<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
(Mark one)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
-------------
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 0-25957
---------
-----------------------
BIZNESSONLINE.COM, INC.
(Exact name of registrant as specified in its charter)
------------------------------
DELAWARE 06-1519132
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1720 ROUTE 34
P.O. BOX 1347
WALL, NEW JERSEY 07719
(732) 280-6408
(732) 280-6409 (FAX)
(Address and telephone number of principal executive offices and principal place
of business including zip code and telephone number)
------------------------
NONE
----
(Former name, former address and former fiscal year,
if changed since last report)
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) Y /X/ N / /, and (2) has been
subject to such filing requirements for the past 90 days. Yes / / No /X/.
The number of shares outstanding of the Registrant's Common Stock as of
August 3, 1999 was 6,890,436.
<PAGE>
BiznessOnline.com, Inc.
Form 10-Q For the Quarterly Period Ended June 30, 1999
<TABLE>
<CAPTION>
Index
Part I.--Financial Information
<S> <C> <C>
Item 1 Condensed Consolidated Financial Statements (Unaudited) ........................ 3
Condensed Consolidated Balance Sheets as of
June 30, 1999 and December 31, 1998
Condensed Consolidated Statements of Operations ................................ 4
For the Three Months and Six Months Ended June 30, 1999
Condensed Consolidated Statement of Cash Flows ................................. 5
For the Six Months Ended June 30, 1999
Condensed Consolidated Statement of Stockholder's (Deficit) Equity ............. 6
For the Three Months and Six Months Ended June 30, 1999
Notes to Condensed Consolidated Financial Statements ........................... 7
Item 2 Management's Discussion and Analysis of Financial Condition
And Results of Operations ...................................................... 8
Part II.--Other Information ...................................................................... 14
Exhibit Index .................................................................................... 14
Signatures ........................................................................................14
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)
BiznessOnline.com, Inc.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .............. $19,514,907 $ 147,736
Accounts receivable, net ............... 494,096 --
Deferred tax asset ..................... 16,173 --
Other current assets ................... 13,091 --
----------- -----------
Total current assets ............... 20,038,267 147,736
Property and equipment, net ................. 860,691 --
Goodwill and intangibles, net ............... 12,846,551 --
Other assets ................................ 40,214 108,478
----------- -----------
Total assets ................................ $33,785,723 $ 256,214
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long term debt ... $ 6,304 $ --
Current obligations under capital leases 107,603 --
Accounts payable ....................... 576,924 98,648
Income tax payable ..................... 45,649 --
Accrued expenses ....................... 299,760 --
Deferred revenue ....................... 776,544 --
----------- -----------
Total current liabilities ................... 1,812,784 98,648
Long term debt, net of current portion ...... 11,051 --
Capital leases, net of current portion ...... 133,025 --
Preferred stock subscriptions ............... -- 100,000
Stockholders' equity:
Preferred stock ........................ -- --
Common stock ........................... 68,904 31,472
Additional paid in capital ............. 32,572,873 151,528
Accumulated deficit .................... ( 812,914) (125,434)
----------- -----------
Total stockholders' equity .................. 31,828,863 57,566
----------- -----------
Total liabilities and stockholders' equity .. $33,785,723 $ 256,214
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
BiznessOnline.com, Inc.
Condensed Consolidated Statements of Operations (unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, June 30,
1999 1999
------------- ----------
<S> <C> <C>
Revenues ............................................ $ 1,236,826 $ 1,660,929
Operating expenses:
Connectivity and operations .................... 467,265 608,134
Sales and marketing ............................ 483,223 631,475
General and administrative ..................... 426,330 573,494
Depreciation ................................... 97,344 121,972
Amortization of intangibles .................... 409,953 512,355
----------- -----------
Total operating expenses ................... 1,884,115 2,447,430
----------- -----------
Loss from operations ....................... (647,289) (786,501)
Other income, net ................................... 56 56
Interest income, net ................................ 100,109 98,965
----------- -----------
Loss before income taxes ............................ (547,124) ( 687,480)
Income taxes ........................................ -- --
----------- -----------
Net loss ............................................ $ (547,124) $ (687,480)
----------- -----------
----------- -----------
Net loss per share, basic and diluted ............... $ (0.10) $ (0.16)
Weighted average shares outstanding
basic and diluted ................................. 5,260,299 4,298,243
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
BiznessOnline.com, Inc.
