As filed with the Securities and Exchange Commission on January 6, 2005
Registration Statement No. 333-_________
UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
THE BLUEBOOK INTERNATIONAL HOLDING COMPANY
(Name of small business issuer in its charter)
Delaware 7372 98-0215787
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification No.)
21098 Bake Parkway, Suite 100
Lake Forest, CA 92630-2163
(949) 470-9534
(Address and telephone number of principal executive offices and principal
place of business)
-----------------
Mark A. Josipovich
Chairman of the Board, Chief Executive Officer, President, and Treasurer
The Bluebook International Holding Company
21098 Bake Parkway, Suite 100
Lake Forest, CA 92630-2163
(949) 470-9534
(Name, address and telephone number of agent for service)
Copies to:
Cary K. Hyden, Esq.
Latham & Watkins LLP
650 Town Center Drive, 20th Floor
Costa Mesa, California 92626-1925
Telephone: (714) 540-1235
Facsimile No. (714) 755-8290
Approximate date of proposed sale to the public: from time to time after
the registration statement becomes effective.
If any of the securities being registered on this form are to be offered
on a delayed on continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. |X|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, please
check the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c)
Under tile Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. |_|
CALCULATION OF REGISTRATION FEE
======================== ======================= ===================== ======================= ======================
Title of Each Class of Proposed Maximum Proposed Maximum Amount of
Securities Amount to be Offering Price Aggregate Registration Fee
to be Registered Registered(1) Per Share Offering Price
- ------------------------ ----------------------- --------------------- ----------------------- ----------------------
Common stock, par 2,131,033 shares $5.01(2) $10,676,475 $1,257
value $.0001 per share
- ------------------------ ----------------------- --------------------- ----------------------- ----------------------
Common stock, par 426,206 shares (3) $5.01(4) $ 2,135,292 $ 251
value $.0001 per
share, issuable upon
exercise of warrants
- ------------------------ ----------------------- --------------------- ----------------------- ----------------------
Total 2,557,239 shares $5.01 $12,811,767 $1,508
======================== ======================= ===================== ======================= ======================
(1) All 2,557,239 shares registered pursuant to this registration statement are
to be offered by the selling stockholders. Pursuant to Rule 416 under the
Securities Act, this registration statement also covers such number of
additional shares of common stock to prevent dilution resulting from stock
splits, stock dividends or similar events, or as a result of anti-dilution
provisions contained in the warrants.
(2) Estimated solely for purposes of calculating the amount of the registration
fee in accordance with Rule 457(c) under the Securities Act of 1933 based on the
average of the high and low sales prices of the Registrant's common stock on the
OTC Bulletin Board on January 3, 2005, which was approximately $5.01.
(3) Represents the shares of common stock issuable upon the exercise of warrants
held by the selling stockholders.
(4) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(g) under the Securities Act.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the registration statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
Subject to completion dated January 6, 2005
Prospectus
Up to 2,557,239 Shares of Common Stock
The Bluebook International Holding Company
This prospectus relates to the sale of up to an aggregate of 2,557,239 shares of
the common stock of The Bluebook International Holding Company which may be
offered by the selling stockholders identified in this prospectus for their own
account. Of such shares, 2,131,033 shares were outstanding as of January 6,
2005 and 426,206 shares are issuable upon exercise of warrants that we have
issued to the selling stockholders.
We will not receive any proceeds from the sale of the shares by these selling
stockholders. We may, however, receive proceeds in the event that some or all of
the warrants held by the selling stockholders are exercised, assuming applicable
cashless exercise provisions are not used. We are paying the expenses incurred
in registering the shares.
The shares of common stock being offered pursuant to this prospectus and the
shares issuable upon exercise of the warrants issued to the selling stockholders
are "restricted securities" under the Securities Act of 1933, as amended (the
"Securities Act"), before their sale under this prospectus. This prospectus has
been prepared for the purpose of registering these shares under the Securities
Act to allow for a sale by the selling stockholders to the public without
restriction. The selling stockholders and the participating brokers or dealers
may be deemed to be an "underwriter" within the meaning of the Securities Act,
in which event any profit on the sale of shares by the selling stockholders, and
any commissions or discounts received by the brokers or dealers, may be deemed
to be underwriting compensation under the Securities Act.
