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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT FOR THE
TRANSITION PERIOD FROM _________________ TO _________________
Commission file number : 000-26755
DIGITAL BRIDGE, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 88-0409147
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1860 El Camino Real, #100, Burlingame, California 94010
(Address of principal executive offices) (Zip Code)
(650) 552-0618
(Issuer's telephone number)
Black Stallion Management, Inc.
7432 South Carling Circle, Salt Lake City, Utah 84121
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act during the past 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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of March 31, 2000, 27,850,000
shares of common stock, par value $.001, were issued and outstanding.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): Yes [ ] No [X]
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PART I -- FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
Index to Condensed Consolidated Financial Statements
Condensed Consolidated Balance
Sheet as of March 31, 2000..........................3
Condensed Consolidated Statement of
Operations for the Three and Nine
Month Periods Ended March 31, 2000..................4
Condensed Consolidated Statement of
Cash Flows for the Nine Month
Period Ended March 31, 2000.........................5
Notes to Condensed Consolidated
Financial Statements................................6
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DIGITAL BRIDGE, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
March 31, 2000
--------------
ASSETS
CURRENT ASSETS
Cash 404,341
Prepaid Expenses 30,731
- -----------------------------------------------
TOTAL CURRENT ASSETS 435,072
Furniture and Equipment 23,128
Other Assets 19,674
- -----------------------------------------------
TOTAL ASSETS 477,874
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade Payables 57,763
OTHER CURRENT LIABILITIES
Accrued Liabilities 17,660
- -----------------------------------------------
TOTAL LIABILITIES 75,423
STOCKHOLDERS' EQUITY
Common Stock 22,280
Additional Paid-in Capital 705,312
Accumulated Deficit (325,141)
- -----------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY 477,874
===============================================
The accompanying notes are an integral part of the financial statements.
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DIGITAL BRIDGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended March 31, 2000 Ended March 31, 2000
======================================================================================================
<S> <C> <C>
Revenue 178,354 462,354
Cost of Sales 124,527 255,070
- ------------------------------------------------------------------------------------------------------
Gross Profit 53,827 207,284
- ------------------------------------------------------------------------------------------------------
Operating Expenses:
Salaries and Benefits 97,120 309,973
Office Expenses 55,991 59,897
Other 39,625 73,841
Professional Fees 45,446 68,171
Depreciation 2,191 2,191
- ------------------------------------------------------------------------------------------------------
240,373 514,073
- ------------------------------------------------------------------------------------------------------
Net Loss $(186,546) $ (306,789)
======================================================================================================
Net loss per share-basic ($0.0067) ($0.0111)
Net loss per share-dilutive ($0.0066) ($0.0109)
</TABLE>
The accompanying notes are an integral part of the financial statements.
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DIGITAL BRIDGE, INC.
CONDENSED CONSOLIDATED CASH FLOW FROM OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended March 31, 2000
<S> <C>
Operating Activities:
Net loss $ (306,789)
Adjustments to reconcile net loss to
net cash used by operations:
Depreciation 2,191
Increase in:
Accounts Receivable 13,017
Prepaid expenses (25,731)
Other assets (10,174)
Accounts payable 65,837
- -----------------------------------------------------------------------------------------------------------
Net cash used by operating activities (261,649)
- -----------------------------------------------------------------------------------------------------------
Investing Activities:
Purchase of furniture and equipment (18,402)
- -----------------------------------------------------------------------------------------------------------
Net cash used by investing activities (18,402)
- -----------------------------------------------------------------------------------------------------------
Financing Activities:
Issuance of common stock 9,038
Additional paid-in capital 668,554
- -----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 677,592
- -----------------------------------------------------------------------------------------------------------
Increase in Cash and Cash Equivalents 397,541
Cash and Cash Equivalents, beginning of period 6,800
- -----------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, end of period $ 404,341
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DIGITAL BRIDGE, INC.
Note 1-Organization
Digital Bridge, Inc. (the "Issuer" or the "Company") is a corporation organized
under the laws of the State of Nevada. Its principal business is to provide
website development and management services.
Note 2-Summary of Significant Accounting Policies
a. Basis of Presentation:
The Company maintains its accounts on the accrual basis of accounting.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financials statements and the reported amount of revenues
and expenses during the reported period. Actual results could differ
from those estimates.
b. Basis of Consolidation:
The condensed consolidated balance sheet at March 31, 2000, the
condensed consolidated statements of operations for the three and nine
months ended March 31, 2000, and the condensed consolidated statements
of cash flows for the nine months ended March 31, 2000, have been
prepared by the Company in accordance with generally accepted
accounting principles and in the opinion of management include all
adjustments (which consist only of normal recurring adjustments)
necessary for a fair presentation of results of operations for the
periods presented.
Condensed consolidated statements of operations for the three and nine
months ended March 31, 1999, and condensed consolidated statements of
cash flows for the nine months ended March 31, 1999 have not been
included in this Interim Report on Form 10-QSB as required by Item
310(b) of Regulation S-B. In the opinion of management, the results of
operation for those periods is not material because the Company had not
begun substantial business operations. Furthermore, the preparation of
these statements could not be completed without undue difficulty and
hardship due to lack of data. Reference is made to the financial
statements of the Company included in the report filed by the Company
on Form 8-K on April 12, 2000.
The accompanying condensed consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiary, DBGI, Inc.
