<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2000
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number 0-25957
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BIZNESSONLINE.COM, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 06-1519132
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(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 area code)
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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
October 29, 2000 was 9,455,744.
<PAGE>
BiznessOnline.com, Inc.
Form 10-Q For the Quarterly Period Ended September 30, 2000
<TABLE>
<CAPTION>
Index
<S> <C> <C> <C>
Part I. - Financial Information
Item 1 Condensed Consolidated Balance Sheets as of........................... 3
September 30, 2000 (unaudited) and December 31, 1999
Condensed Consolidated Statements of Operations....................... 4
for the Three Months and Nine Months Ended September 30, 2000 and
1999 (unaudited)
Condensed Consolidated Statement of Cash Flows........................ 5
for the Nine Months Ended September 30, 2000 and 1999 (unaudited)
Condensed Consolidated Statement of Stockholder's Equity.............. 6
for the Nine Months Ended September 30, 2000 (unaudited)
Notes to Condensed Consolidated Financial Statements.................. 7
Item 2 Management's Discussion and Analysis of Financial Condition........... 8
and Results of Operations
Item 3 Quantitative and Qualitative Disclosure About Market Risk
Part II. - Other Information............................................................ 12
Item 2 Changes in Securities and Use of Proceeds
Item 6 Exhibits and Reports on Form 8-K
Signature............................................................................... 14
Exhibit Index........................................................................... 15
</TABLE>
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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>
September 30, December 31,
2000 1999
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,517 $ 7,481
Accounts receivable, net of allowance for
bad debts of $1,098 and $482, respectively 4,886 1,274
Prepaid expenses and other current assets 630 380
-------- --------
Total current assets 7,033 9,135
Property and equipment, net 6,496 5,727
Goodwill and intangibles, net 43,306 32,331
Other assets 372 69
-------- --------
Total assets $ 57,207 $ 47,262
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long term debt $ -- $ 23
Current portion of obligations under capital leases 363 183
Accounts payable 5,043 2,345
Income tax payable 105 109
Accrued expenses 3,321 1,847
Deferred revenue 1,886 1,610
-------- --------
Total current liabilities 10,718 6,117
Long term debt, net of current portion 10,266 6
Capital leases, net of current portion 321 89
-------- --------
Total liabilities 21,305 6,212
Stockholders' equity:
Preferred stock -- --
Common stock 95 86
Additional paid in capital 55,338 45,145
Accumulated deficit (19,531) (4,181)
-------- --------
Total stockholders' equity 35,902 41,050
-------- --------
Total liabilities and stockholders' equity $ 57,207 $ 47,262
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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BiznessOnline.com, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 7,311 $ 2,141 $ 18,499 $ 3,802
Costs and expenses:
Connectivity and operations 5,677 1,193 14,645 1,801
Sales and marketing 1,524 515 4,252 1,146
General and administrative 1,111 680 3,066 1,254
Stock compensation 673 -- 673 --
Write down of impaired assets -- -- 901 --
Depreciation 588 174 1,512 296
Amortization 2,534 826 6,776 1,339
---------- ---------- ---------- ----------
Total costs and expenses 12,107 3,388 31,825 5,836
---------- ---------- ---------- ----------
Loss from operations (4,796) (1,247) (13,326) (2,034)
Other expense -- -- (6) --
Interest income (expense), net (895) 65 (1,879) 165
---------- ---------- ---------- ----------
Loss before income taxes (5,691) (1,182) (15,211) (1,869)
Income taxes -- 35 139 35
---------- ---------- ---------- ----------
Net loss $ (5,691) $ (1,217) $ (15,350) $ (1,904)
========== ========== ========== ==========
Net loss per share, basic and fully diluted $ (0.60) $ (0.17) $ (1.69) $ (0.37)
Weighted average shares outstanding,
basic and fully diluted 9,455,744 6,986,419 9,072,695 5,195,187
</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>
Nine Months Ended
September 30,
2000 1999
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<S> <C> <C>