Our common stock is quoted on the OTC Bulletin Board under the symbol "BBKH." On
January 3, 2005, the last reported closing price of our common stock on the OTC
Bulletin Board was $5.01 per share.
Investing in our common stock involves a high degree of risk. Please carefully
consider the "Risk Factors" beginning on Page 8 of this prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED ON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is , 2005
- --------------------------------------------------------------------------------
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED WITHOUT
NOTICE. THE SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES, AND THE
SELLING STOCKHOLDERS ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN ANY
STATE WHERE THE OFFER OR SALE OF THESE SECURITIES IS NOT PERMITTED
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING INFORMATION.........................................................5
PROSPECTUS SUMMARY.............................................................................................5
RISK FACTORS...................................................................................................8
USE OF PROCEEDS...............................................................................................11
SELLING STOCKHOLDERS..........................................................................................11
PLAN OF DISTRIBUTION..........................................................................................14
LEGAL PROCEEDINGS.............................................................................................15
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS..................................................15
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................................16
DESCRIPTION OF SECURITIES.....................................................................................17
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT VIOLATIONS............................18
BUSINESS .....................................................................................................18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.........................23
PROPERTIES....................................................................................................30
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................................31
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS......................................................32
EXECUTIVE COMPENSATION........................................................................................32
LEGAL MATTERS.................................................................................................33
EXPERTS ......................................................................................................33
WHERE YOU CAN FIND MORE INFORMATION...........................................................................33
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus. You should
not rely on any unauthorized information. This prospectus does not offer to sell
or buy any shares in any jurisdiction in which it is unlawful. The information
in this prospectus is only current as of the date on the cover. You should rely
only on the information contained in this prospectus.
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING INFORMATION
Some of the information in this prospectus may contain "forward-looking
statements," within the meaning of the Federal Private Securities Litigation
Reform Act of 1995. These statements call be identified by the use of
forward-looking words such as "may," "will," "expect," "anticipate," "estimate,"
"continue" or other similar words. These statements discuss plans, goals and
objectives for future operations and growth, contain projections of results of
operations or financial condition or state other "forward-looking" information.
You should understand that these forward-looking statements are estimates
reflecting our judgment, not guarantees of future performance. They are subject
to a number of assumptions, risks and uncertainties that could cause actual
results to differ materially from those expressed or implied in the
forward-looking statements. The following important factors, in addition to
those discussed in "Risk Factors" and other unforeseen events or circumstances,
could affect our future results and could cause those results or other outcomes
to differ materially from those expressed or implied in our forward-looking
statements: general economic conditions; competition; our ability to control
costs; changes within our industries; release of new and upgraded products and
services by us or our competitors; development of our sales force; employee
retention; managerial execution; legal and regulatory issues; changes in
accounting policies or practices; and successful adoption of our products and
services.
Accordingly, you should not place undue reliance on forward-looking
statements, which speak only as of the date of this prospectus. All subsequent
written and oral forward-looking statements attributable to us or any person
acting on our behalf are expressly qualified in their entirety by the cautionary
statements contained or referred to in this section. We do not undertake any
obligation to release publicly any revisions to these forward-looking statements
to reflect events or circumstances after the date of this prospectus or to
reflect the occurrence of unanticipated events.
PROSPECTUS SUMMARY
The following summary highlights the key information contained elsewhere
in this prospectus. It does not contain all the information that may be
important to you. You should read this entire prospectus carefully, especially
the discussion of "Risk Factors" and our consolidated financial statements and
related notes, before deciding to invest in shares of our common stock. Unless
the context indicates otherwise, the terms "the Company," "we," "us," "our," or
"Bluebook" in this prospectus refer to The Bluebook International Holding
Company ("Bluebook Holding") and our wholly-owned subsidiary, The Bluebook
International, Inc., a Nevada corporation ("Bluebook International").
