UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2005
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File Number 000-29423
DYNABAZAAR, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-3351937
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
888 Seventh Ave., 17TH floor, New York, NY 10019
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(212) 974-5730
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |X| No |_|
The number of shares outstanding of the registrant's common stock as of November
9, 2005 was 23,409,956.
DYNABAZAAR, INC.
INDEX
PART I. FINANCIAL INFORMATION.....................................................................................1
ITEM 1. FINANCIAL STATEMENTS..................................................................................1
Condensed Consolidated Balance Sheets as of September 30, 2005 (unaudited) and
December 31, 2004
Condensed Consolidated Statements of Operations for the three and
nine months ended September 30, 2005 (unaudited) and 2004 (unaudited)
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30,
2005 (unaudited) and 2004 (unaudited)
Notes to Condensed Consolidated Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ...............8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..........................................10
ITEM 4. CONTROLS AND PROCEDURES.............................................................................11
PART II. OTHER INFORMATION.......................................................................................11
ITEM 1. LEGAL PROCEEDINGS...................................................................................11
ITEM 6. EXHIBITS............................................................................................12
SIGNATURES.......................................................................................................13
ITEM 1. FINANCIAL STATEMENTS
DYNABAZAAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30,
2005 December 31,
(unaudited) 2004
-------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 9,132 $ 8,989
Prepaid expenses 351 331
Other current assets 2,000
--------- ---------
Total current assets 9,483 11,320
Other assets, long-term prepaid expenses 1,078 1,328
--------- ---------
Total assets $ 10,561 $ 12,648
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses and other current liabilities $ 136 $ 196
Other current liabilities 2,000
--------- ---------
Total current liabilities 136 2,196
--------- ---------
Stockholders' equity:
Common stock, $0.001 par value; 90,000,000 shares authorized; 29,526,385 and
29,426,385 shares issued at September 30, 2005
December 31, 2004, respectively 30 30
Additional paid-in capital 151,636 151,636
Treasury stock (at cost); 6,116,429 and 2,458,441 at September 30, 2005 and
December 31, 2004, respectively (4,439) (3,040)
Accumulated deficit (137,062) (138,487)
Accumulated other comprehensive income, net 260 313
--------- ---------
Total stockholders' equity 10,425 10,452
--------- ---------
Total liabilities and stockholders' equity $ 10,561 $ 12,648
========= =========
See accompanying notes to condensed consolidated financial statements.
1
DYNABAZAAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts; unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
2005 2004 2005 2004
-------- -------- -------- --------
Revenues $ - $ - $ - $ -
Operating expenses, general and administrative 236 473 840 1,728
-------- -------- -------- --------
Loss from operations (236) (473) (840) (1,728)
-------- -------- -------- --------
Other income (expense)
Gain on sale of assets 2,000 2,000
Other 128 114 265 214
-------- -------- -------- --------
2,128 114 2,265 214
-------- -------- -------- --------
Net income (loss) $ 1,892 $ (359) $ 1,425 $ (1,514)
======== ======== ======== ========
Net income (loss) per share:
Basic $ 0.08 ($ 0.01) $ 0.06 ($ 0.06)
======== ======== ======== ========
Diluted $ 0.08 ($ 0.01) $ 0.06 ($ 0.06)
======== ======== ======== ========
Weighted average number of common
shares outstanding:
Basic 23,410 27,029 25,765 27,043
======== ======== ======== ========
Diluted 23,554 27,029 25,787 27,043
======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements.
2
DYNABAZAAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands; unaudited)
Nine Months Ended
September 30,
----------------------------
2005 2004
------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,425 $(1,514)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Gain on sale of assets (2,000)
Depreciation 109
Reserve for uncollectible accounts 144
Changes in operating assets and liabilities
Accounts receivable 207
Prepaid expenses and other current assets (20) 791
Long-term prepaid expenses 250 255
Accounts payable (81)
Accrued expenses (60) (914)
Accruals of unutilized office space (1,200)
------- -------
Net cash used in operating activities (405) (2,203)
------- -------
Cash flows from investing activities
Proceeds from sale of assets 2,000
Decrease in restricted cash 473
------- -------
Net cash provided by investing activities 2,000 473
------- -------
Cash flows from financing activities
Proceeds from issuance of common stock 31
Purchase of treasury stock (1,430) (22)
------- -------
Net cash used in financing activities (1,399) (22)
------- -------
EFFECTS OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS (53) 9
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 143 (2,216)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,989 5,697
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,132 $ 3,481
======= =======
See accompanying notes to condensed consolidated financial statements.
