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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
OR
[ ] 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 AVENUE, NEW YORK, NY 10019
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 974-5730
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant COMMON STOCK, $0.001 PAR VALUE
to Section 12(g) of the Act: (Title of each class)
_______________
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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in the definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes [ ] No [X]
The aggregate market value of the registrant's voting stock held by
non-affiliates was approximately $8,360,063 on March 26, 2005, based on the
closing sales price of the registrant's common stock as reported on the
Over-the-Counter Bulletin Board as of such date.
The number of shares outstanding of the registrant's common stock as of
March 26, 2005 was 26,967,944.
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DYNABAZAAR, INC.
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2004
INDEX
PAGE
----
PART I. BUSINESS
Item 1. Business ............................................................................ 1
Item 2. Properties .......................................................................... 2
Item 3. Legal Proceedings ................................................................... 3
Item 4. Submission of Matters to a Vote of Security Holders ................................. 3
PART II
Item 5. Market for Registrant's Common Stock, Related Stockholder Matters and Issuer
Purchases of Equity Securities ................................................... 3
Item 6. Selected Financial Data ............................................................. 4
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations ....................................................................... 5
Item 7A. Quantitative and Qualitative Disclosures About Market Risk .......................... 12
Item 8. Financial Statements and Supplementary Data ......................................... 12
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure ....................................................................... 12
Item 9A. Controls and Procedures ............................................................. 12
Item 9B. Other Information ................................................................... 12
PART III
Item 10. Directors and Executive Officers of the Registrant .................................. 12
Item 11. Executive Compensation .............................................................. 13
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters .............................................................. 13
Item 13. Certain Relationships and Related Transactions ...................................... 13
Item 14. Principal Accountant Fees and Services ..............................................
PART IV
Item 15. Exhibits and Financial Statement Schedules .......................................... 13
SIGNATURES ........................................................................................ 16
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PART I
ITEM 1. BUSINESS.
THIS FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE SET FORTH IN THE FORWARD-LOOKING STATEMENTS. CERTAIN FACTORS THAT
MIGHT CAUSE SUCH A DIFFERENCE ARE DISCUSSED IN THE SECTION ENTITLED "FACTORS
THAT MAY AFFECT RESULTS OF OPERATIONS AND FINANCIAL CONDITION" ON PAGE 10 OF
THIS FORM 10-K. YOU SHOULD NOT PLACE UNDUE RELIANCE ON OUR FORWARD-LOOKING
STATEMENTS, AND WE ASSUME NO OBLIGATION TO UPDATE ANY FORWARD-LOOKING
STATEMENTS.
OVERVIEW AND RECENT EVENTS
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 and 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 of 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. 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 pursuing a plan of complete liquidation and dissolution,
possibly including the sale of our remaining assets. Alternatively, we may
decide to pursue selling our remaining assets outside of a liquidation and
dissolution, to make additional distributions of cash to our stockholders and/or
to explore other business opportunities unrelated to our historical business,
including the possible acquisition of other businesses. At this time, our Board
of Directors has not made any decision to pursue any one of these options and
has not identified any such opportunities. We cannot assure you that we will be
able to identify or successfully capitalize on any appropriate business
opportunities.
In January 2004, James Mitarotonda was appointed as our President and Chief
Executive Officer and Mel Brunt was appointed as our Chief Financial Officer. In
October 2004, Mr. Mitarotonda resigned as the Company's President and Chief
Executive Officer but remained a director of the Company. In December 2004, Mr.
William Fox became the Company's President and Chief Executive Officer.
In connection with the Company's cessation of its online auction business, the
Company relocated its principal executive offices as of January 1, 2004 to 888
Seventh Avenue, 17th Floor, New York, 10019, an office maintained by Barington
Capital Group, LP ("Barington"), a limited partnership whose general partner is
a corporation of which James Mitarotonda is Chairman, President and Chief
Executive Officer. Mr. Mitarotonda is a director of the Company and our former
President and Chief Executive Officer. William Fox, the President, Chief
Executive Officer and a director of the Company, is the Vice Chairman of
Barington. Pursuant to an administrative services agreement we entered into with
Barington in December 2003 (which ran through December 31, 2004), we paid
Barington a monthly fee of $8,000 for performing certain administrative services
on behalf of the Company. In connection with the agreement, we also granted to
James Mitarotonda an option to purchase 320,000 shares of our common stock. The
option is fully exercisable and was granted with an exercise price per share
equal to $0.33, the fair market value of our common stock on the grant date. The
Company entered into an amended administrative services agreement with Barington
dated as of December 17, 2004. Under the amended agreement, which runs through
December 31, 2006, Barington is to be paid a fee of $15,000 per month for
performing certain administrative, accounting and other services on behalf of
the Company. In addition, Barington is to be paid a fee of $175 an hour for any
legal services provided by Barington on behalf of the Company at the Company's
request. The Company has also agreed that in the event that Barington identifies
for the Company, at its request, a business transaction such as a merger,
acquisition or joint venture, and/or provides the Company with financial
consulting or merger and acquisition services in connection with such business
transaction, the Company will pay Barington a fee to be agreed upon between
Barington and the Board of Directors of the Company. In connection with the
amended agreement, the Company granted options to certain designees of Barington
to purchase, in the aggregate, 320,000 shares of the Company's common stock at
an exercise price of $0.31 per share, the fair market value of the Company's
common stock on the grant date.
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On January 20, 2004, the Company executed a settlement agreement with Acquaport
Unicorn, Inc., the landlord of the Company's Woburn, Massachusetts headquarters,
providing for termination of the Company's lease in consideration of a cash
payment of $1.2 million. In March 2004, the cash payment was made and on April
9, 2004 our last employee was terminated and the premises vacated.
On February 2, 2004, we dismissed PricewaterhouseCoopers LLP as our independent
accountants and engaged Rothstein, Kass & Company, P.C. as our independent
auditors commencing with the audit of our financial statements for the year
ended December 31, 2003.
On June 22, 2004, the Board of Directors of the Company authorized the
termination of the Company's Shareholder Rights Agreement based on its
assessment that the termination of this agreement would benefit the Company's
stockholders and enhance the corporate governance practice of the Company. The
Company entered into Amendment No. 1 to the Shareholder Rights Agreement, dated
as of July 7, 2004, by and between the Company and EquiServe Trust Company,
N.A., as Rights Agent, which provided for the termination of the Company's
Shareholder Rights Agreement on July 31, 2004.
On June 15, 2004, we received a letter from the Nasdaq Stock Market notifying us
that, because the closing price of our common stock had closed below $1.00 per
share for 30 consecutive trading days and we do not presently conduct an
operating business, the Company's common stock would be delisted on June 24,
2004. Our stock now trades over the counter on the Nasdaq OTC Bulletin Board.
On August 20, 2004, the Company announced that the Board of Directors had
authorized the repurchase of up to 5 million shares of the Company's common
stock. To date, we have purchased 81,800 shares at an average price per share of
$0.2689.
On September 28, 2004, the Company executed a settlement with Regal House
Limited, the landlord of the Company's London, UK headquarters, providing for
termination of the Company's lease in consideration of a cash payment of
approximately $463,000. The cash payment was drawn from the security deposit of
approximately $569,000 held by the landlord. The remaining balance of $106,000
was returned to us.
As of September 30, 2004, we held an available-for-sale security in the form of
a United States Government Bond. On October 6, 2004, this position was
liquidated and re-invested in cash.
On December 17, 2004, the Board of Directors appointed Raymond L. Steele to
serve as a Class I director. On December 27, 2004, Joseph R. Wright, Jr.
resigned from the Board of Directors in order to devote additional time to his
position as President, Chief Executive Officer and a director of PanAmSat
Corporation, a global provider of satellite-based video, broadcasting and
network distribution and delivery services. On January 31, 2005, the Board of
Directors appointed Karen Schneider to serve as a Class II director.
ITEM 2. PROPERTIES
The Company's headquarters are located in New York City, in an office maintained
by Barington Capital Group, L.P., a limited partnership whose general partner is
a corporation of which James Mitarotonda is Chairman, President and Chief
Executive Officer. Mr. Mitarotonda is a director of the Company and our former
President and Chief Executive Officer. William Fox, the President, Chief
Executive Officer and a director of the Company, is the Vice Chairman of
Barington.
