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 September 30, 2002
Commission file number 000-25959
Private Business, Inc.
| Tennessee | 62-1453841 | |
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| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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| 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 October 31, 2002 |
|
| Common Stock, no par value | 14,047,004 shares |
1
PRIVATE BUSINESS, INC.
Form 10-Q
For Quarter Ended September 30, 2002
INDEX
| Page No. | |||||||
Part I — Consolidated Financial Statements |
|||||||
Item 1 - Unaudited Consolidated Balance Sheets
As of September 30, 2002 and December 31, 2001 |
3 | ||||||
Unaudited Consolidated Statements of
Operations for the three months ended September 30,
2002 and 2001 |
4 | ||||||
Unaudited Consolidated Statements of
Operations for the nine months ended September 30,
2002 and 2001 |
5 | ||||||
Unaudited Consolidated Statements of
Cash Flows for the nine months ended September 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- 26 | ||||||
Item 4 - Disclosure Controls and Procedures |
26 | ||||||
Part II — Other Information |
|||||||
Item 1 - Legal Proceedings |
26 - 27 | ||||||
Item 6 - Exhibits and reports on Form 8-K |
28 | ||||||
Signatures |
29 | ||||||
Certifications |
30 - 33 | ||||||
2
PRIVATE BUSINESS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS — UNAUDITED
| September 30, | December 31, | |||||||||
| (in thousands, except per share data) | 2002 | 2001 | ||||||||
ASSETS |
||||||||||
CURRENT ASSETS: |
||||||||||
Cash and cash equivalents |
$ | 428 | $ | 2,648 | ||||||
Accounts receivable — trade, net of allowance for doubtful accounts of
$396 and $258, respectively |
7,542 | 8,073 | ||||||||
Accounts receivable — other |
357 | 314 | ||||||||
Deferred tax assets |
1,584 | 2,130 | ||||||||
Other current assets |
2,470 | 1,164 | ||||||||
Total current assets |
12,381 | 14,329 | ||||||||
PROPERTY AND EQUIPMENT, NET |
7,080 | 8,336 | ||||||||
PROPERTY AND EQUIPMENT HELD FOR SALE |
0 | 2,036 | ||||||||
OTHER ASSETS: |
||||||||||
Software development costs, net |
1,472 | 1,461 | ||||||||
Deferred tax assets |
3,138 | 4,835 | ||||||||
Intangible and other assets, net |
10,897 | 10,559 | ||||||||
Total other assets |
15,507 | 16,855 | ||||||||
Total assets |
$ | 34,968 | $ | 41,556 | ||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
||||||||||
CURRENT LIABILITIES |
||||||||||
Accounts payable |
$ | 2,075 | $ | 3,617 | ||||||
Accrued liabilities |
5,580 | 7,102 | ||||||||
Dividends payable |
535 | 415 | ||||||||
Deferred revenue |
440 | 1,126 | ||||||||
Short-term borrowings |
1,050 | 0 | ||||||||
Current portion of long-term debt and capital lease obligations |
5,379 | 5,394 | ||||||||
Total current liabilities |
15,059 | 17,654 | ||||||||
OTHER NONCURRENT LIABILITIES |
806 | 1,354 | ||||||||
LONG-TERM DEBT, net of current portion |
24,798 | 31,109 | ||||||||
CAPITAL LEASE OBLIGATIONS, net of current portion |
228 | 516 | ||||||||
Total liabilities |
40,891 | 50,633 | ||||||||
COMMITMENTS AND CONTINGENCIES |
||||||||||
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, 14,036,090 and 13,901,423, respectively |
0 | 0 | ||||||||
Additional paid-in capital |
(7,219 | ) | (7,464 | ) | ||||||
Refined earnings (deficit) |
1,182 | (1,727 | ) | |||||||
Total stockholders’ deficit |
(6,037 | ) | (9,077 | ) | ||||||
Total liabilities and stockholders’ deficit |
$ | 34,968 | $ | 41,556 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
PRIVATE BUSINESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS — UNAUDITED
For the Three Months Ended September 30, 2002 and 2001
| (in thousands, except per share data) | 2002 | 2001 | |||||||||
REVENUES: |
|||||||||||
Participation fees |
$ | 8,728 | $ | 11,312 | |||||||
Software license |
83 | 223 | |||||||||
Retail planning services |
2,677 | 1,570 | |||||||||
Maintenance and other |
1,699 | 2,070 | |||||||||
Total revenues |
13,187 | 15,175 | |||||||||
OPERATING EXPENSES: |
|||||||||||
General and administrative |
5,698 | 5,949 | |||||||||
Selling and marketing |
5,332 | 5,960 | |||||||||
Research and development |
124 | 452 | |||||||||
Amortization |
424 | 344 | |||||||||
Other operating expense, net |
65 | 4,213 | |||||||||
Total operating expenses |
11,643 | 16,918 | |||||||||
OPERATING INCOME (LOSS) |
1,544 | (1,743 | ) | ||||||||
INTEREST EXPENSE, NET |
394 | 760 | |||||||||
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM |
1,150 | (2,503 | ) | ||||||||
Income tax provision (benefit) |
448 | (976 | ) | ||||||||
NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM |
702 | (1,527 | ) | ||||||||
EXTRAORDINARY ITEM: |
|||||||||||
Early extinguishment of debt, net of income taxes of
$0 and $52 |
0 | 81 | |||||||||
