Due to the increasing popularity and use of the Internet, however, federal, state, local, and foreign governmental organizations have, from time to time, considered a number of legislative and regulatory proposals related to the Internet. The adoption of any of these laws or regulations may decrease the growth in the use of the Internet, which could, in turn: . Decrease the demand for our products and services; . Increase our cost of doing business; or . Otherwise have a material adverse effect on our business, results of operations and financial condition. Moreover, the applicability to the Internet of existing laws governing issues such as property ownership, copyright, trademark, trade secret, obscenity, libel and personal privacy is uncertain and developing. Our business, results of operations and financial condition could be materially adversely affected by the application or interpretation of these existing laws to the Internet. Our articles of incorporation and bylaws may discourage lawsuits and other claims against our directors. Our articles of incorporation provide, to the fullest extent permitted by Colorado law, that our directors shall have no personal liability for breaches of their fiduciary duties to us. In addition, our bylaws provide for mandatory indemnification of directors and officers to the fullest extent permitted by Colorado law. These provisions may reduce the likelihood of derivative litigation against directors and may discourage shareholders from bringing a lawsuit against directors for a breach of their duty. The price of our common stock has been highly volatile due to factors that will continue to affect the price of our stock. Our common stock closed as high as $6.25 per share and as low as $1.00 per share between January 1, 2001 and May 7, 2001. Historically, the over-the-counter markets for securities such as our common stock have experienced extreme price and volume fluctuations. Some of the factors leading to this volatility include: . Price and volume fluctuations in the stock market at large that do not relate to our operating performance; . Fluctuations in our quarterly revenue and operating results; . Announcements of product releases by us or our competitors; . Announcements of acquisitions and/or partnerships by us or our competitors; and 28 . Increases in outstanding shares of common stock upon exercise or conversion of derivative securities. These factors may continue to affect the price of our common stock in the future. We have issued numerous options, warrants, and convertible securities to acquire our common stock that could have a dilutive effect on our shareholders. As of May 7, 2001, we had issued warrants and options to acquire 5,468,687 shares of our common stock, exercisable at prices ranging from $1.875 to $58.25 per share, with a weighted average exercise price of approximately $9.19 per share. In addition to these warrants and options, we have reserved 2,640,852 shares of common stock for issuance upon conversion of our 10% convertible notes and series B-2 and C-1 convertible preferred stock. We have also reserved up to 1,200,000 shares for issuance upon conversion of the series C-2 convertible preferred stock and exercise of the series C-2 warrant which may be purchased by the holder of the Series C-1 preferred stock and warrants. During the terms of these derivative securities, the holders will have the opportunity to profit from an increase in the market price of our common stock with resulting dilution to the holders of shares who purchased shares for a price higher than the respective exercise or conversion price. In addition, the increase in the outstanding shares of our common stock as a result of the exercise or conversion of these derivative securities could result in a significant decrease in the percentage ownership of our common stock by current and future holders of our common stock. The potentially significant number of shares issuable upon conversion of our 10% convertible notes and convertible preferred stock could make it difficult to obtain additional financing. Due to the significant number of shares of our common stock which could result from a conversion of our 10% convertible notes and series B-2, C-1 and, if issued, C-2 convertible preferred stock, new investors may either decline to make an investment in Webb due to the potential negative effect this additional dilution could have on their investment or require that their investment be on terms at least as favorable as the terms of the notes or convertible preferred stock. If we are required to provide similar terms to obtain required financing in the future, the potential adverse effect of these financings could be perpetuated and significantly increased. Future sales of our common stock in the public market could adversely affect the price of our common stock. Sales of substantial amounts of common stock in the public market that is not currently freely tradable, or even the potential for such sales, could have an adverse affect on the market price for shares of our common stock and could impair the ability of purchasers of our common stock to recoup their investment or make a profit. As of May 7, 2001, these shares consist of: . Approximately 384,884 shares owned by our executive officers and directors of our outstanding common stock ("Affiliate Shares"); . Up to 2,640,852 shares issuable upon conversion of the 10% convertible notes and series B-2 and C-1 preferred stock; . Approximately 5,468,687 shares issuable to warrant and option holders; and . Up to 1,200,000 shares issuable upon conversion of the series C-2 convertible preferred stock and exercise of the series C-2 warrant which may be issued to the holder of the Series C-1 preferred stock. Unless the Affiliate Shares are further registered under the securities laws, they may not be resold except in compliance with Rule 144 promulgated by the SEC, or some other exemption from registration. Rule 144 does not prohibit the sale of these shares but does place conditions on their resale which must be complied with before they can be resold. The trading volume of our common stock may diminish significantly if our common stock is delisted from the Nasdaq National Market. Although our shares are currently traded on the Nasdaq National Market, there is no assurance that we will remain eligible to be included on Nasdaq. If our common stock was no longer eligible for quotation on Nasdaq, it could become subject to rules adopted by the Securities and Exchange Commission, regulating broker/dealer practices in connection with transactions in "penny stocks." If our common stock became subject to the penny stock rules, many brokers may be unwilling to engage in transactions in our common stock because of the added regulation, thereby making it more difficult for purchases of our common stock to dispose of their shares. 29 Future sales of our common stock in the public market could limit our ability to raise capital. Sales of substantial amounts of our common stock in the public market pursuant to Rule 144, upon exercise or conversion of derivative securities or otherwise, or even the potential for such sales, could affect our ability to raise capital through the sale of equity securities. Provisions in our articles of incorporation allow us to issue shares of stock that could make a third party acquisition of us difficult. Our Articles of Incorporation authorize our Board of Directors to issue up to 60,000,000 shares of common stock and 5,000,000 shares of preferred stock in one or more series, the terms of which may be determined at the time of issuance by the Board of Directors, without further action by our shareholders. Preferred stock authorized by the Board of Directors may include voting rights, preferences as to dividends and liquidation, conversion and redemptive rights and sinking fund provisions. If the Board of Directors authorizes the issuance of preferred stock in the future, this authorization could affect the rights of the holders of common stock, thereby reducing the value of the common stock, and could make it more difficult for a third party to acquire us, even if a majority of the holders of our common stock approved of an acquisition. The issuance of our 10% convertible notes payable and convertible preferred stock has required us to record non-cash expenses which, in turn, increased our net loss applicable to common shareholders. Based on generally accepted accounting principles, we recorded a non-cash expense of approximately $2.5 million as additional interest expense and $2.9 million of accretion expense for the three months ended March 31, 2001, as a result of the issuance of our 10% convertible notes and the issuance of our series C-1 and B-2 preferred stock, respectively. In addition, we may incur significant additional non-cash expenses if we issue the series C-2 convertible preferred stock and accompanying warrant to the holder of the Series C-1 preferred stock or if the conversion prices of our convertible securities or the exercise price of certain warrants are reset. We do not anticipate paying dividends on our common stock for the foreseeable future. We have never paid dividends on our common stock and do not intend to pay any dividends on our common stock in the foreseeable future. Any decision by us to pay dividends on our common stock will depend upon our profitability at the time, cash available therefore, and other factors. We anticipate that we will devote profits, if any, to our future operations. PART II OTHER INFORMATION Items 1, 3 to 5. Not Applicable Item 2. Changes in Securities and Use of Proceeds On February 28, 2001, we sold 2,500 shares of our series C-1 preferred stock, $1,000 stated value, an investor for $2.5 million. In connection with this investment, the investor was granted a warrant to purchase 500,000 shares of our common stock at an initial exercise price of $3.75 per share. See Note 5 of the Notes to Consolidated