Net loss $(15,350) $ (1,904)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 8,288 1,634
Allowance for bad debt 275 --
Changes in net assets and liabilities:
Increase in accounts receivable (1,359) (64)
Change in other current assets 4 (40)
Increase in accounts payable 1,924 931
Increase in accrued expenses 1,190 366
Decrease in deferred taxes -- (8)
Change in income taxes payable (4) 35
Decrease in deferred revenue (141) (85)
-------- --------
Net cash used by operating activities (5,173) 865
-------- --------
Cash flows from investing activities:
Capital expenditures (2,603) (1,521)
Change in other assets (228) 69
Acquisition of businesses, net of cash acquired (12,476) (9,117)
-------- --------
Net cash used in investing activities (15,307) (10,569)
-------- --------
Cash flows from financing activities:
Proceeds from sale of preferred stock -- 250
Repayments of capital lease obligations (48) (69)
Repayment of long term debt (89) (803)
Issuance of common stock in initial public
offering, net of underwriter discounts and
commissions -- 24,788
Proceeds from issuance of long term debt 14,653 --
-------- --------
Net cash provided by inancing activities 14,516 24,166
-------- --------
Net change in cash (5,964) 14,462
Cash at beginning of period 7,481 148
-------- --------
Cash at end of period $ 1,517 $ 14,610
======== ========
Cash paid for interest $ 1,361 $ 29
Income taxes paid 143 --
Non - cash investing and financing:
Issuance of common stock for acquisitions $ 2,386 $ 10,416
Issuance of common stock and warrants in connection
with issuance of long term debt 5,336 --
Issuance of note payable -- 580
Capital leases 460 --
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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BiznessOnline.com, Inc.
Condensed Consolidated Statement of Stockholders' Equity
(unaudited)
(In thousands, except share data)
Nine Months Ended September 30, 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 - -- 509 -- 510
Issuance of warrants for debt -- -- - -- 4,866 -- 4,866
Issuance of common stock for
Note receivable 220,000 2 - -- 628 -- 630
Note receivable for stock -- -- - -- (155) -- (155)
Issuance of common stock for
Bonuses and finders fees 45,006 1 - -- 217 -- 218
Issuance of warrants -- -- - -- 995 -- 995
Issuance of common stock for
acquisitions 509,735 5 - -- 3,133 -- 3,138
Net loss -- -- - -- -- (15,350) (15,350)
--------- --- - --- -------- -------- --------
Balance September 30, 2000 9,455,744 $95 - $- $ 55,338 $(19,531) $ 35,902
========= === = === ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
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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. 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 all outstanding stock 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 $24,635,000.
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.
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 all outstanding stock of 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 272,054
shares of common stock and the payment of $1,900,265 in cash.
On December 15, 1999, we acquired all outstanding stock 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 outstanding stock of Prime Communications
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..
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 June 30, 2000, we acquired all outstanding stock of Integration, Inc. and its
Xcalibur Internet services division, an Internet service provider located in
Batavia, New York for 131,250 shares of common stock.
7
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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 fair value of the warrants and shares of common stock
issued to the lender has been estimated by an independent valuation to have a
value of $5.4 million using (i) the Black-Scholes method of valuation for the
warrants, and (ii) the closing price on the NASDAQ National Market on the
date of issuance for the shares. The fair value of the warrants and shares
issued has 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>
<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>
We have reached an agreement in principal with our Lender to restructure
the debt and amend certain loan covenants. See Liquidity and Capital
Resources--Matters Involving Senior Debt.
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
Communications Systems Inc., NECAnet, Inc., Telecon Communications Corp.,
Telesupport, Inc. and Integration, Inc., and changes, if any, will result in
a change to the amount of goodwill recorded in connection with the
acquisitions.