All significant intercompany transactions and balances have been
eliminated.
c. Cash and Cash Equivalents:
For the purposes of the statement of cash flows, the Company considers
all highly liquid instruments purchased with maturity of three months
or less to be cash equivalents.
d. Depreciation:
Fixed assets are recorded at cost. Property and equipment is
depreciated on a straight-line basis over estimated useful lives
ranging from five to seven years.
e. Revenue Recognition:
The Company records revenue based upon specific contract rates for
website development and management services.
f. Advertising:
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Advertising costs are expensed as incurred.
g. Earnings per share:
The shares used in the computation of the Company's basic and diluted
earnings per common share are reconciled as follows:
<TABLE>
<CAPTION>
Three months Nine months
<S> <C> <C>
Weighted average common outstanding 27,767,204 27,755,734
Dilutive effect of employee stock options 305,000 288,334
Weighted average common shares outstanding,
assuming dilution 28,072,204 28,044,068
</TABLE>
Weighted average common shares outstanding, assuming dilution, includes
the incremental shares that would be issued upon the assumed exercise
of stock options.
Note 3-Furniture and Equipment
Furniture and equipment, at cost, is summarized as follows as of March 31, 2000.
2000
----
Office Equipment 23,325
Furniture and Fixtures 1,994
- --------------------------------------------------------
25,319
Less Accumulated Depreciation (2,191)
$23,128
--------
Depreciation expense amounted to $ 2,191 for the nine month period ended March
31, 2000.
Note 4-Lease Commitments:
The Company leases office space under an operating lease which expires December
31, 2002. Rent expense approximated $22,080 for the nine month period ended
March 31, 2000. As of March 31, 2000, future minimum lease payments, by fiscal
year, are as follows-
Year ended June 30,
2000 $17,000
2001 90,000
2002 94,000
2003 48,000
----------
$249,000
==========
Note 5-Income taxes:
No provision for federal and state income taxes has been recorded because the
Company has incurred net operating losses since inception. The net operating
loss carry-forwards as of March 31, 2000 totaled approximately $325,000. These
carry-forwards will be available to offset future taxable income and expire
beginning in 2019. Deferred income tax assets arising from such loss
carry-forwards have been fully reserved.
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Note 6-Stock Incentive Plan
The Company has drafted a stock incentive plan for directors, officers,
employees and consultants of the Company and affiliated companies, which
provides for nonqualified and incentive stock options. The maximum number of
shares of common stock reserved and available for issuance under this plan is
two million. As of March 31, 2000, options granted aggregated 465,000, 305,000
of which were granted at a strike price of $2 per share, and the remainder at
the fair market value on the date of the grant. These options generally vest
over a three-month period and expire five years from the date of grant. The plan
is subject to adoption by the Company's board of directors and approval by its
shareholders.
The Company follows Accounting Principles Board Opinion 25, Accounting for Stock
Issued to Employees, to account for the stock incentive plan, recognizing
compensation expense to the extent of the difference between the fair value of
the underlying stock at the measurement date less the amount the employee is
required to pay. There were no charges to compensation expense during the period
ended March 31, 2000.
An alternative method of accounting for stock options is Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation.
Under SFAS 123, employee stock options are valued at grant date using the
Black-Scholes valuation model, and compensation cost is recognized ratably over
the vesting period. Had the Company followed SFAS 123, no significant adjustment
would have been made to the statement of operations during the period ended
March 31, 2000. No options were exercised or canceled during the periods ended
March 31, 2000.
Note 7-Economic Dependence on related party transactions
Through March 31, 2000, the Company generated the majority of its revenues from
services provided to affiliated companies. Sales to these companies for the nine
month period ended March 31, 2000 represent 98% of total revenues.
Note 8-Business risks
The Company's failure to secure financing or its ability to generate sufficient
cash flows through operations may have a material adverse impact on the
Company's future operations and financial position. During March and April, 2000
the Company entered into three private stock purchase agreements whereby it
issued 140,000 shares of common stock at the aggregate price of $700,000. The
Company may need to raise additional funds to develop or enhance their service
offerings and to fund expansion; failure to do so could affect the Company's
ability to pursue future growth.
Note 9-Reorganization and Stock Purchase Agreement
Effective January 31, 2000, Digital Bridge, Inc. (not the Issuer) and its
shareholders entered into a Reorganization and Stock Purchase Agreement with
Black Stallion Management, Inc. (a predecessor to the Company and an SEC
registrant under Section 12 of the Securities Exchange Act of 1934). Under the
terms of the agreement, the shareholders agreed to exchange 100% of their common
stock for 20 million shares of common stock of Black Stallion. Black Stallion
was renamed Digital Bridge, Inc. (the Issuer). In addition, Black Stallion
agreed to effect a post-closing 1.25 to 1 stock split on its authorized, issued
and outstanding stock, resulting in 27,750,000 post-closing shares of common
stock issued and outstanding and 31,250,000 shares of common stock authorized at
the effective date.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The information in this discussion contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Act of 1934, as amended. Such statements are based upon current
expectations that involve risks and uncertainties. Any statements contained
herein that are not statements of historical fact may be deemed to be
forward-looking statements. For example, the words "believes", "anticipates",
"plans", "expects", "intends" and similar expressions are intended to identify
forward-looking statements. The Company's actual results and the timing of
certain events may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a discrepancy include,
but are not limited to, those discussed in "Ability to Raise Capital Resources"
as well as "Risks Related to Our Business." All forward-looking statements in
this document are based on information available to the Company as of the date
hereof and the Company assumes no obligation to update any such forward-looking
statements.