Financial Statements for a description of the terms of the securities. The securities were not registered under the Securities Act of 1933, as amended, in reliance upon Regulation D promulgated by the Securities and Exchange Commission. On May 2, 2001, our Jabber.com subsidiary executed a convertible note payable with an investor for $2.5 million. See Note 9 of the Notes to Consolidated Financial Statements for a description of this transaction. The securities were not registered under the Securities Act of 1933 in reliance upon Section 4(2) of this act. Item 6. Exhibits and Reports on Form 8-K (a) Listing of Exhibits: 3.1 Articles of Incorporation, as amended, of Webb (1) 30 3.2 Bylaws of Webb (2) 4.1 Specimen form of Webb's Common Stock certificate (3) 4.2 Stock Option Plan of 1995 (2) 4.3 Form of Incentive Stock Option Agreement for Stock Option Plan of 1995 (2) 4.4 Form of Nonstatutory Stock Option Agreement for Stock Option Plan of 1995 (2) 4.5 Stock Option Plan of 2000, including forms of Incentive and Nonstatutory Stock Option Agreements (14) 4.6 Jabber.com, Inc. Stock Option Plan of 2000, including forms of Incentive and Nonstatutory Stock Option Agreements (14) 10.1 Form of Nondisclosure and Nonsolicitation Agreement between Webb and its employees (1) 10.2 Office Lease for Webb's principal offices commencing May 2000 (5) 10.3 Form of Change of Control Agreement between Webb and certain employees (4) 10.4 Employment Agreement dated March 10, 1999, among Webb, NetIgnite2, LLC and Perry Evans (4) 10.5 Securities Purchase Agreement dated August 25, 1999 between Webb and Castle Creek (6) 10.6 Promissory Note dated August 25, 1999 issued by Webb to Castle Creek (6) 10.7 Amendment dated December 18, 1999 to Securities Purchase Agreement dated August 25, 1999 between Webb and Castle Creek (7) 10.8 First Amendment dated December 18, 1999 to Promissory Note dated August 25, 1999 issued by Webb to Castle Creek (7) 10.9 Stock Purchase Warrant dated December 18, 1999 issued by Webb to Castle Creek (2) 10.10 Securities Purchase Agreement dated December 31, 1999, between Webb, Marshall Capital Management and Castle Creek. Included as exhibits to the Securities Purchase Agreement are the proposed form of Warrant and the Registration Rights Agreement (8) 10.11 Letter Agreement dated as of September 14, 2000 between Webb and Castle Creek. (9) 10.12 Articles of Amendment setting forth the terms of the series B-2 convertible preferred stock (9) 10.13 Exchange Agreement dated as of September 14, 2000, between Webb and Castle Creek (9) 10.14 Securities Purchase Agreement dated as of February 28, 2001, between Webb and Castle Creek Technology Partners LLC. Included as exhibits thereto are the Articles of Amendment setting forth the terms of the Series C-1 Convertible Preferred Stock, the form of Articles of Amendment for the Series C-2 Convertible Preferred Stock, the forms of Series C-1 and C-2 Warrants and the Registration Rights Agreement (15) 10.15 Articles of Amendment setting forth the terms of the Series C-1 Convertible Preferred Stock (15) 10.16 Note Purchase Agreement, Series B Convertible Preferred Stock Agreement, effective May 2, 2001, between Jabber.com. Inc, a majority-owned subsidiary of Webb, and France Telecom Technologies (16) 10.17 Articles of Amendment for Webb's subsidiary, Jabber.com. Inc., setting forth the terms of its series B and series C convertible preferred stock (16) 10.18 Master Software License Agreement, Maintenance and Support Agreement and Professional Services Agreement, effective February 28, 2001, between Webb and SwissOnline AG (*) 13 The registrant intends to deliver to its shareholders a copy of 2000 Annual Report on form 10-KSB (without exhibits), in lieu of a separate Annual Report to Shareholders 21 Subsidiaries of Webb Interactive Services, Inc. (14) - ----------------------------- * Filed herewith. (1) Filed with the Form 10-KSB Annual Report for the year ended December 31, 1997, Commission File No. 0-28462. (2) Filed with the Form 8-K Current Report, filed January 14, 2000, Commission File No. 0-28642. (3) Filed with the Form 10-QSB for the quarter ended June 30, 1999, Commission File No. 0-28642. (4) Filed with the Registration Statement on Form S-3, filed January 29, 1999, Commission File No. 333-71503. (5) Filed with the initial Registration Statement on Form SB-2, filed April 5, 1996, Commission File No. 333-3282-D. (6) Filed with the Registration Statement on Form S-3, filed September 24, 1999, Commission File No. 333-86465. 31 (7) Filed with the Form 10-KSB Annual Report for the year ended December 31, 1998, Commission File No. 0-28462. (8) Filed with the Form 8-K Current Report, filed September 2, 1999, Commission File No. 0-28642. (9) Filed with Amendment No. 2 to Webb's Registration Statement on Form S-3, filed January 3, 2000, Commission File No. 333-87887 (10) Filed with the Form 8-K Current Report, filed January 5, 2000, Commission File No. 0-28642. (11) Filed with the Form 8-K Current Report, filed February 25, 2000, Commission File No. 0-28642. (12) Filed with the Registration Statement on Form S-3, filed September 2, 1999, Commission File No. 333-86465. (13) File with the Form 10-KSB Annual Report for the year ended December 31, 1999, Commission File No. 0-28462. (14) File with the Form 10-KSB Annual Report for the year ended December 31, 2000, Commission File No. 0-28462. (15) Filed with the Form 8-K Current Report, filed March 1, 2001, Commission File No. 0-28642. (16) Filed with the Form 8-K Current Report, filed May 10, 2001, Commission File No. 0-28642. (b) Reports on Form 8-K. The Company filed reports on Form 8-K during the quarter ended March 31, 2000 as follows: (i) filed under Item 5 of Form 8-K on March 1, 2001; (ii) filed under Item 5 of Form 8-k on May 10, 2001. 32 Signatures In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WEBB INTERACTIVE SERVICES, INC. Date: May 16, 2001 By /s/ William R. Cullen --------------------------- Chief Financial Officer /s/ Stuart Lucko --------------------------- Controller 33 EX-10.18 2 dex1018.txt MASTER SOFTWARE LICENSE AGREEMENT WEBB INTERACTIVE SERVICES MASTER SOFTWARE LICENSE AGREEMENT THIS MASTER SOFTWARE LICENSE AGREEMENT ("Agreement"), together with the attached Schedules, Exhibits or Addenda which are incorporated and made part of this Agreement, is entered into by and between WEBB INTERACTIVE SERVICES, INC. ("Webb"), a Colorado corporation with its principal offices located at 1899 Wynkoop, Suite 600, Denver Colorado, USA 80202 and the client(s) ("Client") whose name, principal business address, and jurisdiction of incorporation are set forth below. Webb and Client are referred to collectively as the "Parties." - ----------------------------------------------------------------------------------------------------------- Client Name(s): (Fill in the complete and legal name(s) of Client) SwissOnline AG -------------------------------------------------- Address: Industriestrasse 19 -------------------------------------------------- City: Otelfingen -------------------------------------------------- State/Zip or Province/Postal Code: CH-8112 -------------------------------------------------- Country: Switzerland -------------------------------------------------- Jurisdiction of Incorporation: Switzerland - -----------------------------------------------------------------------------------------------------------
1.0 License, Hosting Services and Payment. 1.1 Webb hereby grants to Client and the affiliates of the Cablecom group, Client's sole shareholder, listed on Appendix A to this Agreement (the "Affiliates"), a non-transferable License to use the Products, as designated in Schedule A , subject to the terms and conditions of this Agreement. At least 50% of the capital stock (or other ownership interest in any Affiliate that is not a corporation) of each Affiliate shall be owned, directly or indirectly, by the Cablecom group. 1.2 Client may, at its option and expense, host or request a third party or Webb to host Client's web site. If Client elects to have Webb host Client's web site, Webb shall do so only if the Parties enter into a separate Web Site Hosting Agreement. 1.3 Client shall pay Webb the License Fees and any applicable Sales Tax on License Fees, as set forth in Schedule A, Exhibit 1 attached hereto. All fees are exclusive of Taxes. If applicable laws require the withholding of Taxes under this Agreement, Client shall notify Webb, make the applicable withholding, and remit the required Tax to the proper governmental authority. 2.0 Delivery and Installation. 2.1 Unless otherwise agreed by the Parties in a separate written agreement, on the Effective Date, Webb shall deliver the Products to Client, including one copy of the Software and one copy of the Documentation on appropriate media. 2.2 Unless otherwise agreed by the Parties in a separate written agreement, Client shall, at its expense, be responsible for installation of the Software, user training, data conversion, and other services necessary to installing and using the Products. 3.0 Definitions. 3.1 "Agreement" means this Agreement, Exhibits, Schedules and any addenda signed by the Parties. 3.2 "Documentation" means all documentation delivered by Webb with the Software, whether in machine-readable or printed form, including any updates, revisions, new versions, and supplements to such documentation. 3.3 "Effective Date" means the date when an authorized representative of Webb signs this Agreement as indicated at the end of this Agreement in the space marked "Date" below Webb's signature to this Agreement. 3.4 "Intellectual Property Rights" means all copyrights, confidentiality rights, trade secret rights, trademark rights, patent rights and other intellectual property rights. 3.5 "License" means the license referred to in Section 1.1. 3.6 "License Fee" means the license fee payable for a Product as set forth in the Schedule A, Exhibit 1. 