================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004.
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT
For the transition period from ______________to _______________.
1. Commission File Number 1-16187
THE BLUEBOOK INTERNATIONAL HOLDING COMPANY
(Exact name of Registrant as specified in its charter)
DELAWARE 98-0215787
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
21098 BAKE PARKWAY, SUITE 100, LAKE FOREST, CALIFORNIA 92630-2163
(Address, including zip code, of principal executive offices)
(949) 470-9534
(Registrant's telephone number, including area code)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes |X| No |_|
The number of shares of the Registrant's Common Stock outstanding as of November
15, 2004 was 1,773,281 shares (on post reverse stock split basis).
DOCUMENTS INCORPORATED BY REFERENCE
Transitional Small Business Disclosure Format (Check one): Yes |_| No |X|
================================================================================
THE BLUEBOOK INTERNATIONAL HOLDING COMPANY
QUARTERLY REPORT ON FORM 10-QSB
INDEX
Page
----
PART I. FINANCIAL INFORMATION
- --------
ITEM 1. Financial Statements .................................................................2
Condensed Consolidated Balance Sheets as of September 30, 2004 (Unaudited) and
December 31, 2003......................................................................2
Condensed Consolidated Statements of Operations for the Three and Nine Months
Ended September 30, 2004 and 2003 (Unaudited)..........................................3
Condensed Consolidated Statements of Cash Flows for the Three and Nine Months
Ended September 30, 2004 and 2003 (Unaudited)..........................................4
Notes to Condensed Consolidated Financial Statements (Unaudited).......................6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................................11
ITEM 3. Controls and Procedures...............................................................18
PART II. OTHER INFORMATION
- --------
ITEM 1. Legal Proceedings.....................................................................18
ITEM 2. Changes in Securities.................................................................18
ITEM 6. Exhibits and Reports on Form 8-K......................................................18
Signatures.......................................................................................................19
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE BLUEBOOK INTERNATIONAL HOLDING COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2004 2003
(unaudited)
----------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 136,326 $ 44,831
Accounts receivable, net of allowance for doubtful accounts
of $4,600 as of September 30, 2004 and December 31, 2003 19,797 26,798
Prepaid expenses and other 29,940 10,000
----------- -----------
Total current assets 186,063 81,629
----------- -----------
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $180,653 and $148,546 in 2004 and 2003, respectively 72,927 98,064
----------- -----------
OTHER ASSETS
Program development costs, net of accumulated amortization
of $529,946 and $423,759, in 2004 and 2003, respectively 4,083,528 3,777,200
Intangible assets, net of accumulated amortization
of $26,891 and $19,836, in 2004 and 2003, respectively 17,831 24,885
Deferred stock offering costs 230,000 --
Other assets 5,296 5,017
----------- -----------
Total other assets 4,336,655 3,807,102
----------- -----------
TOTAL ASSETS $ 4,595,645 $ 3,986,795
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,571,628 $ 1,063,013
Due to stockholders and related parties 959,986 484,688
Deferred revenue 92,175 241,084
Notes payable 547,500 --
Notes payable to related parties 157,700 205,000
----------- -----------
Total current liabilities 3,328,989 1,993,785
----------- -----------
OTHER LIABILITIES
Series C Convertible Preferred Stock, $.001 par value,
5,316,704 shares issued and outstanding, subject
to mandatory redemption -- 4,544,680
----------- -----------
COMMITMENTS & CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY)
Series B Convertible Preferred Stock, $.0001 par value; 5,000,000
shares authorized, 2,050 shares issued and outstanding -- --
Common Stock, $.0001 par value; 150,000,000 shares authorized;
1,770,281 and 1,436,671 shares issued and outstanding as of
September 30, 2004 and December 31, 2003, respectively 177 143
Additional paid in capital 5,235,543 599,467
Accumulated deficit (3,969,064) (3,151,280)
----------- -----------
Total stockholders' equity (deficiency) 1,266,656 (2,551,670)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) $ 4,595,645 $ 3,986,795
=========== ===========
See accompanying Notes to Condensed Consolidated Financial Statements
2
THE BLUEBOOK INTERNATIONAL HOLDING COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------------- --------------------------
2004 2003 2004 2003
(unaudited) (unaudited) (unaudited) (unaudited)
----------- ----------- ----------- -----------
SALES, net $ 123,325 $ 215,234 $ 547,857 $ 536,963
----------- ----------- ----------- -----------
OPERATING EXPENSES
Selling, general and administrative expenses 504,489 469,013 1,191,235 1,680,982
Depreciation and amortization expenses 42,967 62,089 145,348 185,832
----------- ----------- ----------- -----------
Total Operating Expenses 547,456 531,102 1,336,583 1,866,814
----------- ----------- ----------- -----------
OTHER EXPENSE
Interest expense 11,060 3,131 29,058 8,095
----------- ----------- ----------- -----------
Total Other Expense 11,060 3,131 29,058 8,095
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (435,191) (318,999) (817,784) (1,337,946)
INCOME TAX EXPENSE -- -- -- 800
----------- ----------- ----------- -----------
NET LOSS $ (435,191) $ (318,999) $ (817,784) $(1,338,746)
=========== =========== =========== ===========
Weighted average number of shares of
common stock outstanding, basic and diluted 1,708,154 1,436,671 1,578,855 1,436,671
=========== =========== =========== ===========
Loss per share, basic and diluted $ (0.25) $ (0.22) $ (0.52) $ (0.93)
=========== =========== =========== ===========
See accompanying Notes to Condensed Consolidated Financial Statements
3
THE BLUEBOOK INTERNATIONAL HOLDING COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED)
COMMON STOCK PREFERRED STOCK ADDITIONAL
-------------------------- ------------------------- PAID IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 2003 1,436,671 $ 143 2,050 $ -- $ 599,467 $(3,151,280) $(2,551,670)
Conversion of Series C
Preferred Stock 265,835 27 4,544,653 4,544,680
Issuance of stock in settlement
of accounts payable 57,775 6 83,924 83,930
Issuance of stock in partial
settlement of note payable 10,000 1 7,499 7,500
Net loss for the nine months
ended September 30, 2004 (817,784) (817,784)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, September 30, 2004
(unaudited) 1,770,281 $ 176 2,050 $ -- $ 5,235,543 $(3,969,064) $ 1,266,656
=========== =========== =========== =========== =========== =========== ===========
See accompanying Notes to Condensed Consolidated Financial Statements
4
THE BLUEBOOK INTERNATIONAL HOLDING COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
2004 2003
(unaudited) (unaudited)
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (817,784) $(1,338,746)
Adjustment to reconcile net loss to net cash provided by (used in)
operating activities
Depreciation and amortization 145,348 185,832
Changes in operating assets and liabilities:
Decrease in Accounts receivable 7,001 11,496
Increase in Prepaid expenses and other (29,940) (45,779)
Increase in Other assets (279)
