<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 MARCH 31, 2000
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)
------------------------------
<TABLE>
<CAPTION>
<S> <C>
DELAWARE 06-1519132
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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 area code)
------------------------
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), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X ] No [ ].
The number of shares outstanding of the Registrant's Common Stock as of
May 5, 2000 was 9,039,338.
<PAGE>
BiznessOnline.com, Inc.
Form 10-Q For the Quarterly Period Ended March 31, 2000
Index
<TABLE>
<CAPTION>
Part I. - Financial Information
<S> <C>
Item 1 Condensed Consolidated Balance Sheets as of
March 31, 2000 (unaudited) and December 31, 1999........................... 3
Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 2000 and 1999 (unaudited)............. 4
Condensed Consolidated Statement of Cash Flows
for the Three Months Ended March 31, 2000 and 1999 (unaudited)............ 5
Condensed Consolidated Statement of Stockholder's Equity..... ............. 6
for the Three Months Ended March 31, 2000 (unaudited)
Notes to Condensed Consolidated Financial Statements....................... 7
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................. 8
Item 3 Quantitative and Qualitative Disclosures About Market Risk................. 11
Part II. - Other Information................................................................. 12
Item 2 Changes in Securities and Use of Proceeds.................................. 12
Item 6 Exhibits and Reports on Form 8-K........................................... 13
Signature.................................................................................... 14
Exhibit Index................................................................................ 15
</TABLE>
2
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PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
BiznessOnline.com, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,476 $ 7,481
Accounts receivable, net of allowance for
bad debts of $487 and $482, respectively 4,031 1,274
Prepaid expenses and other current assets 858 380
---------- ----------
Total current assets 10,365 9,135
Property and equipment, net 6,849 5,727
Goodwill and intangibles, net 45,107 32,331
Other assets 146 69
---------- ----------
Total assets $ 62,467 $ 47,262
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long term debt $ - $ 23
Current portion of obligations under capital leases 168 183
Accounts payable 2,499 2,345
Income tax payable 61 109
Accrued expenses 2,442 1,847
Deferred revenue 2,180 1,610
---------- ---------
Total current liabilities 7,350 6,117
Long term debt, net of current portion 9,646 6
Capital leases, net of current portion 81 89
---------- ---------
Total liabilities 17,076 6,212
Stockholders' equity:
Preferred stock - -
Common stock 90 86
Additional paid in capital 52,863 45,145
Accumulated deficit ( 7,563) ( 4,181)
---------- ---------
Total stockholders' equity 45,390 41,050
----------- -----------
Total liabilities and stockholders' equity $ 62,467 $ 47,262
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
BiznessOnline.com, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
---------------- -----------------
<S> <C> <C>
Revenues $ 4,077 $ 424
Costs and expenses:
Connectivity and operations 3,359 141
Sales and marketing 1,087 148
General and administrative 779 147
Depreciation 405 25
Amortization 1,739 102
---------- --------
Total costs and expenses 7,369 563
---------- --------
Loss from operations ( 3,292) ( 139)
Interest income, net 4 ( 1)
---------- ---------
Loss before income taxes ( 3,288) ( 140)
Income taxes 94 -
----------- ---------
Net loss $( 3,382) $( 140)
=========== ==========
Net loss per share, basic and fully diluted $( 0.39) $( 0.04)
Weighted average shares outstanding,
basic and fully diluted 8,614,297 3,325,497
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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BiznessOnline.com, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
---- ----
<S> <C> <C>
Net loss $ ( 3,382) $( 140)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 2,144 127
Changes in net assets and liabilities:
Increase in accounts receivable-trade ( 275) ( 48)
Increase in other current assets ( 225) -
Change in accounts payable ( 476) 62
Change in accrued expenses 318 ( 50)
Decrease in income taxes payable ( 48) -
Change in deferred revenue 193 ( 15)
-------- ------
Net cash used by operating activities ( 1,751) ( 64)
-------- ------
Cash flows from investing activities:
Capital expenditures ( 1,003) ( 16)
Change in other assets ( 3) -
Acquisition of businesses, net of cash acquired (13,849) 142
------- ------
Net cash (used in) investing activities (14,855) 126
------- ------
Cash flows from financing activities:
Proceeds from sale of preferred stock - 250
Proceeds from line of credit - 100
Repayments of capital lease obligations ( 23) -
Repayment of long term debt ( 29) -
Increase in deferred costs - ( 387)
Proceeds from issuance of long term debt 14,653 -
-------- -------
Net cash from financing activities 14,601 ( 37)
-------- -------
Net change in cash ( 2,005) 25
Cash at beginning of period 7,481 148
-------- -------
Cash at end of period $ 5,476 $ 173
======== =======
Cash paid for interest $ 3 $ 1
Income taxes paid 142 -
Non - cash investing and financing
Issuance of common stock for acquisitions $ 2,386 $2,584
Issuance of common stock and warrants in connection
with issuance of long term debt 5,336 -
Issuance of note payable - 580
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
BiznessOnline.com, Inc.