Condensed Consolidated Statement of Cash Flows (unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
June 30,
1999
------------
<S> <C>
Net loss ...................................................................... $ (687,480)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization ............................................ 634,327
Changes in net assets and liabilities:
Increase in accounts receivable-trade ................................ (4,555)
Increase in other current assets ..................................... (7,972)
Increase in accounts payable ......................................... 411,625
Increase in accrued expenses ......................................... 88,093
Decrease in deferred taxes ........................................... ( 6,342)
Increase in deferred revenue ......................................... 30,115
------------
Net cash provided by operating activities ................... 457,811
------------
Cash flows from investing activities:
Capital expenditures ..................................................... (143,218)
Change in other assets ................................................... (20,960)
Acquisition of businesses, net of cash acquired .......................... (5,237,214)
------------
Net cash used in investing activities ................................ (5,401,392)
------------
Cash flows from financing activities:
Repayments of capital lease obligations .................................. (5,522)
Repayment of long term debt .............................................. (721,981)
Proceeds from sale of preferred stock .................................... 250,000
Issuance of common stock in initial public offering, net of
underwriter discounts and commissions .................................... 24,788,255
------------
Net cash from financing activities ................................... 24,310,752
------------
Net increase in cash .......................................................... 19,367,171
Cash at beginning of period ................................................... 147,736
------------
Cash at end of period ......................................................... $ 19,514,907
------------
------------
Cash paid for interest ........................................................ $ 20,490
Non-cash investing and financing
Notes payable ............................................................ $ 580,000
Issuance of common stock for acquisitions ................................ $ 7,429,000
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
BiznessOnline.com, Inc.
Condensed Consolidated Statement of Stockholders' Equity (unaudited)
Six Months Ended June 30, 1999
<TABLE>
<CAPTION>
Common Stock Preferred Stock Total
--------------------- ------------------ Additional Accumulated Stockholders'
Shares Amount Shares Amount Paid in Capital Deficit Equity
--------- --------- ------ ------ --------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1998 ..... 3,147,186 $ 31,472 -- $ -- 151,528 (125,434) 57,566
Issuance of Preferred Stock ... -- -- 70,000 700 349,300 -- 350,000
Issuance of common stock
for acquisition .............. 272,000 2,720 -- -- 2,581,280 -- 2,584,000
Net loss ...................... -- -- -- -- -- (140,356) (140,356)
--------- -------- ------ ------ --------------- ----------- ----------
Balance March 31, 1999 ........ 3,419,186 $ 34,192 70,000 $ 700 3,082,108 (265,790) 2,851,210
Conversion of preferred stock
to common stock .............. 61,250 612 (70,000) (700) 88 -- --
Issuance of common stock in
connection with initial
public offering, net of
offering costs and
underwriter discounts ........ 2,900,000 29,000 -- -- 24,650,777 -- 24,679,777
Issuance of common stock for
acquisitions ................. 510,000 5,100 -- -- 4,839,900 -- 4,845,000
Net loss ...................... -- -- -- -- -- (547,124) (547,124)
--------- -------- ------- -------- ------------- ---------- -----------
Balance June 30, 1999 ......... 6,890,436 $ 68,904 -- -- 32,572,873 (812,914) 31,828,863
--------- -------- ------- -------- --------------- ---------- -----------
--------- -------- ------- -------- --------------- ---------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
BiznessOnline.com, Inc.
Notes to Condensed Consolidated Financial Statements
1) Basis of Presentation
The accompanying condensed consolidated financial statements include the
accounts of BiznessOnline.com, Inc. and its wholly owned subsidiaries,
(hereinafter collectively referred to as the "Company", "we", "our" or "us").