The Company
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. These include THE
BLUEBOOK, which is a book and is printed in both a desktop and pocket sized
format, and "B.E.S.T." (Bluebook Estimating Software Technology), which
incorporated THE BLUEBOOK's proprietary database into a software program that
assists an estimator in creating, cleaning, repair and replacement cost
estimates for residential structures. THE BLUEBOOK has an estimated readership
of many thousands of readers and is widely known and utilized by professionals
in the insurance repair, construction and related industries that create cost
estimates for residential and light commercial structures.
We believe our software solutions will help insurers, contractors and
related industry professionals, shorten the time in which it takes to estimate
and finalize an insurance claim by delivering data electronically to the
intended and required participants involved in the settlement of a claim or the
construction of a cleaning, repair or replacement cost estimate. Our solutions
were designed to more accurately price, process and manage the claims process.
We believe that the future market for underwriting and claims management
solutions will be lead by the providers of products that simplify the management
of this process and significantly reduce the risk of costly claims litigation
from a failure to comply with mandated regulatory deadlines imposed on insurers
and delays in claims settlements from the inability to readily access required
claims information. Therefore, our initiatives are aimed at making it easier for
insurers, vendors, policyholders, adjusters and contractors to communicate,
access claims information and mitigate risk.
5
Our mailing address and executive offices are located at 21098 Bake
Parkway, Suite 100, Lake Forest, California 92630-2163. Our telephone number is
(949) 470-9534. Our corporate website is www.bluebook.net. Information contained
on the website is not a part of this prospectus.
6
The Offering
Common stock offered by the selling Up to 2,557,239 shares, assuming
stockholders (including shares full exercise of the warrants. This
underlying the warrants) number represents approximately 27.8% of
our common stock to be outstanding after
the offering, assuming full exercise of
the warrants. (1)
Terms of the Offering The selling stockholders will determine
when and how they will sell the common
stock offered by this prospectus. See
"Plan of Distribution."
Proceeds to Bluebook We will not receive any proceeds from
the sale of the shares by these selling
stockholders, however, if all warrants
are fully exercised without using any
applicable cashless exercise provisions,
we will receive approximately $559,395
in cash from the warrant holders.
Use of proceeds If any proceeds are received, they will
be used for general corporate purposes,
including working capital.
OTC Bulletin Board Symbol BBKH
(1) Based on 9,186,354 shares of common stock to be outstanding after the
offering, which (i) includes warrants to purchase 426,206 shares of common stock
that we issued to the selling stockholders pursuant to those certain Warrants
dated as of November 17, 2004 and that are being registered hereunder for
resale, but (ii) excludes (A) a warrant to purchase 170,483 shares of common
stock that we issued to our placement agent, Roth Capital Partners, LLC,
pursuant to that certain Warrant dated as of November 17, 2004 and (B) a warrant
to purchase 90,000 shares of common stock that may be issued to a consultant as
a bonus payment, neither of which are being registered hereunder for resale.
Summary Consolidated Financial Information
The summary financial information set forth below is derived from and
should be read in conjunction with our consolidated financial statements,
including the notes thereto, appearing elsewhere in this prospectus.
Nine Months Ended
Year Ended September 30,
December 31, (Unaudited)
--------------------------- ---------------------------
2002 2003 2003 2004
----------- ----------- ----------- -----------
Statement of Operations Data
Net sales $ 859,205 $ 705,657 $ 536,963 $ 547,857
Gross profit 859,205 705,657 536,963 547,857
Loss from operations (1,003,938) (1,560,129) (1,337,946) (817,784)
Net Loss $(1,003,938) $(1,560,129) $(1,338,746) $ (817,784)
Loss per share, basic and diluted $ (0.57) $ (1.09) $ (0.93) (0.52)
Weighted average number of shares
of common stock outstanding,
basic and diluted 1,749,171 1,437,171 1,436,671 1,578,855
Nine Months Ended
Year Ended September 30,
December 31, (Unaudited)
--------------------------- ---------------------------
2002 2003 2003 2004
----------- ----------- ----------- -----------
Balance Sheet Data
Current assets $ 1,631,325 $ 81,629 $ 175,372 $ 186,063
Current liabilities 1,256,301 1,993,785 1,644,780 3,328,989
Total assets 4,914,980 3,986,795 3,859,173 4,595,645
Long-term liabilities 4,650,220 4,544,680 4,544,680 0
Minority interest 0 0 0 0
Stockholders' equity $ (991,541) $(2,551,670) $(2,330,287) $(1,266,656)
7
RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should carefully consider the risks described below, as well as other
information contained in this prospectus, before investing in our common stock.
Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also affect our business operations. If any of
these risks occur, our business could suffer, the market price of our common
stock could decline and you could lose all or part of your investment in our
common stock.
Risks Related to Our Business
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 was not sufficient to fund our
operations through 2004. As a result, we raised additional capital through a
corporate restructuring and a private placement of shares of our common stock.
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 third quarter of
2005 without reductions in our workforce. This plan assumes that we can control
current estimated costs relating to new hires, professional services and
consulting, negotiating the terms of existing and new debts, and the costs of
ongoing operations.
However, 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:
8
o the introduction of new products by our competitors;
o our ability to implement and maintain our distributions strategy, and
maintain or expand relationships with our existing user base and strategic
partners;
o market acceptance of our current or new products;
o competition and pricing pressures from competitive products; and
o increased 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. For example, in 2003 our closing stock price ranged from a
low of $0.20 to a high of $22.00, and in 2004 our closing stock price ranged
from a low of $0.80 to a high of $8.00. These stock prices have been
retroactively stated to reflect the 1 for 20 reverse stock split declared on
November 17, 2004. 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 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.
Our future success is substantially dependent on the efforts of our
management team, particularly Mark A. Josipovich, our Chairman of the Board,
Chief Executive Officer, President, and Treasurer, and Daniel T. Josipovich, our
Chief Operating Officer and Director. Mark A. Josipovich and Daniel T.
Josipovich may terminate their employment at any time. 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 also
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. If we lose the services of, or fail to
recruit additional key technical personnel, the growth of our business could be
substantially impaired. We do not maintain life insurance for any of our key
personnel.
9
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 underwriting and
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 InsureBASE and Insured to Value. Although
development of our B.E.S.T.Net and B.E.S.T.Central solutions are substantially
complete, we are still in the process of developing an interface between
B.E.S.T.Net, B.E.S.T.Central and B.E.S.T.8. 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 be able to 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 our 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 proprietary information and techniques 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.
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.
10
Our principal stockholders have substantial control over our affairs.
The Josipovich family, collectively, beneficially owns 5,100,050 shares
of common stock, which is 58.22% of the total number of shares of common stock
currently issued and outstanding. The Josipovich family has the ability to exert
substantial influence over all matters submitted to a vote of the stockholders
of Bluebook, including the election and removal of directors and any merger,
consolidation or sale of all or substantially all of our assets. In addition,
they can dictate the management of our business and affairs. This concentration
of ownership could have the effect of delaying, deferring or preventing a change
in control or impeding a merger or consolidation, takeover or other business
combination which you, as a stockholder, may otherwise view favorably and which
may have a negative impact on the price of our common stock.
Future sales of our common stock may adversely affect our common stock
price.
If our stockholders sell a large number of shares of common stock or if
we issue a large number of shares in connection with future acquisitions or
financings, the market price of our common stock could decline significantly. In
addition, the perception in the public market that our stockholders might sell a
large number of shares of common stock could cause a decline in the market price
of our common stock.
Our certificate of incorporation and Delaware law could adversely affect
our common stock price.
Provisions of our certificate of incorporation and Delaware law could
discourage potential acquisition proposals and could delay or prevent a change
in control of us. We are subject to the anti-takeover provisions of Section 203
of the Delaware corporate statute, which regulates corporate acquisitions.
Section 203 may affect the ability of an "interested stockholder" to engage in
certain business combinations, including mergers, consolidation or acquisitions
of additional shares, for a period of three years following the time that the
stockholder becomes an "interested stockholder." An "interested stockholder is
defined to include a person owning directly or indirectly 15% or more of the
outstanding voting stock of a corporation. These provisions could discourage
potential acquisition proposals and could delay or prevent a change in control
transaction. They could also have the effect of discouraging others from making
tender offers for our common stock. In addition, the Board of Directors, without
further stockholder approval, may issue additional series of preferred stock
that could have the effect of delaying, deterring or preventing a change in
control of us. The issuance of additional series of preferred stock could also
adversely affect the voting power of the holders of common stock, including the
loss of voting control to others.
