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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 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
Commission file number:
busybox.com, inc.
(Exact name of registrant as specified in its charter)
Delaware 94-3233035
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1900 Avenue of the Stars, Suite 680, Century City, CA 90067
(Address of principal executive offices) (Zip Code)
(310) 556-4616
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report.)
Check whether the issuer (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 periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the last 90 days.
YES X NO
---- ----
The number of shares of the Registrant's common stock, $.01 par value per share,
outstanding as of August 11, 2000, was 8,710,000.
Transition small business disclosure format (check one):
YES NO X
---- ----
The exhibit index appears in sequentially numbered page:
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements (Unaudited)
<S> <C> <C>
Condensed Balance Sheet as of June 30, 2000 3
Condensed Statements of Operations for the three months ended June 30, 2000 and 1999 4
Condensed Statements of Operations for the six months ended June 30, 2000 and 1999 5
Condensed Statements of Cash Flows for the six months ended June 30, 2000 and 1999 6
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
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busybox.com, inc.
CONDENSED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 2000
------------------
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 6,099,803
Accounts receivable 111,521
Inventory 490,582
Other current assets 76,061
---------------
Total current assets 6,777,967
PROPERTY AND EQUIPMENT, net 191,525
INTEREST RECEIVABLE 331,534
SOFTWARE, net 639,712
---------------
$ 7,940,738
===============
LIABILITIES
AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,804,125
Accrued liabilities 1,969,790
Note payable 98,899
Capital lease payable, current 7,676
---------------
Total current liabilities 4,880,490
LONG-TERM DEBT
Capital leases payable, long-term 417
---------------
Total liabilities 4,880,907
SECURITIES ISSUED SUBJECT TO
CONTINGENCY
Common stock 1,900,000
Less: Related notes receivable from stockholders (696,500)
---------------
Total securities issued subject to contingency 1,203,500
STOCKHOLDERS' EQUITY
Common stock 77,600
Additional paid-in capital 17,323,316
Accumulated deficit (13,106,835)
---------------
4,294,081
Less: Notes receivable from stockholders (2,437,750)
---------------
Total stockholders' equity 1,856,331
---------------
$ 7,940,738
===============
</TABLE>
The accompanying notes are an integral part of this balance sheet.
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<TABLE>
<CAPTION>
busybox.com, inc.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED JUNE 30
--------------------------------------
1999 2000
------------------ -------------------
<S> <C> <C>
Net revenue $ 101,228 $ 47,947
Cost of revenue 59,462 6,243
--------------- ---------------
Gross profit 41,766 41,704
Operating expenses
Selling, general and administrative expenses 722,045 1,999,457
Marketing and promotion 386,421 168,693
Research and development 161,190 262,191
--------------- ---------------
Total operating expenses 1,269,656 2,430,341
--------------- ---------------
Operating loss (1,227,890) (2,388,637)
Other income (expense)
Interest income on stockholders' notes
receivable 48,760 62,685
Interest expense (3,122) (58,656)
Amortization of financing costs and
discounts on promissory notes -- (2,460,758)
--------------- ---------------
Total other income (expense) 45,638 (2,456,729)
NET LOSS $ (1,182,252) $ (4,845,366)
=============== ===============
Basic and diluted net loss per share $ (0.24) $ (0.76)
=============== ===============
Shares used in calculation of net loss per share 4,869,341 6,347,363
=============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
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busybox.com, inc.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
---------------------------------------
1999 2000
------------------- -------------------
<S> <C> <C>
Net revenue $ 223,887 $ 73,359
Cost of revenue 118,145 19,981
--------------- ---------------
Gross profit 105,742 53,378
Operating expenses
Selling, general and administrative expenses 1,020,217 2,999,732
Marketing and promotion 388,362 399,870
Research and development 217,634 298,128
--------------- ---------------
Total operating expenses 1,626,213 3,697,730
--------------- ---------------
Operating loss (1,520,471) (3,644,352)
Other income (expense)
Interest income on stockholders' notes
receivable 97,510 125,370
Interest expense (3,778) (98,902)
Amortization of financing costs and
discounts on promissory notes -- (2,957,112)
--------------- ----------------
Total other income (expense) 93,732 (2,930,644)
--------------- ----------------
Net loss before income taxes 1,426,739 (6,574,996)
Income taxes -- 800
--------------- ----------------