3.7 "Maintenance and Support" means the assistance, if any, provided by Webb to Client pursuant to the Maintenance and Support Agreement attached to this Agreement as Schedule B. 3.8 "Modifications or Enhancements" means any modifications, enhancements or derivative works to the Products that contain or use any object code or source code developed by Webb. 3.9 "Number of Subscribers" means the maximum number of Client's customers' web sites that may use the licensed Products. 3.10 "Number of Sites" means the maximum number of locations or street addresses, at which the server portion of the Products are installed. 3.11 "Platform Technology" means the current and future release levels of the combined hardware operating system and database system designated in the Exhibits and certified by Webb for use with the Products. Unless otherwise provided in this Agreement, Webb shall not be obligated to provide Support for any portion of the Platform Technology. 3.12 "Products" means the products owned by Webb and designated on the Schedule A to this Agreement. 3.13 "Product Warranty" means the warranty referred to in Section 5.0. 3.14 "Software" means the software portion of the Product installed on the Platform Technology in object code format, any updates, revisions, new versions, supplements, and all permitted copies of the foregoing supplied by Webb to Client, whether in machine readable or printed form. 3.15 "Taxes" means any sales, use, excise, value-added, withholding taxes or other taxes based upon this Agreement, including taxes, interest and penalties that are levied or assessed by a governmental authority, resulting from this Agreement, excluding taxes based on Webb's net income. 3.16 The singular and plural shall each include the other, and this Agreement shall be read accordingly when required by the facts. 4.0 Maintenance and Support. 4.1 If agreed by the Parties, Webb shall provide Maintenance and Support to Client pursuant to the Maintenance and Support Agreement attached hereto as Schedule B. 5.0 Warranty 5.1 Webb warrants that at the time of delivery of the Products, the media containing the Products shall be free of material defects. Client's sole and exclusive remedy for breach of the Media Warranty is replacement of the defective media if any such defect is found within three (3) months after delivery of the defective media. 5.2 Webb warrants that upon delivery, the Products shall materially or substantially perform in accordance with the Documentation provided by Webb. Client's exclusive remedies for breach of the Product Warranty are (a) Client may request support from Webb to enable the Products to comply with the Product Warranty, and (b) if the support requested by Client does not enable the Products to comply with the Product Warranty within a reasonable period of time, Client may, at its option, seek a replacement of the affected Products or a refund of the License Fee paid directly to Webb by Client for the affected Products. Webb shall not be liable to remedy any claimed breach of the Product Warranty due to the acts or omissions of Client or any third party. 5.3 THE EXPRESS LIMITED WARRANTIES IN THIS SECTION 5.0 ARE IN LIEU OF ALL OTHER WARRANTIES AND CONDITIONS EXPRESSED OR IMPLIED, CONTRACTUAL OR STATUTORY, INCLUDING BUT NOT LIMITED TO, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. NOTWITHSTANDING ANY OTHER PROVISION IN THIS AGREEMENT, WEBB DOES NOT WARRANT THAT THE USE OF THE PRODUCTS SHALL BE UNINTERRUPTED OR ERROR FREE OR THAT ALL DEFICIENCIES OR ERRORS ARE CAPABLE OF BEING CORRECTED. 6.0 Intellectual Property Rights. 6.1 Client acknowledges and agrees that the Products, the ideas, methods of operation, processes, know-how, aesthetic aspects, sub-systems and modules included in the Products, the graphical user interfaces for the Products, and the look and feel of the Products are proprietary materials which contain valuable trade secrets and that all Intellectual Property Rights to the Products are owned exclusively by Webb, subject to the License. Webb shall not acquire any Intellectual Property Rights in Client's trademarks, service marks or trade dress. 6.2 Client acknowledges and agrees that Webb shall retain title to all Intellectual Property Rights related to the Products, copies of the Products, and Modifications or Enhancements. If Client makes any Modifications or Enhancements, Client shall assign to Webb all Intellectual Property Rights to the Modifications or Enhancements. In this event, Client shall have a non- exclusive royalty-free worldwide license to use the Modifications or Enhancements. Modifications or Enhancements may be used in conjunction with the Products only in accordance with the terms of this Agreement. Any enhancements to the Products made by Client that do not use any of the object or source code for the Products shall be owned by Client. 6.3 Client shall take reasonable precautions (including the precautions used for Client's own confidential information) to prevent the unauthorized use or disclosure of the Products, any code provided to Client under this Agreement, or the results of any performance or benchmark tests of the Products. Client shall not allow the Products or any such test results to be made available to any third party who is not an authorized user, unless Webb approves such in writing and the third party enters into a non-disclosure and non-use agreement with Client on terms acceptable to Webb. Client shall not disassemble, decompile, decode or reverse engineer the Products, except as expressly permitted by applicable law. 6.4 Client shall keep the Products free and clear of all liens and security interests and may not sublicense the Products. 2 7.0 Inspection. Webb shall have the right to inspect, with reasonable notice, during normal business hours, any location where the Products are being used and to run the Products for the purpose of auditing its use. 8.0 Number of Subscribers. The number of Subscribers authorized to use any Product with the Platform Technology shall not exceed the quantities of Subscribers, as specified for the Products. Client shall take reasonable precautions to ensure that the number and locations of Subscribers are not exceeded, including periodic audits of use of the Products. 9.0 Number of Sites. The Number of Sites upon or at which the Product is installed shall not exceed the quantities specified in this Agreement as stated in the Attached Schedule A. 10.0 Other Products. 10.1 If Client desires to obtain other or additional available products from Webb that do not have pricing, features and functionality similar to the Products, those products shall be licensed for use by Client only by entering into a separate Product License Agreement with Webb at Webb's then current license fees. 10.2 All future products, upgrades or enhancements shall be developed and made available by Webb at its sole discretion. 11.0 Copies of Software and Documentation. 11.1 Client may copy the Software, in object code format, only for backup and archival purposes. All copies of the Software must have all of the restrictive and proprietary notices as they appear on copies of the Software provided by Webb. 11.2 Client may copy Documentation of the Products only on a limited basis related to the number of Subscribers. All copies of the Documentation shall have all of the restrictive and proprietary notices as they appear on copies of the Documentation provided by Webb. 12.0 Object Code. The Software, in object code format, may be used only for diagnosing problems and developing Modifications or Enhancements permitted by this Agreement. Client shall ensure that only such authorized users have access to the object code. 13.0 Infringement. 13.1 Webb shall, at its expense, defend any suit or claim brought against Client and shall indemnify Client against an award of damages and costs against Client by a final court judgment based on a claim that Client's use of a Product infringes a Patent or Copyright, if Client: (a) notifies Webb in writing of the suit or claim within ten (10) days after Client receives notice; (b) gives Webb sole authority to defend or settle the suit or claim; (c) gives Webb all information in Client's control concerning the suit or claim; and (d) reasonably cooperates and assists Webb with defense of the suit or claim. 13.2 If any Product becomes or in Webb's opinion is likely to become the subject of a suit or claim of infringement of a Patent or Copyright, Webb shall at its option and expense (a) obtain the right for Client to use the Product; (b) replace or modify the Product so that it becomes non-infringing; or (c) terminate the License for the infringing Product and this Agreement to the extent it relates to the infringing Product. If Webb terminates the License for the infringing Product: under this Section 13.2 (a) Client shall cease to use the infringing Product and shall return it to Webb; and (b) Webb shall pay Client, as Client's sole and exclusive remedy against Webb (other than indemnification by Webb under Section 12.1) an amount equal to the License Fee paid under this Agreement for the infringing Product less any cumulative amortization or depreciation of that Product by Client on its financial statements as of the date when Webb terminates the License for the infringing Product. 13.3 Webb shall have no liability to Client under this Section 13.0 if any suit or claim of infringement is based upon the use of the Product: (a) in combination, operation or use with any product not furnished by Webb; (b) in a modified state not authorized by Webb; or (c) in a manner other than for which it was designed, if infringement would have been avoided without such use of the Product. 14.0 Term and Termination. 14.1 The term of this Agreement shall begin upon the Effective Date, and shall continue until terminated by either Party pursuant to the terms and conditions of this Agreement. 