Increase in Accounts payable and accrued expenses 372,545 85,614
Increase in Due to stockholders and related party 475,298 105,725
Decrease in Deferred revenue (148,909) (23,400)
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 3,280 (1,019,258)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (6,970) (58,746)
Program development costs (412,515) (525,732)
Purchase of intangible assets -- (1,500)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (419,485) (585,978)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Note payable 547,500 115,000
Note payable due to related party (39,800) --
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 507,700 115,000
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 91,495 (1,490,236)
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD 44,831 1,528,773
----------- -----------
CASH AND CASH EQUIVALENTS, END OF THE PERIOD $ 136,326 $ 38,537
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 17,498 $ 4,964
=========== ===========
NON CASH INVESTING AND FINANCING ACTIVITIES:
Conversion of Series C Preferred Stock $ 4,544,680 $ --
=========== ===========
Issuance of stock in settlement of accounts payable $ 83,930 $ --
=========== ===========
Issuance of stock in settlement of notes payable $ 7,500 $ --
=========== ===========
Deferred financing costs included in accounts payable $ 230,000 $ --
=========== ===========
See accompanying Notes to Condensed Consolidated Financial Statements
5
THE BLUEBOOK INTERNATIONAL HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2004
1. BASIS OF PRESENTATION
The accompanying interim condensed consolidated financial statements are
unaudited, but in the opinion of management of The Bluebook International
Holding Company (Bluebook or the Company), contain all adjustments, which
include normal recurring adjustments, necessary to present fairly the financial
position at September 30, 2004, the results of operations for the three and nine
months ended September 30, 2004 and 2003, and cash flows for the three and nine
months ended September 30, 2004 and 2003. The balance sheet as of December 31,
2003 is derived from the Company's audited financial statements.
Certain information and footnote disclosures normally included in financial
statements that have been prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission, although management of
the Company believes that the disclosures contained in these financial
statements are adequate to make the information presented therein not
misleading. For further information, refer to the financial statements and the
notes thereto included in the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2003, as filed with the Securities and Exchange
Commission on May 19, 2004.
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, disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
The results of operations for the nine months ended September 30, 2004 are not
necessarily indicative of the results of operations to be expected for the full
fiscal year ending December 31, 2004.
Recent Accounting Pronouncement
In March 2004, the U.S. Securities and Exchange Commission's Office of the Chief
Accountant and the Division of Corporate Finance released Staff Accounting
bulletin ("SAB") No. 105, "Loan Commitments Accounted for as Derivative
Instruments". This bulletin contains specific guidance on the inputs to a
valuation-recognition model to measure loan commitments accounted for at fair
value, and requires that fair-value measurement include only differences between
the guaranteed interest rate in the loan commitment and market interest rate,
excluding any expected future cash flows related to the customer relationship or
loan servicing. In addition, SAB105 requires the disclosure of the accounting
policy for loan commitments, including methods and assumptions used to estimate
the fair value of loan commitments, and any associated hedging strategies. SAB
105 is effective for derivative instruments entered into subsequent to March 31,
2004 and should also be applied to existing instruments as appropriate.
The Company has not yet completed its evaluation of SAB 105, but does not
anticipate a material impact on the financial statements.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150
establishes standards for how an issuer classifies and measures in its statement
of financial position certain financial instruments with characteristics of both
liabilities and equity. SFAS No. 150 requires that an issuer classify a
financial instrument that is within its scope as a liability (or an asset in
some circumstances) because that financial instrument embodies an obligation of
the issuer. SFAS No. 150 is effective for financial instruments entered into or
modified after May 31, 2003 and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. SFAS No. 150 is to be
implemented by reporting the cumulative effect of a change in accounting
principle for financial instruments created before the issuance date of SFAS No.
150 and still existing at the beginning of the interim period of adoption.
Restatement is not permitted. The Company does not expect that the adoption of
SFAS No. 150 will have a significant effect on the Company's financial statement
presentation or disclosures.
6
In January 2003, (as revised in December 2003) The Financial Accounting
Standards Board ("FASB") issued Interpretation No. 46, "Consolidation of
Variable Interest Entities", an interpretation of Accounting Research Bulletin
("ARB") No. 51, "Consolidated Financial Statements". Interpretation No. 46
addresses consolidation by business enterprises of variable interest entities,
which have one or both of the following characteristics: (i) the equity
investment at risk is not sufficient to permit the entity to finance its
activities without additional subordinated support from other parties, which is
provided through other interest that will absorb some or all of the expected
losses of the entity; (ii) the equity investors lack one or more of the
following essential characteristics of a controlling financial interest: the
direct or indirect ability to make decisions about the entities activities
through voting rights or similar rights; or the obligation to absorb the
expected losses of the entity if they occur, which makes it possible for the
entity to finance its activities; the right to receive the expected residual
returns of the entity if they occur, which is the compensation for the risk of
absorbing the expected losses.
Interpretation No. 46, as revised, also requires expanded disclosures by the
primary beneficiary (as defined) of a variable interest entity and by an
enterprise that holds a significant variable interest in a variable interest
entity but is not the primary beneficiary.
Interpretation No. 46, as revised, applies to small business issuers no later
than the end of the first reporting period that ends after December 15, 2004.
This effective date includes those entities to which Interpretation 46 had
previously been applied. However, prior to the required application of
Interpretation No. 46, a public entity that is a small business issuer shall
apply Interpretation 46 or this Interpretation to those entities that are
considered to be special-purpose entities no later than as of the end of the
first reporting period that ends after December 15, 2003
Interpretation No. 46 may be applied prospectively with a cumulative-effect
adjustment as of the date on which it is first applied or by restating
previously issued financial statements for one or more years with a
cumulative-effect adjustment as of the beginning of the first year restated.