3
DYNABAZAAR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
Dynabazaar, Inc. ("we," "us", "Dynabazaar" or the "Company") was incorporated in
the State of Delaware in February 1997 as "Fairmarket, Inc." Through September
3, 2003, the Company was an online auction and promotions technology service
provider that enabled marketers to create results-oriented rewards programs and
helped commerce companies automate the process of selling their excess inventory
online to wholesale and retail buyers. On September 4, 2003, we sold
substantially all our operating assets to eBay, Inc. ("eBay") for consideration
of $4.5 million in cash under the terms and conditions of an asset purchase
agreement we entered into with eBay on June 20, 2003 (the "Asset Purchase
Agreement"). Following the closing of the asset sale, we changed our name from
"Fairmarket, Inc." to "Dynabazaar, Inc."
We are currently reviewing alternatives for the use of our remaining assets,
which may include other business opportunities unrelated to our historical
business, including the possible acquisition of other businesses. Neither our
board of directors nor our stockholders have yet approved any such
opportunities. We cannot assure you that we will be able to identify or
successfully capitalize on any appropriate business opportunities.
The Company has not yet settled on an operating plan, although the Company feels
its existing cash and cash equivalents are sufficient to fund the Company's
current operations and satisfy its obligations. The Company believes these
obligations will primarily relate to costs associated with its operation as a
public company (legal, accounting, insurance, etc.), as well as the satisfaction
of any potential legal judgments or settlements and the expenses associated with
any new business activities which may be undertaken by the Company. The Company
continues to consider future alternatives, including the possible acquisition of
other businesses. However, the Company has not consummated any significant
transactions to date and the Company's business prospects remain uncertain. To
the extent that management of the Company moves forward on any alternative
strategy, such strategy may have an impact on the Company's liquidity.
On June 30, 2005, the Company entered into a stock purchase agreement (the
"Stock Purchase Agreement") with Lloyd Miller, III, a former director of the
Company, on behalf of himself and on behalf of certain affiliated entities,
whereby the Company purchased from Mr. Miller and such affiliated entities an
aggregate of 3,657,988 shares of common stock, par value $0.001 per share, of
the Company at an aggregate purchase price of $ 1,152,266. Pursuant to the Stock
Purchase Agreement, Mr. Miller is also entitled to receive 13.6% of the net
proceeds distributed to the Company pursuant to the escrow agreement dated as of
September 4, 2003 by and among the Company, eBay and Zions First National Bank,
as additional consideration for his shares of common stock (the "Escrow
Agreement").
On September 6, 2005, the Company received a payment of $2,045,982 from Zions
First National Bank pursuant to the Escrow Agreement. The payment represented
the $2 million held in escrow under the terms and conditions of the Asset
Purchase Agreement we entered into with eBay together with $45,982 of accrued
interest. In accordance with the Stock Purchase Agreement entered into with
former director Lloyd Miller, III and certain affilitated entities, the Company
paid to Mr. Miller and certain affiliated entities a total of $278,253 from the
proceeds of the Escrow Agreement, which was recorded as additional consideration
for the stock purchase.
4
DYNABAZAAR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Dynabazaar for
the nine months ended September 30, 2005 are unaudited and have been prepared on
a basis substantially consistent with our audited condensed consolidated
financial statements for the year ended December 31, 2004. The condensed
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Consequently, these statements do not include all disclosures normally required
by generally accepted accounting principles for annual financial statements.