14.2 Webb may terminate this Agreement and the License granted to Client if Webb is in compliance with this Agreement and either (a) Client fails to pay Webb any amounts when due Webb or, (b) Client is in material default of any other provision of this Agreement and such default has not been cured within thirty (30) days after Webb gives Client written notice describing the default. Upon termination in accordance with this Section 14.2, Webb may: (i) declare all amounts owed to Webb by Client to be immediately due and payable; (ii) require that Client cease any further use of the Products and immediately return the Products and any copies to Webb; provided that Client's customers ("Subscribers") who have had web sites created using the Products may continue to use the 3 web sites so long as, in the case of those Subscribers for whom Webb was being paid a monthly fee ("Monthly Subscribers"), Webb is paid a one-time fee for each such Subscriber's web site equal to USD 36_and, for all Subscribers, there is no further use of the Products in connection with their web sites; and (iii) cease performance of all of Webb's obligations under this Agreement without liability to Client. 14.3 Client may terminate this Agreement and the License granted to Client if Client is in compliance with this Agreement and either (a) Webb is in material default of any provision of this Agreement and such default has not been cured within thirty (30) days after Client gives Webb written notice describing the default or (b) at any time after December 31, 2002, by giving Webb ninety (90) days written notice thereof. Upon such termination: (i) Client shall pay Webb's outstanding invoices that do not pertain to Webb's default, but Client shall have no further payment obligations to Webb under this Agreement; and (ii) Webb may require that Client cease any further use of the Products and immediately return the Products and any copies to Webb; provided that Subscribers who have had web sites created using the Products may continue to use the web sites so long as, in the case of Monthly Subscribers, Webb is paid a one-time fee for each such Subscriber's web site equal to USD 36 and, for all Subscribers, there is no further use of the Products in connection with their web sites. 14.4 Upon termination of this Agreement by Webb or Client, Sections 3.0, 5.0, 6.0, and 13.0 through 26.0 of this Agreement shall survive. 15.0 Limitations of Liability. 15.1 AFTER THE PARTIES HAVE SIGNED THIS AGREEMENT, CLIENT'S EXCLUSIVE REMEDIES FOR PRODUCT RELATED MATTERS SHALL BE AS DESCRIBED IN THIS AGREEMENT, SUBJECT TO THE LIMITATIONS OF SECTION 14.0. 15.2 WEBB SHALL NOT BE LIABLE FOR ANY EXPENSE OR DAMAGE ARISING OUT OF ANY ERASURE, DAMAGE OR DESTRUCTION OF FILES, DATA OR PROGRAMS. CLIENT SHALL BE RESPONSIBLE FOR MAKING BACKUP COPIES OF FILES, DATA, AND PROGRAMS. 15.3 IN NO EVENT SHALL WEBB OR ITS THIRD PARTIES BE LIABLE FOR SPECIAL, INDIRECT, THIRD PARTY, OR CONSEQUENTIAL DAMAGES, INCLUDING LOST PROFITS. NEITHER PARTY SHALL SEEK, OR OTHERWISE APPLY FOR, ANY PUNITIVE OR EXEMPLARY DAMAGES. IN THE CASE OF ANY DAMAGES TO FILES, SOFTWARE OR HARDWARE CAUSED BY A VIRUS IN THE PRODUCTS AS ORIGINALLY DELIVERED TO CLIENT, WEBB SHALL, AT ITS EXPENSE, DEFEND ANY SUIT OR CLAIM BROUGHT AGAINST CLIENT BASED ON SUCH DAMAGE AND, SUBJECT TO THE TERMS OF THIS AGREEMENT, SHALL INDEMNIFY CLIENT AGAINST AN AWARD OF DAMAGES AND COSTS AGAINST CLIENT BY A FINAL COURT JUDGEMENT BASED ON SUCH A CLAIM. 15.4 EXCEPT ONLY FOR INDEMNIFICATION BY WEBB UNDER SECTION 13.1 ABOVE, WEBB'S MAXIMUM AGGREGATE LIABILITY FOR DAMAGES TO CLIENT OR OTHERS SHALL BE LIMITED TO ACTUAL DIRECT MONEY DAMAGES IN AN AMOUNT NOT TO EXCEED (A) THE INITIAL LICENSE FEE PAID BY CLIENT FOR THE PRODUCTS SUBJECT TO THE DAMAGE CLAIM IF THE CLAIM AROSE WITHIN ONE (1) YEAR AFTER THE EFFECTIVE DATE AND (B) THE MOST RECENT ANNUAL MAINTENANCE AND SUPPORT FEES PAID BY CLIENT SUBJECT TO THE DAMAGE CLAIM IF THE CLAIM AROSE MORE THAN ONE (1) YEAR AFTER THE EFFECTIVE DATE. 15.5 CLIENT ACKNOWLEDGES THAT THE LIMITATIONS ON LIABILITY IN THIS SECTION 15 ARE REASONABLE. THE REMEDIES PROVIDED IN THIS AGREEMENT ARE EXCLUSIVE. EXCEPT ONLY FOR ACTIONS BY WEBB TO PROTECT INTELLECTUAL PROPERTY RIGHTS OR FOR BREACH OF SECTION 16.0, NEITHER PARTY SHALL SEEK, OR OTHERWISE APPLY FOR, ANY EQUITABLE REMEDIES. 16.0 Assignment. Client shall not assign this Agreement or transfer, by operation of law or otherwise, any of its respective rights or obligations under this Agreement (including, without limitation, by a change in the majority ownership or control of Client) without the prior written consent of Webb, such consent to not be unreasonably withheld. Any assignment or transfer in violation of this Section 16.0 shall be void. 17.0 Waiver. No term or provision of this Agreement shall be deemed waived and no breach shall be deemed excused, unless such waiver is in writing and signed by the Party claimed to have waived. 18.0 Export. Clientunderstands that the Products may be subject to the Export Administration Regulations of the United States Department of Commerce and other United States government regulations related to the export of technical data and equipment and products produced therefrom. Client agrees to comply with all applicable export and import control laws and regulations, including any future modifications thereof, in connection with any export of Products, including to Affiliates. Client agrees to defend and indemnify Webb from any breach of this Section by Client or by any of its agents, officers, directors or employees. 4 19.0 Excusable Delay. Neither Webb nor Client shall be deemed to be in default of any provision of this Agreement or for any failure in performance, resulting from acts or events beyond the reasonable control of Webb or Client, as the case may be. For purposes of this Agreement, such acts shall include, but not be limited to, acts of God, civil or military authority, civil disturbance, war, strikes, fires, other catastrophes, or other such major events beyond Webb's or Client's reasonable control. This Section 19.0 shall not delay or excuse Client's payment obligations. 20.0 Governing Law and Dispute Resolution. Any dispute, claim or controversy between the parties arising out of or relating to this Agreement (excluding claims for injunctive relief or claims in equity) shall be finally resolved by arbitration, in accordance with the Rules of Arbitration and Conciliation of the International Chamber of Commerce, using a single arbitrator selected in accordance with the applicable rules. The arbitration shall be in the English language. The arbitrator shall assume the powers of amiable compositeur. Arbitration fees and attorneys fees may be allocated between the parties, at the arbitrator's discretion. The judgement rendered by the arbitrator shall be final and binding on the parties and may be entered in any court of competent jurisdiction. 21.0 Relationship The relationship of Webb and Client under this Agreement will at all times remain independent. Client is not an agent, franchisee, partner or joint venture of Webb. Client is not authorized to enter into or execute any contract on behalf of or otherwise obligate Webb in any matter. 22.0 Severance and Interpretation. If any provision of this Agreement is found to be unenforceable, such provision shall be deemed to be deleted or narrowly construed to such extent as is necessary to make it enforceable and this Agreement shall otherwise remain in full force and effect. If an ambiguity or question of intent arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring either Party by virtue of authorship of any of the provisions of this Agreement. 23.0 Time Limitation. Except for actions for non-payment or for breach of Webb's or its Third Parties' Intellectual Property Rights, no action arising out of or relating to this Agreement may be brought later than two (2) years after the cause of action became known to the injured Party. 24.0 Notices. All notices required or permitted under this Agreement and all requests for approvals, consents, and waivers must be delivered by a method providing for proof of delivery. A confirmed facsimile transmission shall be deemed to provide proof of delivery. Any notice or request shall be deemed to have been given on the date of delivery. Notices and requests must be delivered to the Parties at the addresses on the first page of this Agreement until a different address has been designated by notice to the other Party. 25.0 Non-Solicitation of Employees. Neither Party shall directly solicit the services or employment of any employee or agent of the other Party for a period beginning at the Effective Date and ending twelve (12) months after the last date of initial delivery of any of the Products as set forth in the Exhibits (as of the Effective Date). 26.0 Entire Agreement. This Agreement and the Schedules and Exhibits listed below and referred to herein, together with any addenda signed by the Parties (collectively, the "Agreement"), constitute the entire agreement between Webb and Client with respect to the Products, Support, and other subject matter of this Agreement, and may only be modified by a written amendment or addendum signed by both Webb and Client. No employee, agent, or other representative of either Webb or Client has authority to bind the other with regard to any statement, representation, warranty, or other expression unless it is specifically included within the express terms of this Agreement or a written addendum signed by both Webb and Client. All purchase orders, prior agreements, representations, statements, proposals, negotiations, understandings, and undertakings with respect to the subject matter of this Agreement are superseded by this Agreement. 5
