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, 2003
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
(Registrant’s telephone number, including area code)
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 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 September 30, 2003 | |
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| Common Stock, no par value | 14,105,844 shares |
1
PRIVATE BUSINESS, INC.
Form 10-Q
For Quarter Ended September 30, 2003
INDEX
| Page No. | ||||||
| Part I - Financial Information | ||||||
| Item 1 – | Financial Statements | |||||
| Unaudited Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002 | 3 | |||||
| Unaudited Consolidated Statements of Operations for the three months ended September 30, 2003 and 2002 | 4 | |||||
| Unaudited Consolidated Statements of Operations for the nine months ended September 30, 2003 and 2002 | 5 | |||||
| Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2003 and 2002 | 6 | |||||
| Notes to Unaudited Consolidated Financial Statements | 7 – 12 | |||||
| Item 2 – | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 13 – 21 | ||||
| Item 3 – | Quantitative and Qualitative Disclosures About Market Risk | 21 | ||||
| Item 4 – | Disclosure Controls and Procedures | 21 | ||||
| Part II – Other Information | ||||||
| Item 1 – | Legal Proceedings | 22 | ||||
| Item 5 – | Other Information | 22 | ||||
| Item 6 – | Exhibits and Reports on Form 8-K | 23 | ||||
| Signatures | 24 | |||||
2
PART I
Financial Information
Item 1. Financial Statements
PRIVATE BUSINESS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS – UNAUDITED
| September 30, | December 31, | |||||||||
| (in thousands, except per share data) | 2003 | 2002 | ||||||||
ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
$ | 1,395 | $ | 1,146 | ||||||
Accounts receivable — trade, net of allowance for doubtful
accounts of $394 and $632, respectively |
5,015 | 6,726 | ||||||||
Accounts receivable — other |
483 | 420 | ||||||||
Current portion of note receivable |
57 | — | ||||||||
Deferred tax assets |
920 | 1,009 | ||||||||
Prepaid and other current assets |
1,430 | 1,613 | ||||||||
Total current assets |
9,300 | 10,914 | ||||||||
PROPERTY AND EQUIPMENT, NET |
4,436 | 6,468 | ||||||||
OTHER ASSETS: |
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Software development costs, net |
1,298 | 1,456 | ||||||||
Deferred tax assets |
1,729 | 2,252 | ||||||||
Intangible and other assets, net |
11,865 | 12,211 | ||||||||
Note receivable, net of current portion |
104 | — | ||||||||
Total other assets |
14,996 | 15,919 | ||||||||
Total assets |
$ | 28,732 | $ | 33,301 | ||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
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CURRENT LIABILITIES: |
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Accounts payable |
$ | 1,872 | $ | 2,039 | ||||||
Accrued liabilities |
4,273 | 5,718 | ||||||||
Revolving line of credit |
950 | — | ||||||||
Dividends payable |
695 | 575 | ||||||||
Deferred revenue |
486 | 470 | ||||||||
Current portion of long-term debt and capital lease obligations |
5,728 | 5,463 | ||||||||
Other short term notes payable |
411 | — | ||||||||
Total current liabilities |
14,415 | 14,265 | ||||||||
REVOLVING LINE OF CREDIT |
— | 950 | ||||||||
OTHER NONCURRENT LIABILITIES |
196 | 623 | ||||||||
LONG-TERM DEBT, net of current portion |
18,847 | 23,190 | ||||||||
CAPITAL LEASE OBLIGATIONS, net of current portion |
— | 148 | ||||||||
Total liabilities |
33,458 | 39,176 | ||||||||
COMMITMENTS AND CONTINGENCIES |
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STOCKHOLDERS’ DEFICIT: |
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Common stock, no par value; 33,333,333 shares authorized; shares issued and
outstanding, 14,105,844 and 14,047,253, respectively |
— | — | ||||||||
Additional paid-in capital |
(7,148 | ) | (7,195 | ) | ||||||
Preferred Stock, series B convertible, no par value; 20,000,000 shares
authorized, 40,031 shares issued and outstanding |
114 | 114 | ||||||||
Retained earnings |