OVERVIEW
Our net revenues are derived primarily from providing professional services to
clients who are creating eBusinesses or are rethinking or expanding their
existing businesses to integrate eBusiness capabilities. We expect that our net
revenues will be driven primarily by the number and scope of our client
engagements and by our professional services headcount. Net revenues from any
given client will vary from period to period. Additionally, we expect that
customer concentration will continue for the foreseeable future. To the extent
that any significant client uses less of our services or terminates its
relationship with us, our net revenues could decline substantially. As a result,
the loss of any significant client could seriously harm our business and results
of operations.
We generally provide our services on a time and materials basis, but we also
provide them on a fixed fee basis, which may include an equity position in our
clients. When we provide fixed-fee engagements, we use an internally developed
process to estimate and propose fixed prices for such projects. The estimation
process accounts for standard billing rates particular to each project, the
technology environment and application type to be applied, and the project's
timetable and overall technical complexity.
For the quarter ended March 31, 2000, 100% of net revenues were derived from
time and materials contracts. Net revenues pursuant to time and materials
contracts are generally recognized as services are provided. Net revenues
pursuant to fixed-fee type contracts are generally recognized as services are
rendered using the percentage-of-completion method of accounting (based on the
ratio of costs incurred to total estimated costs). Net revenues exclude
reimbursable expenses charged to clients. Substantially all of our clients were
located within North America and all net revenues were denominated in U.S.
dollars. As we expand internationally, we expect to generate a greater
percentage of our net revenues outside of North America and much of those
revenues will be denominated in foreign currencies.
Professional services expenses consist primarily of compensation and benefits
for our employees engaged in the delivery of professional services. Professional
services margins reflect net revenues less professional services expenses which
are incurred regardless of whether or not the employee's time is billed to a
client. We expect that our professional services expenses will increase over
time due to wage increases and inflation. Our professional services margins are
affected by trends in the percentage of professional services employees' time
that is billed to clients, and, will vary in the future. Any significant decline
in fees billed to clients or the loss of a significant client would materially
adversely affect our professional services margins.
We expect selling, general and administrative expenses to increase in absolute
dollars as we expand our direct sales force, continue expenditures on knowledge
management and information technology infrastructure, open new offices, increase
our recruiting efforts and incur additional costs related to the growth of our
business and operations on a global basis.
Despite growth in our net revenues to date, we have not been profitable. Our net
losses may not decrease proportionately with any future increase in our net
revenues primarily because of likely increased expenses related to the expansion
of the number of our offices, increased investment in our knowledge management
and operations
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infrastructure, and increased recruiting, marketing and sales efforts. To the
extent that future net revenues do not increase significantly in the same
periods in which operating expenses increase, our operating results would be
adversely affected.
We are currently planning to introduce a series of products to complement our
services in the eBusiness arena. These products include a middleware integration
server currently titled "the Bridge Engine," and a series of wireless enterprise
applications designed to wirelessly enable scheduling and ordering processes for
enterprises whose planning and sales force are based primarily outside the
office structure. There is, however, no guarantee that these products will be
successful or that their development will meet the time constraints currently
set for them. In such an event, our operating results would be adversely
affected.
The Company also anticipates that a large portion of its future growth will be
accomplished by acquiring existing businesses. The success of this plan depends
upon, among other things, the Company's ability to integrate acquired personnel,
operations, products and technologies into its organization effectively, to
retain and motivate key personnel of acquired businesses and to retain customers
of acquired firms. The Company cannot guarantee that it will be able to identify
suitable acquisition opportunities, obtain any necessary financing on acceptable
terms to finance such acquisitions, consummate such acquisitions or successfully
integrate acquired personnel and operations.
RESULTS OF OPERATIONS
REVENUES
Total revenues for the three months ended March 31, 2000 totaled $178,354. For
the nine months ended March 31, 2000 total revenue was $462,354. Since its
inception, the Company has generated almost all of its revenues from services
provided to affiliated companies. Sales to these companies for the three months
ended March 31, 2000 represent 100% of total revenues and 98% of total revenue
for the nine months ended March 31, 2000.
COST OF SALES
Cost of sales includes salary allocation of marketing and technical personnel
for time spent on web development, design, implementation and market research.
Employees' time is tracked internally and expensed against client projects.
Other cost of sales include the gross cost for media placement, print materials
and web hosting services and maintenance. Costs of sales for the three-month
period ended March 31, 2000 was $124,527 and $255,070 for the nine-month period
ended March 31, 2000.
OPERATING EXPENSES
a. Salaries and Benefits consist of compensation and related
expenses for personnel. The Company expects these costs to
increase in absolute dollars in future periods as the Company
expands its executive and technical staff to support the growth
of its operations.
b. Office Expenses for the three-month period ended March 31, 2000
were $55,991 and $59,897 for the nine-month period ended March
31, 2000. Prior to January 2000, certain office expenses were
incurred by an affiliated company and were not charged to the
Company.
c. Other Expenses include trade show costs and advertising, sales
and marketing costs. These costs are expensed as incurred.
d. Depreciation is calculated on a straight-line basis with assets
recorded at cost and depreciated with a life of five years for
computers and seven years for furniture and equipment.
INCOME TAXES
No provision for federal and state income taxes has been recorded because the
Company has incurred net operating losses since inception. The net operating
loss carry-forwards as of March 31, 2000 approximate $325,000. These
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carry-forwards will be available to offset future taxable income and expire
beginning in 2019. Deferred income tax assets arising from such loss carry
forwards have been fully reserved as of March 31, 2000.