The acquisitions were accounted for pursuant to the purchase method of
accounting. Accordingly, 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; Prime
Communications Systems, Inc., since December 29, 1999; Telecon Communications
Corp. and Telesupport, Inc. since March 31, 2000; and Integration, Inc. since
June 30, 2000.
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. This lease was
terminated effective September 30, 2000.
On December 29, 1999, as amended August 14, 2000, our Prime Communications
Systems, Inc. subsidiary entered into a lease with Prime Business Park, a
company partially owned by a 5% shareholder of the Company for approximately
10,420 square feet of office space with a monthly rent of $11,505.42 plus
utilities and real estate taxes. 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.
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.
8
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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.
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, an
Internet service provider on March 31, 2000 and an Internet service provider on
June 30, 2000.
Results of Operations
Three Months Ended September 30, 2000
We recorded revenue of $7.3 million during the quarter, an increase of $5.2
million, or 242%, from $2.1 million in the second quarter of 1999. The increase
was primarily a result of the acquisitions we completed during the second half
of 1999 and during the first half of 2000, combined with internal growth.
The following table provides a comparison of connectivity and operations, sales
and marketing and general and administrative expenses as a percentage of
revenues:
Quarter Ended
September 30
-------------
2000 1999
---- ----
Connectivity and operations 77.6% 55.7%
Sales and marketing 20.9% 24.1%
General and administrative 15.2% 31.8%
Connectivity and operations expenses increased $4.5 million, from $1.2 million
to $5.7 million. The increase was primarily a result of the acquisitions we
completed during the second half of 1999 and the first half of 2000. The 2000
costs also include approximately $.3 million of costs associated with
integrating the combined companies.
Sales and marketing expenses increased $1.0 million, from $.5 million to $1.5
million. The increase is primarily attributable to the acquisitions we completed
during 1999 and the first half of 2000, combined with the 15 new sales people
hired during the first quarter of 2000.
General and administrative expenses increased $.4 million, from $.7 million to
$1.1 million. The increase was primarily a result of the acquisitions we
completed during 1999 and the first half of 2000. We also incurred approximately
$.1 million of costs relating to merger and acquisition activity which was not
consummated.
Stock compensation for the quarter ended September 30, 2000 was $.7 million. The
stock compensation relates to warrants granted by the Company during the
quarter. We have valued these warrants using the Black-Scholes method of
valuation.
Depreciation expense increased $.4 million, from $.2 million to $.6 million. The
increase was a result of the acquisitions completed during the second half of
1999 and the first half of 2000 along with the capital equipment purchased
during 1999 and the first half of 2000. These purchases were related to the
integration of the common billing and accounting systems and the building of our
data centers in Albany, New York, Amherst, New York and Hartford, Connecticut.
Depreciation expense will continue to increase as our Internet service providers
increase their networks to support new and existing subscribers.
9
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Amortization expense increased $1.7 million, from $.8 million to $2.5
million. This increase was a result of goodwill resulting from the
acquisitions completed during the second half of 1999 and the first half of
2000. Amortization expense will continue to increase if we acquire additional
companies and will vary according to purchase prices and intangible assets
acquired. 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 expense, net was $.9 million for the quarter ended September 30, 2000,
as compared to interest income, net of $.1 million during the same period of
1999. The difference was a result of interest expense on our outstanding debt
during 2000 of $.9 million on the debt we issued during the first quarter of
2000.
Net loss for the quarter ended September 30, 2000 was $5.7 million, or $0.60 per
share, as compared to $1.2 million, or $0.17 per share during 1999.
Nine Months Ended September 30, 2000
We recorded revenue of $18.5 million during the nine month period ended
September 30, 2000, an increase of $14.7 million, or 387%, from $3.8 million
during the same period of 1999. The increase was primarily a result of the
acquisitions we completed during 1999 and during the first half of 2000,
combined with internal growth.