NET LOSS $ (1,426,739) $ (6,575,796)
=============== ===============
Basic and diluted net loss per share $ (0.32) $ (1.05)
=============== ===============
Shares used in calculation of net loss per share 4,480,912 6,278,681
=============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
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<TABLE>
<CAPTION>
busybox.com, inc.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30
------------------------------------------
1999 2000
-------------------- ---------------------
<S> <C> <C>
Cash flow from operating activities:
Net loss $ (1,426,739) $ (6,575,796)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 22,731 2,978,252
Changes in operating assets and liabilities:
Accounts receivable, net 28,680 (44,178)
Inventory (136,340) (125,275)
Other current assets (49,866) (51,164)
Interest receivable (97,510) (125,370)
Accounts payable 306,711 814,818
Income taxes payable -- (800)
Other accrued liabilities 164,651 1,184,108
--------------- ---------------
Net cash used in operating
Activities (1,187,682) (1,945,405)
--------------- ---------------
Cash flows from investing activities:
Purchase of property and equipment (48,825) (97,871)
Purchase of software systems -- (592,993)
--------------- ---------------
Net cash used in investing activities (48,825) (690,864)
--------------- ---------------
Cash flows from financing activities:
Repayment of capital leases (3,520) (3,458)
Proceeds from promissory notes -- 1,513,250
Repayment of promissory notes -- (2,807,950)
Borrowings (repayments) on line of credit 94,173 (273)
Proceeds from stockholders' accounts receivable 12,250 --
Prepaid costs associated with initial public
offering of securities (257,767) (53,000)
Net proceeds from initial public offering -- 9,725,809
Net proceeds from private placement transaction 1,814,932 --
--------------- ---------------
Net cash provided by financing activities 1,660,068 8,374,378
--------------- ---------------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 423,561 5,738,109
Cash and cash equivalents at beginning of period 130,711 361,694
--------------- ---------------
Cash and cash equivalents at end of period $ 554,272 $ 6,099,803
=============== ===============
Supplemental cash flow disclosures
Cash paid for
Interest $ 5,321 $ 5,568
Income taxes $ -- $ 800
</TABLE>
The accompanying notes are an integral part of these statements.
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busybox.com, inc.
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
busybox.com, inc. ("Company") designs, develops, maintains, services,
markets, sells and distributes digital imagery, including black and white and
color still photographs, film footage and video, as well as the sale and
licensing of Company developed software over the Internet to its customers in
the technology, media, entertainment, government, corporate and sports
industries.
In December 1998, the Company amended its Certificate of Incorporation to
change its name from "Get Smart, Inc." to "Busy Box, Inc." In March 1999, the
Company further amended and restated its Certificate of Incorporation to change
its name to "busybox.com, inc."
Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and pursuant to rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statement presentation. In the opinion
of management, such unaudited interim information reflects all necessary
adjustments, consisting of only normal recurring adjustments, necessary to
present the Company's financial position and results of operations for the
periods presented. The results of operations for interim periods are not
necessarily indicative of the results to be expected for a full fiscal year.
These statements should be read in conjunction with the financial statements and
related notes included in the Company's SB-2 for the year ended December 31,
1999.
Revenue Recognition
Revenues are derived from digital video sales, digital image processing and
services, Web site hosting, maintenance and support, on-line sales of software
and licensing of Company developed software. Revenue from sales of digital video
is recognized upon delivery. Web site service revenues are recognized as
services are provided. The Company recognizes revenue allocable to perpetual
software licenses upon delivery of the software product to the end-user, unless
the fee is not fixed or determinable or collectibility is not probable. The
Company considers all arrangements with payment terms extending beyond twelve
months not to be fixed or determinable. If the fee is not fixed or determinable,
revenue is recognized when payments become due from the customer. If
collectibility is not considered probable, revenue is recognized when the fee is
collected. The Company recognizes revenue allocable to fixed-term software
licenses ratably over the license term.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, and reported amounts of revenue and
expenses during the reported period. Actual results could differ from those
estimates.