STOCK INCENTIVE PLAN
The Company has drafted a stock incentive plan for directors, officers,
employees and consultants of the Company and affiliated companies, which
provides for nonqualified and incentive stock options. The maximum number of
shares of common stock reserved and available for issuance under this plan is
two million. As of March 31, 2000 options granted aggregated 465,000, 305,000 of
which were granted at a strike price of $2 per share, and the remainder at the
Fair Market Value on the date of the grant. These options generally vest over a
three-month period and expire five years from the date of the grant. The Plan is
subject to adoption by the Company's board of directors and approval by its
shareholders.
The Company follows Accounting Principles Board Opinion 25, Accounting for Stock
Issued to Employees, to account for the stock incentive plan, recognizing
compensation expense to the extent of the difference between the fair value of
the underlying stock at the measurement date less the amount the employee is
required to pay. There were no charges to compensation expense during the period
ended March 31, 2000.
An alternative method of accounting for stock options is Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation.
Under SFAS 123, employee stock options are valued at grant date using the
Black-Scholes valuation model, and compensation cost is recognized ratably over
the vesting period. Had the Company followed SFAS 123, no significant adjustment
would have been made to the statement of operations during the period ended
March 31, 2000. No options were granted or exercised during the period ended
March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $261,649 for the nine months ended
March 31, 2000.
Net cash used in investing activities for the nine months ended March 31, 2000
was $18,402, which was primarily used to acquire computer equipment.
Net cash provided by financing activities was $677,592 in the nine months ended
March 31, 2000 primarily from the private sale of 100,000 shares of common stock
under two separate stock purchase agreements entered into in March 2000 which
raised $500,000.
The Company currently anticipates that its available cash resources combined
with proceeds from capital raising transactions will be sufficient to meet its
anticipated working capital and capital expenditure requirements through the end
of August 2000. The company is actively seeking to raise additional funds. On
April 4, 2000, the Company raised $200,000 of additional paid-in capital in a
private sale of 40,000 shares of common stock to one of the investors that had
also purchased shares in March 2000. The Company may need to raise additional
funds, however, to fund more rapid expansion, to develop new or enhance existing
services or products, to respond to competitive pressures or to acquire
complementary products, businesses or technologies. If adequate funds are not
available on acceptable terms, the Company's business, results of operation and
financial condition could be materially adversely affected.
FACTORS AFFECTING OPERATING RESULTS
This report on Form 10-QSB contains forward-looking statements which involve
risks and uncertainties. Our actual results could differ materially from those
anticipated by such forward looking statements as a result of certain factors
including those set forth below. You should carefully consider the business
risks described below in connection with evaluation of our business and
prospects. If any of the following risks occur, our results of operation may
have a material adverse impact on the Company's future operation and financial
position. In that case, the trading price of our common stock could decline.
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ABILITY TO RAISE CAPITAL
We currently plan to raise additional capital during calendar year 2000. The
primary purposes for raising capital are to obtain additional equity capital,
create a more active public market for our common stock, and facilitate future
access to public markets. We expect to use the proceeds from any such capital
raising transactions for general corporate purposes, including working capital.
A portion of the proceeds may also be used for the acquisition of businesses
that are complementary to ours. If we do not successfully address the need to
raise capital, our ability to continue to conduct business would be seriously
harmed.
RISKS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF LOSSES AND EXPECT TO INCUR LOSSES IN THE FUTURE
We incurred net losses of $ 306,789 during the nine months ended March 31, 2000.
As of March 31, 2000, we had an accumulated deficit of $ 325,141. We have not
had a profitable quarter and may never achieve profitability. We also expect to
continue to incur increasing sales and marketing, infrastructure development and
general and administrative expenses. As a result, we will need to generate
significant revenues to achieve profitability. If we do achieve profitability,
we may not be able to sustain or increase profitability on a quarterly or annual
basis in the future.
OUR QUARTERLY REVENUES AND OPERATING RESULTS ARE VOLATILE AND MAY CAUSE OUR
STOCK PRICE TO FLUCTUATE
Our quarterly revenues and operating results are volatile and difficult to
predict. It is possible that in some future quarter or quarters our operating
results will be below the expectations of public market analysts or investors.
In such event, the market price of our common stock may decline significantly.
Our quarterly operating results have varied in the past and are likely to vary
significantly from quarter to quarter. As a result, we believe that
period-to-period comparisons of our results of operations are not a good
indication of our future performance. A number of factors are likely to cause
these variations, including:
- - Our ability to obtain new and follow-on client engagements;
- - The amount and timing of expenditures by our clients for eBusiness services;
- - Our ability to attract, train and retain skilled management, strategic,
technical, design, sales, marketing and support professionals;
- - Our employee utilization rate, including our ability to transition employees
quickly to new or other existing engagements;
- - The introduction of new services by us or our competitors;
- - Changes in our pricing policies or those of our competitors;
- - Our ability to manage costs, including personnel costs and support services
costs; and
- - Costs related to opening or expanding Company offices.
We derive all of our revenues from professional services, which we generally
provide on a time and materials basis. Revenues pursuant to time and materials
contracts are generally recognized as services are provided. Since personnel and
related costs constitute the substantial majority of our operating expenses and
since we establish these expenses in advance of any particular quarter,
underutilization of our professional services employees may cause significant
reductions in our operating results for a particular quarter and could result in
losses for such quarter. In addition, we have hired a number of personnel in
core support services, including knowledge management, recruiting, technology
infrastructure and finance and administration, in order to support our
anticipated growth. As a
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result, a significant portion of our operating expenses are fixed in the short
term. Therefore, any failure to generate revenues according to our expectations
in a particular quarter could result in losses or greater than expected losses
for the quarter.