The following table provides a comparison of connectivity and operations, sales
and marketing and general and administrative expenses as a percentage of
revenues:
Nine Months Ended
September 30
-----------------
2000 1999
---- ----
Connectivity and operations 79.2% 47.4%
Sales and marketing 23.0% 30.1%
General and administrative 16.6% 33.0%
Connectivity and operations expenses increased $12.8 million, from $1.8 million
to $14.6 million. The increase was primarily a result of the acquisitions we
completed during 1999 and the first half of 2000. The 2000 costs also include
approximately $1.5 million of costs associated with integrating the combined
companies.
Sales and marketing expenses increased $3.1 million, from $1.1 million to $4.2
million. The increase is primarily attributable to the acquisitions we completed
during 1999 and the first half of 2000, combined with the 15 new sales people
hired during the first quarter of 2000. We also increased our advertising
expenses as we entered new markets and built a comprehensive sales and marketing
team.
General and administrative expenses increased $1.8 million, from $1.3 million to
$3.1 million. The increase was primarily a result of the acquisitions we
completed during 1999 and the first half of 2000 along with the costs of
corporate overhead, which did not have significant operations until the second
quarter of 1999. We also incurred approximately $.2 million of costs associated
with merger and acquisition activity which was not consummated.
Write-off of impaired assets was $.9 million for the nine months ended September
30, 2000. The Company wrote off the costs of acquired software relating to the
Company's billing system, which was replaced during the second quarter.
Stock compensation for the nine months ended September 30, 2000 was $.7 million.
The stock compensation relates to warrants granted by the Company during the
third quarter.
Depreciation expense increased $1.2 million, from $.3 million to $1.5 million.
The increase was a result of the acquisitions completed during 1999 and the
first half of 2000 along with the capital equipment purchased during 1999 and
the first nine months of 2000. These purchases were related to the integration
of the common billing and accounting systems and the building of our centralized
data center in Albany, New York. Depreciation expense will continue to increase
as our Internet service providers increase their networks to support new and
existing subscribers.
Amortization expense increased $5.4 million, from $1.4 million to $6.8 million.
This increase was a result of goodwill resulting from the acquisitions completed
during 1999 and the first half of 2000. Amortization expense will continue to
increase if we acquire additional companies and will vary according to purchase
prices and intangible assets. Our policy with respect to
10
<PAGE>
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 expense, net was $1.9 million for the nine months ended September 30,
2000, as compared to interest income, net of $.2 million during the same period
of 1999. The difference was a result of interest expense on our outstanding debt
during 2000 of $2.0 million on the debt we issued during the first quarter of
2000. This amount was offset by interest income of $.1 million on our cash
balances during the period.
Income tax expense for the nine months ended September 30, 2000, which consisted
solely of state income taxes, was $.1 million, as compared to $35,000 in the
same period of 1999. We have not recorded any income tax benefit from the
non-deductible amortization of goodwill.
Net loss for the nine months ended September 30, 2000 was $15.4 million, or
$1.69 per share, as compared to $1.9 million, or $0.37 per share during 1999.
Liquidity and Capital Resources
At September 30, 2000, we had $1.5 million of cash and cash equivalents, a
decrease of $6.0 million from December 31, 1999. Net cash used by operating
activities was $5.2 million. Net cash used for investing activities was $15.3
million, primarily as a result of the acquisitions of Telecon and Telesupport in
March 2000. Net cash provided by financing activities was $14.5 million,
primarily as a result of establishing a $15 million senior secured credit
facility with MCG Finance Corporation on March 16, 2000.
We believe that our reduction of cash and cash equivalents by $6.0 million to
$1.5 million and the net loss of approximately $15.4 million for the nine months
ended September 30, 2000 is significantly related to increased personnel costs,
redundant connectivity costs and increased costs of services sold. All of these
increases relate to expenses incurred directly or indirectly as a result of
acquisitions and the integration of the new companies into and with our existing
subsidiaries.