On January 20, 2004, the Company executed a settlement agreement with Acquaport
Unicorn, Inc., the landlord of the Company's Woburn, Massachusetts headquarters,
providing for termination of the Company's lease in consideration of a cash
payment of $1.2 million. In March 2004, the cash payment was made and on April
9, 2004 our last employee was terminated and the premises vacated.
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On September 28, 2004, the Company executed a settlement agreement with Regal
House Limited, the landlord of the Company's London, UK, headquarters, providing
for termination of the Company's lease in consideration of a cash payment of
approximately $463,000. The cash payment was drawn from the security deposit of
approximately $569,000 held by the landlord. The remaining balance of $106,000
was returned to us.
ITEM 3. 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 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 & officers liability insurance
and that no direct payment will be made by the Company. The proposed settlement
is subject to the execution of a definitive settlement agreement, final approval
of the settlement by the Company's directors & officers liability insurance
carriers and by the plaintiff class, and the approval of the settlement by the
Court.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
PRICE RANGE OF COMMON STOCK
Our common stock trades on the Nasdaq OTC Bulletin Board under the
symbol "FAIM." Our common stock was quoted on the Nasdaq National Market, but
was delisted on June 24, 2004. The following table sets forth, for the periods
indicated, the high and low sale price per share of our common stock on the OTC
BB.
-3-
HIGH LOW
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YEAR ENDED DECEMBER 31, 2004:
First Quarter.................................... $0.44 $0.32
Second Quarter................................... $0.39 $0.30
Third Quarter.................................... $0.31 $0.26
Fourth Quarter................................... $0.35 $0.27
HIGH LOW
---- ---
YEAR ENDED DECEMBER 31, 2003:
First Quarter.................................... $1.67 $1.42
Second Quarter................................... $2.00 $1.52
Third Quarter.................................... $1.71 $1.54
Fourth Quarter................................... $1.79 $0.31
As of March 26, 2005, there were approximately 177 holders of record of
our common stock.
We have not paid or declared any cash dividends on shares of our common
stock other than a $1.30 per share cash distribution that was declared in
October 2003 and paid in November 2003 to stockholders of record on October 20,
2003. The total amount of the distribution was approximately $35 million. Any
future determinations as to the payment of dividends on our common stock will
depend upon our capital requirements, earnings, liquidity and such other factors
as our Board of Directors may consider.
USE OF PROCEEDS FROM SALE OF REGISTERED SECURITIES
On March 17, 2000, we completed the sale of 5,750,000 shares of our
common stock in an initial public offering pursuant to a Registration Statement
on Form S-1 (File No. 333-92677), as amended, that was declared effective by the
Securities and Exchange Commission on March 13, 2000. The proceeds to us from
the initial public offering were $89.1 million, net of offering expenses. We
estimate that, as of December 31, 2004, approximately $35.3 million has been
used for working capital purposes, including approximately $5.1 million used for
the purchase of equipment, $4.0 million to repurchase 3.1 million shares of our
common stock from our founder, $35 million for the cash distribution paid in
November 2003 and $3.5 million for the September 2003 Series B repurchase and
liquidation preference. At December 31, 2004, substantially all of the remaining
net proceeds (approximately $9 million) were held in investments in
interest-bearing accounts.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with our
consolidated financial statements and related notes and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
other financial data included elsewhere in this Report. The consolidated
statement of operations data for the years ended December 31, 2004, 2003, 2002,
2001 and 2000 and the consolidated balance sheet data as of December 31, 2004,
2003, 2002, 2001 and 2000 are derived from our audited consolidated financial
statements.
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue ............................................. $ -- $ 6,673 $ 5,747 $ 8,571 $ 10,937
Total operating expenses ............................ 2,227 12,752 29,075 51,688 66,732
Loss from operations ................................ (2,227) (6,079) (23,328) (43,117) (55,795)
Net loss ............................................ (1,962) (4,599) (21,977) (40,183) (51,267)
Basic and diluted net loss per share ................ $ (0.07) $ (0.18) $ (0.79) $ (1.39) $ (2.15)
Shares used to compute basic and diluted
net loss per share ............................... 27,024 26,796 28,080 28,870 23,811
-4-
DECEMBER 31,
------------
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities .... $ 8,989 $ 10,697 $ 54,734 $ 63,372 $ 76,104
Working capital ..................................... 9,124 5,547 39,572 40,411 79,075
Total assets ........................................ 12,468 16,630 59,267 71,450 93,449
Obligation under capital lease excluding current
portion .......................................... -- -- -- -- 148
Total stockholders' equity .......................... 10,452 12,314 52,909 68,857 87,282
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Form 10-K contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. 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. Certain factors that might cause such a difference
include the risks and uncertainties discussed under the heading "Factors that
May Affect Results of Operations and Financial Condition" on page 10 of this
Form 10-K. You should not place undue reliance on our forward-looking
statements, and we assume no obligation to update any forward-looking
statements.
The following discussion of our financial condition and results of
operations should be read in conjunction with the description of our business
and our financial statements and the notes to those statements included
elsewhere in this Report.
CRITICAL ACCOUNTING POLICIES
While our significant accounting policies are more fully described in
Note 2, Summary of Significant Accounting Policies, to our consolidated
financial statements included in this Report, we believe the following
accounting policies to be critical:
REVENUE RECOGNITION. In accordance with SEC Staff Accounting Bulletin No. 101,
we do not record revenue until all of the following criteria are met: persuasive
evidence of an arrangement exists; services have been rendered; our price to our
customer is fixed and determinable; and collectibility is reasonably assured. We
derive revenue from application fees, transaction fees and professional services
fees. Application fees consist of implementation fees and fixed monthly hosting,
support and operating fees. We record implementation fees as deferred revenue
and recognize these fees as revenue, ratably, over the contract period which
approximates the life of our customer relationship. We recognize fixed monthly
hosting fees as revenue in the month that the service is provided. We recognize
transaction fees as revenue, net of amounts paid to our customers, at the
completion of the listing period. We record certain professional services fees
related to ongoing service relationships as deferred revenue and recognize these
fees as revenue ratably over the remaining contract period. Professional
services fees which represent a separate earnings process and are unrelated to
ongoing services are recognized as revenue in the period the service is
provided.
We follow the guidance of Emerging Issues Task Force issue No. 01-09,
Accounting for Consideration Given by a Vendor to a Customer or a Reseller of
the Vendor's Products ("EITF 01-09"), in determining whether consideration,
including equity instruments, given to a customer should be recorded as an
operating expense or a reduction of revenue recognized from that same customer.
Consideration given to a customer is recorded as a reduction of revenue unless
both of the following conditions are met:
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o We receive an identifiable benefit in exchange for the
consideration, and the identified benefit is sufficiently
separable from the customer's purchase of the Company's
products and services such that the Company could have
purchased the products from a third party; and
o We can reasonably estimate the fair value of the benefit
received.
If both of the conditions are met, we record consideration paid to
customers as an expense. Consideration, including equity instruments, not
meeting the above criteria, is recorded as a reduction of revenue to the extent
the Company has recorded cumulative revenue from the customer or reseller. Any
consideration in excess of cumulative revenue recognized from the customer or
reseller is recorded as an operating expense.
Identifying transactions that are within the scope of EITF 01-09,
determining whether those transactions meet the criteria for recognition as an
expense and determining the methodology of cost recognition associated with
these arrangements requires us to make significant judgments. If we reached
different conclusions, reported revenue could be materially different.
ALLOWANCE FOR DOUBTFUL ACCOUNTS AND REVENUE RESERVE When estimating our
allowance for doubtful accounts, we analyze our accounts receivable aging,
historical bad debts, customer creditworthiness, current economic trends and
other factors. If collection of accounts receivable is not reasonably assured,
we establish a reserve for any revenue within the current reporting period for
that customer and we charge bad debt expense for any revenue recognized in prior
reporting periods for that customer.
DEFERRED TAX ASSETS We record a valuation allowance to reduce our deferred tax
assets to the amount that is more likely than not to be realized. While we
consider future taxable income and tax planning strategies in assessing the need
for the valuation allowance, if management were to determine that the Company
would be able to realize deferred tax assets in the future in excess of the net
recorded amount, an adjustment to the deferred tax asset would effect the
provision for income taxes in the period such determination was made.