Condensed Consolidated Statement of Stockholders' Equity
(unaudited)
(In thousands, except share data)
Three Months Ended March 31, 2000
<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, 1999 8,609,574 $ 86 - $ - $ 45,145 $(4,181) $41,050
Issuance of shares for debt 71,429 1 - - 508 - 509
Issuance of warrants for debt - - - - 4,827 - 4,827
Issuance of common stock for
acquisitions 358,335 3 - - 2,383 - 2,386
Net loss - - - - - (3,382) ( 3,382)
--------- ----- --- --- ------- ------- -------
Balance March 31, 2000 9,039,338 $ 90 - $ - $52,863 $(7,563) $ 45,390
========= ===== === === ======= ======= ========
</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 revenue from providing enhanced Internet services, including server
co-location, Web design and e-commerce solutions, Web hosting, high speed
Internet access and dial-up Internet access. Also, as a result of our
acquisition of Telecon Communications Corp. on March 31, 2000, we now resell
local and long distance telephone service in New York and we intend to resell
local and long distance telephone services in other markets pending local
regulatory approvals. Prior to the acquisition of Telecon, we operated in one
business segment. With the acquisition of Telecon, we now operate, two
business segments. 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, 2000.
2) Initial Public Offering, Acquisitions, Debt
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.
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
$24,645,000. 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.
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. Based on the operating results of
Ascent Networking during 1999, we will pay an additional $177,000 during the
second quarter of 2000.
On August 18, 1999, we acquired all the assets of a limited liability
corporation, WebWay LLC., a web application service provider located in
Albany, New York, for 200,046 shares of common stock and the payment of
$830,000 in cash.
On September 30, 1999, we acquired Infoboard, Inc., a web hosting company,
located in Lynn, Massachusetts, for 228,462 shares of common stock and the
payment of $1,380,000 in cash.
On December 14, 1999, we acquired substantially all of the assets of
Cyberzone, LLC, an Internet service provider located in Hartford, Connecticut
for 271,904 shares of common stock and the payment of $1,752,150 in cash.
Based on the operating results of Cyberzone during 1999, we will issue an
additional 13,349 shares of common stock and pay an additional $98,000 in
cash during the second quarter of 2000.
On December 15, 1999, we acquired all of the shares of NECAnet, Inc., an
Internet service provider located in Storrs, Connecticut for 298,726 shares
of common stock and the payment of $1,575,000 in cash.
On December 29, 1999, we acquired all the shares of Prime Communication
Systems, Incorporated, an Internet service provider located in Amherst, New
York for 720,000 shares of common stock and the payment of $1,200,000 in
cash. We have also agreed to pay an additional amount based on revenue and
profitability for the first six months of 2000. The amount is 2.5 times
revenue over $1.4 million, provided EBITDA is greater than 35% of revenue.