2. BUSINESS ACTIVITY
The Company was incorporated in Delaware on December 17, 1997. Since the
Company's exchange reorganization and merger, effective as of October 1, 2001,
the principal business of the Company has been developing and selling
information and a claims estimating software solution. THE BLUEBOOK is a book
and is printed in both a desktop and pocket sized format. The BLUEBOOK contains
average unit costs pricing for residential structures that is utilized
specifically within the insurance, construction and related industries. B.E.S.T.
is an estimating software solution for use on a computer that integrates the
BLUEBOOK data to automate the calculations and many processes that are involved
in creating repair and replacement cost estimates.
The Company has recently completed development of InsureBase and its Insured to
Value Solutions. These systems are designed to assist the insurance industry in
identifying replacement costs of residential structures necessary to calculate
and maintain premiums for homeowners in the United States. The Company recently
began its sales and increased its marketing of these solutions and has recently
completed a sale. The Company continues to work with many other prospects.
The Company's B.E.S.T.Net and B.E.S.T.Central are claims and vendor management
solutions that were designed to assist in the facilitation of insurance claims
information in a near paperless environment. The product has recently been
substantially completed and the Company is currently constructing an enhanced
interface between B.E.S.T.Central and the tie-in with B.E.S.T.7.
3. LOSS PER COMMON SHARE
Basic loss per share is calculated by dividing net loss available to common
stockholders by the weighted average number of common shares outstanding during
the year. Diluted earnings per share is calculated assuming the issuance of
common shares, if dilutive, resulting from the exercise of stock options and
warrants. As the Company has no outstanding options or warrants, basic and
diluted loss per share are the same for the periods ended September 30, 2004 and
2003.
7
4. DEFERRED STOCK OFFERING COSTS
During the nine months ended September 30, 2004, the Company capitalized and
accrued $230,000 of deferred stock offering costs. This amount represents fee
for services rendered by a consulting firm related to conducting due diligence,
the strategic positioning of the Company and their role in assisting the Company
in negotiating with the proposed investors, including their assistance in
advising the Company with respect to the development of materials presented to
such investors. Such stock offering of $2.2 million dollars was closed on
November 19, 2004 and the costs will be charged off as a cost of acquiring
capital from a private placement (see note 9).
5. NOTES PAYABLE
On March 31, 2004, the Company entered into a loan agreement for $120,000. The
loan bears interest at the rate of 10% per annum, and is due on April 1, 2005.
Interest is payable on the first of each month. The loan is secured by the
Company's accounts receivable, tax refunds, deposit accounts, and cash and cash
equivalents. If this collateral is insufficient to secure the loan, the loan is
also secured by the shares of the Company's common stock held by the Company's
chief executive officer, Mark A. Josipovich. The loan is subject to certain
preservation of corporate status covenants which the Company was in compliance
with as of September 30, 2004.
On August 13, 2004, the Company received $427,500 in financing from an investor.
The Company issued a convertible promissory note to the investor in exchange for
the $427,500. The note has a term of one year, bears interest of 10% per annum
and is convertible into common stock of the Company during the five-day period
(but not at any other time) following the purchase of common stock of the
Company by an institutional investor. The number of shares into which the note
may be converted shall be determined by dividing the total amount of
indebtedness on the note including interest as the date of conversion by the
price per share at which the institutional investor purchased shares of the
Company's common stock. On November 19, 2004, subsequent to the closing of the
Securities Purchase Agreement, this promissory note and its accrued interest
were converted into 418,074 shares of the Company's common stock (see note 9).
6. CAPITAL STOCK
Pursuant to a Settlement Agreement with Cotelligent, on May 6, 2004, the Company
issued 265,835 unregistered shares of its Common Stock and cancelled 265,835
shares of Series C Convertible Redeemable Preferred Stock. As a result of this
conversion, the Company's stockholders' deficiency was reduced by $4,544,680.
In September 2004, the Company issued 57,775 Rule 144 shares of the Company's
common stock as settlement of $83,930 debt to certain consultants and employees.
In September 2004 the Company issued 10,000 Rule 144 shares of the Company's
common stock as a partial payment to a loan from a related party (See note 7).
On November 17, 2004, the Company effected a one-for-twenty reverse stock split.
All share and per share amounts have been retro-actively restated as if the
reverse split occurred as of the beginning of the period.
7. RELATED PARTY TRANSACTIONS
The amount due to stockholders and related parties consists of accrued salaries
and consulting fees payable to our president and chief executive officer, Mark
Josipovich, our chief operating officer, Daniel T. Josipovich, and relatives of
the president and chief operating officer of the Company.
Notes payable to related parties consist of; a note payable in the amount of
$135,200, secured by the Company's assets, bears an interest rate of 8% and due
on December 1, 2004, and; a note payable due July 15, 2005 which maybe extended
at the sole discretion of the lender, in the amount of $30,000 of which $7,500
has been converted into 10,000 Rule 144 shares of the Company's common stock in
September 2004. (See note 6)
8
In October 2004, these related parties signed agreements to convert $946,287 of
the debt into 1,261,716 Rule 144 shares of the Company's common stock (See note
9).
During the nine months ended September 30, 2004, the Company incurred consulting
fees of $112,500 that were accrued to a relative of the president and chief
operating officer of the Company and is included in due to stockholders and
related parties as of September 30, 2004.
8. CONTINGENCIES
Litigation
As a general matter, we are subject to various legal proceedings, claims,
and litigation that arise in the normal course of our business. While the
outcome of these matters is currently not determinable, we do not expect
that the ultimate costs to resolve these matters will have a material
adverse effect on our financial position, results of operations, or cash
flows.
On February 3, 2003, Bluebook was named a defendant in Morris Diamond, et
al. v. The Bluebook International Holding Company, New York Supreme Court,
Monroe County Case No. 1204/03. The Diamond case was recently settled by
the Company and the plaintiffs. In the Diamond case, plaintiffs alleged
that Bluebook wrongfully withheld the issuance and delivery of plaintiffs'
Bluebook shares of common stock, thereby damaging plaintiffs in the loss
of the value of their Bluebook stock. On November 10, 2004, the Company
and the plaintiffs entered into a settlement agreement pursuant to which
all parties agreed to a general release of their claims and the Company
agreed to pay $64,120 and issue 3,000 shares of its common stock to
certain of the plaintiffs. As of September 30, 2004 the amount of
settlement has been accrued and reflected in accounts payable. The Company
valued the shares at $0.07 per share.