UNUTILIZED OFFICE SPACE In the fourth quarter of 2003 and first quarter of
2002, we recorded charges of $160,000 and $4.5 million, respectively, for
unutilized office space at our Woburn, Massachusetts headquarters. This charge
included rent and other related costs for a significant portion of our leased
space which has been vacated for the remaining lease term and the write-down of
related leasehold improvements and furniture and fixtures. In the fourth quarter
of 2002, we recorded a reversal of $513,000 related to a sublease of
approximately 11,000 square feet of the unutilized office space. During 2003, we
charged $1.0 million against this reserve which represented rent payments
related to unutilized office space. During 2002, we charged $746,000 against
this reserve, which represented rent payments related to unutilized office
space. In addition, we recorded $1.2 million for the write-down of leasehold
improvements and furniture and fixtures.
NEW ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123 (R), "Accounting for Stock-Based Compensation (Revised)." SFAS No. 123
(R) 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 exchange
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 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
-6-
modified after the grant date, incremental compensation cost will be recognized
in an amount equal to the excess of the fair value of modified award over the
fair value of the original award immediately before the modifications. The
Company has not completed its evaluation of SFAS No. 123 (R) but expects the
adoption of this new standard will have an impact on operating results due to
the Company's use of options as employee incentives.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
For the years ended December 31, 2004, 2003 and 2002, our net loss was $2.0
million, $4.6 million and $22.0 million, respectively. The reduction in net loss
of $2.7 million when comparing 2004 to 2003 was primarily due to the cessation
of its online auction business. The reduction in net loss of $17.4 million when
comparing 2003 to 2002 was primarily due to a decrease in equity related charges
in the a amount of $9.8 million, a decrease in total operating expenses
exclusive of equity related charges of $6.5 million, an increase in total
revenue of $926,000 and a decrease of interest income of $1.1 million.
REVENUE
Total revenue was zero for 2004 compared to $6.7 million in 2003, this
decrease was due to the cessation of the Company's online auction business. The
increase of $1.0 in revenue for 2003 compared to 2002 was due primarily to
service fees incurred under the TSA with eBay offset by the loss of revenue from
customers transferred to eBay as part of the Asset Purchase Agreement. Total
revenue was $5.7 million for 2002.
International revenue was zero in 2004 compared to $1.5 million in 2003
and $1.6 million in 2002. The decrease in 2004 compared with 2003 is due to the
cessation of the Company's online auction business.
OPERATING EXPENSES
COST OF REVENUE
Cost of revenue was zero in 2004, $2.1 million in 2003 and $3.6 million
in 2002. Cost of revenue consists of costs for direct customer support and
support to end-users of our customers' sites, depreciation of network equipment,
fees paid to network providers for bandwidth and monthly fees paid to
third-party network providers. The decrease in 2004 was primarily due to the
cessation of the Company's online auction business. The decreases of $1.5
million in 2003 and $1.3 million in 2002 were primarily due to a reduction in
salaries and related expenses resulting from headcount reductions and a
reduction in the fees paid to network providers for bandwidth. In addition, we
realized cost reductions by relocating our UK Data Center to our US Data Center.
Gross profit was 0.0%, 68.8% and 38.1% of total revenue for 2004, 2003
and 2002, respectively. This decrease in gross profit from 2004 and 2003 was
attributable to the decrease in revenue discussed above. The increase in gross
profit from 2003 to 2002 was primarily attributable to the increase in revenues
from the TSA, while no costs were associated with those revenues.
SALES AND MARKETING
Sales and marketing expenses were zero for 2004, $2.0 million for 2003
and $2.3 million for 2002. The decrease in 2004 is attributable to the cessation
of the Company's online auction business. The decrease in 2003 is attributable
to a reduction in salaries and related expenses.
DEVELOPMENT AND ENGINEERING
Development and engineering expenses were zero for 2004, $1.1 million
for 2003 and $2.2 million for 2002. The decrease for 2004 is attributable to the
cessation of the Company's online auction business. The decreases for 2003 and
2002 were primarily due to a reduction in salaries and related expenses
resulting from lower headcount.
-7-
GENERAL AND ADMINISTRATIVE
General and Administrative expenses were $2.2 million in 2004 compared
to $7.3 million in 2003, a reduction of 72%. Expenses in 2004 were primarily
related to the payment of liability insurance premiums for the prior Board of
$336,000 and the current Board of $90,000 and costs associated with the
settlement of leases in the United States and the United Kingdom. General and
Administrative expenses in 2003 were $7.3 million compared to $6.6 million in
2002 an increase of 10%. Contributing to the increase in 2003 was the payment,
in December of that year, of $830,000 termination pay to all our remaining
employees, together with a patent litigation settlement of $210,000 and an
increase in the premium for directors and officers liability insurance.
UNUTILIZED OFFICE SPACE CHARGE
In the fourth quarter of 2003 and the first quarter of 2002, we
recorded charges of $160,000 and $4.5 million, respectively, for unutilized
office space at our Woburn, Massachusetts headquarters. This charge included
rent and other related costs for a significant portion of our leased space which
has been vacated for the remaining lease term and the write-down of related
leasehold improvements and furniture and fixtures. In the fourth quarter of
2002, we recorded a reversal of $513,000 related to a sublease of approximately
11,000 square feet of the unutilized office space. During 2003, we charged $1.0
million against this reserve which represented rent payments related to
unutilized office space. During 2002, we charged $746,000 against this reserve,
which represented rent payments related to unutilized office space. In addition,
we recorded $1.2 million for the write-down of leasehold improvements and
furniture and fixtures. In 2004, we terminated our lease for this property.
EQUITY-RELATED CHARGES
Equity-related charges consist of the amortization of (1) deferred
stock compensation resulting from the grant of stock options to employees at
exercise prices subsequently deemed to be less than the fair value of the common
stock on the grant date and (2) the fair value of warrants issued to strategic
customers and shares of Series B preferred stock issued to strategic customers
at prices below their fair value.
Deferred stock compensation is being amortized ratably over the vesting
periods of the applicable stock options, typically four years, with 25% vesting
on the first anniversary of the grant date and the balance vesting 6.25%
quarterly thereafter.
At December 31, 2004 and 2003, the Company had no deferred compensation
on the consolidated balance sheets. The Company had recorded $0, $107,000 and
$9.8 million in equity related charges for the years ending December 31, 2004,
2003 and 2002, respectively.
GAIN ON SALE OF ASSETS
On June 20, 2003, the Company entered into an Asset Purchase Agreement
(the "Agreement") with eBay, Inc. ("eBay") to sell substantially all of the
Company's technology and business assets to eBay for $4.5 million in cash. On
September 4, 2003 the Company closed on the sale of assets to eBay.
In connection with the transaction the parties entered into a separate
escrow agreement dated September 2003, which provided that $2 million of the
consideration be held in escrow for a two-year period in order to secure the
Company's indemnification obligations. The Company estimated its potential
liability under the indemnification to be $2 million in accordance with FASB
Interpretation No. 45 "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45")
and recorded such liability as a reduction in the gain on the sale of assets.
-8-
The Company recorded a gain on the sale of assets of $1,162,000 based
on the proceeds less direct costs of $1,338,000 and the indemnification
liability noted above, which is recorded in the results of operations for the
year ended December 31, 2003.
INTEREST INCOME, NET
Interest income was $265,000, $297,000 and $1.4 million in 2004, 2003
and 2002, respectively. The decrease in interest income for 2004 and 2003 was
due principally to lower average cash, cash equivalents and marketable
securities balances during these periods as a result of cash used in operating
activities and to a lesser extent a decrease in interest rates.
LIQUIDITY AND CAPITAL RESOURCES
Prior to our initial public offering in March 2000, we financed our
operations primarily through private sales of capital stock, the net proceeds of
which totaled $27.1 million as of December 31, 1999. In March 2000, we sold
5,750,000 shares of common stock in our initial public offering. The proceeds to
us from the initial public offering were $89.1 million, net of offering
expenses. At December 31, 2004, cash and cash equivalents totaled $9.0 million.