7
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On March 31, 2000, we acquired all the assets and assumed substantially all the
liabilities of Telecon Communications Corp., a competitive local exchange
carrier based in Johnstown, New York, for the payment of $14,815,000 in cash.
Also, on March 31, 2000, we acquired all the shares of Telesupport, Inc., an
Internet service provider located in Johnstown, New York for 358,335 shares of
common stock.
On March 16, 2000, we closed a $15 million senior secured credit facility. We
used the proceeds of this facility to fund the cash purchase price of Telecon
Communications, Corp. The credit facility is secured by all the assets of
BiznessOnline.com and its operating subsidiaries. In connection with such
financing, the Lender received certain cash fees and a warrant to purchase
838,779 shares of our common stock at prices of $7.00 per share for 559,185
shares and $12.00 per share for 279,593 shares, subject to certain
anti-dilution and other adjustments. The Lender also received 71,429 shares
of common stock. The warrants and shares of common stock issued to the lender
have been estimated by us to have a value of $5.4 million using the
Black-Scholes method of valuation for the warrants, and the value of the
shares of common stock issued on the date of issuance. We are in the process
of obtaining an independent valuation of these warrants. The calculation of
the value of the warrants may be adjusted, if appropriate, upon completion of
the valuation process. The fair value of the warrants and shares issued have
been recorded as a discount to the related debt. This discount will be
accreted as interest expense over the life of the loan. Beginning in May
2001, and each quarter thereafter, the principal amount of the indebtedness
is to be repaid using the following schedule:
<TABLE>
<CAPTION>
<S> <C>
May 2001, August 2001, November 2001 and February 2002 3.75% of outstanding principal
May 2002, August 2002, November 2002 and February 2003 6.25% of outstanding principal
May 2003, August 2003, November 2003, February 2004,
May 2004, August 2004, November 2004 and February 2005 7.5% of outstanding principal
</TABLE>
In accordance with generally accepted accounting principles, the total
purchase price for our acquisitions is allocated on a preliminary basis, on
the date of acquisition and reviewed upon completion of valuations as
appropriate or resolution of any contingent purchase price adjustment.
Pursuant to the purchase method of accounting the excess of purchase price
over fair value of net assets acquired is recorded as goodwill and is being
amortized over 5 years. A final allocation of purchase price will be
determined during 2000 with respect to our acquisitions of Prime
Communication Systems, Incorporated, NECAnet, Inc., Telecon Communications
Corp. and Telesupport, Inc., and changes, if any, will result in a change to
the amount of goodwill recorded in connection with the acquisitions.
The accompanying financial statements of BiznessOnline.com, Inc. include the
operating results of Global 2000 Communications, Inc, since February 1, 1999;
the four Internet service providers acquired at the closing of our Initial
Public Offering since May 17, 1999; Ascent Networking since July 30, 1999;
WebWay, LLC, since August 18, 1999; Infoboard, Inc. since September 30, 1999;
NECAnet, Inc. since December 14, 1999; Cyberzone, Inc. since December 15,
1999; and Prime Communication Systems, Incorporated, since December 29, 1999.
These financial statements include the balance sheet of Telecon
Communications, Corp. and Telesupport, Inc. since since March 31, 2000. The
results of operations of Telecon and Telesupport are excluded as the
acquisition was effective on the last day of the quarter.
Related Party Transactions
On February 1, 1999, our Global 2000 Communications, Inc. subsidiary
entered into a lease with the director and his wife for approximately 2,000
square feet of office space with a monthly rent of $2,000 plus utilities. The
term of the lease is five years although we may terminate this lease at any time
upon thirty days prior notice without further liability.
On December 29, 1999, our Prime Communication Systems, Incorporated
subsidiary entered into a lease with Prime Business Park, a company partially
owned by a shareholder of the Company for approximately 6,780 square feet of
office space with a monthly rent of $7,486 plus utilities. The term of the
lease is five years.