We derive Internet access revenues primarily from subscriptions from
individuals and small to medium sized businesses for dial up and dedicated
access to the Internet. We operate in one business segment. Effective January
31, 1999, we acquired substantially all assets and assumed substantially all
liabilities of Global 2000 Communications, Inc., a New York corporation, for
$2,720,000 in common stock and a promissory note in the amount of $580,000,
which was repaid with proceeds from our initial public offering. Global 2000
Communications, Inc. is an Internet service provider based in Albany, New
York. The financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission for interim financial
information, including the instructions to Form 10-Q and rule 10-01 of
Regulation S-X. Accordingly, certain information and footnote disclosures
normally required in complete financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
In the opinion of management these financial statements include all
adjustments necessary for a fair presentation of the results of operations
for the interim periods presented. Results of operations for interim periods
are not necessarily indicative of the results that may be expected for the
year ended December 31, 1999.
2) Initial Public Offering
On May 17, 1999, we completed the sale of 2,900,000 shares of common stock in
our initial public offering for gross proceeds of $29,000,000, before
underwriting discounts and offering expenses. The net proceeds after underwriter
discounts and commissions and offering costs were approximately $24,680,000.
Simultaneously with the closing of the public offering, all 70,000 shares of
Series A Preferred Stock outstanding were converted into 61,250 shares of common
stock. Also, on May 17, 1999 we completed the acquisition of four Internet
service providers as described in the final prospectus for the initial public
offering which was filed with the Securities and Exchange Commission on May 12,
1999, for an aggregate of 510,000 shares of common stock and the aggregate
payment of $5,730,000 in cash.
3) Property, Equipment and Intangible Assets
Accumulated depreciation and amortization on property and equipment totaled
$121,972 at June 30, 1999. Accumulated amortization on intangible assets totaled
$512,355 at June 30, 1999.
4) Acquisition of Internet Service Providers
Effective May 17, 1999, we acquired substantially all assets and assumed
substantially all liabilities of four additional Internet service providers as
described in the final prospectus for the initial public offering which was
filed with the Securities and Exchange Commission on May 12, 1999, for 510,000
shares of common stock and the payment of $5,730,000 in cash.
In accordance with generally accepted accounting principles, the total purchase
price for these acquisitions, including Global 2000 Communications, Inc. has
been preliminarily allocated to the fair value of assets purchased and
liabilities assumed as shown in the following table. The excess of purchase
price over fair value of net assets acquired has been recorded as goodwill and
is being amortized over 5 years. A final allocation of purchase price will be
determined during 1999 and changes, if any, will result in a change to the
amount of goodwill recorded in connection with the acquisition.
<TABLE>
<S> <C>
Working capital $ (252,981)
Property and equipment 839,445
Other assets 19,254
Goodwill 13,358,906
</TABLE>
The acquisitions were accounted for as purchases and, accordingly, operating
results of Global 2000 Communications, Inc. have been including in the
accompanying financial statements of BiznessOnline.com, Inc. since February 1,
1999 and the results of the four additional Internet service providers have been
included in the accompanying financial statements of BiznessOnline.com, Inc.
since May 17, 1999. The pro forma results of operations for the Internet service
providers have been included with the pro forma results of operations included
on Page 10.
7
<PAGE>
(5) Subsequent Events
On July 30, 1999, we acquired substantially all the assets of a sole
proprietorship including all the capital stock of an affiliate of the
proprietorship, Ascent Internet Holdings, Inc., which together conduct business
as an Internet service provider under the name Ascent Networking in Norwich, New
York for $1,050,000 in cash. The acquisition will be accounted for as a
purchase. A final allocation of purchase price will be determined during 1999.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This filing contains forward looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Act of 1934, as amended. Those statements reflect the intent,
belief or current expectations of BiznessOnline.com, Inc. and members of its
management team. Prospective investors are cautioned that any forward-looking
statements are not guarantees of future performance, and involve
uncertainties, and that actual results may differ materially from those
contemplated by the forward-looking statements as a result of, among other
things, reflecting changed assumptions, the occurrence of unanticipated
events or changes to future operating results over time.