OUR ABILITY TO ATTRACT, TRAIN AND RETAIN QUALIFIED EMPLOYEES IS CRUCIAL TO OUR
RESULTS OF OPERATIONS AND ANY FUTURE GROWTH
Our future success depends in large part on our ability to hire, train and
retain project and engagement managers, technical architects, strategists,
engineers, design professionals, other technical personnel and sales and
marketing professionals of various experience levels. Any inability to hire,
train and retain a sufficient number of qualified employees could hinder the
growth of our business. Skilled personnel are in short supply, and this shortage
is likely to continue for some time. As a result, competition for these people
is intense, and the industry turnover rate for them is high. Consequently, we
may have more difficulty hiring our desired numbers of qualified employees.
Moreover, even if we are able to expand our employee base, the resources
required to attract and retain such employees may adversely affect our operating
margins. In addition, some companies have adopted a strategy of suing or
threatening to sue former employees and their new employers. As we hire new
employees from our current or potential competitors we may become a party to one
or more lawsuits involving the former employment of one or more of our
employees. Any future litigation against us or our employees, regardless of the
outcome, may result in substantial costs and expenses to us and may divert
management's attention away from the operation of our business.
WE DEPEND ON OUR KEY PERSONNEL, AND THE LOSS OF ANY KEY PERSONNEL MAY ADVERSELY
AFFECT OUR BUSINESS
We believe that our success will depend on the continued employment of our key
management and technical personnel. This dependence is particularly important to
our business because personal relationships are a critical element of obtaining
and maintaining client engagements. If one or more of our key management or
technical personnel were unable or unwilling to continue in their present
positions, such persons would be very difficult to replace and our business
could be seriously harmed. Accordingly, the loss of one or more members of our
senior management team could have a direct adverse impact on our future sales.
In addition, if any of these key employees joins a competitor or forms a
competing company, some of our clients might choose to use the services of that
competitor or new company instead of our own. Furthermore, clients or other
companies seeking to develop in-house eBusiness capabilities may hire away some
of our key employees. This would not only result in the loss of key employees
but could also result in the loss of a client relationship or a new business
opportunity. Any losses of client relationships could seriously harm our
business.
WE HAVE A LIMITED OPERATING HISTORY AND A LIMITED NUMBER OF COMPLETED
ENGAGEMENTS THAT MAKE AN EVALUATION OF OUR BUSINESS DIFFICULT
Our limited operating history makes an evaluation of our business and prospects
very difficult. Companies in an early stage of development frequently encounter
enhanced risks and unexpected expenses and difficulties. These risks, expenses
and difficulties apply particularly to us because our market, eBusiness
services, is new and rapidly evolving. Our long-term success will depend on our
ability to achieve satisfactory results for our clients and to form long-term
relationships with core clients. We have not been in operation long enough to
judge whether our clients will perceive our work as being beneficial to their
businesses or to form any long-term business relationships. Also, because of our
limited operating history, our business reputation is based on a limited number
of client engagements. All of our clients have only limited experience with the
electronic business systems we have developed for them. Accordingly, there can
be no assurance that the limited number of electronic business systems we have
implemented will be successful in the longer term. If the electronic business
systems we have implemented are not successful, our brand will be harmed and we
may incur liability to our clients. If one or more of our clients for whom we
have done substantial work suffers a significant failure or setback in its
eBusiness, our business reputation could be severely damaged, whether or not
such failure or setback was caused by our work or was within our control. Our
ability to obtain new engagements, retain clients and recruit and retain
highly-skilled employees
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could be seriously harmed if our work product or our clients' eBusinesses fail
to meet the expectations of our clients.
COMPETITION FROM BIGGER, MORE ESTABLISHED COMPETITORS WHO HAVE GREATER FINANCIAL
RESOURCES OR FROM NEWLY EMERGING COMPETITORS COULD RESULT IN PRICE REDUCTIONS,
REDUCED PROFITABILITY AND LOSS OF MARKET SHARE
Competition in the eBusiness services market is intense. If we fail to compete
successfully against current or future competitors, our business, financial
condition and operating results would be seriously harmed. We compete against
companies selling eBusiness software and services, and the in-house development
efforts of companies seeking to engage in eBusiness. We expect competition to
persist and intensify in the future. We cannot be certain that we will be able
to compete successfully with existing or new competitors.
Because relatively low barriers to entry characterize our market, we also expect
other companies to enter our market. We expect that competition will continue to
intensify and increase in the future. Some large information technology
consulting firms have announced that they have begun to or will soon focus more
resources on eBusiness opportunities. Because we contract with our clients on an
engagement-by-engagement basis, we compete for engagements at each stage of our
methodology. There is no guarantee that we will be retained by our existing or
future clients on later stages of work.
The vast majority of our current competitors have longer operating histories,
larger client bases, larger professional staffs, greater brand recognition and
greater financial, technical, marketing and other resources than we do. This may
place us at a disadvantage in responding to our competitors' pricing strategies,
technological advances, advertising campaigns, strategic partnerships and other
initiatives. In addition, many of our competitors have well-established
relationships with our current and potential clients and have extensive
knowledge of our industry. As a result, our competitors may be able to respond
more quickly to new or emerging technologies and changes in customer
requirements and they may also be able to devote more resources to the
development, promotion and sale of their services than we can. Competitors that
offer more standardized, commoditized or less customized services or products
than we do may have a substantial cost advantage, which could force us to lower
our prices, adversely affecting our operating margins.