NET INCOME (LOSS) |
702 | (1,608 | ) | ||||||||
Preferred stock dividends |
40 | 23 | |||||||||
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS |
$ | 662 | $ | (1,631 | ) | ||||||
EARNINGS (LOSS) PER SHARE: |
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Basic |
$ | 0.05 | $ | (0.14 | ) | ||||||
Diluted |
$ | 0.05 | $ | (0.14 | ) | ||||||
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING: |
|||||||||||
Basic |
14,014 | 11,914 | |||||||||
Diluted |
14,409 | 11,914 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
PRIVATE BUSINESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS — UNAUDITED
For the Nine Months Ended September 30, 2002 and 2001
| (in thousands, except per share data) | 2002 | 2001 | |||||||||||||
REVENUES: |
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Participation fees |
$ | 28,355 | $ | 31,526 | |||||||||||
Software license |
392 | 719 | |||||||||||||
Retail planning services |
7,980 | 1,570 | |||||||||||||
Maintenance and other |
5,693 | 5,735 | |||||||||||||
Total revenues |
42,420 | 39,550 | |||||||||||||
OPERATING EXPENSES: |
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General and administrative |
17,507 | 16,323 | |||||||||||||
Selling and marketing |
16,569 | 16,148 | |||||||||||||
Research and development |
517 | 937 | |||||||||||||
Amortization |
1,365 | 918 | |||||||||||||
Other operating expense, net |
46 | 4,362 | |||||||||||||
Total operating expenses |
36,004 | 38,688 | |||||||||||||
OPERATING INCOME |
6,416 | 862 | |||||||||||||
INTEREST EXPENSE, NET |
1,396 | 2,760 | |||||||||||||
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM |
5,020 | (1,898 | ) | ||||||||||||
Income tax provision (benefit) |
1,958 | (740 | ) | ||||||||||||
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM |
3,062 | (1,158 | ) | ||||||||||||
EXTRAORDINARY ITEM: |
|||||||||||||||
Early extinguishment of debt, net of income taxes of
$22 and $52 |
34 | 81 | |||||||||||||
NET INCOME (LOSS) |
3,028 | (1,239 | ) | ||||||||||||
Preferred stock dividends |
120 | 23 | |||||||||||||
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS |
$ | 2,908 | $ | (1,262 | ) | ||||||||||
EARNINGS (LOSS) PER SHARE: |
|||||||||||||||
Basic |
$ | 0.21 | $ | (0.12 | ) | ||||||||||
Diluted |
$ | 0.21 | $ | (0.12 | ) | ||||||||||
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING: |
|||||||||||||||
Basic |
13,991 | 10,120 | |||||||||||||
Diluted |
14,412 | 10,120 | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
PRIVATE BUSINESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED
For the Nine Months Ended September 30, 2002 and 2001
| (in thousands) | 2002 | 2001 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||||
Net income (loss) |
$ | 3,028 | $ | (1,239 | ) | |||||||
Adjustments to reconcile net income (loss) to net cash provided by
operating activities: |
||||||||||||
Write-off of debt issuance costs |
34 | 81 | ||||||||||
Depreciation and amortization |
3,807 | 3,267 | ||||||||||
Deferred taxes |
2,243 | (1,196 | ) | |||||||||
Non-cash stock based compensation |
46 | 255 | ||||||||||
Loss on write-down of certain property and equipment |
0 | 4,142 | ||||||||||
Gain on sale of certain property and equipment, net |
(160 | ) | 0 | |||||||||
Changes in assets and liabilities, net of acquisitions: |
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Accounts receivable |
487 | 889 | ||||||||||
Other current assets |
(1,306 | ) | 383 | |||||||||
Other assets |
75 | (33 | ) | |||||||||
Accounts payable |
(1,542 | ) | (1,319 | ) | ||||||||
Accrued liabilities |
(1,520 | ) | (190 | ) | ||||||||
Deferred revenue |
(686 | ) | (575 | ) | ||||||||
Other noncurrent liabilities |
(547 | ) | (94 | ) | ||||||||
Net cash provided by operating activities |
3,959 | 4,751 | ||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
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Additions to property and equipment |
(2,166 | ) | (1,082 | ) | ||||||||
Software development costs |
(664 | ) | (918 | ) | ||||||||
Proceeds from sale of property and equipment |
2,863 | 0 | ||||||||||
Proceeds of cash and cash equivalents from Towne,
net of direct costs of acquisition |
0 | 6,756 | ||||||||||
Acquisition of businesses |
(845 | ) | 0 | |||||||||
Net cash (used in) provided by investing activities |
(812 | ) | 4,756 | |||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||
Repayments on long-term debt |
(3,495 | ) | (2,736 | ) | ||||||||
Repayments on capitalized lease obligations |
(288 | ) | 0 | |||||||||
Early extinguishment of long-term debt |
(2,833 | ) | (6,072 | ) | ||||||||
Proceeds from short-term borrowings, net |
1,050 | 0 | ||||||||||
Proceeds from exercise of employee stock options |
137 | 22 | ||||||||||
Stock issued through employee stock purchase plan |
62 | 121 | ||||||||||