These condensed consolidated interim financial statements should be read in
conjunction with our audited condensed consolidated financial statements for the
year ended December 31, 2004, which are contained in our Annual Report on Form
10-K, filed with the Securities and Exchange Commission (the "SEC"). The
condensed consolidated interim financial statements, in the opinion of
management, reflect all adjustments (including all normal recurring accruals)
necessary to present fairly the Company's financial position, results of
operations and cash flows for the interim periods ended September 30, 2005 and
2004. The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the fiscal year.
PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of our
wholly-owned (inactive) subsidiaries. Significant intercompany transactions and
balances have been eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investment instruments purchased with an
original maturity of three months or less to be cash equivalents. Cash
equivalents consist of cash placed in an overnight investment account,
commercial paper and money market accounts. The Company maintains cash balances
in certain financial institutions that may exceed the Federal Deposit Insurance
Corporation coverage of $100,000.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," encourages but does not require companies to record
compensation costs for stock-based employee compensation at fair value. The
Company has chosen to account for stock-based compensation granted to employees
using the intrinsic value method prescribed in Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Accordingly, compensation costs for stock options granted to
employees is measured as the excess, if any, of the fair value of the Company's
stock at the date of the grant over the amount that must be paid by the employee
to acquire the stock under the terms of the stock option. Subsequent changes to
option terms can also give rise to compensation. Stock-based compensation issued
to non-employees is measured and recorded using the fair value method prescribed
in SFAS No. 123.
The Company accounts for stock issued to non-employees in accordance with the
provisions of SFAS No. 123 and Emerging Issues Task Force ("EITF") Issue No.
96-18 "Accounting for Equity Instruments That Are Issued to Other Than Employees
for Acquiring, or in Conjunction with Selling, Goods or Services."
Consistent with the disclosure provisions of SFAS No. 123, the Company's net
income (loss) and basic and diluted net income (loss) per share would have been
adjusted to the pro forma amounts indicated below (in thousands, except per
share amounts).
5
DYNABAZAAR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30 September 30
--------------------- -----------------------
2005 2004 2005 2004
------- -------- ------- ---------
Net income (loss) - as reported $ 1,892 $ (359) $ 1,425 $ (1,514)
Less stock-based compensation expense determined under
fair value based method, net of tax effects (2) (10) (54)
------- -------- ------- ---------
Net income (loss) - proforma $ 1,892 $ (361) $ 1,415 $ (1,568)
======= ======== ======= =========
Basic and diluted net income (loss) per share - as reported $ 0.08 $ (0.01) $ 0.06 $ (0.06)
Basic and diluted net income (loss) per share - pro forma $ 0.08 $ (0.01) $ 0.06 $ (0.06)
NEW ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123(R), "Share-Based Payment (Revised)." SFAS No. 123(R) replaces SFAS No.
123 and supersedes APB No. 25 and its related implementation guidance. SFAS No.
123(R) establishes standards for the accounting for transactions in which an
entity exchanges its equity instruments for goods or services. It also addresses
transactions in which an entity incurs liabilities in exchange for goods or
services that are based on the fair value of the entity's equity instruments or
that may be settled by the issuance of those equity instruments. SFAS No. 123(R)
focuses primarily on accounting for transactions in which an entity obtains
employee services in share-based payment transactions. SFAS No. 123(R) requires
a public entity to measure the cost of employee services received in exchanges
for an award of equity instruments based on the grant-date fair value of the
award (with limited exceptions). That cost will be recognized over the period
during which an employee is required to provide service in exchange for the
award during the requisite service period (usually the vesting period). No
compensation costs are recognized for equity instruments for which employees do
not render the requisite service. The grant-date fair value of employee share
options and similar instruments will be estimated using option-pricing models
adjusted for the unique characteristics of those instruments (unless observable
market prices for the same or similar instruments are available). If an equity
award is modified after the grant date, incremental compensation cost will be
recognized in an amount equal to the excess of the fair value of the modified
award over the fair value of the original award immediately before the
modification.
The Company has not completed its evaluation of SFAS No. 123(R) but expects the
adoption of this new standard, which will take effect for the Company during the
first quarter of 2006, will not have a material impact on operating results of
the Company.