Consulting agreement
In August 2004, the Company engaged an investment banking firm to act as a
financial advisor and placement agent. Upon successful placement, the
Company agreed to pay up to 8% of the gross proceeds received from the
sale of securities and reimburse its out-of-pocket expenses up to $20,000.
Furthermore, upon the closing of an offering, the Company agreed to grant
the firm warrants for the purchase of an amount equal to 8% of the
securities issued in the offering. The warrants are exercisable for cash
or on a cashless basis into securities similar to those issued as part of
the offering, having a strike price equal to 110% of the offering price
and have a term of five years.
Office lease agreement
In September 2004, the Company entered into a new lease agreement for the
office space that currently being occupied by the Company. The lease will
expire in September 2005 at which time may be extended for renewal in
successive one year terms.
9. SUBSEQUENT EVENTS
In October 2004, the Company increased its number of authorized shares of Common
Stock from 50,000,000 to 150,000,000 shares. The Company also received
conversion notices from the holders of 2,050 shares of Series B Convertible
Preferred Stock. Pursuant to the terms of the Series B Convertible Preferred
Stock, the Company is obligated to issue 2,733,333 shares of Common Stock. The
Company has also agreed to settle $1,040,874 of debts owed to certain members of
the Company's management and stockholders through the issuance of 1,387,833
shares of Rule 144 Common Stock at the same price per share as the Series B
Convertible Preferred Stock conversion price. The Company agreed to assume full
responsibility for all taxes and expenses related to the transaction. The
Company also agreed to convert $230,000 of accrued deferred stock offering costs
into 306,667 shares of its common stock. Following the conversion of Series B
Convertible Preferred Stock and the settlement of debts, the Company authorized
a one-for-twenty reverse stock split. Following the reverse stock split and the
effect of these transactions, the Company will have approximately 6,211,113
shares of Common Stock outstanding. The reverse stock split was effective
November 17, 2004. All share and per share amounts herein have been
retroactively restated to show effect of reverse stock split as if it occurred
at beginning of the period. NASDAQ has issued to the Company a new CUSIP number
and trading symbol of BBKH formerly BBIC.
9
On October 2004, the Company entered into a consulting agreement with a
consultant to perform capital formation which includes but is not limited to
strategic identification, analysis and solicitation of sources of capital from
private and institutional investors and negotiating the financings through
closed funding and corporate development which includes but is not limited to
organizational and systems development, creative growth planning, facilitation
of strategic partnerships, products and revenue planning, and enhancement,
strategic marketing and sales, and identifying acquisitions and acquirers. For
these services the Company agreed to pay a monthly fee of $10,000, payable upon
a certain minimum funding amount which is arranged by the consultant, bi-monthly
in advance, and commission up to 5% of the financing received and 1.5%
commission from certain Bluebook products only, stemming from new customers for
revenues solely sourced and secured by the consultant.
On November 2004, the Company agreed to issue 10,000 shares of the Company's
Rule 144 common stock to a consultant as a settlement of $10,000 consulting
fees.
On November 12, 2004, the Company entered into a Securities Purchase Agreement
(the "Securities Purchase Agreement") between the Company and the accredited
investors party thereto. The Securities Purchase Agreement provides for the
purchase and sale of an aggregate amount of 2,131,033 shares of Common Stock of
the Company at a price of $1.05 per share and warrants to purchase an aggregate
of 426,206 shares of Common Stock for an aggregate consideration of $2,237,585.
The warrants have a term of five years and an exercise price of $1.31 per share.
The transactions contemplated by the Securities Purchase Agreement closed on
November 19, 2004. In connection with the Securities Purchase Agreement, the
Company and the investors entered into a Registration Rights Agreement, dated as
of November 17, 2004 (the "Registration Rights Agreement"), pursuant to which
Company has agreed to file a registration statement (the "Registration
Statement") covering the resale of the securities issued pursuant to the
Securities Purchase Agreement.
Also in connection with the Securities Purchase Agreement, the Company entered
into a Lock-Up Agreement with certain of its stockholders, dated as of November
17, 2004, pursuant to which such stockholders have agreed not to sell or dispose
of Company securities owned by them for a period of 90 trading days following
the date on which the registration statement is declared effective by the
Securities and Exchange Commission (the "SEC"). In addition, the Company will
issue to the investment banking firm, 170,483 warrants that are exercisable for
cash or on a cashless basis into securities similar to those issued as part of
the offering, having a strike price equal to 110% of the offering price with a
term of five years.
Upon completion of the private placement and effectiveness of the reverse stock
split, there will approximately 8.7 million basic shares outstanding and 9.3
million shares fully diluted.
On November 2004, the Company entered into a consulting agreement with an
unrelated party. This consultant will act as general corporate development
consultants, which duties include but are not limited to advising the CEO of the
Company concerning management, marketing, consulting, strategic planning,
corporate organization and structure matters in connection with the operation of
the business, expansion of services, and other business opportunities. As
consideration, the Company will pay a monthly fee of $5,000 which will accrue
from October 15, 2004 and become payable from and after the date on which the
Company close a financing or series of financings with gross proceeds of at
least $2,000,000.
From July to September 2004, the Company received services from the same
unrelated party related to the capital structure of the Company and its need for
financing, and services relating to constructing the financial due-diligence
that was believed necessary to obtain funding for the Company. The unrelated
party assisted in the development of due diligence materials for the purposes of
presenting the Company to potential strategic partners and investors. Pursuant
to the consulting agreement entered into November 2004, the Company agreed to
pay a fee of $230,000 for these prior services rendered by this consultant. (See
note 4). This fee will be paid in non-assessable shares of the Company common
stock for a total of 306,667 shares. Immediately upon execution of this
agreement, the Company agreed to file with the Securities and Exchange
Commission (SEC) a registration statement on Form S-8. The consultant agreed
that they will be restricted from selling certain of the Engagement Shares for a
period of up to one year as follows:
10
50% of the shares No restriction
25% of the shares April 8, 2005
25% of the shares October 8, 2005
The term of the agreement is one year from the date of the agreement provided
that the term shall automatically renew for successive three months period,
unless either party notifies the other of the termination of this agreement not
less than thirty days prior to expiry.
On November 19, 2004, subsequent to the closing of the Securities Purchase
Agreement, the Company converted the $427,500 promissory note and its accrued
interest of $11,478 into 418,074 shares of the Company's common stock (see note
5).