Current and potential competitors also have established or may establish
cooperative relationships among themselves or with third parties to increase
their ability to address customer needs. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. In addition, some of our competitors may develop
services that are superior to, or have greater market acceptance than, the
services that we offer.
FAILURE TO MANAGE OUR GROWTH MAY ADVERSELY AFFECT OUR BUSINESS
We expect to grow rapidly both by hiring new employees, making major
acquisitions and serving new business and geographic markets. Our growth has
placed, and will continue to place, a significant strain on our management and
our operating and financial systems.
Our personnel, systems, procedures and controls may be inadequate to support our
future operations. In order to accommodate the increased number of engagements,
number of clients and the increased size of our operations, we will need to
hire, train and retain the appropriate personnel to manage our operations. We
will also need to improve our financial and management controls, reporting
systems and operating systems. We have recently implemented a new enterprise
resource planning software system for human resource functions and some
financial functions.
POTENTIAL ACQUISITIONS COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS,
DILUTE STOCKHOLDER VALUE AND ADVERSELY AFFECT OUR OPERATING RESULTS
We are actively seeking to acquire other businesses in the future. This may
complicate our management tasks. We may need to integrate widely dispersed
operations with distinct corporate cultures. Such integration efforts may not
succeed or may distract our management from servicing existing clients. Our
failure to manage acquisitions
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<PAGE> 15
successfully could seriously harm our operating results. Also, acquisition costs
could cause our quarterly operating results to vary significantly. Furthermore,
our stockholders would be diluted if we finance the acquisitions by issuing
equity or equity-linked securities.
OUR PLANNED INTERNATIONAL OPERATIONS MAY BE EXPENSIVE AND MAY NOT SUCCEED
We have limited experience in marketing, selling and supporting our services in
foreign countries. Development of such skills may be more difficult or take
longer than we anticipate, especially due to language barriers, currency
exchange risks and the fact that the Internet infrastructure in foreign
countries may be less developed than in the United States. In addition, we
believe that our international expansion plans may require us to enter into
strategic relationships with third parties in certain foreign countries. Thus,
our success in these countries will be dependent in part upon the success of
those relationships and the implementation or operation of these arrangements.
We may not establish strategic relationships with third parties in desired time
frames, or at all. Even once these relationships are established, they may fail
to produce desired results. To date, we have not generated significant revenues
from engagements with international clients. We intend to expand our operations
internationally in future periods by opening other international offices,
entering into strategic relationships with a variety of third parties, and
hiring international management, strategic, technical, design, sales, marketing
and support personnel.
We may be unable to successfully market, sell, deliver and support our services
internationally. If we are unable to expand our international operations
successfully and in a timely manner, our business, financial condition and
operating results could be seriously harmed. We will need to devote significant
management and financial resources to our international expansion. In
particular, we will have to attract and retain experienced management,
strategic, technical, design, sales, marketing and support personnel for our
international offices. Competition for such personnel is intense, and we may be
unable to attract and retain qualified staff.
Moreover, international operations are subject to a variety of additional risks
that could seriously harm our financial condition and operating results. These
risks include the following:
- - Problems in collecting accounts receivable;
- - The impact of recessions in economies outside the United States;
- - Longer payment cycles;
- - Fluctuations in currency exchange rates;
- - Restrictions on the import and export of certain sensitive technologies,
including data security and encryption technologies that we may use; and
- - Seasonal reductions in business activity in certain parts of the world, such
as during the summer months in Europe.
WE HAVE RELIED AND EXPECT TO CONTINUE TO RELY ON A LIMITED NUMBER OF CLIENTS FOR
A SIGNIFICANT PORTION OF OUR REVENUES
We currently derive and expect to continue to derive a significant portion of
our revenues from a limited number of clients. To the extent that any
significant client uses less of our services or terminates its relationship with
us, our revenues could decline substantially. As a result, the loss of any
significant client could seriously harm our business, financial condition and
operating results. The volume of work that we perform for a specific client is
likely to vary from period to period, and a significant client in one period may
not use our services in a subsequent period. In addition, all of our current
clients are affiliates of the Company.
OUR LACK OF LONG-TERM CONTRACTS WITH CLIENTS REDUCES THE PREDICTABILITY OF OUR
REVENUES
Our clients retain us on an engagement-by-engagement basis, rather than under
long-term contracts. As a result, our revenues are difficult to predict. Because
we incur costs based on our expectations of future revenues, our failure to
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<PAGE> 16
predict our revenues accurately may seriously harm our financial condition and
results of operations. Although it is our goal to design and build complete
eBusiness systems for our clients, we are frequently retained to design and
build discrete segments of an overall eBusiness system on an
engagement-by-engagement basis. Since large client projects involve multiple
engagements or stages, there is a risk that a client may choose not to retain us
for additional stages of a project or that the client will cancel or delay
additional planned projects. Such cancellations or delays could result from
factors unrelated to our work product or the progress of the project, but could
be related to general business or financial conditions of the client. For
example, many of our current or potential clients that are in the early stages
of development may be unable to retain our services because of financial
constraints. In addition, our existing clients can generally reduce the scope of
or cancel their use of our services without penalty and with little or no
notice. If a client defers, modifies or cancels an engagement or chooses not to
retain us for additional phases of a project, we must be able to rapidly
redeploy our employees to other engagements in order to minimize
underutilization of employees and the resulting harm to our operating results.
Our operating expenses are relatively fixed and cannot be reduced on short
notice to compensate for unanticipated variations in the number or size of
engagements in progress.