USE OF PROCEEDS
This prospectus relates to 2,557,239 shares of our common stock, which
may be sold from time to time by the selling stockholders. We will not receive
any part of the proceeds from the sale of common stock by the selling
stockholders. If all 426,206 warrants being issued for resale hereunder are
fully exercised without using any applicable cashless exercise provisions, we
will receive approximately $559,395 in cash from the warrant holders. Any
proceeds received by us from the exercise of the warrants will be used by us for
general corporate purposes, including working capital.
SELLING STOCKHOLDERS
This prospectus covers the offer and sale by the selling stockholders of
up to 2,131,033 shares of common stock and an additional 426,206 shares of
common stock issuable upon exercise of outstanding warrants. All of these
warrants have an exercise price of $1.31 per share.
We are registering for resale shares issued by us in a private placement
and shares issuable on exercise of warrants issued by us in a private placement.
All such shares issued or to be issued are and will be restricted securities as
that term is defined in Rule 144 under the Securities Act, and will remain
restricted unless and until such shares are sold pursuant to this prospectus or
otherwise are sold in compliance with Rule 144.
None of the selling stockholders had a material relationship with us
within the past three years.
In the securities purchase agreement, each of the selling stockholders
represented that it had acquired the shares for investment purposes only and
with no present intention of distributing those shares, except in compliance
with all applicable securities laws. In addition, each selling stockholder
represented that each qualified as an "accredited investor" as such term in
defined in Rule 501 under the Securities Act.
11
The following table sets forth information with respect to the number of
shares of common stock beneficially owned by the selling stockholders named
below as of January 6, 2005 and as adjusted to give effect to the sale of the
shares offered by this prospectus. The information in the table below is current
as of the date of this prospectus. The selling stockholders may from time to
time offer and sell pursuant to this prospectus any or all of the common stock
being registered.
The number of shares in the column labeled "No. of Shares Offered"
represents all of the shares that each selling stockholder may offer under this
prospectus. The table assumes that the selling stockholders will sell all of the
shares. We are unable to determine the exact number of shares that actually will
be sold. We do not know how long the selling stockholders will hold the shares
before selling them and we currently have no agreements, arrangements or
understandings with any of the selling stockholders regarding the sale of any of
the shares.
We determined beneficial ownership in accordance with Rule 13d-3 of the
Securities Exchange Act of 1934, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under such rule,
beneficial ownership includes any shares as to which the selling stockholder has
sole or shared voting power or investment power and also any shares the selling
stockholder has the right to acquire within 60 days. Percentages are based on a
total of 8,760,148 shares of common stock outstanding on January 6, 2005. Shares
of common stock subject to options and warrants currently exercisable or
convertible, or exercisable or convertible within 60 days of January 6, 2005,
are deemed outstanding for computing the percentage of the selling stockholder
holding such option or warrant but are not deemed outstanding for computing the
percentage of any other selling stockholder. To prevent dilution to the selling
stockholders, the following numbers may change because of stock splits, stock
dividends or similar events involving our common stock; or as a result of
anti-dilution provisions contained in the warrants.
No. of Shares Offered
hereby (includes
stock underlying Shares Beneficially
warrants) Owned Prior to the Shares Beneficially Owned
Offering After the Offering
--------------------------- -------------------------
NAME Number Percentage Number Percentage
- --------------------------------------- ------ ----------------------- ------------ -------------- ----------- -------------
Roaring Fork Capital (1) 840,000 840,000 9.44% 0 0
SBIC, L.P.
MicroCapital Fund LP (2) 516,000 516,000 5.83% 0 0
MicroCapital Fund Ltd. (3) 318,000 318,000 3.61% 0 0
Presidio Partners (4) 148,571 148,571 1.69% 0 0
Geary Partners L.P. (5) 107,429 107,429 1.22% 0 0
Brady Retirement Fund (6) 29,714 29,714 0.34% 0 0
L.P.