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This Quarterly Report on Form 10-QSB (Quarterly Report) contains forward-looking
statements. These forward-looking statements include predictions regarding our
future:
o revenues and profits;
o customers;
o strategic partners;
o research and development expenses;
o sales and marketing expenses;
o general and administrative expenses;
o liquidity and sufficiency of existing cash;
o technology, products and software solutions;
o the outcome of pending or threatened litigation; and
o the effect of recent accounting pronouncements on our financial
condition and results of operations.
You can identify these and other forward-looking statements by the use of words
such as "may," "expects," "anticipates," "believes," "estimates," or the
negative of such terms, or other comparable terminology. Forward-looking
statements also include the assumptions underlying or relating to any of the
foregoing statements.
Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including those set
forth below under the heading "Risk Factors." All forward-looking statements
included in this document are based on information available to us on the date
hereof. We assume no obligation to update any forward-looking statements.
The following information should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
Consolidated Financial Statements and notes thereto included in Item 1 of this
Quarterly Report, and with Management's Discussion and Analysis and the
Consolidated Financial Statements and notes thereto contained in our Annual
Report on Form 10-KSB filed with the SEC on May 19, 2003.
RESULTS OF OPERATION
THREE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2003
Revenues. Our revenues are derived primarily from sales of our B.E.S.T.
software solutions and information delivered primarily in the form of THE
BLUEBOOK. Net revenues for the three months ended September 30, 2004 decreased
by $91,909 or 43% to $123,325 compared with net revenues of $215,234 for the
three months ended September 30, 2003. The decrease in revenue resulted from us
having limited cash to spend on sales and marketing. We expect revenue to
increase in the fourth quarter as we increase our sales and marketing efforts
and continue sales of our InsureBase and Insured to Value solutions and sales of
THE BLUEBOOK and our B.E.S.T. software solution.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $35,476 or 8% to $504,489 for the three
months ended September 30, 2004 compared to $469,013 for the three months ended
September 30, 2003. This increase is due primarily to an increase in consulting,
legal and other professional expenses including litigation and reporting
obligations. We expect selling, general and administrative expenses to increase
in the near future as we plan to hire new professionals and increase sales and
marketing
11
Depreciation and Amortization. Depreciation and amortization for the three
months ended September 30, 2004 decreased by $19,122 or 31% to $42,967 compared
to $62,089 for the three months ended September 30, 2003. This decrease was
primarily because of an asset being fully amortized in the first quarter of
2004.
Interest Expense. Interest expense for the three months ended September
30, 2004 increased by $7,929 or 253% to $11,060 compared to $3,131 for the three
months ended September 30, 2003. This increase was primarily due to an increase
in notes payable.
Net Loss. For the three months ended September 30, 2004, we had a net loss
of $435,191 or $0.25 per share, compared with a net loss of $318,999 or $0.22
per share for the three months ended September 30, 2003. The increase in net
loss for the three months ended September 30, 2004 is primarily attributable to
a change in timing or elimination of certain advertising and marketing programs
due to lack of funds.
NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2003
Revenues. Our revenues are derived primarily from sales of our B.E.S.T.
software solutions and THE BLUEBOOK. Net revenues for the nine months ended
September 30, 2004 increased by $10,894 or 2% to $547,857 compared with net
revenues of $536,963 for the nine months ended September 30, 2003. The increase
in revenue resulted primarily from a change in estimate for the sales life of
the B.E.S.T. 7 product. The decrease in revenue resulted from the company having
limited cash to spend on sales and marketing. We expect revenue to increase in
the fourth quarter as we commence sales on our InsureBase and Insured to Value
solutions and continue sales of THE BLUEBOOK and our B.E.S.T. software solution.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by $489,747 or 29% to $1,191,235 for the nine
months ended September 30, 2004 compared to $1,680,982 for the nine months ended
September 30, 2003. This decrease is due primarily to a reduction in the
workforce, decrease in legal, accounting, and other professional expenses
associated with the development and marketing of new software, preparation of
business plan, litigation and reporting obligations. We expect selling, general
and administrative expenses to increase in the near future as we plan to hire
new sales professionals, increase marketing and complete corporate
restructuring.
Depreciation and Amortization. Depreciation and amortization for the nine
months ended September 30, 2004 decreased by $40,484 or 22% to $145,348 compared
to $185,832 for the nine months ended September 30, 2003. This decrease was
primarily due to some of the assets being fully amortized in the first quarter
2004.
Interest Expense. Interest expense for the nine months ended September 30,
2004 increased by $20,963 or 259% to $29,058 compared to $8,095 for the nine
months ended September 30, 2003. This increase was primarily due to an increase
in notes payable.
Net Loss. For the nine months ended September 30, 2004, we had a net loss
of $817,784 or $0.52 per share, compared with a net loss of $1,338,746 or $0.93
per share for the nine months ended September 30, 2003. The decrease in net loss
for the nine months ended September 30, 2004 is primarily attributable to
decreased general and administrative expenses and depreciation and amortization.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2004, we had cash of $136,326, net working capital
deficiency of $3.1 million and an accumulated deficit of $3.97 million.
Our 2004 operations and investment activities have been funded primarily
through sales, loans from related and non-related parties and cash existing at
December 31, 2003. We have no material commitments for capital expenditures as
of September 30, 2004.
12
We recently obtained commitments from a private placement offering of $2.2
million dollars that closed on November 19, 2004.
Our business plan projects a positive cash flow from operations and
positive net earnings in fiscal year 2005. However, the company will incur
additional software development costs associated with implementation and
deployment of its software and additional improvements and enhancement to its
technology during the course of its business. Although we expect the customer to
reimburse costs associated with the delivery of our solutions, in some cases,
the terms of reimbursement may be included as part of the product per
transaction fee, monthly payment, at terms extended up to 120 days or may be
included as part of the sale of the software.
If we exceed our current development and sales efforts of InsureBASE,
B.E.S.T.Net and B.E.S.T.Central, or if we meet our projected sales targets of
B.E.S.T. and Insure to Value, we believe we will have sufficient working capital
from these sales to fund operations going forward.
We may, in the future, need to raise additional working capital.
If these sales are delayed or fall short of our expectations, we will need
to raise additional capital to meet this shortfall. If we were not successful in
raising sufficient additional working capital, we may need to reduce operating
expenses through reductions in sales and development personnel and take other
steps to restructure our operations. Although we do not expect to incur a
significant adverse impact on sales and development of our Bluebook and
estimating solutions, current products and services from such cost reductions,
our development of additional products and other services would likely be
adversely affected or suspended altogether.