Basic and Diluted Loss per Share
Basic loss per share is calculated by dividing net loss by the weighted
average shares outstanding. Dilutive common stock equivalent shares reflects
the potential dilution that could occur if securities to issue stock were
exercised or converted into common stock, unless the effect of such
securities would be anti-dilutive. At June 30, 2000, potentially dilutive
securities were comprised of warrants entitling holders to purchase up to
2,500,000 shares of common stock (see Note 3).
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busybox.com, inc.
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
NOTE 2 - SECURITIES ISSUED SUBJECT TO CONTINGENCY
During the pendency of the Company's registration statement for its IPO
before the Securities and Exchange Commission, the Company issued unregistered
securities in September 1999, October 1999, December 1999, and February 2000,
aggregating $4,650,000 in cash and notes. The Company believes that the
unregistered securities were issued pursuant to available exemptions under the
federal securities laws. However, the Company may have issued such unregistered
securities without an available exemption under the federal securities laws,
which may subject the Company to liability, including rescission of the
securities transactions. Should the Company be required to offer a rescission of
the securities transactions, it may have a material adverse effect on the
Company's business, operating results and financial condition.
The unregistered securities issued in December 1999 and February 2000 were
comprised of eight percent promissory notes totaling $2,750,000. These
promissory notes were repaid in June 2000 from the proceeds of the Company's
IPO. As a result, the balance of securities issued subject to contingency was
reduced to $1,203,500 as of June 30, 2000.
NOTE 3 - COMMON STOCK
The Company's IPO became effective on June 26, 2000 whereby the Company
issued 2,500,000 shares of common stock and 2,500,000 warrants for $5.00 and
$0.125, respectively. Each warrant entitles the holder to purchase one share of
common stock, and is exercisable at a price of $5.50 per share, subject to
certain conditions. The warrants may be exercised at any time from the effective
date of the IPO and continuing thereafter for five years. The warrants are
redeemable by the Company at a price of $0.05 per warrant if the closing bid
price for the common stock equals or exceeds $10 per share during a 30
consecutive trading day period, and, subject to certain other conditions.
Gross proceeds from the IPO were $12,812,500. Net proceeds to the Company
after underwriting discounts and commissions and other expenses, including
printing costs, legal fees, and registration fees, totaled $9,725,809.
NOTE 4 - SUBSEQUENT EVENT
In January 2000, the Company was named a defendant in a breach of contract
dispute with an advertising vendor alleging damages of $150,000 per month since
June 1999 up to a maximum of $1,800,000 under a contract for services, plus
costs and attorneys' fees. Subsequently, the parties in the suit agreed to a
stay of legal proceedings and agreed to settle the dispute through binding
arbitration. In July 2000, the parties reached an agreement outside of binding
arbitration to settle the dispute and satisfy all claims of the vendor for
$1,150,000. This amount was paid in July 2000. The Company had previously
accrued approximately $1,600,000 in accounts payable for this vendor in
connection with this dispute. The difference between the amount included in
accounts payable and the settlement amount will be taken into income in July
2000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR
PLAN OF OPERATIONS
This document includes "forward-looking statements" within the meaning of
Section 27A of the Securities and Exchange Act of 1934, as amended, based on
current management expectations. The Company's actual results could differ
materially from those management expectations. Factors that could cause future
results to vary from current management expectations include, but are not
limited to, general economic conditions, legislative and regulatory changes,
rates and regulations of federal and state tax authorities, industry
competition, changes in accounting principles, policies and guidelines, and
other economic, competitive, governmental and technological factors affecting
the Company's operations, markets, products, services and prices. Further
description of the risks and uncertainties to the business are included in
detail in the Company's registration statement on Form SB-2, as amended, filed
with the Securities and Exchange Commission on May 23, 2000.