Introduction
The following discussion of results of operations and of the liquidity and
capital resources of BiznessOnline.com, Inc. should be read in conjunction with
our unaudited condensed consolidated financial statements and the related notes
thereto and the unaudited pro forma consolidated financial information appearing
in this filing on Form 10-Q.
Overview
We derive Internet access revenues primarily from subscriptions from individuals
and small to medium sized businesses for dial-up and dedicated access to the
Internet. Subscription fees vary between $9.95 and $24.95 per month among our
Internet service providers and by the billing plans for a particular Internet
service provider. The subscription rates vary among Internet service providers
due to competitive and economic factors. Most of our subscribers pay us by
credit card automatically on a monthly basis. In addition, we host commercial
and individual web sites and provide commercial web site design services, as
well as e-commerce, advertising and interactive web site support. These services
are predominantly utilized by small to medium sized businesses looking to
establish a presence on the world wide web. We also earn revenue by providing
dedicated access services via telephone lines.
Results of Operations
Three Months Ended June 30, 1999
We were formed in June 1998, and conducted no significant operations between
then and January 31, 1999, the date we acquired Global 2000 Communications,
Inc., an Internet service provider located in Albany, New York. We acquired four
additional Internet service providers on May 17, 1999.
We recorded revenue of $1,236,826 during the quarter. We also incurred $467,265
of connectivity and operations expenses, $483,223 of sales and marketing
expenses, $426,330 of general and administrative expenses, $97,344 of
depreciation, $409,953 of amortization costs, and earned $100,109 of interest
income, net. We had a net loss of $547,124, or $0.10 per share for the three
months ended June 30, 1999. These costs include $297,587 of corporate salaries
and other related corporate expenses. The acquisitions of the five Internet
service providers have been accounted for using the purchase method of
accounting.
Six Months Ended June 30, 1999
We recorded revenue of $1,660,929 during the six month period ended June 30,
1999. We also incurred $608,134 of connectivity and operations expenses,
$631,475 of sales and marketing expenses, $573,494 of general and administrative
expenses, $121,972 of depreciation, $512,355 of amortization costs, and earned
$98,965 of interest income, net. We had a net loss of $687,480, or $0.16 per
share for the six months ended June 30, 1999. These costs include $443,204 of
corporate salaries and other related corporate expenses.
Liquidity and Capital Resources
At June 30, 1999, we had $19,514,907 of cash and cash equivalents, an increase
of $19,367,171 from December 31, 1998. Net cash provided by operating activities
was $457,811. Net cash used for investing activities was $5,401,392, primarily
as a result of the acquisition of the four Internet service providers in May
1999 and Global 2000 Communications, Inc. in January 1999. Net cash provided by
financing activities was $24,310,752, primarily as a result of the initial
public offering of common stock, which closed on May 17, 1999.
8
<PAGE>
We expect our capital expenditures to increase as our operations continue to
expand. It is anticipated that financial resources will be utilized in acquiring
additional communications equipment and improvements to technology at our new
data center planned for the Albany, NY area. These investments will allow us to
support our current subscribers and newly acquired subscribers. We plan to
integrate our billing and financial reporting systems.
We believe that our cash flow from operations and proceeds from our initial
public stock offering which was completed on May 17, 1999 will provide the cash
required to fund existing operations through the remainder of the fiscal year.
However, we intend to pursue our strategy of acquiring additional Internet
service providers, web hosts and e-commerce service companies through the use of
cash on hand, and the issuance of additional common stock, notes payable and
cash flow from operations. Any significant acquisitions or increases in our
growth rate could materially affect our operating and financial expectations and
results, liquidity and capital resources.
Year 2000 Disclosure
With the new millennium approaching, many businesses and institutions are
reviewing and modifying their computer systems to ensure they accurately process
transactions relating to the Year 2000 and beyond. This effort is necessary
because many existing computer systems and microprocessors with data functions,
including those in non-information technology equipment and systems, use only
two digits to identify a year in the date field and assume that the first two
digits of the year are always "19." Consequently, on January 1, 2000, computers
that are not Year 2000 compliant may read that year as 1900. Computer systems
that calculate, compare or sort using the incorrect date may malfunction causing
disruptions in operation, including a temporary inability to process
transactions, send invoices or engage in other normal business activities. Our
failure to address potential Year 2000 malfunctions in our computer and
non-information technology equipment and systems could result in our suffering
business interruption, financial loss, reputational harm and legal liability.