NOTE 2 - COMPREHENSIVE INCOME (LOSS):
For the three and nine months ended September 30, 2005 and 2004, total
comprehensive income (loss) was as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2005 2004 2005 2004
------- ------- ------- -------
Comprehensive income (loss):
Net income (loss) $ 1,892 $ (359) $ 1,425 $(1,514)
Foreign currency translation adjustments (4) (1) (53) 9
Unrealized gain (loss) on marketable securities 9 (30)
------- ------- ------- -------
Comprehensive income (loss) $ 1,888 $ (351) $ 1,372 $(1,535)
======= ======= ======= =======
6
DYNABAZAAR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - NET INCOME (LOSS) PER SHARE:
The difference between the number of shares used to compute basic income (loss)
per share and diluted income (loss) per share relates to additional shares to be
issued upon the assumed exercise of stock options and warrants, net of shares
hypothetically repurchased at the average market price with the proceeds of
exercise. For the three and nine months ended September 30, 2005, the additional
shares amounted to 143,746 and 21,706, respectively. For the three and nine
months ended September 30, 2004, basic and diluted net income (loss) per common
share is computed based on the weighted average number of common shares
outstanding during the period because the effect of potential common equivalent
shares would be anti-dilutive.
NOTE 4 - CONTINGENCIES AND LEGAL PROCEEDINGS:
We are a defendant in certain purported class action lawsuits filed by
individual shareholders in the U.S. District Court for the Southern District of
New York against Dynabazaar, Scott Randall (former President, Chief Executive
Officer and Chairman of the Board of Dynabazaar), John Belchers (former Chief
Financial Officer of Dynabazaar), U.S. Bancorp Piper Jaffray Inc., Deutsche Bank
Securities Inc. and FleetBoston Robertson Stephens, Inc. The lawsuits have been
filed by individual shareholders who purport to seek class action status on
behalf of all other similarly situated persons who purchased the common stock of
Dynabazaar between March 14, 2000 and December 6, 2000. The lawsuits allege that
certain underwriters of Dynabazaar's initial public offering solicited and
received excessive and undisclosed fees and commissions in connection with that
offering. The lawsuits further allege that the defendants violated the federal
securities laws by issuing a registration statement and prospectus in connection
with Dynabazaar's initial public offering which failed to accurately disclose
the amount and nature of the commissions and fees paid to the underwriter
defendants. On or about October 8, 2002, the Court entered an Order dismissing
the claims asserted against certain individual defendants in the consolidated
actions, including the claims against Mr. Randall and Mr. Belchers, without any
payment from these individuals or the Company. On or about February 19, 2003,
the Court entered an Order dismissing with prejudice the claims asserted against
the Company under Section 10(b) of the Securities Exchange Act of 1934, as
amended. As a result, the only claims that remain against the Company are those
arising under Section 11 of the Securities Act of 1933, as amended. The Company
has entered into an agreement-in-principle to settle the remaining claims in the
litigation. The proposed settlement will result in a dismissal with prejudice of
all claims and will include a release of all claims that were brought or could
have been brought against the Company and its present and former directors and
officers. It is anticipated that any payment to the plaintiff class and their
counsel will be funded by the Company's directors' and officers' liability
insurance and that no direct payment will be made by the Company. The parties
have negotiated and executed a definitive settlement agreement. The Court has
granted preliminary approval of the settlement. A notice to all class members
seeking approval of the settlement is expected to be sent to them by November
30, 2005. The settlement remains contingent on a number of significant
conditions and contingencies, including final approval of the settlement by the
plaintiff class and the Court.
NOTE 5 - INCOME TAXES:
In connection with ownership changes, it was determined that certain of the
Company's net operating loss carryforwards ("NOL") have been limited. The
Company recently completed an Internal Revenue Code Section 382 evaluation that
quantified the limitation of the NOL. As of December 31, 2004, the Company has
approximately $15.0 million of NOL's that can be utilized in the current tax
year. These NOL's begin to expire in 2022. A valuation allowance has been
established for the full amount of the deferred tax asset since it is more
likely than not that the deferred tax asset will not be realized.