Net cash used in operating activities was $2.3 million for 2004, $7.1
million for 2003 and $6.3 million for 2002.
Net cash flows from operating activities in 2004 reflect a net loss of
$2.0 million reduced by an increase in other assets of $900,000. Net cash flows
from operating activities reflects increases from unutilized lease costs of $1.2
million, $800,000 from accrued expenses and other miscellaneous increases.
Net cash flows from operating activities in 2003 reflect a net loss of
$4.6 million reduced by depreciation expense of $1.2 million, and a reduction of
accounts receivable of $1.0 million. Net cash flows from operating activities
for 2003 reflects an increase in gain on sale of assets of $1.2 million,
long-term prepayment of $1.6 million, unutilized lease costs of approximately
$880,000 and additional increases of accounts payable, accrued expenses,
deferred revenue and other non-current liabilities.
Net cash flows from operating activities in 2002 reflect a net loss of
$22.0 million reduced by depreciation expense of $2.9 million, non-cash charges
for loss on disposal of property and equipment of $1.4 million, short and
long-term unutilized office space of $2.8 million and amortization of deferred
compensation and equity-related charges of $9.9 million. To a lesser extent, net
cash flows from operating activities for 2002 reflect an increase in accounts
receivable, accrued expenses and deferred revenue, partially offset by a
decrease in prepaid expenses, other current assets and accounts payable.
In 2004, cash provided by investing activities decreased to $5.5
million from $18.1 million in 2003. This decrease was primarily due to the sale
of marketable securities compared to the 2003 activity. During 2003, cash
provided by investing activities was primarily due from the sale of marketable
securities. In 2002, cash provided by investing activities was $20.9 million
primarily from the sale of marketable securities.
In 2004, cash used in financing activities was $22,000, primarily from
the purchase of treasury stock. Cash used in financing activities was $38.3
million in 2003 primarily from a cash distribution paid to shareholders of
record on October 20, 2003. In 2002, cash used in financing activities was $2.2
million primarily from the purchase of 3,181,000 shares of our Common Stock from
the founder of the Company for $4.0 million offset by the issuance of 952,380
shares of our Series B redeemable convertible preferred stock to eBay in May
2002 for net proceeds of $1.8 million as described in Note 11 to the
Consolidated Financial Statements.
We expect to fund our operating expenses for 2005 from available cash.
In addition, we may utilize our cash resources to fund acquisitions or
investments in complementary businesses or technologies, though currently we
have no commitments for capital expenditures or strategic investments. We
believe that our current cash, cash equivalents and marketable securities will
be sufficient to meet our working capital and operating expenditure requirements
-9-
for the near future. Further, we do not have an operating business and
consequently, we are currently exploring various options for the use of our
remaining assets, including pursuit of a business strategy unrelated to our
historical business. Acquisition and/or operation of any future business
strategy may require us to obtain additional financing. In the interim, we
believe our cash needs will primarily relate to costs associated with operating
as a public company, such as legal and accounting costs. If additional financing
is required, we may not be able to raise it on acceptable terms or at all.
FACTORS THAT MAY AFFECT RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THIS FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 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 BELOW. YOU SHOULD CAREFULLY REVIEW ALL OF THESE FACTORS, AND YOU
SHOULD BE AWARE THAT THERE MAY BE OTHER FACTORS THAT COULD CAUSE THESE
DIFFERENCES. THESE FORWARD-LOOKING STATEMENTS WERE BASED ON INFORMATION, PLANS
AND ESTIMATES AT THE DATE OF THIS FORM 10-K, 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.
WE CURRENTLY DO NOT HAVE AN OPERATING BUSINESS, BUT ALSO DO NOT INTEND TO PURSUE
A COURSE OF COMPLETE LIQUIDATION AND DISSOLUTION, AND ACCORDINGLY, THE VALUE OF
YOUR SHARES MAY DECREASE
We currently do not have any operating business; we are considering various
options for the use of our remaining assets, but have yet to approve any
definitive plans. In the meantime, we will continue to incur operating expenses
while we consider alternative operating plans. These plans may include business
combinations with or investments in other operating companies, or entering into
a completely new line of business. We have not yet identified any such
opportunities, and thus, you will not be able to evaluate the impact of such a
business strategy on the value of your stock. In addition, we cannot assure you
that we will be able to identify any appropriate business opportunities. Even if
we are able to identify business opportunities that our Board deems appropriate,
we cannot assure you that such a strategy will provide you with a positive
return on your investment, and it may in fact result in a substantial decrease
in the value of your stock. These factors will substantially increase the
uncertainty, and thus the risk, of investing in our shares. Furthermore, we
currently do not intend to pursue a course of complete liquidation and
dissolution. As a result, you should not expect any further cash distributions.
WE MAY NOT BE ABLE TO IDENTIFY OR FULLY CAPITALIZE ON ANY APPROPRIATE BUSINESS
OPPORTUNITIES
We are considering various options for the use of our remaining assets, which
may include business combinations with or investments in other operating
companies, or entering into a completely new line of business. Nevertheless, we
have not yet identified any appropriate business opportunities, and, due to a
variety of factors outside of our control, we may not be able to identify or
fully capitalize on any such opportunities. These factors include: (1)
competition from other potential acquirers and partners of and investors in
potential acquisitions, many of whom may have greater financial resources than
we do; (2) in specific cases, failure to agree on the terms of a potential
acquisition, such as the amount or price of our acquired interest, or
incompatibility between us and management of the company we wish to acquire; and
(3) the possibility that we may lack sufficient capital and/or expertise to
develop promising opportunities. Even if we are able to identify business
opportunities that our Board deems appropriate, we cannot assure you that such a
strategy will provide you with a positive return on your investment, and may in
fact result in a substantial decrease in the value of your stock. In addition,
if we enter into a combination with a business that has operating income, we
cannot assure you that we will be able to utilize all or even a portion of our
existing net operating loss carryover for federal or state tax purposes
following such a business combination. If we are unable to make use of our
existing net operating loss carryover, the tax advantages of such a combination
may be limited, which could negatively impact the price of our stock and the
value of your investment. These factors will substantially increase the
uncertainty, and thus the risk, of investing in our shares.
-10-
STOCKHOLDERS MAY BE LIABLE TO OUR CREDITORS FOR UP TO AMOUNTS RECEIVED FROM US
IF OUR RESERVES ARE INADEQUATE
If we pursue a plan of complete liquidation and dissolution, a Certificate of
Dissolution will be filed with the State of Delaware after such plan is approved
by our stockholders. Pursuant to the Delaware General Corporation Law, we will
continue to exist for three years after the dissolution becomes effective or for
such longer period as the Delaware Court of Chancery shall direct, for the
purpose of prosecuting and defending suits against us and enabling us gradually
to close our business, to dispose of our property, to discharge our liabilities
and to distribute to our stockholders any remaining assets. Under the Delaware
General Corporation Law, in the event we fail to create an adequate contingency
reserve for payment of our expenses and liabilities during this three-year
period, each stockholder could be held liable for payment to our creditors for
such stockholder's pro rata share of amounts owed to creditors in excess of the
contingency reserve. The liability of any stockholder would be limited, however,
to the amounts previously received by such stockholder from us (and from any
liquidating trust or trusts), including the cash distribution of $1.30 per share
paid to stockholders on November 3, 2003. Accordingly, in such event a
stockholder could be required to return all distributions previously made to
such stockholder. In such event, a stockholder could receive nothing from us
under a plan of complete liquidation and dissolution. Moreover, in the event a
stockholder has paid taxes on amounts previously received, a repayment of all or
a portion of such amount could result in a stockholder incurring a net tax cost
if the stockholder's repayment of an amount previously distributed does not
cause a commensurate reduction in taxes payable. There can be no assurance that
the contingency reserve maintained by us will be adequate to cover any expenses
and liabilities.
OUR STOCK HAS BEEN DELISTED FROM THE NASDAQ NATIONAL MARKET, AND IS THEREFORE
SIGNIFICANTLY LESS LIQUID THAN BEFORE
Our stock has been delisted from trading on The Nasdaq National Market by reason
of not maintaining listing requirements due to, among other things,
significantly reduced market price of our common stock. As a result, our common
stock currently trades over the counter on the Nasdaq OTC Bulletin Board and the
ability of our stockholders to obtain liquidity and fair market prices for our
shares has been significantly impaired.