We do not have any significant non-information technology equipment or systems.
As a result, our Year 2000 readiness efforts have primarily addressed computer
hardware and software performance.
The former owners of the Internet service providers (ISPs) that we acquired in
1999 have represented to us that they have taken all necessary action to assess,
evaluate, test and correct all of the hardware, software, microchips and other
processing capabilities of the computer and telecommunications systems used in
their ISP operations to be sure that such systems are Year 2000 compliant.
However, since acquiring such ISPs, we have not conducted our own internal audit
of their operations to confirm that these representations are true. To the
extent these representations are breached and we suffer damages relating to Year
2000 malfunctions, our reputation, operating results and financial conditions
may be adversely affected.
Some of our ISPs have contacted their major vendors, including their
telecommunication suppliers, to evaluate their Year 2000 readiness, and we
intend to continue to assess our Year 2000 risks relating to our external
vendors and third-party network service providers. To the extent that we rely on
external vendors or third-party network service providers with Year 2000
exposures, any failure by these vendors or third-party network service providers
to resolve any Year 2000 issues on a timely basis or in a manner that is
compatible with our systems could also have a material adverse effect on our
financial condition.
Based upon the information currently available to us, we do not anticipate costs
associated with the Year 2000 issue to have a material financial impact on us.
However, we may experience interruptions or other limitations of the functioning
of our financial and operating systems, and we may incur additional costs to
avoid these interruptions or limitations should they occur. Our expectations
about future costs associated with the Year 2000 issue are limited by
uncertainties that could cause actual results to have a greater financial impact
than currently anticipated. Factors that could influence the amount and timing
of future costs include:
- the rate and magnitude of related labor and consulting costs; and
- our success in addressing Year 2000 issues with third-parties with
which we do business.
As part of our integration strategy we are presently implementing a new billing
and accounting system. The systems, which we have purchased and are presently
implementing, have been represented to us by the suppliers to be Year 2000
compliant. We are also replacing the servers and routers, which were in place at
our ISPs with new equipment, which has been represented to us by the
manufacturers to be Year 2000 compliant.
We have not developed a contingency plan to address situations that may result
if we are unable to achieve Year 2000 compliance. If we believe it becomes
necessary, we will develop a contingency plan. The costs of developing and
implementing a contingency plan, if necessary, could be material.
9
<PAGE>
Unaudited Pro Forma Consolidated Financial Information
The following unaudited pro forma consolidated financial information does not
purport to represent what our financial position or results of operations would
actually have been if such transactions and events had in fact occurred on those
dates or to project our results of operations for any future period.
Results of Operations--Pro Forma
The following unaudited pro forma consolidated financial information for the
three and six months ended June 30, 1999 and June 30, 1998, includes the results
of BiznessOnline.com, Inc. combined with the results of the Internet service
provider acquired in January 1999, and the additional four Internet service
providers acquired in May 1999, as if the acquisitions had occurred on
January 1, 1998. This unaudited pro forma consolidated financial information
includes the effects of (a) the acquisitions, (b) our initial public stock
offering, and (c) the amortization of goodwill and other intangibles resulting
from the acquisitions.