For WEBB INTERACTIVE SERVICES, INC. For CLIENT: SWISSONLINE AG - ----------------------------------------------------- ----------------------------------------------------- (Authorized Signature) (Authorized Signature) Oskar Geisshuesler - ----------------------------------------------------- ----------------------------------------------------- (Printed Name) (Printed Name) CEO - ----------------------------------------------------- ----------------------------------------------------- (Title) (Title) February 23rd 2001 - ----------------------------------------------------- ----------------------------------------------------- (Date) (Date) ----------------------------------------------------- (Authorized Signature) Donat Grimm ----------------------------------------------------- (Printed Name) Head of Business Unit Internet Services ----------------------------------------------------- (Title) February 23rd 2001 ----------------------------------------------------- (Date)
6 SCHEDULES and EXHIBITS: Attached - ----------------------- -------- 1. SCHEDULE A Product Sites and Information Exhibit 1 License Fee and Other Charges 2. SCHEDULE B Maintenance and Support Agreement 3. SCHEDULE C Professional Services Agreement 7 Schedule A Product Sites and Information Products: AccelX Product Suite, consisting of SiteBuilder 3.0 ("SiteBuilder"), Request 1.0 ("Request") and Connect ( formerly referred to as "eMarketer") 2.0 ("eMarketer). Webb will provide a list of Product features and functionality within thirty (30) days fo the execution of this agreement. Number of Subscribers: Unlimited. Number of Sites Unlimited Location of Use: Switzerland. 8 EXHIBIT 1 Pricing and Business Terms On the Effective Date, Client shall pay Webb USD400,000 for the license to use the Products with up to 5,000 Subscribers. A Subscriber shall count as one Subscriber for each of the Products it uses. For example, one of Client's customers who uses all three of SiteBuilder, Request and eMarketer, shall be deemed to be three Subscribers for the purpose of this provision. During the period from the Effective Date through December 31, 2002, for Subscribers in excess of the 5,000 Subscribers, Client shall pay Webb USD 10.00 per month for each Subscriber using any one of SiteBuilder, Request or eMarketer; USD 16.00 per month for each Subscriber using any two of SiteBuilder, Request and eMarketer; and USD 20.00 per month for each Subscriber using all of the three components of the AccelX Product Suite. Payments shall be made monthly by the fifteenth (15th) day of the month following the month for which the payment is being made. The Parties shall negotiate in good faith to establish a per Subscriber fee for Subscribers in excess of the 5,000 Subscribers for periods after December 31, 2002. The foregoing fee schedule for the Subscribers in excess of the 5,000 Subscribers shall remain as set forth herein until the Parties have agreed to a new schedule. 9 Schedule B WEBB INTERACTIVE SERVICES MAINTENANCE AND SUPPORT AGREEMENT SwissOnline AG, CH 8112 Otelfingen/Switzerland THIS MAINTENANCE AND SUPPORT AGREEMENT ("Agreement") between WEBB Interactive Services, Inc. ("WEBB"), a Colorado corporation with principal offices located at 1899 Wynkoop, Suite 600, Denver, Colorado 80202 and "Client" identified in the attached Master Software License Agreement (the "Master Agreement") dated as of February ___, 2001 is effective as of February ___, 2001 ("Effective Date"). WEBB and Client are referred to collectively as the Parties"). Background ---------- WHEREAS, Client has licensed the certain Products from WEBB and Client desires to have WEBB maintain and support the Products during the term of the Master Agreement. WHEREAS, WEBB is willing to offer maintenance and support for the Product during the term of the Master Agreement, subject to the terms of this Agreement. In consideration of the foregoing, the Parties agree as follows: 1.0 Definitions Capitalized terms used but not defined in this Agreement shall have the meanings ascribed to them in the Master Agreement. 1.2 "Response time" is the intended maximum time between the submission by Client of a support incident and WEBB's initial meaningful response to Client. 1.3 "Initial or Call Back Response": An initial response consists of an acknowledgement of the problem and /or request for more information to complete analysis of the problem. 1.4 "Target Response": A target response consists of providing one of the following items to Client: A. An existing correction B. A new correction C. A viable detour or work around. A work around may consist of a method, procedure or process as well as a modification to the software code. D. A request for more information to complete analysis of the problem E. A plan on how the problem will be corrected. 1.5 "Closure / Resolution" will consist of providing a final correction or work around of the problem including modifications to the software and where appropriate and to the extent reasonably possible, revised or new documentation. A resolution may also include instructions for the client to make modifications to code on the client site. Webb will work diligently to meet the times stated for Closure / Resolution within this document but it will be understood those times may vary with the complexity of an issue or problem that has been reported and will not be considered a guaranteed service. 1.6 "Normal Business Hours" will be defined as 8:00 a.m. to 5:00 p.m. Central European Time, , Monday through Friday with the exception of Holiday Closures as defined herein. B-1 1.7 "After Hours" support shall be provided at any time period outside of the normal business hours described herein for severity 1 and 2 issues only. 1.8 "Holiday Closures," WEBB shall be closed on the following holidays in the USA: . New Years Day . Memorial Day . Independence Day . Labor Day . Thanksgiving . Day After Thanksgiving . Christmas Day Specific dates for all holiday and any additional holiday related closures will be listed in the Technical Support area of the WEBB corporate web site, http://www.webb.net. In the case of holidays that are not customary in Central Europe (e.g. Independence Day, Thanksgiving, etc.), WEBB will otherwise secure support in accordance with this Agreement. 2.0 WEBB's Obligations Subject to payment by Client of the Support Fee identified in Exhibit B-1, WEBB ----------- shall provide the following Maintenance and Support Services for the Products. 2.1 Problem reporting, tracking and monitoring and communications to Client by electronic mail via the Internet; 2.2 Reasonable telephone support on business days (excluding Holiday Closures) for problem determination, verification and resolution on a call-back basis during the hours of 8 a.m. to 5 p.m. Central European Time,; and 2.3 Periodic software Modifications and Upgrades or new releases publicly offered by WEBB. 2.4 Shall furnish the maintenance and technical support described within this document, for the current release level of the Products and the previous release level thereof for a period up to 6 months past its date of discontinuation. 2.5 WEBB shall have the right to outsource its obligations under this Agreement to a third party, provided that WEBB shall remain responsible for its obligations under this Agreement that are performed by such third party. 2.6 Upon initiation of a Client problem report a WEBB Technical Support Specialist will respond to the Client within the time specified in the table below. The Technical support specialist will work with the Client to define the severity level of the reported problem and to determine if the problem reported is reproducible within a WEBB environment. The response times reflected below are the maximum time it will take to respond to a request for support of a reproducible problem. The support specialist will keep the Client informed of the status of the problem report. B-2
- --------------------------------------------------------------------------------------------------------------------------- Severity Description Initial Target Response Closure / Level Response Resolution - --------------------------------------------------------------------------------------------------------------------------- 1 Client's production use of the software is stopped or so 1 hour 16 hours 7 days severely impacted that the Client cannot reasonably continue work. Client is willing and able to work with WEBB to resolve the problem, continuously around the clock if necessary. No Client work around exists. Examples: . No access to the database. . Inability to logon to the system. . A software defect that is causing data corruption. . Memory leaks or performance degradation which causes a need for server restarts. . System hangs indefinitely causing unacceptable or indefinite delays. . System crashes repeatedly after restart attempts. - --------------------------------------------------------------------------------------------------------------------------- 2 Important software features are unavailable. Client's 8 hours 24 hours 14 days production use of the software is continuing, however, there is a serious impact on the Client's productivity or service levels. No acceptable Client work around exists. Examples: . Unable to correct mistakes made while using the software. . Software partially or completely fails to update data files. . Mandatory fields allowing exit without requisite data. . Loss of data while using the software. - --------------------------------------------------------------------------------------------------------------------------- 3 Less significant software features are unavailable or the 48 hours 15 days WEBB scheduled software documentation is misleading. Client's work, update regardless of the environment or product usage, has minor loss of operational functionality or implementation resources. An acceptable Client work around exists. Examples: . Single product feature broken (i.e. navigation button not working) . Graphic image or display unclear or not aligned. . Use of language and text unclear - --------------------------------------------------------------------------------------------------------------------------- 4 Client requests information, an enhancement, or 3 days 30 days WEBB scheduled documentation clarification regarding the software. update Client is able to use of the software with no loss of operational functionality. Examples: . Request for information . Cosmetic changes . Changes to documentation - ---------------------------------------------------------------------------------------------------------------------------