WE WILL CONTINUE TO INCUR THE EXPENSE OF COMPLYING WITH PUBLIC COMPANY REPORTING
AND OTHER REQUIREMENTS
We have an obligation to continue to comply with the applicable reporting
requirements of the Securities Exchange Act of 1934, as amended, and other
applicable requirements including those under the Sarbanes-Oxley Act of 2002
even though compliance with such requirements is economically burdensome. In
order to curtail expenses, if we elect to pursue a liquidation and dissolution
strategy, after we file our Certificate of Dissolution, we will seek relief from
the Securities and Exchange Commission from the reporting requirements under the
Exchange Act, which may or may not be granted. Until such relief is granted we
will continue to make obligatory Exchange Act filings. We anticipate that even
if such relief is granted in the future, we will continue to file current
reports on Form 8-K to disclose material events relating to our liquidation and
dissolution along with any other reports that the Securities and Exchange
Commission may require.
WE FACE AND MIGHT FACE INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS THAT MIGHT BE
COSTLY TO RESOLVE
From time to time, we have received letters from corporations and other entities
suggesting that we review patents to which they claim rights or claiming that we
infringe on their intellectual property rights. Such claims may result in our
being involved in litigation. Although we sold our operating assets to eBay, we
still have exposure for liabilities relating to our business operations prior to
the sale. Further, we cannot assure you that third parties will not assert
claims in the future or that we will prevail against any such claims. We could
incur substantial costs to defend any claims relating to proprietary rights,
which would deplete our remaining cash assets. In addition, we are obligated
under certain agreements to indemnify the other party for claims that we
infringe on the proprietary rights of third parties. If we are required to
indemnify parties under these agreements, our remaining assets could be
substantially reduced. If someone asserts a claim against us relating to
proprietary technology or information, we might seek settlement of such claim.
We might not be able to agree to a settlement on reasonable terms, or at all.
The failure to obtain a settlement on acceptable terms would decrease cash for
other purposes.
-11-
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INVESTMENT PORTFOLIO
None
FOREIGN CURRENCY RISK
None
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements are included in this
Report beginning at page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On February 2, 2004, we dismissed PricewaterhouseCoopers LLP as our
independent accountants and engaged Rothstein, Kass & Company, P.C. as our
independent auditors for the year ended December 31, 2003. We filed a current
report on Form 8-K with the Securities and Exchange Commission with respect to
this matter.
ITEM 9A. CONTROLS AND PROCEDURES
As required by Rule 13a-15(b) under the Securities Exchange Act of
1934, as amended, as of the end of the period covered by this report, we carried
out an evaluation under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures. 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 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 Securities and Exchange Commission's rules and forms. There was no change
in our internal control over financial reporting that occurred during the period
covered by this report 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 systems evolve with our business.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item regarding directors and executive
officers is incorporated by reference from the discussion in the proxy statement
for the 2005 Annual Meeting of Shareholders under the headings "Directors" and
"Other Information."
-12-
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item regarding directors and executive
officers is incorporated by reference from the discussion in the proxy statement
for the 2005 Annual Meeting of Shareholders under the heading "Other
Information."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by this item regarding directors and executive
officers is incorporated by reference from the discussion in the proxy statement
for the 2005 Annual Meeting of Shareholders under the heading "Other
Information."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item regarding directors and executive
officers is incorporated by reference from the discussion in the proxy statement
for the 2005 Annual Meeting of Shareholders under the heading "Other
Information."
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) INDEX TO FINANCIAL STAEMENTS
The following documents are included as part of this Annual Report on
Form 10-K.
PAGE
----
Report of Independent Registered Public Accounting Firm............................................... F-2
Report of Independent Registered Public Accounting Firm............................................... F-3
Consolidated Balance Sheets as of December 31, 2004 and 2003.......................................... F-4
Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002............ F-5
Consolidated Statements of Convertible Preferred Stock, Stockholders' Equity (Deficit) and
Comprehensive Loss for the years ended December 31, 2004, 2003 and 2002............................ F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002............ F-8
Notes to Consolidated Financial Statements............................................................ F-9
(a)(2) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts......................................................... II-1
(a)(3) Exhibits
Please see subsection (b) below
(b) EXHIBITS
The following exhibits are incorporated herein by reference or are filed
with this report as indicated below. Exhibits indicated with (+) constitute all
of the management contracts and compensation plans and arrangements required to
be filed as exhibits to the Report on Form 10-K.
-13-
EXHIBIT NO. TITLE
- ----------- -----
3.1 Form of Fifth Amended and Restated Certificate of
Incorporation of the Company(1)
3.2 Composite Amended and Restated Bylaws of the Company as
amended by Amendment to Bylaws adopted May 16, 2001*
4.1 Form of Specimen Certificate for the Company's Common Stock(4)
4.2 Shareholder Rights Agreement, dated as of May 17, 2001,
between the Company and EquiServe Trust Company, N.A., as
Rights Agent, including form of Right Certificate(2)
10.1 Form of Indemnity Agreement entered into by the Company with
each of its directors(1)
10.2 Amended and Restated 1997 Stock Option Plan(1)
10.3 October 2001 Amendment to Amended and Restated 1997 Stock
Option Plan(4)
10.4 1999 Stock Option Plan(1)
10.5 2000 Stock Option and Incentive Plan(1)
10.6 Composite Transaction Bonus Plan adopted August 28, 2001 as
amended on March 12, 2002(4)
10.7 Employee Stock Purchase Plan(1)
10.8 Letter agreement dated June 26, 2001 between the Company and
Nanda Krish(3)
10.9 Amended and Restated Agreement Concerning Termination of
Employment, Severance Pay and Related Matters dated as of
October 11, 2001 between the Company and Mathew Ackley(4)
10.10 Second Amended and Restated Agreement Concerning Termination
of Employment, Severance Pay and Related Matters dated as of
October 11, 2001 between the Company and Janet Smith(4)
10.11 Lease Agreement dated November 9, 1999, between DIV Unicorn,
LLC and the Company(1)
10.12 Siteharbor Services Agreement between the Company and
NaviSite, Inc. dated as of November 1, 2001 together with
Amendment to Siteharbor Services Agreement dated as of
November 1, 2001(4)
10.13 Indemnification Agreement among the Company and Sierra
Ventures VII, LP, and Sierra Ventures Associates VII, LLC,
dated February 25, 1999(1)
10.14 Warrant to Purchase Common Stock between the Company and
Lycos, Inc. dated as of May 12, 1999(1)
10.15 Auction Services Agreement, dated September 15, 1999, by and
between the Company and Ticketmaster Online-CitySearch(1)
10.16 Agreement Concerning termination of Employment, Severance Pay
and related Matters dated as of January 17, 2002 between the
Company and Nanda Krish(5)
10.17 Second Amendment to Agreement dated as of March 15, 2002
between the Company and NaviSite, Inc.(5)
10.18 Promotions Agreement dated as of April 10, 2002 between the
Company and eBay Inc.(7)
10.19 Third Amendment to Agreement dated as of December 1, 2002
between the Company and Navisite, Inc.*
10.20 Agreement Concerning Employment and Termination dated as of
January 20, 2003 between the Company and David George. *
10.80 Services Agreement dated as of November 17, 2004 between the
Company and Barington Capital Group, L.P.*
21 List of Subsidiaries*
23.1 Consent of Rothstein, Kass & Company, P.C.*
23.2 Consent of PricewaterhouseCoopers LLP*
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.*
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.*
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
-14-
- ------------
* Filed with this Report.
(1) Included as an exhibit to, and incorporated in this Report by reference
to, the Company's Registration Statement on Form S-1 (No. 333-92677),
as amended, filed with the SEC.
(2) Included as an exhibit to, and incorporated in this Report by reference
to, the Company's Current Report on Form 8-K dated May 17, 2001 filed
with the SEC on May 22, 2001.
(3) Included as an exhibit to, and incorporated in this Report by reference
to, the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2001 filed with the SEC on November 9, 2001.