Management's Discussion and Analysis or Plan of Operations should be read
in conjunction with the information set forth in the Company's condensed
unaudited financial statements and notes thereto and other financial information
included herein.
OVERVIEW
Since 1995, busybox.com, inc. (the "Company" or "Busybox") has been a
pioneer in developing digital media technologies for still images and video
distributed over the Internet. The digital media market includes photograph,
video, music and audio content. From 1995 to mid 1999, the Company developed the
technologies and e-commerce functionality needed to catalog, display, preview,
sell and download digital photographs for some of the largest and most active
online digital photography libraries. Beginning in 1998, intense consolidation
within the stock photography market resulted in a rapidly shrinking pool of
potential new customers for the Company's stock photography products and
services.
In late 1998, the Company realized that emerging broadband technologies
would allow digitized media of all types to become available to not only the
professional market but also to the emerging, desktop consumer market. During
1999, the Company used its knowledge and experience in building and managing
high volume digital PHOTOGRAPH Web sites to develop an end-to-end (preview to
download to purchase) Internet solution for VIDEO. Only this time, the Company
would own the video content thereby expanding its revenue channels from
licensing technology and managing sites to wholly-owned, royalty-free
(unrestricted) content sales, thereby providing an opportunity for greater
profit margins.
In September, 1999 the Company launched a test version of its video
site. The site launched with a catalogue of 3,500 stock video clips,
substantially all of which were owned by the Company. From managing some of
the largest and most active online photo sites the Company knew what genre of
video clips would be commercially attractive. While this test site validated
the technology and the Company's end-to-end solution, it could only sustain
1,000 simultaneous hits - a number the Company knew was far too small for the
consumer market. Over the next nine months the Company "industrialized" its
prototype site so that its reliability and functionality was greatly enhanced
to sustain 10,000 simultaneous hits. Additionally, the Company extended its
technology platform to a modular, syndicatable design to satisfy the private
branding and unique technology requirements of each potential distributor.
In the year 2000, the Company shifted from a video content acquisition
strategy to in-house production of its own video content. This shift enables the
Company to create a unique, recognizable library of stock video without the
encumbrances of shared ownership. This library is intended to establish the
unique, recognizable image of the Company, its brand, over time. The library has
been designed to: (1) be highly organized and easy to access, (2) provide
in-depth selections across a broad range of content categories, (3) be of
consistent and very high quality, (4) be highly flexible, and (5) reflect
constant refreshment for current genres. During the three months ended June 30,
2000, the Company has upgraded (re-editing, color correction, image enhancement,
and expansion to multiple resolutions) its existing library of wholly-owned
stock video to production values and made plans to produce in-house another
4,000 stock
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video clips. Today, the Company currently owns one of the world's largest
libraries of royalty-free digital stock video.
Finally, during the second quarter of 2000, the Company has turned its
focus to building its distribution channels by pursuing relationships with
some of the world's preeminent hardware and software producers in both the
professional and consumer markets, all of whom have developed product lines
focused on desktop video production. By leveraging its technology as an
e-commerce Internet solution for previewing, downloading and purchasing stock
video clips and by allowing certain premier distributors to private label a
part of the Company's online video catalogue, Busybox seeks to make available
its royalty-free library to such distributors' end-users.
To further support its distribution strategy, the Company has developed
and implemented a whole suite of products and tools called the Busybox Pro
(www.busyboxpro.com) that includes a full e-commerce transaction-based,
online catalogue for digital video. The Busybox CD Collections, the second
product of the suite, is a CD-ROM product, offering a selected collection of
high quality stock video segments grouped by theme on multiple CD-ROMS in
broadcast and multimedia resolutions. The third product, The Busybox
Production Packages, includes broadcast videotape products that target the
needs of the video professional.