B-3 2.7 Escalation Procedures 2.7.1 WEBB communicates escalations via telephone according to the applicable product description and internal procedures established solely at the discretion of and modifiable at any time with or without notice. If a permanent repair cannot be made, a temporary resolution (bypass and recovery or workaround) is implemented to the extent possible. Although WEBB shall use its best efforts to meet the notification and resolution times set forth herein, such times are targets and are not guaranteed. 2.7.2 In all cases, it is the intention of WEBB to notify Client and resolve problems as quickly as is reasonably practical. In the event of multiple problems or requests, Technical resources will be allocated in accordance with the level of the problem or request as outlined herein. 2.7.3 Escalations should only be made after the response times described herein have been exceeded. Only Severity level one (1) and two (2) problem reports should be escalated. 2.7.4 Any escalation communicated and/or resolved by phone requires a written confirmation by e-mail not later than one (1) Business Day after the telephone conversation. Business Hours - System Issue or Severity 1 and 2 Issues Only
- ----------------------------------------------------------------------------------------- Escalation Level Contact Notes - ----------------------------------------------------------------------------------------- 1 Webb Primary On-Call Contact/1/ 8:00 a.m. - 5:00 p.m. Central European Time - ----------------------------------------------------------------------------------------- 2 Webb Secondary On-Call Contact 8:00 a.m. - 5:00 p.m. Central European Time - ----------------------------------------------------------------------------------------- 3 Manager Technical Support - ----------------------------------------------------------------------------------------- 4 Project Manager - ----------------------------------------------------------------------------------------- 5 V. P. Professional Services - -----------------------------------------------------------------------------------------
After Hours - System Issue or Severity 1 and 2 Issues Only
- ----------------------------------------------------------------------------------------- Escalation Level Contact Notes - ----------------------------------------------------------------------------------------- 1 Webb Answering Service/2/ Primary On Call - ----------------------------------------------------------------------------------------- 2 Webb Answering Service Secondary On Call - ----------------------------------------------------------------------------------------- 3 Webb Answering Service Manager, Application Hosting Services - -----------------------------------------------------------------------------------------
/1/ Escalation Levels 1 & 2 (Business Hours) can also be placed through the Answering Service (303.231.6692). /2/ In most cases, only one call needs to be placed to the Answering Service. If necessary, they will contact Escalation Levels 2 & 3. The Answering Service is expected to call the client back after 15 minutes has elapsed. B-4 3.0 Client Obligations 3.1 Client agrees: 3.1.1 that the Designated Contact person(s) identified in Exhibit B-1 (or such ----------- other replacement individual as Client may designate) shall be the sole contact for the coordination and receipt of the Maintenance and Support Services set forth in Section 2 of this Agreement, which person shall be knowledgeable and --------- trained in the Products; 3.1.1 to maintain for the term of this Agreement, an electronic mail link-up with WEBB via the Internet; 3.1.2 to provide reasonable supporting data to and aid in the identification of reported problems; 3.1.3 to treat all periodic software Modifications delivered under this Agreement in accordance with the terms of the Master Agreement between WEBB and Client under which Client obtained rights to the Products. 4. Term and Termination -------------------- 4.1 For each Product covered by this Agreement, the Maintenance and Support Services will begin on the Effective Date and will apply to such Product for an initial term of fifteen (15) months unless an alternative period is agreed to in writing. The initial term may be extended or renewed at Client's option for a one-year increment. Client shall give WEBB at least 60 days written notice if, during the initial term or any renewed period, Client decides not to renew Maintenance and Support. 4.2 If either party is in default of its obligations hereunder and such default continues for thirty (30) days following receipt of written notice from the other party, the non-breaching party, in addition to any other remedies it may have, may terminate this Agreement. In such case, the non-prevailing party will pay the prevailing party all costs and expenses including reasonable attorneys' fees incurred by the prevailing party in exercising any of its rights or remedies. 4.3 This Agreement shall automatically terminate upon the termination of the Master Agreement. If this Agreement is terminated pursuant to this Section 4.3, the Parties will be obligated to comply with all post-termination obligations under the Master Agreement and any outstanding Support Fees and other charges, if any, shall become immediately due and payable. 5. Charges, Taxes and Payments --------------------------- 5.1 The Support Fee set forth on Exhibit B-1 is payable 90 days after the ----------- execution of this Agreement or prior to the commencement of any additional one- year extension term. B-5 5.2 The charges specified in this Agreement are exclusive of all federal, state, local and foreign taxes, levies and assessments. Client agrees to bear and be responsible for the payment of all such taxes, levies and assessments imposed on Client or WEBB arising out of this Agreement excluding any income tax imposed on WEBB by a governmental entity. 5.3 Client agrees that WEBB will have the right to charge in accordance with WEBB then current policies for any services resulting from Client's modification of the Products or Client's failure to utilize the current release of the Products provided by WEBB. 6. Warranty, Limitation of Liability and Indemnification ----------------------------------------------------- 6.1 EXCEPT AS STATED IN THIS AGREEMENT, THERE ARE NO EXPRESS OR IMPLIED WARRANTIES RESPECTING THIS MAINTENANCE AND SUPPORT AGREEMENT OR THE SERVICES PROVIDED HEREUNDER (INCLUDING THE FIXING OF ERRORS THAT MAY BE CONTAINED IN THE APPLICABLE SOFTWARE), INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. THE WARRANTIES SET FORTH IN THIS AGREEMENT ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES WITH RESPECT TO SUCH SERVICES WHETHER ORAL OR WRITTEN, EXPRESS OR IMPLIED. 6.2 WEBB WILL NOT BE LIABLE FOR ANY FAILURE OR DELAY IN PERFORMANCE DUE IN WHOLE OR IN PART TO ANY CAUSE BEYOND WEBB'S REASONABLE CONTROL. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY OR OTHERS FOR (A) ANY SPECIAL, INDIRECT, INCIDENT OR CONSEQUENTIAL DAMAGES, (B) ANY DAMAGES RESULTING FROM LOSS OF USE, DATA OR PROFITS OR (C) ANY CLAIM THAT AROSE MORE THAN ONE YEAR PRIOR TO INSTITUTION OF SUIT THEREON, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER LEGAL THEORY. IN THE CASE OF ANY DAMAGE TO FILES, SOFTWARE OR HARDWARE CAUSED BY A VIRUS IN ANY SOFTWARE AS ORIGINALLY DELIVERED TO CLIENT, WEBB SHALL, AT ITS EXPENSE, DEFEND ANY SUIT OR CLAIM BROUGHT AGAINST CLIENT BASED ON SUCH DAMAGE AND SHALL, SUBJECT TO THE TERMS OF THIS AGREEMENT, INDEMNIFY CLIENT AGAINST ANY AWARD OF DAMAGES AND COSTS AGAINST CLIENT BY A FINAL COURT JUDGEMENT BASED ON SUCH A CLAIM. 6.3 Client will hold WEBB and its directors, officers, employees, representatives and agents, (collectively, "Webb Representatives") harmless from, and defend and indemnify WEBB and Webb Representatives against, any and all claims, losses, damages and expenses, including reasonable attorneys' fees, arising from a third party claim against WEBB or Webb Representatives to B-6 the extent that such third party claim is based on the negligence or willful misconduct of Client or its agents or representatives. 6.4 WEBB will hold Client and its directors, officers, employees, representatives and agents (collectively, "Client Representatives") harmless from, and defend and indemnify Client and Client Representatives against, any and all claims, losses, damages and expenses, including reasonable attorneys' fees, arising from a third party claim against Client or Client Representatives to the extent that such third party claim is based on: (a) the negligence or willful misconduct of WEBB or its Webb Representatives or (b) claims of infringement of Intellectual Property Rights against Client or Client Representatives for the authorized use of the Products. 6.5 If a third party asserts a claim that is eligible for indemnification under Sections 6.3 or 6.4: (a) the indemnified party will promptly notify the indemnifying party of the suit or claim; (b) the indemnified party will give the indemnifying party sole authority to defend or settle the suit or claim, provided that the indemnifying party does not agree to a settlement of the suit or claim unless the settlement is reasonably acceptable to the indemnified party; (c) the indemnified party will provide to the indemnifying party all information in its control concerning the suit or claim; and (d) the indemnified party will reasonably cooperate with the defense of the suit or claim. The indemnification obligations under Sections 6.3 and 6.4 are subject to and conditioned upon compliance with this Section 6.5 by the indemnified party. 