Ownership changes resulting from the Company's issuance of capital stock may
further limit the amount of net operating loss carryforwards that can be
utilized annually to offset future taxable income. The amount of the annual
limitation is determined based upon the Company's value immediately prior to the
ownership change. Subsequent significant changes in ownership could further
affect the limitation in future years.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Dynabazaar, Inc. ("we," "us", "Dynabazaar" or the "Company") was incorporated in
the State of Delaware in February 1997 as "Fairmarket, Inc." Through September
3, 2003, the Company was an online auction and promotions technology service
provider that enabled marketers to create results-oriented rewards programs and
helped commerce companies automate the process of selling their excess inventory
online to wholesale and retail buyers. On September 4, 2003, we sold
substantially all our operating assets to eBay, Inc. ("eBay") for consideration
of $4.5 million in cash under the terms and conditions of an asset purchase
agreement we entered into with eBay on June 20, 2003 (the "Asset Purchase
Agreement"). Following the closing of the asset sale, we changed our name from
"Fairmarket, Inc." to "Dynabazaar, Inc."
We are currently reviewing alternatives for the use of our remaining assets,
which may include other business opportunities unrelated to our historical
business, including the possible acquisition of other businesses. Neither our
board of directors nor our stockholders have yet approved any such
opportunities. We cannot assure you that we will be able to identify or
successfully capitalize on any appropriate business opportunities.
The Company has not yet settled on an operating plan, although the Company feels
its existing cash and cash equivalents are sufficient to fund the Company's
current operations and satisfy its obligations. The Company believes these
obligations will primarily relate to costs associated with its operation as a
public company (legal, accounting, insurance, etc.), as well as the satisfaction
of any potential legal judgments or settlements and the expenses associated with
any new business activities which may be undertaken by the Company. The Company
continues to consider future alternatives, including the possible acquisition of
other businesses. However, the Company has not consummated any significant
transactions to date and the Company's business prospects remain uncertain. To
the extent that management of the Company moves forward on any alternative
strategy, such strategy may have an impact on the Company's liquidity.
On June 30, 2005, the Company entered into a stock purchase agreement (the
"Stock Purchase Agreement") with Lloyd Miller, III, a former director of the
Company, on behalf of himself and on behalf of certain affiliated entities,
whereby the Company purchased from Mr. Miller and such affiliated entities an
aggregate of 3,657,988 shares of common stock, par value $0.001 per share, of
the Company at an aggregate purchase price of $ 1,152,266. Pursuant to the Stock
Purchase Agreement, Mr. Miller is also entitled to receive 13.6% of the net
proceeds distributed to the Company pursuant to the escrow agreement dated as of
September 4, 2003 by and among the Company, eBay. and Zions First National Bank,
as additional consideration for his shares of common stock (the "Escrow
Agreement").
On September 6, 2005, the Company received a payment of $2,045,982 from Zions
First National Bank pursuant to the Escrow Agreement. The payment represented
the $2 million held in escrow under the terms and conditions of an Asset
Purchase Agreement we entered into with eBay together with $45,982 of accrued
interest. In accordance with the Stock Purchase Agreement entered into with
former director Lloyd Miller, III and certain affilitated entities, the Company
paid to Mr. Miller a total of $278,253 from the proceeds of the escrow
agreement, and was recorded as additional consideration for the stock purchase.
CRITICAL ACCOUNTING POLICIES
In December 2001, the Securities and Exchange Commission (the "SEC") requested
that all registrants discuss their most "critical accounting policies" in
management's discussion and analysis of financial condition and results of
operations. The SEC indicated that a "critical accounting policy" is one which
is both important to the portrayal of the company's financial condition and
results and requires management's most difficult, subjective or complex
judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain. Our significant accounting policies are
more fully described in Note 2, Summary of Significant Accounting Policies, to
our consolidated financial statements included in our Annual Report on Form 10-K
for the year ended December 31, 2004. These critical accounting policies relate
to revenue recognition, allowance for doubtful accounts and deferred tax assets.
No changes to these critical polices have taken place during the quarter ended
September 30, 2005.
8
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 (IN THOUSANDS)
For the three months ended September 30, 2005 and September 30, 2004, our net
income (loss) was $1,892 and $(359), respectively.
Revenue
For the three months ended September 30, 2005 and September 30, 2004, total
revenue was $0 due to the cessation of business activity.
Operating Expenses
For the three months ended September 30, 2005, general and administrative
expenses were $236 compared to $473 for the three months ended September 30,
2004, a decrease of 50%. The decrease was due primarily to the reduction in
facilities expense, employee compensation expense, employee benefits expense and
depreciation expense.