To further enhance shareholder value the Company intends to actively pursue
acquisition candidates.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
For the three months ended June 30, 2000, the Company reported revenue of
$47,947 from the sale of its products, systems, and services, a decrease of
$53,281, or 53%, compared to the corresponding period ended June 30, 1999, for
which the Company reported revenue of $101,228 from the sale of its products,
systems, and services. This decrease was primarily attributable to a decrease of
$57,000 in Internet services and online software sales for the three month
period ended June 30, 2000 as compared to the corresponding period ended June
30, 1999, resulting from the transition from a pure technology services company
serving the stock photography industry to that of an online producer and seller
of wholly owned, royalty-free digital stock video. Prior to this shift in
business focus, virtually all revenues of the Company were derived from
providing technology products and services to several large stock photography
customers. The Company realized sales of $31,000 during the three months ended
June 30, 2000, from its digital stock video line of business.
The Company's gross margin on sales for the three months ended June 30,
2000, increased to 87% as compared to 41% for the three months ended June 30,
1999. This increase is due to the Company's focus on the royalty-free digital
video market that generates significantly higher margins than technology
services, licensing and online software sales, the primary sources of revenue
for the corresponding period in 1999. These higher margins are the result of
decreased costs associated with sales of digital stock video products and
services as compared to costs incurred in connection with providing
technology services due to the ability to sell a single, wholly-owned,
royalty-free video multiple times to multiple customers.
Selling, general and administrative expenses increased to $1,999,457 for
the three months ended June 30, 2000, from $722,045 for the three months ended
June 30, 1999, an increase of $1,277,412, or 177%. Significant areas of increase
in this expense category included the following:
- On June 30, 2000, the Company completed its initial public offering of
2,500,000 shares of common stock at $5.00 per share and 2,500,000
warrants at $.125 per warrant. In order to complete the IPO, management
of the Company agreed to acquire an aggregate of 243,000 shares of
common stock and 243,000 warrants worth an aggregate of $1,245,375, in
lieu of annual bonuses that were to be awarded to such management of
the Company for the fiscal year 2000 and annual bonuses that were owed
to management for the fiscal year 1999, pursuant to employment
agreements. Of the selling, general and administrative expenses for
the three months ended
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June 30, 2000, $841,805 represents the amount of annual bonuses
paid to management pursuant to employment agreements in the second
quarter of the year 2000 for the last three fiscal quarters of the
year 2000;
- The Company also incurred increased payroll and general administrative
and operating costs for the three months ended June 30, 2000 as
compared to the corresponding period of 1999, due to the development of
its digital stock video line of business, the addition of key
management and industry personnel and its efforts to enhance the
Company's capability to manage any future growth in sales volume and
expansion of business operations, including but not limited to the
Company's in-house video production and editing capability;
- In January 2000, the Company relocated its corporate offices and
principal operations from San Francisco, California, to Century City,
California, to address a number of critical elements of operations
including: 1) the availability of a large labor pool of low cost, high
quality video production and distribution talent in the Century City
area under the Company's content production strategy, and 2)
relocation of the Company away from a San Francisco Bay-Area
commercial real estate market that was, and remains, very costly and
tight. The Company's lease for a larger office in Century City to
accommodate its business operations and any future expansion resulted
in approximately a $30,000 increase in rent for the three months ended
June 30, 2000, as compared to the corresponding period in 1999;
- Professional fees increased by $73,000 for the three months ended June
30, 2000, as compared to the corresponding period in 1999, due
primarily to legal fees incurred by the Company in connection with
litigation with one of the Company's vendors, which was settled in
July 2000; and
- Beginning in July 1999, the Company significantly increased its leasing
of computer and other equipment related to its on-line stock video
products and services as it moved most of the previously outsourced
functions in-house to satisfy potential distributors' requirements
for in-house control. This resulted in a $75,000 increase in equipment
lease expense for the three months ended June 30, 2000, as compared to
the corresponding period in 1999.