7. General ------- 7.1 The waiver by either party of a breach of or a default under any provision of this Agreement by the other party shall not be construed as a waiver of any subsequent breach of the same or any other provision of this Agreement nor shall any delay or omission on the part of either party to exercise or avail itself of any right or remedy it has or may have hereunder operate as a waiver of any right or remedy by such party. 7.2 This Agreement contains the full understanding of the parties with respect to the maintenance and support of the Products and supersedes all prior understandings and writings relating thereto. No waiver, consent modification, amendment or change of the terms of this Support Agreement shall be binding unless in writing and signed by WEBB and Client. If the terms and conditions of this Agreement are inconsistent with, or contrary to, the terms and conditions of the Client License Agreement, the terms and conditions of the License Agreement shall be controlling. 7.3 Any dispute, claim or controversy between the parties arising out of or relating to this Agreement (excluding claims for injunctive relief or claims in equity) shall be finally resolved by arbitration in accordance with the Rules of Arbitration and Conciliation of the International Chamber of Commerce, using a B-7 single arbitrator selected in accordance with the applicable rules. The arbitration shall be in the English language. The arbitrator shall assume the powers of amiable compositeur. Arbitration fees and attorneys fees may be allocated between the parties, at the arbitrator's discretion. The judgement rendered by the arbitrator shall be final and binding on the parties and may be entered in any court of competent jurisdiction. 7.4 Any notice or other communication in connection with this Maintenance and Support Agreement shall be furnished in writing and shall be effective upon receipt. 7.5 Neither Client nor WEBB will be deemed to be in default of any provision of this Agreement or for any failure in performance, resulting from acts or events beyond the reasonable control of Client or WEBB, as the case may be including, without limitation, acts of God, civil or military authority, civil disturbance, war, strikes, fires, other catastrophes, telecommunication outages, equipment malfunctions or other such major events beyond Client's or WEBB's reasonable control. B-8 WEBB Interactive Services, Inc. Client: Swiss Online AG By:___________________________ By:___________________________ Name:_________________________ Name:_________________________ Title:________________________ Title:________________________ Date:_________________________ Date:_________________________ B-9 EXHIBIT B-1 MAINTENANCE AND SUPPORT ATTACHMENT Support Fee(s): The Client will pay WEBB the following Support Fee: USD 80,000, - -------------- irrespective of the number of Subscribers. Commencement Date: _____________________. - ----------------- Client Designated Contacts: Primary Contact:_________________________ Phone number:____________________________ E-Mail address:__________________________ Secondary Contact:_______________________ Phone number:____________________________ E-Mail address:__________________________ B-10 Schedule C WEBB INTERACTIVE SERVICES INC. PROFESSIONAL SERVICES AGREEMENT SWISSONLINE AG, CH-8112 OTELFINGEN/SWITZERLAND THIS PROFESSIONAL SERVICES AGREEMENT ("Agreement") between WEBB Interactive Services, Inc. ("WEBB"), a Colorado corporation with principal offices located at 1899 Wynkoop, Suite 600, Denver, Colorado 80202 and "Client" identified in the attached Master Software License Agreement (the "Master Agreement") dated as of February ___, 2001, is effective as of February ___, 2001 ("Effective Date"). WEBB and Client are referred to collectively as the "Parties." Background ---------- WHEREAS, Client has licensed certain Products from WEBB and Client desires to have WEBB provide professional services related to the Products during the term of the Master Agreement. WHEREAS, WEBB is willing to offer professional services related to the Products during the term of the Master Agreement, subject to the terms of this Agreement. Agreement --------- In consideration of the foregoing, the Parties agree as follows: 1. Definitions. Capitalized terms used but not defined in this Agreement ----------- shall have the meanings ascribed to them in the Master Agreement. 2. WEBB's Obligations ------------------ 2.1 WEBB shall perform for Client the professional services (the "Services") specified in one or more Exhibits (in the form of Statement of Work signed by both parties), each of which will be made a part of this Agreement. In the event of a conflict between any term of this Agreement and an Exhibit, the terms of the Exhibit shall prevail. 2.2 Changes within the scope of the Services shall be made only in a writing executed by authorized representatives of both parties. WEBB shall have no obligation to commence work in connection with any change until the fee and/or schedule impact of the change is agreed upon by the parties in writing. 2.3 WEBB reserves the right to determine which of its personnel shall be assigned to perform the Services, and to replace or reassign such personnel during the term hereof; provided, however, that it will, subject to scheduling and staffing considerations, attempt to honor Client's request for specific individuals. During the design and adaptation period in the year 2001, Client reserves the right to accept or refuse personnel assigned by WEBB, which acceptance shall not be unreasonably withheld. 2.4 WEBB shall have the right to outsource its obligations under this Agreement to a third party, provided that WEBB shall remain responsible for its obligations under this Agreement that are performed by such third party. 3. Client Obligations ------------------ 3.1 In connection with WEBB's provision of the Services, Client shall perform all tasks and assume all responsibilities not expressly described as the Services and, in particular, C-1 shall perform those tasks and assume those responsibilities specified in the applicable Exhibit ("Client Responsibilities"). The Exhibit shall also contain any assumptions related to the Services. Client understands that WEBB's performance is dependent on Client's timely and effective satisfaction of Client Responsibilities hereunder and timely decisions and approvals by Client. WEBB shall be entitled to rely on all decisions and approvals of the Client in connection with the Services. Changes in decisions and approvals are subject to the provisions of Section 2.2, above. 3.2 In addition to any particular items which may be specified in the Exhibit, when required by WEBB, Client shall supply on-site WEBB personnel with suitable office space, desks, storage, furniture, and other normal office equipment support, including adequate telephone service, postage, copying, typing, and general office supplies which may be necessary in connection with WEBB's performance of the Services. 4. Term and Termination -------------------- 4.1 Either party may at any time terminate this Agreement by giving thirty (30) days' written notice of termination to the other party; provided that WEBB may not terminate this Agreement pursuant to this Section 4.1 prior to the completion of the items to be delivered by WEBB in accordance with Exhibit C-1 hereto. In the event of such termination, Client shall pay WEBB for all Services rendered and expenses incurred by WEBB prior to the date of termination. 4.2 If either party is in default of its obligations hereunder and such default continues for thirty (30) days following receipt of written notice from the other party, the non-breaching party may terminate this Agreement immediately, in addition to any other remedies it may have. In such case, the non-prevailing party will pay the prevailing party (as determined by a court or in arbitration) all costs and expenses including reasonable attorneys' fees incurred by the prevailing party in exercising any of its rights or remedies. 4.3 This Agreement shall automatically terminate upon the termination of the Master Agreement. If this Agreement is terminated pursuant to this Section 4.3, the Parties will be obligated to comply with all post-termination obligations under the Master Agreement and any outstanding fees and other charges, if any, shall become immediately due and payable. 5. Charges, Taxes and Payments --------------------------- 5.1 Unless the Parties agree otherwise in writing, Client shall pay WEBB for the Services as defined in the applicable Exhibit at mutually agreed rates for professional services. 5.2 Unless the Parties agree otherwise in writing, Client shall pay the amounts payable to WEBB hereunder within thirty (30) days of receipt of invoices submitted by WEBB. Any invoice remaining unpaid for more than thirty (30) days from receipt shall accrue interest at a rate of the lesser of one and one-half (1.5%) percent per month or the highest rate allowed by law. 5.3 Unless provided otherwise in an Exhibit, WEBB shall be reimbursed by Client for all reasonable expenses incurred by WEBB in the performance of the Services, including, but not limited to, travel and lodging expenses, communications charges and supplies. 5.4 The charges specified in this Agreement are exclusive of all federal, state, local and foreign taxes, levies and assessments. Client agrees to bear and be responsible for the payment of all such taxes, levies and assessments imposed on Client or WEBB arising out of this Agreement excluding any income tax imposed on WEBB by a governmental entity. 