We further believe that our available cash and cash flow from operations may not
be sufficient to fund our operations beyond the next three months or give us the
ability to continue to acquire Internet service providers and telecommunications
companies in accordance with our growth strategy to date without a comprehensive
plan to address our operating deficit and our capital needs. Towards that end,
we are continuing to implement our plan to reduce our costs and expenses and
raise additional capital, as follows:
- As we finalize the integration of the 12 companies we have acquired
since May 1999, we continue to locate and eliminate wherever possible
certain redundant connectivity costs and costs related to services sold
which are expected to result in annualized savings of approximately
$1.1 million.
- As a result of a restructuring plan initiated during the second quarter
of this year, we have reduced our overall work force by approximately
20%.
- We have engaged Kaufmann Bros., L. P. as a financial adviser to assist
us in obtaining new equity capital from institutional and/or strategic
investors and to prepare market research.
- We have reached an agreement in principal to restructure certain terms
of our $15 million credit facility with MCG Finance Corporation, as
discussed below under "Matters Involving Senior Debt".
NASDAQ Delisting and Liquidity of Common Stock
On August 4, 2000, NASDAQ informed us that we had failed to comply with
continued listing requirements and commenced an action to delist our common
stock from the National Market System. We appealed the decision and
requested an extension of time to comply with the National Market
standards. NASDAQ denied our appeal and effective October 2, 2000 our
common stock was delisted from the NASDAQ National Market. Our stock
immediately began trading on the over-the-counter electronic bulletin board
sponsored by NASDAQ.
The delisting of our common stock may result in limited release of the
market price of our common stock and limited news coverage of our company
which could restrict investors' interest in our common stock and materially
adversely affect the trading market and prices for our common stock.Our
ability to issue additional securities in connection with acquisiitions or
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to secure additional financing may also be impaired as a result of
delisting from the Nasdaq National Market. In addition, our common stock
could be subject to Rule 15g-9 under the Securities Exchange Act of 1934
which, among other things, requires that broker/dealers satisfy special
sales practice requirements, including making individualized written
suitability determinations and receiving a purchaser's written consent
prior to any transaction. In such case, our common stock could also be
deemed to be a "penny stock" under the Securities Enforcement and Penny
Stock Reform Act of 1990, which would require additional disclosure in
connection with trades in the common stock, including the delivery of a
disclosure schedule explaining the nature and risks of the penny stock
market. Such requirements could severely limit the liquidity of our
common stock.
Matters Involving Senior Debt
As of September 30, 2000, we were not in compliance with the requirements
under our $15 million senior credit facility, under certain of the
financial covenants. We have reached an agreement in principal with our
Lender to, among other things, restructure the financial covenants which
we believe would correct the covenant defaults. If the defaults are not
cured, or waived by the Lender, the Lender could seek remedies against us,
including penalty rates of interest, immediate repayment of the debt,
and/or foreclosure on substantially all of our assets securing the debt.
If we become insolvent or enter into a liquidation proceeding, after
payment to our creditors, there is likely to be insufficient assets
remaining for any distribution to shareholders.
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 September 30, 2000.
Recent Accounting Pronouncements
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 and SAB 101B, no later than the first quarter of fiscal
2001. We believe our existing revenue recognition policies and procedures are
in compliance with SAB 101, and therefore, SAB 101s adoption did not have a
material impact on our 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. We do not expect
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that the adoption of this Interpretation will have a material impact on our
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.
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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:
(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 September 30, 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>
<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 1,900,000
Acquisition of NECAnet, Inc. 1,575,000
Acquisition of Prime Communications Systems, Incorporated 1,240,000
Repayment of indebtedness of Internet service providers 342,000
Purchases of capital equipment, primarily relating to our data center in Albany, NY 6,627,000
-----------
Total $21,254,000
===========
</TABLE>
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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:
None
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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: November 13, 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)
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Exhibit Index
Exhibit No. Description
----------- -----------
11 Statement re Computation of Per Share Earnings
27 FINANCIAL DATA SCHEDULE
17