The unaudited pro forma combined financial information does not purport to
represent what our financial position or results of operations would actually
have been if such transactions and events in fact had actually occurred on those
dates or to project our results of operations for any future period.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------- ---------------------------
1999 1998 1999 1998
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $1,905,522 $1,401,297 $3,778,948 $2,835,219
Costs and expenses:
Connectivity and operations 1,055,949 904,391 1,973,544 1,668,644
Sales and marketing 352,639 266,018 793,724 513,838
General and administrative 485,620 165,463 728,098 334,093
Depreciation 134,018 108,800 256,521 206,711
Amortization 677,387 677,387 1,354,774 1,354,774
------- ------- ----------- ---------
Total costs and expenses 2,705,613 2,122,059 5,106,661 4,078,060
--------- --------- --------- ---------
Loss from operations (800,091) (720,762) (1,327,713) (1,242,841)
Interest income, (expense), net 93,221 (7,618) 82,948 (18,835)
--------- ------------ ------------- -------------
Loss before income taxes (706,870) (728,380) (1,244,765) (1,261,676)
Income taxes -- -- -- --
--------- --------- --------- ---------
Net loss $(706,870) $(728,380) $(1,244,765) $(1,261,676)
---------- ---------- ------------ ------------
---------- ---------- ------------ ------------
Pro forma net loss per share,
basic and fully diluted $ (0.10) $ (0.11) $ (0.18) $ (0.18)
Weighted average shares outstanding,
basic and fully diluted 6,890,436 6,890,436 6,890,436 6,890,436
Subscribers at end of period 23,766 17,656 23,766 17,656
</TABLE>
Three Months Ended June 30, 1999
Revenues:
Pro forma revenues increased $504,225, or 36.0% from $1,401,297 to $1,905,522,
primarily as a result of an increase in subscribers. The number of subscribers
increased from 17,656 at June 30, 1998 to 23,766 at June 30, 1999, an increase
of 34.6%.
The following table provides a comparison of pro forma connectivity and
operations, sales and marketing and general and administrative expenses as a
percentage of pro forma total revenues:
10
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1999 1998
---------- ----------
<S> <C> <C>
Connectivity and Operations 55.4% 64.5%
Sales and Marketing 18.5% 19.0%
General and Administrative 25.5% 11.8%
</TABLE>
Connectivity and Operations:
Connectivity and operations expenses increased $151,558, or 16.8%, from $904,391
to $1,055,949, primarily as a result of the increase in the number of
subscribers.
Connectivity and operations expenses consist of the cost of non-capital
equipment and the recurring telecommunication costs associated with providing
services to subscribers, including the cost of local telephone lines and the
cost of leased lines connecting the Internet and our operations centers. We
expect these expenses to increase over time to support our growing subscriber
base, however as a percentage of sales these costs will decrease as the customer
base expands. Connectivity and operations expenses also include the salaries
and employee benefits of our personnel providing installation, web development
and technical services, the cost of the equipment to provide these services,
rent and utilities for our Internet service providers offices, and customer
service and technical support personnel costs. We expect customer service and
support expenses to increase over time to support new and existing subscribers.
New subscribers tend to be particularly heavy users of customer service and
technical support.
Sales and Marketing:
Sales and Marketing expenses increased $86,621, or 32.6%, from $266,018 to
$352,639. The increase was primarily the result of increased advertising
expenses.
Sales and marketing expenses include the costs associated with acquiring
subscribers, including bonuses, sales commissions and advertising. Sales and
marketing expenses are expected to increase with the expected growth of the
subscriber base. We plan to increase advertising in new markets we enter as we
acquire new Internet service providers. We also plan to hire additional sales
and marketing personnel in each market we enter.
General and Administrative:
General and administrative expenses increased $320,157, or 193.5%, from $165,463
to $485,620, primarily as a result of the increased corporate personnel costs
and costs associated with combining the acquired companies.
General and administrative expenses consist primarily of administrative staff
and related benefits, as well as the cost of travel and entertainment. General
and administrative costs are expected to increase to support our growth,
primarily the implementation of a common billing and financial reporting system.
Depreciation:
Depreciation expense increased $25,218, or 23.2%, from $108,800 to $134,018,
primarily as a result of the capital equipment purchased during the latter part
of 1998.
Depreciation expense relates primarily to our equipment and is based on the
estimated useful lives of the assets ranging from three to five years using the
straight-line and accelerated methods for the equipment. Depreciation expense is
expected to increase as our Internet service providers increase their networks
to support new and existing subscribers and as we build a centralized data
center and billing and financial reporting system
Amortization:
Amortization expense was $677,387 for both periods.