Marketing and promotion expenses decreased to $168,693 for the three
months ended June 30, 2000, from $386,421 for the three months ended June 30,
1999. This decrease of $217,728, or 56%, results from the completion of
market and media planning and research activities in 1999 and a change in the
Company's marketing strategy from brand building to private label. This
resulted in a substantial decrease in consulting fees incurred by the Company
for the three months ended June 30, 2000, as compared to the corresponding
period in 1999. Marketing and promotion costs now primarily result from media
placement and direct marketing campaigns.
Research and development expenses increased to $262,191 for the three
months ended June 30, 2000, from $161,190 for the three months ended June 30,
1999. This increase of $101,001, or 63%, results from the use of consultants
to hasten the completion of the development and enhancement of the Company's
technology products during the second quarter of 2000. Consultants were not
used to the same extent in the corresponding period in 1999. Now that the
Company's time constrained development work has been completed, the Company
expects to significantly reduce the use of consultants by bringing future
development work in-house.
Other expenses for the three months ended June 30, 2000 included $55,000 of
interest incurred primarily on the Company's eight percent promissory notes used
to bridge the Company's expenses until the IPO, and $2,460,758 of amortization
of financing costs and discounts on promissory notes. As of June 30, 2000,
capitalized financing costs and discounts on promissory notes were fully
amortized. The notes, totaling $2,250,000, were issued in December 1999 and
February 2000. Accordingly, there were no similar expenses for the corresponding
period in 1999.
Net loss, and basic and diluted net loss per share for the three months
ended June 30, 2000, increased to $4,845,366 and $0.76, respectively, from
$1,182,252 and $0.24, respectively, for the corresponding period in 1999.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
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For the six months ended June 30, 2000, the Company reported revenue of
$73,359 from the sale of its products, systems, and services, a decrease of
$150,528, or 67%, compared to the corresponding period ended June 30, 1999,
where the Company reported revenue of $223,887 from the sale of its products,
systems, and services. This decrease was primarily attributable to a decrease of
$191,000 in Internet services and online software sales for the six months ended
June 30, 2000 as compared to the six months ended June 30, 1999, resulting from
the transition from a pure technology services company serving the stock
photography industry to that of an online producer and seller of wholly owned,
royalty-free digital stock video. Prior to this shift in business focus,
virtually all revenues of the Company were derived from providing technology
products and services to several large stock photography customers. The Company
realized sales of $39,000 during the six months ended June 30, 2000, from its
digital stock video line of business.
The Company's gross margin on sales for the six months ended June 30,
2000 increased to 73% as compared to 47% for the six months ended June 30,
1999. This increase is due to the Company's focus on the royalty-free digital
video market that generates significantly higher margins than technology
services, licensing and online software sales, the primary sources of revenue
in the 1999 period. These higher margins are the result of decreased costs
associated with sales of digital stock video products and services as
compared to costs incurred in sales of technology services due to the ability
to sell a single video multiple times to multiple customers.