WE MAY LOSE MONEY ON FIXED-FEE CONTRACTS
If we miscalculate the resources or time we need to complete engagements with
capped or fixed fees, our operating results could be seriously harmed. The risk
of such miscalculations for us is high because we work with complex technologies
in compressed timeframes, and therefore it is difficult to judge the time and
resources necessary to complete a project. To date, we have generally entered
into contracts with our clients on a time and materials basis, though we
sometimes work on a fixed-fee basis or cap the amount of fees we may invoice on
time and material contracts without client consent.
OUR EFFORTS TO DEVELOP BRAND AWARENESS OF OUR SERVICES MAY NOT BE SUCCESSFUL
An important element of our business strategy is to develop and maintain
widespread awareness of the Digital Bridge brand name. To promote our brand
name, we plan to increase our advertising and marketing expenditures, which may
cause our operating margins to decline. Moreover, our brand may be closely
associated with the business success or failure of some of our high-profile
clients, many of whom are pursuing unproven business models in competitive
markets. As a result, the failure or difficulties of one of our high-profile
clients may damage our brand. If we fail to successfully promote and maintain
our brand name or incur significant related expenses, our operating margins and
our growth may decline.
OUR FAILURE TO MEET CLIENT EXPECTATIONS OR DELIVER ERROR-FREE SERVICES COULD
RESULT IN LOSSES AND NEGATIVE PUBLICITY
Our client engagements involve the creation, implementation and maintenance of
eBusiness systems and other applications that are often critical to our clients'
businesses. Any defects or errors in these applications or failure to meet
clients' expectations could result in:
- - Delayed or lost revenues due to adverse client reaction;
- - Requirements to provide additional services to a client at no charge;
- - Negative publicity regarding us and our services, which could adversely affect
our ability to attract or retain clients; and
- - Claims for substantial damages against us, regardless of our responsibility
for such failure.
Our contracts generally limit our liability for damages that may arise from
negligent acts, errors, mistakes or omissions in rendering services to our
clients. However, we cannot be sure that these contractual provisions will
protect us from liability for damages in the event we are sued. Furthermore, our
general liability insurance coverage may not continue to be available on
reasonable terms or in sufficient amounts to cover one or more large claims, or
16
<PAGE> 17
the insurer may disclaim coverage as to any future claim. The successful
assertion of any such large claim against us could seriously harm our business,
financial condition and operating results.
OUR BUSINESS IS DEPENDENT ON OUR ABILITY TO KEEP PACE WITH TECHNOLOGICAL CHANGES
Our market and the enabling technologies used by our clients are characterized
by rapid technological change. Failure to respond successfully to these
technological developments, or to respond in a timely or cost-effective way,
will result in serious harm to our business and operating results. We have
derived, and we expect to continue to derive, a substantial portion of our
revenues from creating eBusiness systems that are based upon today's leading
technologies and that are capable of adapting to future technologies. As a
result, our success will depend, in part, on our ability to offer services that
keep pace with continuing changes in technology, evolving industry standards and
changing client preferences. In addition, we must hire, train and retain
technologically knowledgeable professionals so that they can fulfill the
increasingly sophisticated needs of our clients.
WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
OR PREVENT INFRINGEMENT CLAIMS AGAINST US
We cannot guarantee that the steps we have taken or will take to protect our
proprietary rights will be adequate to deter misappropriation of our
intellectual property. In addition, we may not be able to detect unauthorized
use of our intellectual property and take appropriate steps to enforce our
rights. If third parties infringe or misappropriate our trade secrets,
copyrights, trademarks or other proprietary information or intellectual
property, our business could be seriously harmed. In addition, although we
believe that our proprietary rights do not infringe the intellectual property
rights of others, other parties may assert infringement claims against us or
claim that we have violated their intellectual property rights. Such claims,
even if not true, could result in significant legal and other costs and may be a
distraction to management. In addition, protection of intellectual property in
many foreign countries is weaker and less reliable than in the United States, so
as our business continues to expand into foreign countries, risks associated
with protecting our intellectual property will increase.
A FEW INDIVIDUALS OWN MUCH OF OUR STOCK
Our directors, executive officers and their affiliates beneficially own, in the
aggregate, approximately 62.5% of our outstanding common stock. As a result,
these stockholders may be able to exercise effective control over all matters
requiring stockholder approval, including the election of directors and approval
of significant corporate transactions, such as acquisitions, and to block an
unsolicited tender offer. Accordingly, this concentration of ownership could
have the effect of delaying or preventing a third party from acquiring control
over us at a premium over the then-current market price of our common stock.
OUR SUCCESS DEPENDS ON INCREASED ADOPTION OF THE INTERNET AS A MEANS FOR
COMMERCE
Our future success depends heavily on the continued use and acceptance of the
Internet as a means for commerce. The widespread acceptance and adoption of the
Internet for conducting business is likely only in the event that the Internet
provides businesses with greater efficiencies and improvements. If commerce on
the Internet does not continue to grow, or grows more slowly than expected, our
growth would decline and our business would be seriously harmed. Consumers and
businesses may reject the Internet as a viable commercial medium for a number of
reasons, including:
- - Potentially inadequate network infrastructure;
- - Delays in the development of Internet enabling technologies and performance
improvements;
- - Delays in the development or adoption of new standards and protocols required
to handle increased levels of Internet activity;
17
<PAGE> 18
- - Delays in the development of security and authentication technology necessary
to effect secure transmission of confidential information;
- - Changes in, or insufficient availability of, telecommunications services to
support the Internet; and
- - Failure of companies to meet their customers' expectations in delivering goods
and services over the Internet.