Amortization expense primarily relates to the amortization of goodwill acquired
in the acquisitions, and on a pro forma basis, is based upon the useful lives of
these intangibles. Amortization expense is expected to increase as additional
acquisitions are made and will vary according to purchase prices and intangible
assets. Our policy in future acquisitions will be to amortize the portion of the
purchase price attributable to goodwill and other intangibles over the
appropriate period.
11
<PAGE>
Interest Income, (expense), net
Interest income, net was $93,221 for the quarter ended June 30, 1999, as
compared to interest expense, net of $7,618 for the quarter ended June 30, 1998.
The difference was a result of the investment of the proceeds from the Company's
initial public offering of common stock completed on May 17, 1999.
Income Taxes:
We recorded no income tax expense or benefit for the three month periods ended
June 30, 1999 and June 30, 1998.
Six Months Ended June 30, 1999
Revenues:
Pro forma revenues increased $943,729, or 33.3% from $2,835,219 to $3,778,948,
primarily as a result of an increase in subscribers. The number of subscribers
increased from 17,656 at June 30, 1998 to 23,766 at June 30, 1999, an increase
of 34.6%.
The following table provides a comparison of pro forma connectivity and
operations, sales and marketing and general and administrative expenses as a
percentage of pro forma total revenues:
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1999 1998
---------- ----------
<S> <C> <C>
Connectivity and Operations 52.2% 58.9%
Sales and Marketing 21.0% 18.1%
General and Administrative 19.3% 11.8%
</TABLE>
Connectivity and Operations:
Connectivity and operations expenses increased $304,900, or 18.3%, from
$1,668,644 to $1,973,544, primarily as a result of the increase in the number of
subscribers.
Sales and Marketing:
Sales and Marketing expenses increased $279,886, or 54.5%, from $513,838 to
$793,724. The increase was primarily the result of increased advertising
expenses.
General and Administrative:
General and administrative expenses increased $394,005, or 117.9%, from $334,093
to $728,098, primarily as a result of the increased corporate personnel costs
and costs associated with combining the acquired companies.
Depreciation:
Depreciation expense increased $49,810, or 24.1%, from $206,711 to $256,521,
primarily as a result of the capital equipment purchased during the latter part
of 1998.
Amortization:
Amortization expense was $1,354,774 for both periods.
Interest Income, (expense), net
Interest income, net was $82,948 for the six months ended June 30, 1999, as
compared to interest expense, net of $18,835 for the six months ended June 30,
1998. The difference was a result of the investment of the proceeds from the
Company's initial public offering of common stock completed on May 17, 1999.
12
<PAGE>
Income Taxes:
We recorded no income tax expense or benefit for the six month periods ended
June 30, 1999 and June 30, 1998.
Effects of Inflation
We do not believe that inflation has had a material impact on our results of
operations during the six months ended June 30, 1999.
Recent Accounting Pronouncements
In March 1998, the Accounting Standards Executive Committee issued AICPA
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." Statement 98-1 provides guidance on
accounting for the costs of computer software developed or obtained for internal
use and assists in determining when computer software is for internal use.
Statement 98-1 is effective for fiscal years beginning after December 15, 1998,
with earlier application permitted. We have implemented Statement 98-5 during
1999 and the adoption did not have a material impact on our financial position
or results of operations.
In March 1998, the Accounting Standards Executive Committee issued AICPA
Statement of Position 98-5, "Reporting on the Costs of Start-up Activities."
Statement 98-5 provides guidance on the financial reporting of start up costs
and organization costs. It requires start up and organization costs to be
expensed as incurred. Statement 98-5 is effective for financial statements for
fiscal years beginning after December 15, 1998. We have implemented Statement
98-5 during 1998 and the adoption did not have a material impact on our
financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." Statement 133 changes the previous accounting
definition of "derivative" which focused on freestanding contracts like options
and forwards, including futures and swaps, expanding it to include embedded
derivatives and many commodity contracts. Under Statement 133, every derivative
is recorded in the balance sheet as either an asset or liability measured at its
fair value. Statement 133 requires that changes in the derivative fair value be
recognized currently in earnings unless specified hedge accounting criteria are
met. Statement 133 is effective for fiscal years beginning after June 15, 2000.