2,308 | 1,206 | ||||||||
Total stockholders’ deficit |
(4,726 | ) | (5,875 | ) | ||||||
Total liabilities and stockholders’ deficit |
$ | 28,732 | $ | 33,301 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
PRIVATE BUSINESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS – UNAUDITED
| (in thousands, except per share data) | 2003 | 2002 | ||||||||
REVENUES: |
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Participation fees |
$ | 7,063 | $ | 8,943 | ||||||
Software license |
62 | 83 | ||||||||
Retail planning services |
2,244 | 2,677 | ||||||||
Maintenance and other |
1,337 | 1,484 | ||||||||
Total revenues |
10,706 | 13,187 | ||||||||
OPERATING EXPENSES: |
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General and administrative |
4,355 | 5,720 | ||||||||
Selling and marketing |
4,137 | 5,333 | ||||||||
Research and development |
102 | 101 | ||||||||
Amortization |
431 | 424 | ||||||||
Other operating expense, net |
21 | 65 | ||||||||
Total operating expenses |
9,046 | 11,643 | ||||||||
OPERATING INCOME |
1,660 | 1,544 | ||||||||
INTEREST EXPENSE, NET |
385 | 394 | ||||||||
INCOME BEFORE INCOME TAXES |
1,275 | 1,150 | ||||||||
Income tax provision |
497 | 448 | ||||||||
NET INCOME |
778 | 702 | ||||||||
Preferred stock dividends |
40 | 40 | ||||||||
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS |
$ | 738 | $ | 662 | ||||||
EARNINGS PER SHARE: |
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Basic |
$ | 0.05 | $ | 0.05 | ||||||
Diluted |
$ | 0.05 | $ | 0.05 | ||||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: |
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Basic |
14,106 | 14,014 | ||||||||
Diluted |
14,210 | 14,409 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
PRIVATE BUSINESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS – UNAUDITED
| (in thousands, except per share data) | 2003 | 2002 | ||||||||
REVENUES: |
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Participation fees |
$ | 21,272 | $ | 29,105 | ||||||
Software license |
213 | 392 | ||||||||
Retail planning services |
6,886 | 7,980 | ||||||||
Maintenance and other |
4,578 | 4,943 | ||||||||
Total revenues |
32,949 | 42,420 | ||||||||
OPERATING EXPENSES: |
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General and administrative |
14,823 | 17,693 | ||||||||
Selling and marketing |
13,309 | 16,560 | ||||||||
Research and development |
304 | 340 | ||||||||
Amortization |
1,280 | 1,365 | ||||||||
Other operating expense, net |
94 | 102 | ||||||||
Total operating expenses |
29,810 | 36,060 | ||||||||
OPERATING INCOME |
3,139 | 6,360 | ||||||||
INTEREST EXPENSE, NET |
1,136 | 1,396 | ||||||||
INCOME BEFORE INCOME TAXES |
2,003 | 4,964 | ||||||||
Income tax provision |
781 | 1,936 | ||||||||
NET INCOME |
1,222 | 3,028 | ||||||||
Preferred stock dividends |
120 | 120 | ||||||||
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS |
$ | 1,102 | $ | 2,908 | ||||||
EARNINGS PER SHARE: |
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Basic |
$ | 0.08 | $ | 0.21 | ||||||
Diluted |
$ | 0.08 | $ | 0.21 | ||||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: |
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Basic |
14,086 | 13,991 | ||||||||
Diluted |
14,131 | 14,412 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
PRIVATE BUSINESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED
| (in thousands) | 2003 | 2002 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
$ | 1,222 | $ | 3,028 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Write-off of debt issuance costs |
— | 34 | ||||||||||
Depreciation and amortization |
3,375 | 3,807 | ||||||||||
Deferred taxes |
612 | 2,243 | ||||||||||
Non-cash stock based compensation |
— | 46 | ||||||||||
Gain on sale of certain property and equipment, net |
— | (160 | ) | |||||||||
Gain on sale of Bank Insurance division |
(427 | ) | — | |||||||||
Changes in assets and liabilities: |
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Accounts receivable, net |
1,648 | (487 | ) | |||||||||
Prepaid and other current assets |