INCREASING GOVERNMENT REGULATION COULD AFFECT OUR BUSINESS
We are affected not only by regulations applicable to businesses generally, but
also by laws and regulations directly applicable to eBusiness. Although there
are currently few such laws and regulations, both state, federal and foreign
governments may adopt a number of these laws and regulations. Any such
legislation or regulation could dampen the growth of the Internet and decrease
its acceptance as a communications and commercial medium. If such a decline
occurs, companies may decide in the future not to use our services to create an
electronic business channel. This decrease in the demand for our services would
seriously harm our business and operating results.
Any new laws and regulations may govern or restrict any of the following issues:
- - User privacy;
- - The pricing and taxation of goods and services offered over the Internet;
- - The content of websites;
- - Consumer protection; and
- - The characteristics and quality of products and services offered over the
Internet.
RISKS RELATED TO THE SECURITIES MARKETS
WE NEED TO RAISE ADDITIONAL CAPITAL, WHICH MAY NOT BE AVAILABLE
We need to raise additional funds, and we cannot be certain that we will be able
to obtain additional financing on favorable terms or at all. If we need
additional capital and cannot raise it on acceptable terms, we may not be able
to:
- - Open new offices in the United States or internationally;
- - Create additional market-specific business units;
- - Enhance our infrastructure and leveragable assets;
- - Hire, train and retain employees;
- - Respond to competitive pressures or unanticipated requirements; or
- - Pursue acquisition opportunities.
Our failure to do any of these things could seriously harm our financial
condition.
OUR STOCK PRICE IS VOLATILE
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The market price of our publicly traded stock may vary in response to any of the
following factors, some of which are beyond our control:
- - Changes in financial estimates or investment recommendations relating to our
stock by securities analysts;
- - Changes in market valuations of other eBusiness software and service providers
or electronic businesses;
- - Announcements by us or our competitors of significant contracts, acquisitions,
strategic partnerships, joint ventures or capital commitments;
- - Loss of a major client;
- - Additions or departures of key personnel; and
- - Fluctuations in the stock market price and volume of traded shares generally,
especially fluctuations in the traditionally volatile technology sector.
19
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PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During March, 2000 the Company entered into two private stock purchase
agreements whereby it issued 100,000 shares of common stock at the aggregate
price of $500,000 in cash. On April 4, 2000, the Company raised $200,000 of
additional paid-in capital in a private sale of 40,000 shares of common stock to
one of the investors that had also purchased shares in March 2000. These
securities were not registered under the Securities Act of 1933 because their
sale was deemed to be exempt from registration in reliance on Section 4(2) as
transactions by an issuer not involving any public offering. The recipients of
securities in these transactions represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof. All recipients had adequate access, through their
relationships with the Company, to information about the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The exhibits listed on the accompanying Index to Exhibits
immediately following the signature page are filed as part of, or
incorporated by reference into, this Interim Report on Form
10-QSB.
(b) Black Stallion Management, Inc. (a predecessor to the Company),
filed a report on Form 8-K on February 9, 2000 regarding a change
in control of Black Stallion occurring in conjunction with a
transaction between Black Stallion, Digital Bridge, Inc. (not the
Issuer) and shareholders of Digital Bridge, Inc. whereby the
shareholders of Digital Bridge, Inc. exchanged all of their
shares for 20,000,000 shares of the common stock of Black
Stallion.
Digital Bridge, Inc. (the issuer) filed a report on Form 8-K on
March 2, 2000 regarding (i) the change in the Company's name from
Black Stallion Management, Inc. to Digital Bridge, Inc., (ii) the
change in the Company's CUSIP number to 2538G108, and (iii) the
change in the Company's common stock trading symbol to "DGBI".
Digital Bridge, Inc. (the issuer) filed a report on Form 8-K on
April 12, 2000 regarding (i) the change in the Company's
certifying accountant and (ii) the financial statements filed
pursuant to the Company's undertaking to file such financial
statements in its report on Form 8-K on February 9, 2000.
20
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DIGITAL BRIDGE, INC.
/s/ Charles S. Bronitsky
------------------------------------------
By: Charles S. Bronitsky
Its: President and Chief Executive Officer
Date: May 15, 2000
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<PAGE> 22
INDEX TO EXHIBITS
Exhibit No. Description
2.1 Reorganization and Stock Purchase Agreement among Digital
Bridge, Inc. and Black Stallion Management, Inc. and certain
shareholders of Digital Bridge, Inc., effective as of January 28,
2000. (Exhibit 2) (1)
27 Financial Data Schedule
- ------------------------------
(1) Incorporated by reference to the exhibit shown in parenthesis in
the report on Form 8-K filed by Black Stallion Management, Inc.
(a predecessor to the Company) on February 9, 2000
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF DIGITAL BRIDGE, INC. FOR THE QUARTER ENDED MARCH 31,
2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 404,341
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 435,072
<PP&E> 23,128
<DEPRECIATION> 0
<TOTAL-ASSETS> 477,874
<CURRENT-LIABILITIES> 75,423
<BONDS> 0
0
0
<COMMON> 22,280
<OTHER-SE> 380,171
<TOTAL-LIABILITY-AND-EQUITY> 477,874
<SALES> 0
<TOTAL-REVENUES> 462,354
<CGS> 255,070
<TOTAL-COSTS> 255,070
<OTHER-EXPENSES> 514,073
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (306,789)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (306,789)
<EPS-BASIC> (.011)
<EPS-DILUTED> (.011)
</TABLE>