6. Confidential Information. ------------------------ C-2 6.1 "Confidential Information" means any trade secret or other information or data of a proprietary or confidential nature belonging to either party, including but not limited to: (a) technical or developmental information (including associated documentation); (b) marketing or pricing information; (c) business practices or relationships; (d) performance results or benchmark test results of all or any portion of the Products; (e) designs, ideas, concepts, inventions, technical know how, software programs, program flow charts, file layouts, and all record bearing media containing or disclosing such information. Confidential Information shall not include information of one party that: (i) is or becomes lawfully available to the public through no act or omission of the other party; (ii) is in the other party's lawful possession prior to the disclosure and was not obtained by the other party either directly or indirectly from the disclosing party; (iii) is lawfully disclosed to the other party by a third party without restriction on disclosure or (iv) is independently developed by the other party. 6.2 Neither party shall use or disclose to any person, either during the term or after the termination of this Agreement, any Confidential Information owned by the other party, except as expressly permitted pursuant to the terms of this Agreement or as required in response to a valid order or requirement of a court or other governmental body having competent jurisdiction provided, however, that the party proposing to so disclose first gives prior written notice of such proposed disclosure to the other party. 7. Non-Solicitation. ---------------- Neither party shall solicit for employment, whether directly or indirectly through an associated or affiliated company or subsidiary or otherwise, employ, engage or contract from the date of this Agreement or any Exhibit and for a period of six (6) months thereafter, any person who the Party knows is or was employed or contracted by the other party during the term of this Agreement. . 8. Proprietary Materials and Work Product. -------------------------------------- 8.1 The parties acknowledge and agree that all work product (the "Work") developed in providing the Services or resulting from providing the Services shall become and remain the exclusive property of WEBB. In addition to the license granted to Client pursuant to the Master Agreement Client shall have a non-exclusive royalty-free world-wide license to use the Work. Other than such licenses, no right, title or interest in all or any portion of the Work, is conveyed or assigned to Client either expressly or by implication by virtue of this Agreement including any patents, copyrights, trade secrets, trademarks, trade names or other intellectual property (collectively, the "Intellectual Property Rights"). Upon written request by WEBB, Client shall properly execute such assignments, bills of sale or other documents necessary to confirm, assign or transfer in favor of WEBB, any Intellectual Property Rights in the Work created, developed or discovered by Client, its employees or consultants in assisting WEBB in the provision of the Services. WEBB shall not acquire any Intellectual Property Rights in Client's trademarks, service marks or trade dress. 8.2 Nothing in this Agreement shall preclude WEBB from developing for itself, or for others, materials which are competitive with those produced as a result of the Services provided hereunder, irrespective of their similarity to items which may be delivered to Client pursuant to this Agreement. 9. Warranty, Limitation of Liability and Indemnification ----------------------------------------------------- 9.1 EXCEPT AS STATED IN THIS AGREEMENT, THERE ARE NO EXPRESS OR IMPLIED WARRANTIES RESPECTING THIS PROFESSIONAL SERVICES AGREEMENT OR THE SERVICES PROVIDED HEREUNDER (INCLUDING THE FIXING OF ERRORS THAT MAY BE CONTAINED IN THE APPLICABLE SOFTWARE), INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR C-3 PURPOSE. THE WARRANTIES SET FORTH IN THIS AGREEMENT ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES WITH RESPECT TO SUCH SERVICES WHETHER ORAL OR WRITTEN, EXPRESS OR IMPLIED. 9.2 WEBB WILL NOT BE LIABLE FOR ANY FAILURE OR DELAY IN PERFORMANCE DUE IN WHOLE OR IN PART TO ANY CAUSE BEYOND WEBB'S REASONABLE CONTROL. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY OR OTHERS FOR (A) ANY SPECIAL, INDIRECT, INCIDENT OR CONSEQUENTIAL DAMAGES, (B) ANY DAMAGES RESULTING FROM LOSS OF USE, DATA OR PROFITS OR (C) ANY CLAIM THAT AROSE MORE THAN ONE YEAR PRIOR TO INSTITUTION OF SUIT THEREON, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER LEGAL THEORY. IN THE CASE OF ANY DAMAGES TO FILES, SOFTWARE OR HARDWARE CAUSED BY A VIRUS IN THE SOFTWARE ORIGINALLY DELIVERED TO CLIENT PURSUANT TO THIS AGREEMENT, WEBB SHALL, AT ITS EXPENSE, DEFEND ANY SUIT OR CLAIM BROUGHT AGAINST CLIENT BASED ON SUCH DAMAGE AND, SUBJECT TO THE TERMS OF THIS AGRTEEMENT, SHALL INDEMNIFY CLIENT AGAINST ANY AWARD OF DAMAGES AND COSTS AGAINST CLIENT BY A FINAL COURT JUDGEMENT BASED ON SUCH A CLAIM. 9.3 Client will hold WEBB and its directors, officers, employees, representatives and agents, (collectively, "Webb Representatives") harmless from, and defend and indemnify WEBB and Webb Representatives against, any and all claims, losses, damages and expenses, including reasonable attorneys' fees, arising from a third party claim against WEBB or Webb Representatives to the extent that such third party claim is based on the negligence or willful misconduct of Client or its agents or representatives. 9.4 WEBB will hold Client and its directors, officers, employees, representatives and agents (collectively, "Client Representatives") harmless from, and defend and indemnify Client and Client Representatives against, any and all claims, losses, damages and expenses, including reasonable attorneys' fees, arising from a third party claim against Client or Client Representatives to the extent that such third party claim is based on: (a) the negligence or willful misconduct of WEBB or Webb Representatives or (b) claims of infringement of Intellectual Property Rights against Client or Client Representatives for the authorized use of the Products and the Work. 9.5 If a third party asserts a claim that is eligible for indemnification under Sections 9.2, 9.3 or 9.4: (a) the indemnified party will promptly notify the indemnifying party of the suit or claim; (b) the indemnified party will give the indemnifying party sole authority to defend or settle the suit or claim, provided that the indemnifying party does not agree to a settlement of the suit or claim unless the settlement is reasonably acceptable to the indemnified party; (c) the indemnified party will provide to the indemnifying party all information in its control concerning the suit or claim; and (d) the indemnified party will reasonably cooperate with the defense of the suit or claim. The indemnification obligations under Sections 9.3 and 9.4 are subject to and conditioned upon compliance with this Section 9.5 by the indemnified party. 10. General ------- 10.1 In connection with this Agreement each party is an independent contractor and as such will not have any authority to bind or commit the other. Nothing herein shall be deemed or construed to create a joint venture, partnership or agency relationship between the parties for any purpose. 10.2 The waiver by either party of a breach of or a default under any provision of this Agreement by the other party shall not be construed as a waiver of any subsequent breach of the same or any other provision of this Agreement nor shall any delay or omission on the part of either party to exercise or avail itself of any right or remedy it has or may have hereunder operate as a waiver of any right or remedy by such party. C-4 10.3 This Agreement and any Exhibits attached hereto contains the full understanding of the parties with respect to the professional services related to the Products and supersedes all prior understandings and writings relating thereto. No waiver, consent modification, amendment or change of the terms of this Agreement shall be binding unless in writing and signed by WEBB and Client. If the terms and conditions of this Agreement are inconsistent with, or contrary to, the terms and conditions of the Master Agreement, the terms and conditions of the Master Agreement shall be controlling. 10.4 Any dispute, claim or controversy between the parties arising out of or relating to this Agreement (excluding claims for injunctive relief or claims in equity) shall be finally resolved by arbitration in accordance with the Rules of Arbitration and Conciliation of the International Chamber of Commerce, using a single arbitrator selected in accordance with the applicable rules. The arbitration shall be in the English language. The arbitrator shall assume the powers of amiable compositeur. Arbitration fees and attorneys fees may be allocated between the parties at the arbitrator's discretion. The judgement rendered by the arbitrator shall be final and binding on the parties and may be entered in any court of competent jurisdiction. 10.5 Any notice or other communication in connection with this Agreement shall be furnished in writing and shall be effective upon receipt. 10.6 Except for Client's payment obligations for professional services already completed by WEBB, neither Client nor WEBB will be deemed to be in default of any provision of this Agreement or for any failure in performance, resulting from acts or events beyond the reasonable control of Client or WEBB, as the case may be including, without limitation, acts of God, civil or military authority, civil disturbance, war, strikes, fires, other catastrophes, telecommunication outages, equipment malfunctions or other such major events beyond Client's or WEBB's reasonable control. WEBB Interactive Services, Inc: Client: SwissOnline AG By:____________________________ By:______________________________ Name:__________________________ Name: Oskar Geisshuesler Title:_________________________ Title: CEO Date:__________________________ Date: February, 23/rd/ 2001 By:______________________________ Name: Donat Grimm Title: Head of Business Unit IS Date: February, 23/rd/ 2001 C-5 -----END PRIVACY-ENHANCED MESSAGE-----