759 | (1,306 | ) | |||||||||
Other assets |
(288 | ) | 75 | |||||||||
Accounts payable |
(167 | ) | (1,542 | ) | ||||||||
Accrued liabilities |
(1,046 | ) | (1,520 | ) | ||||||||
Deferred revenue |
16 | (686 | ) | |||||||||
Other noncurrent liabilities |
(428 | ) | (547 | ) | ||||||||
Net cash provided by operating activities |
5,276 | 3,959 | ||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
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Additions to property and equipment |
(89 | ) | (2,166 | ) | ||||||||
Software development costs |
(555 | ) | (664 | ) | ||||||||
Proceeds from sale of property and equipment |
— | 2,863 | ||||||||||
Acquisition of businesses |
— | (845 | ) | |||||||||
Proceeds from sale of Bank Insurance division |
325 | — | ||||||||||
Proceeds from note receivable |
14 | — | ||||||||||
Net cash used in investing activities |
(305 | ) | (812 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
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Repayments on long-term debt |
(4,014 | ) | (3,495 | ) | ||||||||
Repayments on capitalized lease obligations |
(301 | ) | (288 | ) | ||||||||
Early repayment of long-term debt |
— | (2,833 | ) | |||||||||
Proceeds from revolving line of credit, net |
— | 1,050 | ||||||||||
Proceeds from exercise of employee stock options |
— | 137 | ||||||||||
Stock issued through employee stock purchase plan |
47 | 62 | ||||||||||
Payments on other short-term borrowings |
(454 | ) | — | |||||||||
Net cash used in financing activities |
(4,722 | ) | (5,367 | ) | ||||||||
NET CHANGE IN CASH AND CASH EQUIVALENTS |
249 | (2,220 | ) | |||||||||
CASH AND CASH EQUIVALENTS at beginning of year |
1,146 | 2,648 | ||||||||||
CASH AND CASH EQUIVALENTS at end of period |
$ | 1,395 | $ | 428 | ||||||||
SUPPLEMENTAL CASH FLOW INFORMATION: |
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Cash payments for income taxes during period |
$ | 207 | $ | 81 | ||||||||
Cash payments of interest during period |
$ | 1,142 | $ | 1,418 | ||||||||
NON-CASH INVESTING ACTIVITIES: |
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Note receivable for sale of Bank Insurance division |
$ | 175 | $ | — | ||||||||
Notes payable issued for certain insurance and software support contracts |
$ | 865 | $ | — | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
PRIVATE BUSINESS, INC.
Notes to Consolidated Financial Statements – Unaudited
A. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and in accordance with Rule 10-01 of Regulation S-X.
In the opinion of management, the unaudited interim financial statements contained in this report reflect all adjustments, consisting of only normal recurring accruals, which are necessary for a fair presentation of the financial position, and the results of operations for the interim periods presented. The results of operations for any interim period are not necessarily indicative of results for the full year.
These consolidated financial statements, footnote disclosures and other information should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2002.
B. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying financial statements include the accounts of Private Business, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Our significant accounting policies include revenue recognition, self-insurance reserves (2002 only) and software development costs. Please refer to our Annual Report on Form 10-K for the year ended December 31, 2002 for a more detailed description of these accounting policies.
Stock-Based Compensation
The Company has elected to account for its stock-based compensation plans under the intrinsic value-based method of accounting prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and does not utilize the fair value method. However, the Company has adopted the disclosure requirements of SFAS No. 123, and has adopted the additional disclosure requirements as specified in SFAS No. 148, Accounting For Stock-Based Compensation — Transition and Disclosure.
7
The following table illustrates the effect on net income av