Selling, general and administrative expenses increased to $2,999,732 for
the six months ended June 30, 2000 from $1,020,217 for the six months ended
June 30, 1999, an increase of $1,979,515, or 194%. Significant areas of
increase in this expense category included the following:
- On June 30, 2000, the Company completed its initial public offering of
2,500,000 shares of common stock at $5.00 per share and 2,500,000
warrants at $.125 per warrant. In order to complete the IPO, management
of the Company agreed to acquire an aggregate of 243,000 shares of
common stock and 243,000 warrants worth an aggregate of $1,245,375 in
lieu of annual bonuses that were to be awarded to such management of
the Company for the fiscal year 2000 and annual bonuses that were owed
to management for the fiscal year 1999 pursuant to employment
agreements. Of the selling, general and administrative expenses for
the six months ended June 30, 2000, $1,025,096 represents the
aggregate amount of annual bonuses paid to management of the Company
pursuant to employment agreements in the second quarter of the year
2000 for the year 2000;
- The Company also incurred increased payroll and general administrative
and operating costs for the six months ended June 30, 2000 as compared
to the corresponding period of 1999, due to the re-launch and continued
development of its digital stock video line of business, the addition
of key management and industry personnel and its efforts to enhance the
Company's capability to manage any future growth in sales volume and
expansion of business operations, including but not limited to the
Company's in-house video production and editing capability. The
Company also invested significant effort to improve its digital
library through color correction and other enhancements, to extend
the capability of its technology platforms, and to develop digital
encoding systems for its digital media libraries and customers' users;
12
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- In January 2000, the Company relocated its corporate offices and
principal operations from San Francisco, California, to Century City,
California. The needed larger offices in Century City resulted in an
approximately $90,000 increase in rent for the six months ended June
30, 2000, as compared to the same period in 1999. The Company also
incurred an additional $30,000 in relocation costs in the six months
ended June 30, 2000;
- Professional fees increased by $108,000 for the six months ended June
30, 2000, as compared to the corresponding period in 1999 due primarily
to legal fees associated with litigation with one of the Company's
vendors, which was settled in July 2000; and
- Beginning in July 1999, the Company significantly increased its
leasing of computer and other equipment related to its on-line stock
video products and services as it moved most of the previously
outsourced functions in-house to satisfy potential distributors'
requirements for in-house control. This resulted in approximately
a $150,000 increase in equipment lease expense for the six months
ended June 30, 2000 as compared to the corresponding period in 1999.
Marketing and promotion expenses were $399,870 for the six months ended
June 30, 2000, an increase of $11,508, or 3%, from $388,362 for the six
months ended June 30, 1999. This increase results from a combination of the
decrease in market and media planning and research costs for the six months
ended June 30, 2000, as compared to the corresponding period for 1999, offset
by an increase in marketing and promotion costs for media placement and
direct marketing campaigns incurred beginning in the first quarter of 2000.
Research and development expenses increased to $298,128 for the six months
ended June 30, 2000, from $217,634 for the six months ended June 30, 1999. This
increase of $80,494, or 37%, results from the use of consultants to hasten the
completion of the development and enhancement of the Company's technology
products. Now that the Company's time constrained development work has been
completed, the Company expects to significantly reduce the use of consultants by
bringing future development work in-house.
Other expenses for the six months ended June 30, 2000 included $93,000 of
interest incurred primarily on the Company's eight percent promissory notes, and
$2,957,112 of amortization of financing costs and discounts on the promissory
notes. As of June 30, 2000, capitalized financing costs and discounts on the
promissory notes were fully amortized. The notes, totaling $2,250,000, were
issued in December 1999 and February 2000. Accordingly, there were no similar
expenses for the corresponding period in 1999.
Net loss, and basic and diluted net loss per share for the six months ended
June 30, 2000, increased to $6,575,796 and $1.05, respectively, from $1,426,739
and $0.32, respectively, for the corresponding period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its activities with cash flows
generated from operations, cash proceeds from the private placement of its
common stock, and financing through short-term obligations. As of June 30, 2000,
the Company owed $98,899 on a 13% demand note to a commercial bank. This note
was repaid in July 2000.
For the six months ended June 30, 2000, net cash used in operations was
$1,945,405 as a result of the $6,575,796 net loss for the period. The net
loss included non-cash expenses for amortization and depreciation of
$2,978,252. Most of this represents amortization of capitalized financing
costs and discounts on promissory notes. The Company incurred $125,275 in the
development and production of its digital video inventory that is related to
its on-line stock video products and services. Digital video inventory
consists of capitalized digital video production costs including costs for
production, acquisition and preparation for on-line distribution. These costs
are amortized by specific video subject category based upon actual future
sales of products using the gross profit method. Accounts payable and accrued
liabilities increased $1,998,926 during the six months ended June 30, 2000
due to deferral of payments to vendors, suppliers, and employees pending
closing of its IPO in June 2000.
During the six months ended June 30, 2000, the Company invested $97,871 in
new property and equipment and an additional $592,993 in its digital media
platform systems.