BTG Investments, LLC (7) 285,600 285,600 3.24% 0 0
Margaret M. Bathgate (8) 114,285 114,285 1.30% 0 0
Banc of America (9) 68,520 68,520 0.78% 0 0
Securities F/B/O
Stephen J. Hutsko IRA
Joseph Paul (10) 54,000 54,000 0.62% 0 0
Schimmelpfennig
Gordan J. Roth (11) 28,560 314,160 3.56% 0 0
John J. Weber (12) 28,560 28,560 0.33% 0 0
Jeffrey M. Ng (13) 18,000 18,000 0.21% 0 0
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(1) Includes stock underlying a warrant to purchase 140,000 shares of
common stock at an exercise price of $1.31 per share.
(2) Includes stock underlying a warrant to purchase 86,000 shares of
common stock at an exercise price of $1.31 per share.
(3) Includes stock underlying a warrant to purchase 53,000 shares of
common stock at an exercise price of $1.31 per share.
(4) Includes stock underlying a warrant to purchase 24,762 shares of
common stock at an exercise price of $1.31 per share.
(5) Includes stock underlying a warrant to purchase 17,905 shares of
common stock at an exercise price of $1.31 per share.
(6) Includes stock underlying a warrant to purchase 4,952 shares of
common stock at an exercise price of $1.31 per share.
(7) Includes stock underlying a warrant to purchase 47,600 shares of
common stock at an exercise price of $1.31 per share. This selling stockholder
has identified itself as an affiliate of a broker-dealer. Please see "Plan of
Distribution" for required disclosure regarding selling stockholders that are
affiliates of a broker-dealer.
(8) Includes stock underlying a warrant to purchase 19,047 shares of
common stock at an exercise price of $1.31 per share. This selling stockholder
has identified herself as an affiliate of a broker-dealer. Please see "Plan of
Distribution" for required disclosure regarding selling stockholders that are
affiliates of a broker-dealer.
(9) Includes stock underlying a warrant to purchase 11,420 shares of
common stock at an exercise price of $1.31 per share. This selling stockholder
has identified himself as an affiliate of a broker-dealer. Please see "Plan of
Distribution" for required disclosure regarding selling stockholders that are
affiliates of a broker-dealer.
(10) Includes stock underlying a warrant to purchase 9,000 shares of
common stock at an exercise price of $1.31 per share. This selling stockholder
has identified himself as an affiliate of a broker-dealer. Please see "Plan of
Distribution" for required disclosure regarding selling stockholders that are
affiliates of a broker-dealer.
(11) Includes stock underlying a warrant to purchase 4,760 shares of
common stock at an exercise price of $1.31 per share. Gordan J. Roth may be
deemed to share beneficial ownership of the 285,600 shares of common stock owned
by BTG Investments, LLC, but hereby disclaims beneficial ownership of such
shares. This selling stockholder has identified himself as an affiliate of a
broker-dealer. Please see "Plan of Distribution" for required disclosure
regarding selling stockholders that are affiliates of a broker-dealer.
(12) Includes stock underlying a warrant to purchase 4,760 shares of
common stock at an exercise price of $1.31 per share. This selling stockholder
has identified himself as an affiliate of a broker-dealer. Please see "Plan of
Distribution" for required disclosure regarding selling stockholders that are
affiliates of a broker-dealer.
(13) Includes stock underlying a warrant to purchase 3,000 shares of
common stock at an exercise price of $1.31 per share. This selling stockholder
has identified himself as an affiliate of a broker-dealer. Please see "Plan of
Distribution" for required disclosure regarding selling stockholders that are
affiliates of a broker-dealer.
13
PLAN OF DISTRIBUTION
The selling stockholders and any of their pledgees, donees, transferees,
assignees and successors-in-interest may, from time to time, sell any or all of
their shares of common stock on any stock exchange, market or trading facility
on which the shares are traded or in private transactions. These sales may be at
fixed or negotiated prices. The selling stockholders may use any one or more of
the following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits investors;
o block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
o an exchange distribution in accordance with the rules of the applicable
exchange;
o privately negotiated transactions;
o to cover short sales made after the date that this registration statement
is declared effective by the Securities and Exchange Commission;
o broker-dealers may agree with the selling stockholders to sell a specified
number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act of 1933, if available, rather than under this prospectus.