Net cash provided from operating activities was $3,280 during the nine
months ended September 30, 2004 and net cash used for operating activities was
$1,019,258 for the same period in 2003. This increase in net cash from operating
activities was primarily due to an increase in revenue, a decrease in legal and
accounting expenses and a decrease in salary expenses.
Net cash flows used in investing activities was $419,485 for the nine
months ended September 30, 2004 and $585,978 for the same period in 2003. The
decrease in cash used for investing activities was primarily due to the
completion of software solutions and the reduction in development of new
software solutions.
Net cash flows provided from financing activities was $507,700 for the
nine months ended September 30, 2004 and $115,000 for the same period in 2003.
The increase in cash provided from financing activities was primarily due to
additional borrowings.
Any projections of future cash needs and cash flows are subject to
substantial uncertainty. Our primary short-term needs for capital are our
product development efforts, our sales, marketing and administrative activities,
working capital associated with increased sales of our solutions, and capital
expenditures relating to maintaining and developing our operations. Our future
liquidity and capital requirements will depend on numerous factors, including
the extent to which our present and future solutions gain market acceptance, the
extent to which products, solutions or technologies under development are
successfully developed, the costs and timing of expansion of sales, marketing
and manufacturing activities, the cost, the procurement and enforcement of
intellectual property rights important to our business and the results of
competition.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of financial condition and results of
operations is based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these Consolidated Financial Statements and related
disclosures requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosures
of contingent assets and liabilities. We evaluate, on an on-going basis, our
estimates and judgments, including those related to the useful life of the
assets and deferred revenue. We base our estimates on historical experience and
assumptions that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
13
The methods, estimates and judgments we use in applying our most critical
accounting policies have a significant impact on the results that we report in
our Consolidated Financial Statements. The SEC considers an entity's most
critical accounting policies to be those policies that are both most important
to the portrayal of a company's financial condition and results of operations
and those that require management's most difficult, subjective or complex
judgments, often as a result of the need to make estimates about matters that
are inherently uncertain at the time of estimation. We believe the following
critical accounting policies, among others, require significant judgments and
estimates used in the preparation of our Consolidated Financial Statements:
o Revenue recognition; and
o Computer software to be sold, leased or otherwise marketed
We account for internally developed and purchased software in program
development costs in accordance with Statement of Financial Accounting Standard
No. 86 (SFAS No. 86), "Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed." The capitalization of computer software begins
upon the establishment of technological feasibility of the product, which we
have defined as the completion of beta testing of a working product. Costs of
purchased computer software that has no alternative future use is accounted for
in the same manner as the costs incurred to internally develop such software.
Costs of purchased computer software are capitalized and accounted for in
accordance with its use. Capitalized costs include only (1) external direct
costs of material and services consumed in developing or obtaining internal-use
software, and (2) payroll and payroll-related costs for employees who are
directly associated with and who devote time to the internal-use software
project. Capitalization of such costs ceases no later than the point at which
the project is substantially complete and ready for its intended purpose.
Research and development costs and other computer software maintenance
costs related to software development are expensed as incurred. Software
development costs are amortized using the straight-line method over the expected
life of the product.
We regularly review the carrying value of software and development to
determine if there has been an impairment loss that needs to be recognized.
Revenue is recognized when earned. Our revenue recognition policies for
our existing revenues are in compliance with American Institute of Certified
Accountants Statements of Position 97-2 and 98-4, "Software Revenue
Recognition." Revenue from sales of The Bluebook and other ancillary products is
recorded when the products are shipped. Revenue from the sale of a license
agreement is recognized ratably on a straight-line basis over the product's life
cycle. Certain contracts specify separate fees for the software and the ongoing
fees for maintenance and other support. If sufficient verifiable objective
evidence of the fair value of each element of the arrangement exists, the
elements of the contract are unbundled and the revenue for each element is
recognized as appropriate. Revenue received or receivable in advance of
performance of services is deferred and included in deferred revenue.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 2004, the U.S. Securities and Exchange Commission's Office of the
Chief Accountant and the Division of Corporate Finance released Staff Accounting
bulletin ("SAB") No. 105, "Loan Commitments Accounted for as Derivative
Instruments". This bulletin contains specific guidance on the inputs to a
valuation-recognition model to measure loan commitments accounted for at fair
value, and requires that fair-value measurement include only differences between
the guaranteed interest rate in the loan commitment and market interest rate,
excluding any expected future cash flows related to the customer relationship or
loan servicing. In addition, SAB105 requires the disclosure of the accounting
policy for loan commitments, including methods and assumptions used to estimate
the fair value of loan commitments, and any associated hedging strategies. SAB
105 is effective for derivative instruments entered into subsequent to March 31,
2004 and should also be applied to existing instruments as appropriate.
The Company has not yet completed its evaluation of SAB 105, but does not
anticipate a material impact on the financial statements.
14
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity. SFAS
No. 150 establishes standards for how an issuer classifies and measures in its
statement of financial position certain financial instruments with
characteristics of both liabilities and equity. SFAS No. 150 requires that an
issuer classify a financial instrument that is within its scope as a liability
(or an asset in some circumstances) because that financial instrument embodies
an obligation of the issuer. SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003 and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. SFAS No.
150 is to be implemented by reporting the cumulative effect of a change in
accounting principle for financial instruments created before the issuance date
of SFAS No. 150 and still existing at the beginning of the interim period of
adoption. Restatement is not permitted. The Company does not expect that the
adoption of SFAS No. 150 will have a significant effect on the Company's
financial statement presentation or disclosures.
In January 2003, (as revised in December 2003) The Financial Accounting
Standards Board ("FASB") issued Interpretation No. 46, "Consolidation of
Variable Interest Entities", an interpretation of Accounting Research Bulletin
("ARB") No. 51, "Consolidated Financial Statements". Interpretation No. 46
addresses consolidation by business enterprises of variable interest entities,
which have one or both of the following characteristics: (i) the equity
investment at risk is not sufficient to permit the entity to finance its
activities without additional subordinated support from other parties, which is
provided through other interest that will absorb some or all of the expected
losses of the entity; (ii) the equity investors lack one or more of the
following essential characteristics of a controlling financial interest: the
direct or indirect ability to make decisions about the entities activities
through voting rights or similar rights; or the obligation to absorb the
expected losses of the entity if they occur, which makes it possible for the
entity to finance its activities; the right to receive the expected residual
returns of the entity if they occur, which is the compensation for the risk of
absorbing the expected losses.