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Cash provided by financing activities for the six months ended June 30,
2000, was $8,374,378. This amount includes $1,513,250 of proceeds from eight
percent promissory notes issued in December 1999 and February 2000. On June 30,
2000, the Company completed the issuance of 2,500,000 shares of our common stock
at $5.00 per share and 2,500,000 warrants at $.125 per warrant in an initial
public offering. Net proceeds to the Company after underwriter commissions, and
legal and other fees totaled $9,725,809. The Company repaid its eight percent
promissory notes totaling $2,750,000 with proceeds from the Company's initial
public offering.
During the pendency of the Company's registration statement for its IPO
before the Securities and Exchange Commission, the Company issued unregistered
securities in September 1999, October 1999, December 1999, and February 2000,
aggregating $4,650,000 in cash and notes. The Company believes that the
unregistered securities were issued pursuant to available exemptions under the
federal securities laws. However, the Company may have issued such unregistered
securities without an available exemption under the federal securities laws,
which may subject the Company to liability, including rescission of the
securities transactions. The unregistered securities issued in December 1999 and
February 2000 were comprised of eight percent promissory notes totaling
$2,750,000. These promissory notes were repaid in June 2000 from the proceeds of
the Company's IPO. As a result, the balance of securities issued subject to
contingency was reduced to $1,203,500 as of June 30, 2000.
The Company's available cash and cash equivalents as of June 30, 2000 equal
$6,099,803. The Company believes that it has sufficient working capital to meet
its cash requirements for the 12 month period following June 30, 2000.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In January 2000, the Company was named a defendant in a breach of contract
dispute with an advertising vendor alleging damages of $150,000 per month since
June 1999 up to a maximum of $1,800,000 under a contract for services, plus
costs and attorneys' fees. Subsequently, the parties in the suit agreed to a
stay of legal proceedings and agreed to settle the dispute through binding
arbitration. In July 2000, the parties reached an agreement outside of binding
arbitration to settle the dispute and satisfy all claims of the vendor for
$1,150,000. This amount was paid in July 2000. The Company had previously
accrued approximately $1,600,000 in accounts payable for this vendor in
connection with this dispute.
ITEM 2. CHANGES IN SECURITIES
The Company's registration statement on Form SB-2 was declared effective on
June 26, 2000. From June 26, 2000 through June 30, 2000, the Company used net
proceeds from the offering for the following purposes:
<TABLE>
<CAPTION>
<S> <C>
Repayment of indebtedness(1) $ 2,750,000
Working Capital(2) 1,132,625
---------------
Total uses of net offering proceeds $ 3,882,625
===============
</TABLE>
(1) No direct or indirect payments were made to
directors, officers, general partners of the Company
or their associates; to persons owning ten (10)
percent or more of any class of equity securities of
the issuer; or to affiliates of the issuer.
(2) Includes compensation paid to the Company's
management pursuant to employment agreements.
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<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.1 Specimen of Common Stock Certificate*
4.2 Form of Warrant Certificate*
4.3 Form of Underwriter's Warrant Agreement**
11.0 Statement re: computation of per share earnings***
27.0 Financial Data Schedule
(b) Reports on Form 8-K
None.
-------------------------------
* Incorporated by reference to Amendment No. 1 to the Company's registration
statement on Form SB-2, as amended, filed with the Securities and Exchange
Commission on October 28, 1999 [File No. 333-80315]
** Incorporated by reference to the Company's registration statement on Form
SB-2, as amended, filed with the Securities and Exchange Commission on June 9,
2000 [File No. 333-80315]
*** Incorporated by reference to the notes to financial statements included
herein.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report on Form 10-Q to be signed on its behalf
by the undersigned thereunto duly authorized, this 14th day of August, 2000.
busybox.com, inc.
By: /s/ Mark B. Leffers
Mark B. Leffers
Vice President, Treasurer, Controller, Chief Financial Officer
(Principal Financial and Accounting Officer)
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