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
Exchange 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 or the occurrence of unanticipated events or changes to
future operating results over time.
8
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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 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. With the acquisition of Telecon Communications Corp., on
March 31, 2000, we now resell local and long distance telephone service in
New York and we intend to resell local and long distance telephone service in
our other markets pending local regulatory approvals.
Results of Operations
Three Months Ended March 31, 2000
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 in conjunction with our
initial public offering, one Internet service provider on July 30, 1999, a web
application service provider on August 18, 1999, and a web hosting company on
September 30, 1999, an Internet service provider on December 14, 1999, an
Internet service provider on December 15, 1999, an Internet service provider on
December 29, 1999, a competitive local exchange carrier on March 31, 2000 and an
Internet service provider on March 31, 2000.
We recorded revenue of $4.1 million during the quarter, an increase of $3.7
million, or 862%, from $.4 million in the first quarter of 1999. The increase
was primarily a result of the acquisitions we completed during 1999.
The following table provides a comparison of connectivity and operations, sales
and marketing and general and administrative expenses as a percentage of
revenues:
<TABLE>
<CAPTION>
Quarter Ended
March 31
2000 1999
<S> <C> <C>
Connectivity and operations 82.3% 33.3%
Sales and marketing 26.7% 35.0%
General and administrative 19.1% 34.7%
</TABLE>
Connectivity and operations expenses increased $3.2 million, from $.1 million
to $3.3 million. The increase was primarily a result of the acquisitions we
completed during 1999. The 2000 costs also include approximately $.7 million
of costs associated with integrating the combined companies. During the
quarter ended March 31, 2000, we expanded our technical service and support
staff at our new call center located in Albany, New York in order to provide
24 hour by 7 day customer support and also expanded our operations staff at
our data center in Albany, New York.
Sales and marketing expenses increased $.9 million, from $.2 million to $1.1
million. The increase is primarily attributable to the acquisitions we
completed during 1999, combined with the 15 new sales people hired during the
first quarter of 2000. We are also increasing our advertising expenses as we
enter new markets and build a comprehensive sales and marketing team.
General and administrative expenses increased $.6 million, from $.2
million to $.8 million. The increase was primarily a result of the acquisitions
we completed during 1999 along with the costs of corporate overhead, which did
not have significant operations until the second quarter of 1999. General and
administrative costs will continue to increase in order to support our growth,
primarily the implementation of a common billing system.
Depreciation expense increased $.4 million, from $25,000 to $.4 million. The
increase was a result of the acquisitions completed during 1999 along with
the capital equipment purchased during 1999 and the first quarter of 2000.
These purchases were related to the integration of the common billing and
accounting systems and the building of our data
9
<PAGE>
center in Albany, New York. Depreciation expense will continue to increase as
our Internet service providers expand their networks to support new and
existing subscribers.
Amortization expense increased $1.6 million, from $.1 million to $1.7
million. This increase was a result of an increase in goodwill resulting from
the acquisitions completed during 1999. Amortization expense will continue to
increase as we acquire additional companies and will vary according to
purchase prices and intangible assets. Our policy with respect to completed
acquisitions and for future acquisitions is to amortize the portion of
purchase price attributable to goodwill and other intangibles over the
appropriate period, generally five years.
Interest income, (expense), net
Interest income, net was $4,000 for the quarter ended March 31, 2000, as
compared to interest expense, net of $1,000 during the same period of 1999. The
difference was a result of interest income earned during 2000 of $112,000, as a
result of our cash balances. This amount was offset by interest expense of
$108,000 on the debt which we issued during the first quarter of 2000.
Income tax expense for the quarter ended March 31, 2000, which consisted solely
of state income taxes, was $94,000. We recorded no income tax expense or benefit
for the same period of 1999. We have not recorded any income tax benefit from
the non-deductible amortization of goodwill.