(4) Included as an exhibit to, and incorporated in this Report by reference
to, the Company's Annual Report on Form 10-K for the year ended
December 31, 2001 filed with the SEC on March 31, 2002.
(5) Included as an exhibit to, and incorporated in this Report by reference
to, the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 2002 filed with the SEC on May 14, 2002.
(6) Included as an exhibit to, and incorporated in this Report by reference
to, the Company's Report on Form 8-K filed with the SEC on May 20,
2002.
(7) Included as an exhibit to, and incorporated in this Report by reference
to, the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2002 filed with the SEC on August 14, 2002.
(c) Financial Statement Schedules
Please see page II-1 of this Annual Report on form 10-K.
-15-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on March 30, 2005.
DYNABAZAAR, INC.
By: /s/ William J. Fox
-------------------------------------
William J. Fox
President and Chief Executive Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ William J. Fox President, Chief Executive Officer and Director March 30, 2005
- -------------------------- (Principal Executive Officer)
William J. Fox
/s/ Melvyn Brunt Chief Financial Officer and Treasurer March 30, 2005
- -------------------------- (Principal Financial and Accounting Officer)
Melvyn Brunt
/s/ Rory J. Cowan Director and Chairman of the Board March 30, 2005
- --------------------------
Rory J. Cowan
/s/ Lloyd I. Miller, III Director March 30, 2005
- --------------------------
Lloyd I. Miller, III
/s/ James A. Mitarotonda Director March 30, 2005
- --------------------------
James A. Mitarotonda
/s/ Karen Schneider Director March 30, 2005
- --------------------------
Karen Schneider
/s/ Raymond Steele Director March 30, 2005
- --------------------------
Raymond Steele
-16-
DYNABAZAAR, INC.
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
PAGE
----
Report of Independent Registered Public Accounting Firm............................................... F-2
Report of Independent Registered Public Accounting Firm............................................... F-3
Consolidated Balance Sheets as of December 31, 2004 and 2003.......................................... F-4
Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002............ F-5
Consolidated Statements of Convertible Preferred Stock, Stockholders' Equity (Deficit) and
Comprehensive Loss for the years ended December 31, 2004, 2003 and 2002............................ F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002............ F-8
Notes to Consolidated Financial Statements............................................................ F-9
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Dynabazaar, Inc.
We have audited the accompanying consolidated balance sheets of Dynabazaar, Inc.
& Subsidiaries (the "Company") as of December 31, 2004 and 2003, and the related
consolidated statements of operations, consolidated statements of convertible
preferred stock, stockholders' equity (deficit) and comprehensive loss, and
consolidated cash flows for each of the two years in the period ended December
31, 2004. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 2004 and 2003, and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 2004, in conformity
with U.S. generally accepted accounting principles.
In connection with our audit of the consolidated financial statements referred
to above, we audited the financial schedules listed under Item 15. In our
opinion, these financial schedules, when considered in relation to the
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information stated therein.
/s/ Rothstein, Kass & Company, P.C.
Roseland, New Jersey
March 9, 2005
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Dynabazaar, Inc.:
In our opinion, the consolidated statements of operations, of cash
flows and of changes in convertible preferred stock, stockholders' equity
(deficit) and comprehensive loss for the years ended December 31, 2002 and 2001
present fairly, in all material respects, the results of operations and cash
flows of Dynabazaar, Inc. and its subsidiaries for the years ended December 31,
2002 and 2001, in conformity with accounting priciples generally generally
accepted in the United States of America. In addition, in our opinion, the
financial statement schedule listed in the index appearing under Item 15(a)(2)
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 7, 2003
F-3
DYNABAZAAR, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
DECEMBER 31,
------------
2004 2003
---- ----
ASSETS
Current assets:
Cash and cash equivalents ...................................................... $ 8,989 $ 5,697
Restricted cash ................................................................ -- 523
Accounts receivable, net of allowance of zero and $162 at December 31, 2004
and 2003, respectively ...................................................... -- 351
Prepaid expenses ............................................................... 331 389
Other current assets (see Note 5 and 8) ........................................ 2,000 903
--------------------------------
Total current assets ....................................................... 11,320 7,863
Long-term marketable securities ................................................... -- 5,000
Long-term prepaid expenses ........................................................ 1,328 1,658
Property and equipment, net ....................................................... -- 109
Other assets (see Note 8) ......................................................... -- 2,000
--------------------------------
Total assets ............................................................... $ 12,648 $ 16,630
================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................... $ -- $ 82
Accrued expenses ............................................................... 196 1,034
Current portion of unutilized space accrual .................................... -- 1,200
Other current liabilities (see Note 8) ......................................... 2,000 --
--------------------------------
Total current liabilities .................................................. 2,196 2,316
Other long-term liabilities (see Note 8) .......................................... -- 2,000
--------------------------------
Total liabilities .......................................................... 2,196 4,316
--------------------------------
Commitments and contingencies
Stockholders' equity
Common stock, $0.001 par value; 90,000,000 shares authorized, 29,426,385
shares issued at December 31, 2004 and 2003 ................................. 30 30
Additional paid-in capital ..................................................... 151,636 151,636
Treasury stock, (at cost); 2,458,441 and 2,376,641 shares at December 31,
2004 and 2003, respectively ................................................. (3,040) (3,018)
Accumulated other comprehensive income, net .................................... 313 191
Accumulated deficit ............................................................ (138,487) (136,525)
--------------------------------
Total stockholders' equity ................................................. 10,452 12,314
--------------------------------
Total liabilities and stockholders' equity ................................. $ 12,648 $ 16,630
================================
The accompanying notes are an integral part of the consolidated financial statements.
F-4
DYNABAZAAR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2004 2003 2002
---- ---- ----
Revenue ..................................................................... $ -- $ 6,673 $ 5,747
Operating expenses:
Cost of revenue, exclusive of zero, $11, and $134 in 2004, 2003
and 2002, respectively, reported below as equity-related charges -- 2,085 3,555
Sales and marketing, exclusive of zero, $41, and $9,465 in 2004,
2003 and 2002, respectively, reported below as equity-related
charges ............................................................... -- 1,978 2,284
Development and engineering, exclusive of zero, $32, and $195 in
2004, 2003 and 2002, respectively, reported below as
equity-related charges ................................................ -- 1,118 2,213
General and administrative, exclusive of zero, $23, and $100 in
2004, 2003 and 2002, respectively, reported below as
equity-related charges ................................................ 2,227 7,304 6,612
Restructuring charges .................................................... -- -- 530
Unutilized office space charge ........................................... -- 160 3,987
Equity-related charges ................................................... -- 107 9,894
-------------------------------------
Total operating expenses .................................................... 2,227 12,752 29,075
-------------------------------------
Loss from operations ........................................................ (2,227) (6,079) (23,328)
Interest income ............................................................. 265 297 1,351
Gain on sale of assets ...................................................... -- 1,183 --
-------------------------------------
Net loss .................................................................... (1,962) (4,599) (21,977)
Dividends and accretion on redeemable convertible preferred stock ........... -- 123 138
-------------------------------------
Net loss attributable to common shareholders ................................ $ (1,962) $ (4,722) $(22,115)
=====================================
Basic and diluted net loss per common share ................................. $ (0.07) $ (0.18) $ (0.79)
=====================================
Shares used to compute basic and diluted net loss per common share .......... 27,024 26,796 28,080
=====================================
The accompanying notes are an integral part of the consolidated financial statements.
F-5
DYNABAZAAR, INC.
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK,
STOCKHOLDERS' EQUITY (DEFICIT) AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(In thousands)
ADDITIONAL
AMOUNT PAID-IN
SHARES AMOUNT SHARES AT PAR CAPITAL SHARES AMOUNT
------ ------ ------ ------ ------- ------ ------
CONVERTIBLE
PREFERRED STOCK COMMON STOCK TREASURY STOCK
--------------- ------------ --------------
January 1, 2002 .................... -- $ -- 29,062 $ 29 $ 189,370 -- $ --
Comprehensive loss:
Net loss ........................... -- -- -- -- -- -- --
Foreign currency translation
adjustment ...................... -- -- -- -- -- -- --
Unrealized loss on marketable
securities ...................... -- -- -- -- -- -- --
Comprehensive loss .................