Interpretation No. 46, as revised, also requires expanded disclosures by
the primary beneficiary (as defined) of a variable interest entity and by an
enterprise that holds a significant variable interest in a variable interest
entity but is not the primary beneficiary.
Interpretation No. 46, as revised, applies to small business issuers no
later than the end of the first reporting period that ends after December 15,
2004. This effective date includes those entities to which Interpretation 46 had
previously been applied. However, prior to the required application of
Interpretation No. 46, a public entity that is a small business issuer shall
apply Interpretation 46 or this Interpretation to those entities that are
considered to be special-purpose entities no later than as of the end of the
first reporting period that ends after December 15, 2003.
Interpretation No. 46 may be applied prospectively with a
cumulative-effect adjustment as of the date on which it is first applied or by
restating previously issued financial statements for one or more years with a
cumulative-effect adjustment as of the beginning of the first year restated.
RISK FACTORS
WE ANTICIPATE FUTURE LOSSES AND MAY NOT BE ABLE TO ACHIEVE SUSTAINED
PROFITABILITY.
We have incurred net losses in recent years and, as of September 30, 2004,
we had an accumulated deficit of $3.97 million. We anticipate that we will
continue to incur additional operating losses in the near term. These losses
have resulted principally from expenses incurred in research and development and
from sales and marketing and general and administrative expenses. Even though we
expect to achieve profitability, we may not be able to sustain or increase
profitability on a quarterly or annual basis. If we cannot achieve or sustain
profitability for an interim period, we may not be able to fund our expected
cash needs or continue our operations.
WE MAY NEED ADDITIONAL CAPITAL AND ANY REQUIRED CAPITAL MAY NOT BE
AVAILABLE ON ACCEPTABLE TERMS OR AT ALL.
As of September 30, 2004, our cash may not have been sufficient to fund
our operations through 2004. As a result, we raised additional capital or pursue
alternative strategies.
Our 2004 internal financial projections and strategic plan, indicates that
our available cash, together with cash from operations and funding from our
recently completed private placement on November 19, 2004 of $2.2 million
dollars may be sufficient to fund our operations through the fourth quarter of
2005 without reductions in our workforce. This plan assumes that we can control
current estimated costs of: new hires, professional services and consulting,
negotiate the terms of existing and new debts, reduce reporting costs and the
current negative cash flow from operations.
15
Our actual results may differ from this plan, and we may be required to
consider alternative strategies and may need to raise additional funds through
one or more of the following: (1) sale of various products, solutions or
marketing rights; (2) licensing of technology; and (3) sale of equity and debt
securities. If we cannot raise the additional funds through these options on
acceptable terms or with the necessary timing, management could also reduce
discretionary spending to decrease our cash burn rate and extend the currently
available cash.
Additional capital may not be available on acceptable terms, if at all.
The public markets may remain unreceptive to equity financings, and we may not
be able to obtain additional private equity financing. Furthermore, any
additional equity financing would likely be dilutive to stockholders, and
additional debt financing, if available, may include restrictive covenants which
may limit our currently planned operations and strategies. If adequate funds are
not available, we may be required to curtail our operations significantly and
reduce discretionary spending to extend the currently available cash resources,
or to obtain funds by entering into collaborative agreements or other
arrangements on unfavorable terms, all of which would likely have a material
adverse effect on our business, financial condition and our ability to continue
as a going concern.
FACTORS BEYOND OUR CONTROL MAY CAUSE OUR OPERATING RESULTS TO FLUCTUATE,
AND THIS FLUCTUATION COULD CAUSE OUR STOCK PRICE TO DECLINE.
We believe that our future operating results will fluctuate on a quarterly
basis due to a variety of factors, including:
o the introduction of new products or solutions by us or by our
competitors;
o our distribution strategy and our ability to maintain or expand
relationships with our existing user base and strategic partners;
o market acceptance of our current or new products or solutions; and
o competition and pricing pressures from competitive products or
solutions.
We have high operating expenses for personnel, new product development and
marketing. If any of the factors listed above cause our revenues to decline, our
operating results could be substantially harmed.
WE EXPECT TO EXPERIENCE VOLATILITY IN OUR STOCK PRICE, WHICH MAY AFFECT
OUR ABILITY TO RAISE CAPITAL IN THE FUTURE OR MAKE IT DIFFICULT FOR INVESTORS TO
SELL THEIR SHARES.
The securities markets have experienced significant price and volume
fluctuations and the market prices of securities of many public technology
companies have in the past been, and can in the future be expected to be,
especially volatile. Fluctuations in the trading price or liquidity of our
common stock may adversely affect our ability to raise capital through future
equity financings. Factors that may have a significant impact on the market
price and marketability of our common stock include:
o announcements of technological innovations or new products or
solutions by us or by our competitors;
o our operating results;
o developments in our relationships with strategic partners;
o litigation;
o economic and other external factors; and
o general market conditions.
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted. If a securities class action suit is filed against us, we would
incur substantial legal fees and our management's attention and resources would
be diverted from operating our business in order to respond to the litigation.
WE DEPEND ON KEY PERSONNEL FOR OUR FUTURE SUCCESS. IF WE LOSE OUR KEY
PERSONNEL OR ARE UNABLE TO ATTRACT AND RETAIN ADDITIONAL PERSONNEL, WE MAY BE
UNABLE TO ACHIEVE OUR GOALS.
16
Our future success is substantially dependent on the efforts of our
management team, particularly Mark A. Josipovich, our Chairman and Chief
Executive Officer, and Daniel T. Josipovich, our Chief Operating Officer. The
loss of the services of members of our management may significantly delay or
prevent the achievement of product development and other business objectives.
Because of the specialized technical nature of our business, we depend
substantially on our ability to attract and retain qualified technical
personnel. There is intense competition among technology companies for qualified
personnel in the areas of our activities. Although we have employment agreements
with Mark A. Josipovich and Daniel T. Josipovich, each is an at-will employee,
which means that either party may terminate the employment at any time. If we
lose the services of, or fail to recruit, key technical personnel, the growth of
our business could be substantially impaired. We do not maintain life insurance
for any of our key personnel.