Net loss for the quarter ended March 31, 2000 was $3.4 million, or $0.39 per
share, as compared to $.1 million, or $0.04 per share during 1999.
Liquidity and Capital Resources
At March 31, 2000, we had $5.5 million of cash and cash equivalents, a
decrease of $2.0 million from December 31, 1999. Net cash used by operating
activities was $1.8 million. Net cash used for investing activities was $14.6
million, primarily as a result of the acquisitions of Telecon and Telesupport
in March 2000. Net cash provided by financing activities was $14.9 million,
primarily as a result of establishing a $15 million senior secured credit
facility with MCG Finance Corporation on March 16, 2000.
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 existing data center in Albany, New York and our centers currently
under development in Hartford, Connecticut and Amherst, New York, which are
expected to be operational by the fourth quarter of 2000. These investments
will allow us to better support our current subscribers and newly acquired
subscribers.
We believe that our cash flow from operations and the remaining 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, competitive local exchange
carriers, and e-commerce service companies through the use of cash on hand,
the issuance of additional common stock, and proceeds from additional debt
financing, if available. However, if we do not secure additional sources of
financing, we will not have the resources to continue to pursue our
acquisition strategy, and our growth will be slowed. 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 Readiness Disclosure Statement
We did not experience any interruption in our business activities or incur any
impairment to our financial condition or results of operations as a result of
passing into calendar year 2000. We will continue to monitor our own internal
systems and products to determine the impact, if any, of problems associated
with the year 2000. To date, year 2000 costs are not considered to be material
to our financial condition nor have we incurred any significant unplanned
expenditures to address or remediate year 2000 problems.
Effects of Inflation
We do not believe that inflation has had a material impact on our results of
operations during the three months ended March 31, 2000.
Recent Accounting Pronouncements
10
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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. This Statement as amended by Statement 137 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.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") No. 101, Revenue Recognition in Financial Statements. The
Company was required to adopt this accounting guidance, as amended by SAB 101A,
no later than the first quarter of fiscal 2001. The company believes its
existing revenue recognition policies and procedures are in compliance with SAB
101, and therefore, SAB 101's adoption did not have a material impact on the
Company's financial condition, results of operations or cash flows.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation: an Interpretation of APB Opinion No. 25. This Interpretation
clarifies the application of APB No. 25 for certain issues, including: the
definition of an employee, the criteria for determining whether a plan qualifies
as a noncompensatory plan, the accounting consequence of modifications to the
terms of a previously fixed stock option or award, and the accounting for an
exchange of stock compensation awards in a business combination. This
Interpretation is effective July 1, 2000, but certain conclusions apply to
events occurring after December 15, 1999 or January 12, 2000. To the extent that
this Interpretation covers events occurring during the period after December 15,
1998, or January 12, 2000, but before the effective date, the effects of
applying this Interpretation are recognized on a prospective basis from July 1,
2000. The Company expects that the adoption of this Interpretation will not have
a material impact on its financial position, results of operations, or cash
flows.
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, Massachusetts 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.
11
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PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(c) Pursuant to Item 701(a)-(e) of Regulation S-K, the following
information is provided as to all equity securities of BiznessOnline.com, Inc.
sold by the Company during the period covered by this report that were not
registered under the Securities Act of 1933, as amended, and have not previously
been reported in a quarterly report on Form 10-Q, or an annual report on Form
10-K:
1. On March 31, 2000, the Company issued an aggregate of 71,429 shares of its
common stock to MCG Finance Corporation as partial consideration for the
borrowing of $15 million by the Company from MCG Finance Corporation
2. On March 31, 2000 the Company issued an aggregate of 358,335 shares of its
common stock to the two stockholders of Telesupport, Inc., a New York
corporation, comprising the merger consideration paid to such persons
pursuant to an Agreement and Plan of Merger and Reorganization by which
Telesupport was merged into a wholly owned subsidiary of the Company.