Issuance of Series B
convertible preferred stock ..... 952 1,796 -- -- -- -- --
Effective EITF 01-09 on
convertible preferred stock ..... -- 114 -- -- -- -- --
Series B convertible preferred
stock dividend .................. -- -- -- -- (81) -- --
Series B convertible preferred
stock accretion ................. -- 57 -- -- (57) -- --
Repurchase of common stock ......... -- -- -- -- -- 3,181 (4,039)
Issuance of common stock upon
exercise of employee stock
options ......................... -- -- 320 1 10 (192) 244
Issuance of common stock under
the employee stock purchase
plan ............................ -- -- 39 -- 32 -- --
Cancellation of employee stock
options ......................... -- -- -- -- (527) -- --
Equity-related charges ............. -- -- -- -- -- -- --
Deferred compensation related
to employee stock options ....... -- -- -- -- -- -- --
------------------------------------------------------------------------------------
Balance at December 31, 2002 ....... 952 1,967 29,421 30 188,747 2,989 (3,795)
------------------------------------------------------------------------------------
Comprehensive loss:
Net loss ........................... -- -- -- -- -- -- --
Foreign currency translation
adjustment ...................... -- -- -- -- -- -- --
Unrealized gain on marketable
securities ...................... -- -- -- -- -- -- --
Comprehensive loss .................
Series B convertible preferred
stock accretion ................. -- 33 -- -- (33) -- --
Series B convertible preferred
stock dividend .................. -- -- -- -- (90) -- --
Issuance of common stock upon
exercise of employee stock
options ......................... -- -- -- -- (352) (612) 777
(CONTINUED ON NEXT PAGE)
The accompanying notes are an integral part of the consolidated financial statements.
F-6a
DYNABAZAAR, INC.
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK,
STOCKHOLDERS' EQUITY (DEFICIT) AND COMPREHENSIVE LOSS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(In thousands)
ACCUMULATED
DEFERRED OTHER
COMPENSATION COMPRE- TOTAL
AND HENSIVE COMPRE- STOCKHOLDERS'
EQUITY-RELATED INCOME ACCUMULATED HENSIVE EQUITY
CHARGES (LOSS) DEFICIT LOSS (DEFICIT)
------- ------ ------- ---- ---------
January 1, 2002 .................... $ (10,580) $ (13) $(109,949) -- $ 68,857
Comprehensive loss:
Net loss ........................... -- -- (21,977) $ (21,977) (21,977)
Foreign currency translation
adjustment ...................... -- 98 -- 98 98
Unrealized loss on marketable
securities ...................... -- (73) -- (73) (73)
----------
Comprehensive loss ................. (21,952)
Issuance of Series B
convertible preferred stock ..... -- -- -- -- --
Effective EITF 01-09 on
convertible preferred stock ..... -- -- -- -- --
Series B convertible preferred
stock dividend .................. -- -- -- -- (81)
Series B convertible preferred
stock accretion ................. -- -- -- -- (57)
Repurchase of common stock ......... -- -- -- -- (4,039)
Issuance of common stock upon
exercise of employee stock
options ......................... -- -- -- -- 255
Issuance of common stock under
the employee stock purchase
plan ............................ -- -- -- -- 32
Cancellation of employee stock
options ......................... 527 -- -- -- --
Equity-related charges ............. 9,414 -- -- -- 9,414
Deferred compensation related
to employee stock options ....... 480 -- -- -- 480
--------------------------------------------------------------------
Balance at December 31, 2002 ....... (159) 12 (131,926) -- 52,909
--------------------------------------------------------------------
Comprehensive loss:
Net loss ........................... -- -- (4,599) (4,599) (4,599)
Foreign currency translation
adjustment ...................... -- 122 -- 122 122
Unrealized gain on marketable
securities ...................... -- 57 -- 57 57
----------
Comprehensive loss ................. (4,420)
Series B convertible preferred
stock accretion ................. -- -- -- -- (33)
Series B convertible preferred
stock dividend .................. -- -- -- -- (90)
Issuance of common stock upon
exercise of employee stock
options ......................... -- -- -- -- 425
The accompanying notes are an integral part of the consolidated financial statements.
F-6b
DYNABAZAAR, INC.
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK,
STOCKHOLDERS' EQUITY (DEFICIT) AND COMPREHENSIVE LOSS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(In thousands)
ADDITIONAL
AMOUNT PAID-IN
SHARES AMOUNT SHARES AT PAR CAPITAL SHARES AMOUNT
------ ------ ------ ------ ------- ------ ------
CONVERTIBLE
PREFERRED STOCK COMMON STOCK TREASURY STOCK
--------------- ------------ --------------
Issuance of common stock under
employee stock purchase plan ...... -- -- 6 -- 6 -- --
Cancellation of employee stock
options ........................... -- -- -- -- (52) -- --
Deferred compensation related
to employee stock options ......... -- -- -- -- -- -- 107
Reversal of Series B preferred
expenses .......................... -- -- -- -- (42) -- --
Series B liquidation preference ...... -- -- -- -- (2,000) -- --
Series B redemption and
retirement ........................ (952) (2,000) -- -- 533 -- --
Dividend payment ..................... -- -- -- -- (35,165) -- --
---------------------------------------------------------------------------------
Balance at December 31, 2003 ......... -- -- 29,427 30 151,636 2,377 (3,018)
---------------------------------------------------------------------------------
Comprehensive loss:
Net loss ............................. -- -- -- -- -- -- --
Foreign currency translation
adjustment ........................ -- -- -- -- -- -- --
Comprehensive loss ...................
Treasury stock purchase
(at cost) ......................... -- -- -- -- -- 81 (22)
---------------------------------------------------------------------------------
Balance at December 31, 2004 ......... -- $ -- 29,427 $ 30 $ 151,636 2,458 $ (3,040)
=================================================================================
(CONTINUED BELOW)
ACCUMULATED
DEFERRED OTHER
COMPENSATION COMPRE- TOTAL
AND HENSIVE COMPRE- STOCKHOLDERS'
EQUITY-RELATED INCOME ACCUMULATED HENSIVE EQUITY
CHARGES (LOSS) DEFICIT LOSS (DEFICIT)
------- ------ ------- ---- ---------
Issuance of common stock under
employee stock purchase plan ...... -- -- -- -- 6
Cancellation of employee stock
options ........................... 52 -- -- -- --
Deferred compensation related
to employee stock options ......... 107 -- -- -- --
Reversal of Series B preferred
expenses .......................... -- -- -- -- 42
Series B liquidation preference ...... -- -- -- -- (2,000)
Series B redemption and
retirement ........................ -- -- -- -- 533
Dividend payment ..................... -- -- -- -- (35,165)
----------------------------------------------------------------
Balance at December 31, 2003 ......... -- 191 136,525 -- 12,314
----------------------------------------------------------------
Comprehensive loss:
Net loss ............................. -- -- (1,962) (1,962) (1,962)
Foreign currency translation
adjustment ........................ -- 122 -- 122 122
----------
Comprehensive loss ................... (1,840)
Treasury stock purchase
(at cost) ......................... -- -- -- -- (22)
----------------------------------------------------------------
Balance at December 31, 2004 ......... -- $ 313 $(138,467) -- $ 10,452
================================================================
The accompanying notes are an integral part of the consolidated financial statements.