WE HAVE LIMITED RESOURCES TO DEVOTE TO SOFTWARE DEVELOPMENT AND
COMMERCIALIZATION. IF WE ARE NOT ABLE TO DEVOTE ADEQUATE RESOURCES TO SOFTWARE
DEVELOPMENT AND COMMERCIALIZATION, WE MAY NOT BE ABLE TO DEVELOP OUR SOLUTIONS.
Our strategy is to develop software solutions addressing claims
management. We believe that our revenue growth and profitability, if any, will
substantially depend upon our ability to:
o improve market acceptance of our current solutions;
o complete development of new solutions; and
o successfully introduce and commercialize new solutions.
We have introduced some of our software solutions only recently and some
of our solutions are still under phased deployment and development. Among our
recently introduced solutions are B.E.S.T.7, InsureBase and Insured to Value.
Although development of our B.E.S.T.Net solution is substantially complete, we
currently have under development an interface between B.E.S.T.Net,
B.E.S.T.Central and B.E.S.T.7. Because we have limited resources to devote to
product development and commercialization, any delay in the development of one
solution or reallocation of resources to solutions development efforts that
prove unsuccessful may delay or jeopardize the development of our other product
candidates. If we fail to develop new products and bring them to market, our
ability to generate additional revenue will decrease.
In addition, our solutions may not achieve satisfactory market acceptance,
and we may not successfully commercialize them on a timely basis, or at all. If
our products do not achieve a significant level of market acceptance, demand for
our products will not develop as expected.
WE OPERATE IN A HIGHLY COMPETITIVE INDUSTRY, WHICH COULD RENDER OUR
PRODUCTS OBSOLETE OR SUBSTANTIALLY LIMIT THE VOLUME OF PRODUCTS THAT WE SELL.
THIS WOULD LIMIT OUR ABILITY TO COMPETE AND ACHIEVE PROFITABILITY.
Our competitors may develop or market technologies or products that are
more effective or commercially attractive than our current or future products or
that would render our technologies and products obsolete. Further, additional
competition could come from new entrants to the claims management market.
Moreover, we may not have the financial resources, technical expertise or
marketing, distribution or support capabilities to compete successfully. If we
fail to compete successfully, our ability to achieve sustained profitability
will be limited.
WE MAY BE UNABLE TO SUCCESSFULLY MARKET AND DISTRIBUTE OUR PRODUCTS AND
IMPLEMENT OUR DISTRIBUTION STRATEGY.
The market for claims management solutions is highly fragmented. We market
and sell our products primarily through the mail, conventions and the Internet.
We may not successfully develop and maintain marketing, distribution or sales
capabilities. If our marketing and distribution strategy is unsuccessful, our
ability to sell our products will be negatively impacted and our revenues will
decrease.
WE MAY FACE COSTLY INTELLECTUAL PROPERTY DISPUTES.
Although we do not expect to be subject to any intellectual property
disputes, we may be subject to such claims. Our ability to compete effectively
will depend in part on our ability to develop and maintain proprietary aspects
of our technology and either to operate without infringing the proprietary
rights of others or to obtain rights to technology owned by third parties. We
rely on trade secrets, technical know-how and continuing invention to develop
and maintain our competitive position. Others may independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to our trade secrets.
WE MAY FACE COSTLY INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS.
17
Although we do not expect to be subject to intellectual property
infringement claims and litigation, we may be subject to such claims. The
defense of intellectual property suits, proceedings, and related legal and
administrative proceedings are costly, time-consuming and distracting. We may
also need to pursue litigation to protect trade secrets or know-how owned by us,
or to determine the enforceability, scope and validity of the proprietary rights
of others. Any litigation will result in substantial expense to us and
significant diversion of the efforts of our technical and management personnel.
Any adverse determination in litigation could subject us to significant
liabilities to third parties. Further, as a result of litigation or other
proceedings, we may be required to seek licenses from third parties that may not
be available on commercially reasonable terms, if at all.
ITEM 3. CONTROLS AND PROCEDURES
An evaluation as of the end of the period covered by this report was
carried out under the supervision and with the participation of our management,
including our Chief Executive Officer and Principal Accounting Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer
and Principal Accounting Officer concluded that those disclosure controls and
procedures were adequate to ensure that information required to be disclosed by
us in the reports that we file or submit under the Exchange Act are recorded,
processed, summarized and reported, within the time periods specified in the
Commission's rules and forms.
There was no change in our internal control over financial reporting
during the period covered by this report that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 3, 2003, Bluebook was named a defendant in Morris
Diamond, et al. v. The Bluebook International Holding Company, New York
Supreme Court, Monroe County Case No. 1204/03. The Diamond case was
recently settled by the Company and the plaintiffs. In the Diamond case,
plaintiffs alleged that Bluebook wrongfully withheld the issuance and
delivery of plaintiffs' Bluebook shares of common stock, thereby damaging
plaintiffs in the loss of the value of their Bluebook stock. On November
10, 2004, the Company and the plaintiffs entered into a settlement
agreement pursuant to which all parties agreed to a general release of
their claims and the Company agreed to pay $64,120 and issue 3,000 shares
of common stock to certain of the plaintiffs.
ITEM 2. CHANGES IN SECURITIES
In September 2004, the Company issued 57,775 Rule 144 shares of the
Company's common stock as settlement of $83,930 debt to certain consultants and
employees. The Company also issued 10,000 Rule 144 shares of the Company's
common stock as partial payment of a loan from a related party.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Number Description
10.4 Convertible Promissory Note Purchase Agreement made as of
August 13, 2004 between the Company and Christopher Albrick
(together with Convertible Promissory Note)
18
10.5 Engagement Letter dated August 19, 2004 between the Company
and Roth Capital Partners, LLC
31 Certification of Chief Executive Officer and Principal
Accounting Officer of Periodic Report Pursuant to Rule
13(a)-15(e) or Rule 15d-15(e).
32 Certification of Chief Executive Officer and Principal
Accounting Officer of Periodic Report Pursuant to 18 U.S.C.
Section 1350.
(b) Reports on Form 8-K.
Current Report on Form 8-K filed on August 17, 2004
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on Form 10-QSB to be signed on its behalf
by the undersigned hereunto duly authorized.
THE BLUEBOOK INTERNATIONAL HOLDING COMPANY
Date: November 22, 2004 By: /s/ Mark A. Josipovich
-------------------------------------------
Mark A. Josipovich, Chief Executive Officer
and Principal Accounting Officer
19