3. The issuances of common stock described in paragraphs 1 and 2 above were
made in connection with private financing or acquisition transactions not
involving a public offering without registration under the Securities Act
of 1933 in reliance upon the exemption from registration set forth in
Section 4(2) of the Act. The stockholders of Telesupport and the management
of MCG Finance Corporation, either directly or by way of a purchaser
representative, each represented that they were sophisticated investors.
All such persons received a copy of a currently dated Information Statement
regarding the Company. Each person acknowledged and represented to the
Company in writing that such person understands and agrees that the shares
of common stock to be issued in such transactions: have not been registered
under the Securities Act of 1933; are being acquired solely for their own
account without any present intention of resale or distribution; and will
not be resold without registration under the Securities Act of 1933 or in
compliance with an available exemption from registration. Each person also
acknowledged that such person was able to bear the economic risk of an
investment in the common stock and afford a complete loss of such
investment, and that such person had the opportunity to ask questions of
and receive answers from the Company's management concerning any and all
matters relating to the acquisition of the common stock of the Company.
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:
(i) The Registration Statement for the initial public offering (File Number
333-73067) was declared effective on May 11, 1999.
(ii) From the effective date of the initial public offering registration
through March 31, 2000, 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>
<CAPTION>
<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
Acquisition of WebWay, LLC 830,000
Acquisition of Infoboard, Inc. 1,380,000
Acquisition of Cyberzone, LLC 1,752,000
Acquisition of NECAnet, Inc. 1,575,000
Acquisition of Prime Communication Systems, Incorporated 1,240,000
Repayment of indebtedness of Internet service providers 276,000
Purchases of capital equipment, primarily relating to our data center in Albany, NY 5,157,000
---------
Total $19,570,000
===========
</TABLE>
12
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(11) Statement re Computation of Per Share Earnings
(27) Financial Data Schedule
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the
quarter ended March 31, 2000.
13
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
<TABLE>
<CAPTION>
<S> <C>
Dated: May 15, 2000 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)
</TABLE>
14
<PAGE>
Exhibit Index
Exhibit No. Description
- ----------- -----------
11 Statement re Computation of Per Share Earnings
27 Financial Data Schedule
15
<PAGE>
Exhibit 11 Statement re Computation of Per Share Earnings
Weighted Average shares Outstanding
Quarter Ended March 31, 2000
<TABLE>
<CAPTION>
<S> <C>
Shares Outstanding December 31, 1999 8,609,574
Additional shares issued March 31, 2000 429,764
Total shares outstanding March 31, 2000 9,039,338
===========
Weighted average shares outstanding 8,614,297
===========
Net loss for the three months ended March 31, 2000 ($3,382,000)
Net loss per share, basic and fully diluted ($0.39)
</TABLE>
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> MAR-31-2000 MAR-31-1999
<PERIOD-START> JAN-01-2000 JAN-01-1999
<PERIOD-END> MAR-31-2000 MAR-31-1999
<CASH> 5,476 172
<SECURITIES> 0 0
<RECEIVABLES> 4,518 170
<ALLOWANCES> 487 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 10,364 342
<PP&E> 9,348 328
<DEPRECIATION> 2,499 97
<TOTAL-ASSETS> 62,467 4,048
<CURRENT-LIABILITIES> 7,350 1,197
<BONDS> 0 0
0 0
0 1
<COMMON> 90 34
<OTHER-SE> 45,300 2,816
<TOTAL-LIABILITY-AND-EQUITY> 62,467 4,048
<SALES> 4,077 424
<TOTAL-REVENUES> 4,077 424
<CGS> 0 0
<TOTAL-COSTS> 7,364 563
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 5 0
<INTEREST-EXPENSE> 108 1
<INCOME-PRETAX> (3,287) (140)
<INCOME-TAX> 94 0
<INCOME-CONTINUING> (3,382) (140)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,382) (140)
<EPS-BASIC> (.39) (.04)
<EPS-DILUTED> (.39) (.04)
</TABLE>