F-7
DYNABAZAAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2004 2003 2002
---- ---- ----
Cash flows from operating activities:
Net loss .......................................................................... $ (1,962) $ (4,599) $ (21,977)
Adjustments to reconcile net loss to net cash used in operating activities:
Gain on sale of assets ......................................................... -- (1,183) --
Depreciation ................................................................... 109 1,160 2,940
Provision for bad debt ......................................................... 144 2 (177)
Amortization of deferred compensation and equity-related charges ............... -- 107 9,894
Loss on disposal of property and equipment ..................................... -- 279 1,379
Redeemable convertible preferred stock issued to customer ...................... -- -- 114
Changes in operating assets and liabilities:
Accounts receivable .......................................................... 207 975 (512)
Prepaid expenses and other current assets .................................... 58 (148) 96
Long-term prepaid expenses ................................................... 330 (1,623) --
Other assets ................................................................. 903 -- --
Accounts payable ............................................................. (82) (51) (250)
Accrued expenses ............................................................. (838) (455) --
Deferred revenue ............................................................. -- (520) 282
Accrual for unutilized office space .......................................... (1,200) (880) 2,080
Other non-current liabilities ................................................ -- (169) (169)
----------------------------------------
Net cash used in operating activities ............................................. (2,331) (7,105) (6,300)
----------------------------------------
Cash flows from investing activities:
Proceeds from sale of assets, net of selling costs ............................. -- 1,183 --
Long term prepaid .............................................................. -- -- (35)
Additions to property and equipment ............................................ -- (70) (17)
Purchase of marketable securities .............................................. -- (189,448) (304,522)
Proceeds from maturity of marketable securities ................................ 5,000 206,439 325,502
(Increase) decrease in restricted cash ......................................... 523 25 (67)
----------------------------------------
Net cash provided by investing activities ......................................... 5,523 18,129 20,861
----------------------------------------
Cash flows from financing activities:
Repayment of capital lease obligation .......................................... -- -- (145)
Proceeds from issuance of common stock, net of issuance costs .................. -- 431 287
Proceeds from issuance of Series B convertible preferred stock, net of
issuance costs .............................................................. -- -- 1,796
Payment of liquidation preference of Series B convertible preferred stock ...... -- (2,000) --
Payment of redemption of convertible preferred stock ........................... -- (1,467) --
Purchase of treasury stock ..................................................... (22) -- (4,039)
Dividends paid on preferred stock .............................................. -- (90) (81)
Dividends paid on common stock ................................................. -- (35,165) --
----------------------------------------
Net cash used in financing activities ............................................. (22) (38,291) (2,182)
----------------------------------------
Effect of foreign exchange rates on cash and cash equivalents ..................... 122 221 35
Net increase (decrease) in cash and cash equivalents .............................. 3,292 (27,046) 12,414
Cash and cash equivalents, beginning of period .................................... 5,697 32,743 20,329
----------------------------------------
Cash and cash equivalents, end of period .......................................... $ 8,989 $ 5,697 $ 32,743
========================================
The accompanying notes are an integral part of the consolidated financial statements.
F-8
DYNABAZAAR, INC.
Notes to Consolidated Financial Statements
1. THE COMPANY
Through September 3, 2003, Dynabazaar, Inc. ("we," "us, " "Dynabazaar" or 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
of 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. Following the closing of the asset sale, we
changed our name from "Fairmarket, Inc." to "Dynabazaar, Inc."
In January 2004, James Mitarotonda was appointed as our President and Chief
Executive Officer and Mel Brunt was appointed as our Chief Financial Officer. In
December 2004, Mr. Mitarotonda resigned as the Company's President and Chief
Executive Officer and remained a director of the Company. In December 2004, Mr.
William Fox became the Company's President and Chief Executive Officer.
In connection with Company's cessation of its online auction business, effective
as of January 1, 2004, the Company relocated its principal executive offices to
888 Seventh Avenue, 17th Floor, New York, 10019, an office maintained by
Barington Capital Group, LP ("Barington), a limited partnership whose general
partner is a corporation of which James Mitarotonda is Chairman, President and
Chief Executive Officer. Mr. Mitarotonda is a director of the Company and our
former President and Chief Executive Officer. William Fox, the President, Chief
Exceutive Officer and a director of the Company, is the Vice Chairman of
Barington. We paid Barington a monthly fee of $8,000 for performing certain
administrative services on behalf of the Company. In connection with the
agreement, we granted to James Mitarotonda an option to purchase up to 320,000
shares of our common stock. The option is fully excercisable and was granted
with an exercise price per share equal to $0.33, the fair market value of our
common stock on the grant date.
On January 20, 2004, the Company executed a settlement agreement with Acquaport
Unicorn, Inc., the landlord of the Company's Woburn, Massachusetts headquarters,
providing for termination of the Company's lease in consideration of a cash
payment of $1.2 million. In March 2004 the cash payment was made and on April
9th, 2004 our last employee was terminated and the premises vacated.
On June 15, 2004, we received a letter from the Nasdaq Stock Market notifying us
that, because the closing price of our common stock has closed below $1.00 per
share for 30 consecutive trading days and we do not presently conduct an
operating business, the Company's common stock would be delisted on June 24,
2004. Our stock now trades over the counter on the Nasdaq OTC bulletin board.
On June 22, 2004, the Board of Directors of the Company authorized the
termination of the Company's Shareholder Rights Agreement based on its
assessment that the termination of the Rights Agreement would benefit the
Company's stockholders and enhance the corporate governance practice of the
Company. The Company entered into an Amendment No 1 to the Shareholder Rights
Agreement, dated as of July 7, 2004, by and between the Company and EquiServe
Trust Company, N.A., as Rights Agent, which provided for the termination of the
Company's Shareholder Rights Agreement on July 31, 2004.
On August 20, 2004, the Company announced that the Board of Directors had
authorized the repurchase of up to 5 million shares of the Corporation common
stock. To date, we have purchased 81,800 shares at an average price per share of
$ 0.2689.
On September 28, 2004, the Company executed a settlement with Regal House
Limited, the landlord of the Company's London, UK headquarters, providing for
termination of the Company's lease in consideration of a cash payment of
approximately $463,000. The cash payment was drawn from the security deposit of
approximately $569,000 held by the landlord. The remaining balance of $106,000
was returned to us.
F-9
As of September 30, 2004, we held an available-for-sale security in the form of
a United States Government Bond. On October 6, 2004, this position was
liquidated and re-invested in cash.
At the December 17, 2004 Board of Directors meeting, the Board unanimously
approved a revision to the Administrative Services Agreement entered into with
Barington Capital Group, LP (Barington) in December 2003. The revision includes
an increase in the monthly fee payable to Barington for performing certain
services on behalf of the Company from $8,000 to $15,000.
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. At this time,
our board of directors has not made any decision to pursue any one of these
options and has not identified 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 the 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of Dynabazaar and its wholly-owned subsidiaries. All material intercompany
transactions have been eliminated. Certain reclassifications of prior year
amounts have been made to conform with current year presentation.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenue and expenses during the reporting
periods. Actual results could differ materially from those estimates.
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. At December 31, 2004, and at various
times during the year, balances of cash at financial institutions exceeded the
federally insured limit. The Company has not experienced any losses in such
accounts and believes it is not subject to any significant credit risk on cash
and cash equivalents.
RISKS AND UNCERTAINTIES
The Company has no significant concentration of credit risk such as
foreign exchange contracts, option contracts or other foreign hedging
arrangements. Financial instruments that potentially subject the Company to
concentrations of credit risk primarily consist of cash and cash equivalents,
marketable securities and trade accounts receivable. The Company places its
cash, cash equivalents and marketable securities with what the Company believes
are high credit quality financial institutions.
F-10
CUSTOMERS
Our customers included traditional retailers, distributors and
manufacturers as well as Internet portals and other web communities primarily
engaged in e-commerce. In 2003, we had two major customers that each accounted
for more than 10% of our revenue. eBay, Inc. accounted for 38% and Microsoft
Corporation accounted for 11% of total revenue. In 2002, we had three customers
that each accounted for more than 10% of our total revenue. Sam's West, Inc.
accounted for 13.6%, eBay, Inc. accounted for 13.1% and Microsoft Corporation
accounted for 12.6% of total revenue. In November 2002, our contract with eBay,
Inc. related to the Burger King promotion program was terminated.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated
depreciation. Costs of major additions and betterments are capitalized;
maintenance and repairs that do not improve or extend the life of the respective
assets are charged to operations. On disposal, the related accumulated
depreciation or amortization is removed from the accounts and any resulting gain
or loss is included in results of operations. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets as follows:
ESTIMATED USEFUL LIFE
---------------------
Computer equipment 3 years
Furniture and fixtures 5 years
Leasehold improvements Shorter of lease term or asset useful life
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment whenever events, such as
service discontinuance, technological obsolescence, facility closure or other
changes in circumstances indicate that the carrying amount of the asset may not
be recoverable. When such events occur, the Company compares the carrying amount
of the assets to their undiscounted expected future cash flows. If this
comparison indicates that there is an impairment, the amount of the impairment