Broker-dealers engaged by the selling stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The selling stockholders may from time to time pledge or grant a security
interest in some or all of the shares owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties may
offer and sell shares of common stock from time to time under this prospectus,
or under an amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus.
Upon Bluebook Holding being notified in writing by a selling stockholder
that any material arrangement has been entered into with a broker-dealer for the
sale of common stock through a block trade, special offering, exchange
distribution or secondary distribution or a purchase by a broker or dealer, a
supplement to this prospectus will be filed, if required, pursuant to Rule
424(b) under the Securities Act, disclosing (i) the name of each such selling
stockholder and of the participating broker-dealer(s), (ii) the number of shares
involved, (iii) the price at which such the shares of common stock were sold,
(iv) the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not
conduct any investigation to verify the information set out or incorporated by
reference in this prospectus, and (vi) other facts material to the transaction.
In addition, upon Bluebook Holding being notified in writing by a selling
stockholder that a donee or pledgee intends to sell more than 500 shares of
common stock, a supplement to this prospectus will be filed if then required in
accordance with applicable securities law.
The selling stockholders also may transfer the shares of common stock in
other circumstances, in which case the transferees, pledgees or other successors
in interest will be the selling beneficial owners for purposes of this
prospectus.
The selling stockholders who are registered broker-dealers or affiliates
of registered broker-dealers and any broker-dealers or agents that are involved
in selling the shares may be deemed to be "underwriters" within the
14
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Discounts, concessions,
commissions and similar selling expenses, if any, that can be attributed to the
sale of securities will be paid by the selling stockholder and/or the
purchasers. Each selling stockholder has represented and warranted to Bluebook
Holding that it acquired the securities subject to this registration statement
in the ordinary course of such selling stockholder's business and, at the time
of its purchase of such securities such selling stockholder had no agreements or
understandings, directly or indirectly, with any person to distribute any such
securities.
Bluebook Holding has advised each selling stockholder that it may not use
shares registered on this registration statement to cover short sales of common
stock made prior to the date on which this registration statement shall have
been declared effective by the Securities and Exchange Commission. If a selling
stockholder uses this prospectus for any sale of the common stock, it will be
subject to the prospectus delivery requirements of the Securities Act. The
selling stockholders will be responsible to comply with the applicable
provisions of the Securities Act and Exchange Act, and the rules and regulations
thereunder promulgated, including, without limitation, Regulation M, as
applicable to such selling stockholders in connection with resales of their
respective shares under this registration statement.
Bluebook Holding is required to pay all fees and expenses incident to the
registration of the shares, but Bluebook Holding will not receive any proceeds
from the sale of the common stock. Bluebook Holding has agreed to indemnify the
selling stockholders against certain losses, claims, damages and liabilities,
including liabilities under the Securities Act.
LEGAL PROCEEDINGS
As of January 6, 2005, we are not subject to any pending legal
proceedings that would be deemed material to our business. From time to time, we
may be subject to certain routine litigation that is incidental to our business.
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' shares of
Bluebook 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.
On April 24, 2003, Cotelligent, Inc. filed a demand for arbitration
against Bluebook in Case No. 731310018503 ARC, asserting a claim for breach of
contract arising out of a consulting services agreement between Cotelligent and
Bluebook. Bluebook filed cross-claims on May 29, 2003. Effective as of May 3,
2004, Bluebook and Cotelligent agreed to a mutual settlement of the entire
arbitration pursuant to a Settlement Agreement. Under the terms of the
Settlement Agreement, Cotelligent converted all of its approximately 5.3 million
shares of Bluebook Series C Preferred Stock into shares of Bluebook common stock
on a one-for-one basis. These shares represent 265,825 shares of the Company's
common stock. In addition, Cotelligent agreed to deliver source code developed
by Cotelligent for Bluebook pursuant to the consulting services agreement.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth information regarding our directors and
executive officers as of January 6, 2005:
Name Age Position Director Since
Mark A. Josipovich 38 Chairman of the Board, Chief Executive 2001
Officer, President, and Treasurer
Daniel T. Josipovich 39 Chief Operating Officer and Director 2001
Paul D. Sheriff 40 Director 2001
David M. Campatelli 37 Director 2001
There are no family relationships between any director and executive
officer, except for Mark A. Josipovich and his brother Daniel T. Josipovich.