Earlier application is allowed as of the beginning of any quarter beginning
after issuance. We do not anticipate that Statement 133 will have a material
impact on our financial position or results of operations.
Item 3. Qualitative and Quantitative Disclosures about Market Risk
We provide internet access and related services to individuals and small to
medium sized businesses in northeastern New York state and Connecticut. We are
not subject to changes in foreign currency exchange rates or weak economic
conditions in foreign markets. Our interest income is subject to changes in the
general level of U.S. interest rates, particularly since the majority of our
investments are in short-term instruments. Due to the nature of our short-term
investments, we have concluded that there is no material market risk exposure.
Therefore, no quantitative tabular disclosures are required.
Our investment policy requires us to invest funds in excess of current operating
requirements in obligations of the U.S. government and its agencies and
investment grade obligations of state and local governments and U.S.
corporations.
13
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Pursuant to Item 701 (f) of Regulation S-K, the following information is being
furnished to disclose certain information regarding the uses of proceeds by
BiznessOnline.com, Inc. in its initial public offering of common stock:
(1) The Registration Statement for the initial public offering (File Number
333-73067) was declared effective on May 11, 1999.
(6) The following expenses were incurred in connection with the initial public
offering:
<TABLE>
<S> <C>
Underwriter's discounts and commissions ................. $2,900,000
Accountants fees ........................................ 355,975
Legal fees .............................................. 467,342
Printing expenses ....................................... 177,000
Miscellaneous filing fees and expenses .................. 412,406
----------
Total ................................................ $4,312,723
----------
----------
</TABLE>
The payments referred to above were not made directly or indirectly to any
officers or directors of BiznessOnline.com, Inc. or their associates, or to any
person owning 10% or more of any class of securities of BiznessOnline.com, Inc.
(7) The net offering proceeds were approximately $24,680,000.
(8) From the effective date of the initial public offering registration through
August 3, 1999, the amount of net offering proceeds used for any purpose
for which at least 5% of the offering proceeds or $100,000 (whichever is
less) was used is as follows:
<TABLE>
<S> <C>
Repayment of promissory notes to the stockholders of Global 2000 Communications, Inc. ............ $ 580,000
Payment of the cash portion of the purchase price due to the four
Internet service providers we acquired in May 1999 .............................................. 5,730,000
Acquisition of Ascent Networking ................................................................. 1,050,000
Repayment of indebtedness of Internet service providers .......................................... 212,000
----------
Total ......................................................................................... $7,572,000
----------
----------
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(27) Financial Data Schedule
(b) Reports on Form 8-K:
None
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: August 12, 1999 BiznessOnline.com, Inc.
By /s/ Daniel J. Sullivan
-----------------------------------------------
Daniel J. Sullivan
Vice President and Chief Financial Officer
(Authorized Officer on behalf of Registrant and
Principal Financial and Accounting Officer)
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> APR-01-1999 JAN-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 19,514,907 19,514,907
<SECURITIES> 0 0
<RECEIVABLES> 494,096 494,096
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 20,038,267 20,038,267
<PP&E> 982,663 982,663
<DEPRECIATION> 121,972 121,972
<TOTAL-ASSETS> 33,785,723 33,785,723
<CURRENT-LIABILITIES> 1,812,784 1,812,784
<BONDS> 0 0
0 0
0 0
<COMMON> 68,904 68,904
<OTHER-SE> 31,759,959 31,757,959
<TOTAL-LIABILITY-AND-EQUITY> 33,785,723 33,785,723
<SALES> 1,236,826 1,660,929
<TOTAL-REVENUES> 1,236,826 1,660,929
<CGS> 0 0
<TOTAL-COSTS> 1,884,115 2,447,430
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 19,346 20,490
<INCOME-PRETAX> (547,124) (687,480)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (547,124) (687,480)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (547,124) (687,480)
<EPS-BASIC> (.10) (.16)
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</TABLE>