Other Income (Expense)
For the three months ended September 30, 2005 and September 30, 2004, other
income (expense) was $2,128 and $114, respectively, an increase of 1,767%. The
increase is due primarily to the receipt of approximately $2,000 in proceeds
pursuant to the Escrow Agreement.
NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 (IN THOUSANDS)
For the nine months ended September 30, 2005 and September 30, 2004, our net
income (loss) was $1,425 and $(1,514) respectively.
Revenue
For the nine months ended September 30, 2005 and September 30, 2004, total
revenue was $0 due to the cessation of business activity.
Operating Expenses
For the nine months ended September 30, 2005, general and administrative
expenses were $840 compared to $1,728 for the nine months ended September 30,
2004, a decrease of 51%. The decrease was due primarily to the reduction in
facilities expense, employee compensation expense, employee benefits expense and
depreciation expense.
Other Income (Expense)
For the nine months ended September 30, 2005 and September 30, 2004, other
income (expense) was $2,265 and $214 respectively, an increase of over 958%. The
increase is due primarily to the receipt of approximately $2,000 in proceeds
pursuant to the Escrow Agreement.
9
LIQUIDITY AND CAPITAL RESOURCES (IN THOUSANDS)
At September 30, 2005, cash and cash equivalents totaled $9,132.
Cash used in operating activities was $405 for the nine months ended September
30, 2005, compared to cash used of $2,203 for the nine months ended September
30, 2004. Cash used in operating activities for the period ended September 30,
2005 primarily reflects the Company's net income of $1,425, the recognition of a
$2,000 gain on the sale of assets in connection with the Escrow Agreement, a
decrease in prepaid expenses and other current assets of $230 offset by a
decrease in accrued expenses of $60. Net cash used in operating activities for
the period ended September 30, 2004, primarily reflects the Company's net loss
of $1,514 and the payment for the termination of the lease on the Company's
Woburn, Massachusetts headquarters.
Cash provided by investing activities for the nine months ended September 30,
2005 was $2,000 compared to cash provided for investing activities for the nine
months ended September 30, 2004 of $473. Cash provided by investing activities
for the period ended September 30, 2005 was from the receipt of $2,000 in
connection with the eBay escrow agreement. Cash provided by investing activities
for the period ended September 30, 2004 was primarily from the release of
restricted cash held as a security deposit relating to the lease on the
Company's headquarters in Woburn, Massachusetts.
Cash used in financing activities for the nine months ended September 30, 2005
and September 30, 2004 was $1,399 and $22, respectively. Cash used in financing
activities for the period ending September 30, 2005 was primarily due to the
purchase of treasury stock from a former director of the Company for $1,430.
We believe that our existing cash and cash equivalents will be sufficient to
meet our anticipated cash needs for working capital and capital expenditures in
the near future.
FACTORS THAT MAY AFFECT RESULTS OF OPERATIONS AND FINANCIAL CONDITION
This Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Securities Exchange Act, of
1934 as amended (the "Exchange Act"). You can identify forward-looking
statements by the use of the words "believe," "expect," "anticipate," "intend,"
"estimate," "assume" and other similar expressions which predict or indicate
future events and trends and which do not relate to historical matters. You
should not rely on forward-looking statements, because they involve known and
unknown risks, uncertainties and other factors, some of which are beyond our
control. Our actual results could differ materially from those set forth in the
forward-looking statements.
Some of the factors that might cause these differences include those set forth
in Item 7 of the Company's Annual Report on Form 10-K for the year ended
December 31, 2004 which is incorporated herein by reference. You should
carefully review all of these factors, and you should be aware that there may be
other factors that could cause these differences. Forward-looking statements
herein are based on information, plans and estimates at the date of this Form
10-Q, and we do not promise to update any forward-looking statements to reflect
changes in underlying assumptions or factors, new information, future events or
other changes.