According to our bylaws, the term of office for our directors is one year.
Directors hold office until their successors are elected and qualified.
Mark A. Josipovich, Chairman of the Board, Chief Executive Officer,
President, and Treasurer, has been the entrepreneurial driver of Bluebook's
strategic initiatives for the past 16 years. His responsibilities included
guiding the progress of projects through various milestones to ensure
conformity; negotiating contractual agreements; supporting the sales operation
by assisting in the pre-sale process; coordinating and preparing proposals; and
performing ancillary administrative functions. He has held various positions
with Bluebook including management of marketing, staffing, day-to-day operations
and product development.
Daniel T. Josipovich, Chief Operating Officer and Director, designed,
directed and managed development of Bluebook's most innovative products for the
past 22 years. He is also directly involved in marketing. Daniel has held
various positions with Bluebook including management of marketing, staffing,
day-to-day operations and product development.
15
Paul D. Sheriff, Director, has over 18 years experience in programming
business applications. In 1991, Mr. Sheriff founded PDSA, Inc., a consulting
company specializing in high quality custom software. PDSA, Inc. is a Microsoft
Certified Partner.
David M. Campatelli, Director, is currently a Spanish and English
Instructor at Long Beach Unified School District, Long Beach, California. Mr.
Campatelli also currently serves as a Teacher and Consultant with the California
Reading and Literature Project in San Diego, California, and lectures, teaches
and trains for primary language institutes throughout the State of California.
Mr. Campatelli has been a consultant to Toscana Incorporated, an international
import/export firm, since 1993.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of our common stock as of January 6, 2005 as to:
o each of the executive officers named in the section "Directors, Executive
Officers, Promoters and Control Persons" above;
o each director and nominee for director;
o each person who is known by us to own beneficially more than 5% of our
outstanding common stock; and
o all directors and executive officers as a group.
As of January 6, 2005, there were 8,760,148 shares of common stock
outstanding and no shares of preferred stock issued and outstanding.
Unless otherwise indicated, the address of each listed stockholder is c/o
The Bluebook International Holding Company, 21098 Bake Parkway, Suite 100, Lake
Forest, California 92630-2163.
Common Stock
Number of Shares of Common Stock Percentage Ownership of
Name of Beneficial Owner Beneficially Owned (1) Common Stock
- ------------------------------------------------------------ -------------------------------- -----------------------
Named Executive Officers and Directors
Mark A. Josipovich 638,255 7.29%
Daniel T. Josipovich 761,234 8.69%
Paul D. Sheriff 0 0.00%
David M. Campatelli 0 0.00%
Five Percent Stockholders of Common Stock
Daniel E. Josipovich 3,259,250 (2) 37.21%
Dorothy E. Josipovich 3,017,083 (3) 34.44%
The Freedom Family, LLC 2,733,333 (4) 31.20%
Roaring Fork Capital SBIC, L.P. 840,000 (5) 9.44%
MicroCapital Fund L.P. 516,000 (6) 5.83%
Chris Albrick 418,074 (7) 4.77%
All Executive Officers and Directors as a Group (4 Persons) 1,399,489 15.98%
(1) Unless otherwise indicated, all persons named in the table have sole voting
and investment power with respect to the shares of common stock beneficially
owned by them.
16
(2) Daniel E. Josipovich beneficially owns an aggregate of 3,259,250 shares of
common stock, consisting of 525,917 shares of common Stock and 2,733,333 shares
of common stock owned by The Freedom Family, LLC. These shares collectively
constitute 37.21% of the total number of shares of common stock currently issued
and outstanding, which for purposes of this calculation includes the 2,733,333
shares of common stock owned by The Freedom Family, LLC. Daniel E. Josipovich
may be deemed to share beneficial ownership of the 2,733,333 shares of common
stock, but hereby disclaims beneficial ownership of shares. The address of
Daniel E. Josipovich is 21391 Avenida Manantial, Lake Forest, CA 92630.
(3) Dorothy E. