SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2002
Commission file number 000-25959
Private Business, Inc.
| Tennessee | 62-1453841 | |
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| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
| 9020 Overlook Blvd., Brentwood, Tennessee | 37027 | |
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| (Address of principal executive offices) | (Zip Code) |
(615) 221-8400
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.
(1) Yes [x] No [ ]
(2) Yes [x] No [ ]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.
| Class | Outstanding as of August 2, 2002 | |
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| Common Stock, no par value | 14,029,327 shares |
1
PRIVATE BUSINESS, INC.
Form 10-Q
For Quarter Ended June 30, 2002
INDEX
| Page No. | ||||||||||||
| Part I – Consolidated Financial Statements | ||||||||||||
| Item 1 – | Unaudited Consolidated Balance Sheets
As of June 30, 2002 and December 31, 2001 |
3 | ||||||||||
Unaudited Consolidated Statements of
Operations for the three months ended June 30,
2002 and 2001 |
4 | |||||||||||
Unaudited Consolidated Statements of
Operations for the six months ended June 30,
2002 and 2001 |
5 | |||||||||||
Unaudited Consolidated Statements of
Cash Flows for the six months ended June 30,
2002 and 2001 |
6 | |||||||||||
Notes to Unaudited Consolidated
Financial Statements |
7 -14 | |||||||||||
| Item 2 – | Management’s discussion and analysis of
financial condition and results of operations |
15 - 25 | ||||||||||
| Item 3 – | Quantitative and qualitative disclosures
about market risk |
25 | ||||||||||
| Part II – Other Information | ||||||||||||
| Item 1 – | Legal Proceedings |
25 - 27 | ||||||||||
| Item 6 – | Exhibits and reports on Form 8-K |
27 - 28 | ||||||||||
| Signatures | 29 | |||||||||||
2
PRIVATE BUSINESS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS – UNAUDITED
| June 30, | December 31, | ||||||||||||
| (dollars in thousands) | 2002 | 2001 | |||||||||||
ASSETS |
|||||||||||||
CURRENT ASSETS: |
|||||||||||||
Cash and cash equivalents |
$ | 852 | $ | 2,648 | |||||||||
Accounts receivable — trade, net of allowance for doubtful accounts of
$239 and $258, respectively |
8,124 | 8,073 | |||||||||||
Accounts receivable — other |
449 | 314 | |||||||||||
Deferred tax assets |
1,824 | 2,130 | |||||||||||
Other current assets |
2,521 | 1,164 | |||||||||||
Total current assets |
13,770 | 14,329 | |||||||||||
PROPERTY AND EQUIPMENT, NET |
7,655 | 8,336 | |||||||||||
PROPERTY AND EQUIPMENT HELD FOR SALE |
653 | 2,036 | |||||||||||
OTHER ASSETS: |
|||||||||||||
Software development costs, net |
1,444 | 1,461 | |||||||||||
Deferred tax assets |
2,979 | 4,835 | |||||||||||
Intangible and other assets, net |
11,092 | 10,559 | |||||||||||
Total other assets |
15,515 | 16,855 | |||||||||||
Total assets |
$ | 37,593 | $ | 41,556 | |||||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
|||||||||||||
CURRENT LIABILITIES |
|||||||||||||
Accounts payable |
$ | 2,094 | $ | 3,617 | |||||||||
Accrued liabilities |
5,203 | 7,102 | |||||||||||
Dividends payable |
495 | 415 | |||||||||||
Deferred revenue |
526 | 1,126 | |||||||||||
Short-term borrowings |
2,650 | 0 | |||||||||||
Current portion of long-term debt and capital lease obligations |
5,349 | 5,394 | |||||||||||
Total current liabilities |
16,317 | 17,654 | |||||||||||
OTHER NONCURRENT LIABILITIES |
990 | 1,354 | |||||||||||
LONG-TERM DEBT, net of current portion |
26,597 | 31,109 | |||||||||||
CAPITAL LEASE OBLIGATIONS, net of current portion |
299 | 516 | |||||||||||
Total liabilities |
44,203 | 50,633 | |||||||||||
COMMITMENTS AND CONTINGENCIES |
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PREFERRED STOCK, series B convertible, no par value; 20,000,000
shares authorized, 40,031 shares issued and outstanding |
114 | 114 | |||||||||||
STOCKHOLDERS’ DEFICIT: |
|||||||||||||
Common stock, no par value; 33,333,333 shares authorized; shares issued and
outstanding, 14,026,057 and 13,901,423, respectively |
0 | 0 | |||||||||||
Additional paid-in capital |
(7,244 | ) | (7,464 | ) | |||||||||
Accumulated deficit |
520 | (1,727 | ) | ||||||||||
Total stockholders’ deficit |
(6,610 | ) | (9,077 | ) | |||||||||
Total liabilities and stockholders’ deficit |
$ | 37,593 | $ | 41,556 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
PRIVATE BUSINESS, INC. AND SUBSIDIARIES
| (in thousands, except per share data) | 2002 | 2001 | ||||||||
REVENUES: |
||||||||||
Participation fees |
$ | 9,991 | $ | 10,181 | ||||||
Software license |
177 | 218 | ||||||||
Retail planning services |
2,559 | 0 | ||||||||
Maintenance and other |
1,888 | 1,849 | ||||||||
Total revenues |
14,615 | 12,248 | ||||||||
OPERATING EXPENSES: |
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General and administrative |
5,631 | 4,832 | ||||||||
Selling and marketing |
5,453 | 4,908 | ||||||||
Research and development |
142 | 124 | ||||||||
Amortization |
590 | 307 | ||||||||
Other operating expense |
81 | 74 | ||||||||
Total operating expenses |
11,897 | 10,245 | ||||||||
OPERATING INCOME |
2,718 | 2,003 | ||||||||
INTEREST EXPENSE, NET |
507 | 944 | ||||||||
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM |
2,211 | 1,059 | ||||||||
Income tax provision |
862 | 413 | ||||||||
NET INCOME |
1,349 | 646 | ||||||||
Preferred stock dividends |
40 | 0 | ||||||||
NET INCOME AVAILABLE TO COMMON
SHAREHOLDERS |
$ | 1,309 | $ | 646 | ||||||
EARNINGS PER SHARE: |
||||||||||
Basic |
$ | 0.09 | $ | 0.07 | ||||||
Diluted |
$ | 0.09 | $ | 0.07 | ||||||
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING: |
||||||||||
Basic |
14,004 | 9,222 | ||||||||
Diluted |
14,559 | 9,243 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
PRIVATE BUSINESS, INC. AND SUBSIDIARIES
| (in thousands, except per share data) | 2002 | 2001 | ||||||||
REVENUES: |
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Participation fees |
$ | 19,627 | $ | 20,214 | ||||||
Software license |
309 | 496 | ||||||||
Retail planning services |
5,304 | 0 | ||||||||
Maintenance and other |
3,995 | 3,665 | ||||||||
Total revenues |
29,235 | 24,375 | ||||||||
OPERATING EXPENSES: |
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General and administrative |
11,809 | 10,375 | ||||||||
Selling and marketing |
11,236 | 10,188 | ||||||||
Research and development |
393 | 484 | ||||||||
Amortization |
942 | 574 | ||||||||
Other operating expense (income) |
(19 | ) | 149 | |||||||
Total operating expenses |
24,361 | 21,770 | ||||||||
OPERATING INCOME |
4,874 | 2,605 | ||||||||
INTEREST EXPENSE, NET |
1,003 | 2,000 | ||||||||
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM |
3,871 | 605 | ||||||||
Income tax provision |
1,510 | 236 | ||||||||
INCOME BEFORE EXTRAORDINARY ITEM |
2,361 | 369 | ||||||||
Extraordinary item, early extinguishment of debt,
net of income taxes of $22 |
34 | 0 | ||||||||
NET INCOME |
2,327 | 369 | ||||||||
Preferred stock dividends |
80 | 0 | ||||||||
NET INCOME AVAILABLE TO COMMON
SHAREHOLDERS |
$ | 2,247 | $ | 369 | ||||||
EARNINGS PER SHARE: |
||||||||||
Basic |
$ | 0.16 | $ | 0.04 | ||||||
Diluted |
$ | 0.16 | $ | 0.04 | ||||||
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING: |
||||||||||
Basic |
13,979 | 9,208 | ||||||||
Diluted |
14,413 | 9,238 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
PRIVATE BUSINESS, INC. AND SUBSIDIARIES
| (in thousands) | 2002 | 2001 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||||
Net income |
$ | 2,327 | $ | 369 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
Write-off of debt issuance costs |
34 | 0 | ||||||||||
Depreciation and amortization |
2,542 | 2,105 | ||||||||||
Deferred taxes |
2,162 | 297 | ||||||||||
Non-cash stock based compensation |
46 | 179 | ||||||||||
Gain on sale of certain property and equipment, net |
(168 | ) | 0 | |||||||||
Changes in assets and liabilities, net of acquisitions: |
||||||||||||
Accounts receivable |
(186 | ) | 446 | |||||||||
Other current assets |
(1,357 | ) | 42 | |||||||||
Other assets |
82 | (546 | ) | |||||||||
Accounts payable |
(1,523 | ) | (442 | ) | ||||||||
Accrued liabilities |
(1,899 | ) | (1,496 | ) | ||||||||
Deferred revenue |
(600 | ) | (331 | ) | ||||||||
Other noncurrent liabilities |
(356 | ) | 0 | |||||||||
Net cash provided by operating activities |
1,104 | 623 | ||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||||
Additions to property and equipment |
(1,902 | ) | (829 | ) | ||||||||
Software development costs |
(420 | ) | (638 | ) | ||||||||
Proceeds from sale of property and equipment |
2,218 | 0 | ||||||||||
Acquisition of businesses |
(845 | ) | 0 | |||||||||
Net cash used in investing activities |
(949 | ) | (1,467 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
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Repayments on long-term debt |
(2,370 | ) | (1,871 | ) | ||||||||
Repayments on capitalized lease obligations |
(217 | ) | 0 | |||||||||
Early extinguishment of long-term debt, net |
(2,188 | ) | 0 | |||||||||
Proceeds from short-term borrowings |
2,650 | 1,000 | ||||||||||
Proceeds from exercise of employee stock options |
136 | 21 | ||||||||||
Stock issued through employee stock purchase plan |
38 | 87 | ||||||||||
Net cash used in financing activities |
(1,951 | ) | (763 | ) | ||||||||
NET CHANGE IN CASH AND CASH EQUIVALENTS |
(1,796 | ) | (1,607 | ) | ||||||||
CASH AND CASH EQUIVALENTS at beginning of year |
2,648 | 1,891 | ||||||||||
CASH AND CASH EQUIVALENTS at end of period |
$ | 852 | $ | 284 | ||||||||
SUPPLEMENTAL CASH FLOW INFORMATION: |
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Cash payments for income taxes during period |
$ | 72 | $ | 239 | ||||||||
Cash payments of interest during period |
$ | 1,006 | $ | 2,052 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
PRIVATE BUSINESS, INC.