RISKS RELATED TO OUR BUSINESS
The information contained in Item 7 of the Company's Form 10-K for the year
ended December 31, 2004 is incorporated herein by reference.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INVESTMENT PORTFOLIO
We do not use derivative financial instruments for investment purposes and only
invest in financial instruments that meet high credit quality standards. Due to
the conservative nature of our investments, we do not believe that we have a
material exposure to interest rate risk.
10
ITEM 4. CONTROLS AND PROCEDURES
As required by Rule 13a-15(b) under the Exchange Act, as of the end of the
period covered by this Quarterly Report, our management conducted an evaluation
with the participation of our Chief Executive Officer and Chief Financial
Officer of the effectiveness of our disclosure controls and procedures (as
defined in Rule 13d-15(e) or Rule 15d-15(e) of the Exchange Act). In designing
and evaluating our disclosure controls and procedures, we recognize that any
controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving the desired control objectives, and our
management necessarily was required to apply its judgment in evaluating and
implementing possible controls and procedures. The effectiveness of our
disclosure controls and procedures is necessarily limited by the staff and other
resources available to us. Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that, as of the end of the period
covered by this Quarterly Report, our disclosure controls and procedures were
effective in that they provide reasonable assurance that information required to
be disclosed by us in the reports we file or submit under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the SEC rules and forms. There was no change in our internal control over
financial reporting (as defined in Rule 13d-15(f) or Rule 15d-15(f) of the
Exchange Act) that occurred during the period covered by this Quarterly Report
on Form 10-Q that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting. In connection with these
rules, we will continue to review and document our disclosure controls and
procedures, including our internal controls and procedures for financial
reporting, and may from time to time make changes aimed at enhancing their
effectiveness and to ensure that our system evolve with our business.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are a defendant in certain purported class action lawsuits field by
individual shareholders in the U.S. District Court for the Southern District of
New York against Dynabazaar, Scott Randall (former President, Chief Executive
Officer and Chairman of the Board of Dynabazaar), John Belchers (former Chief
Financial Officer of Dynabazaar), U.S. Bancorp Piper Jaffray Inc., Deutsche Bank
Securities Inc. and FleetBoston Robertson Stephens, Inc. The lawsuits have been
filed by individual shareholders who purport to seek class action status on
behalf of all other similarly situated persons who purchased the common stock of
Dynabazaar between March 14, 2000 and December 6, 2000. The lawsuits allege that
certain underwriters of Dynabazaar's initial public offering solicited and
received excessive and undisclosed fees and commissions in connection with that
offering. The lawsuits further allege that the defendants violated the federal
securities laws by issuing a registration statement and prospectus in connection
with Dynabazaar's initial public offering, which failed to accurately disclose
the amount and nature of the commissions and fees paid to the underwriter
defendants. On or about October 8, 2002, the Court entered an Order dismissing
the claims asserted against certain individual defendants in the consolidated
actions, including the claims against Mr. Randall and Mr. Belchers, without any
payment from these individuals or the Company. On or about February 19, 2003,
the Court entered an Order dismissing with prejudice the claims asserted against
the Company under Section 10(b) of the Exchange Act. As a result, the only
claims that remain against the Company are those arising under Section 11 of the
Securities Act. The Company has entered into an agreement-in-principle to settle
the remaining claims in the litigation. The proposed settlement will result in a
dismissal with prejudice of all claimsand will include a release of all claims
that were brought or could have been brought against the Company and its present
and former directors and officers. It is anticipated that any payment to the
plaintiff class and their counsel will be funded by the Company's directors' and
officers' liability insurance and that no direct payment will be made by the
Company. The parties have negotiated and executed a definitive settlement
agreement. The Court has granted preliminary approval of the settlement. A
notice to all class members seeking approval of the settlement is expected to be
sent to them by November 30, 2005. The settlement remains contingent on a number
of significant conditions and contingencies, including final approval of the
settlement by the plaintiff class and the Court.
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ITEM 6. EXHIBITS
31.1 Certification of the Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification of the Chief Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 Certification of the Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DYNABAZAAR, INC.
Date: November 14, 2005 By: /s/ William J. Fox
---------------------------------
William J. Fox
Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 2005 By: /s/ Melvyn Brunt
---------------------------------
Melvyn Brunt
Chief Financial Officer
(Principal Financial and
Accounting Officer)
13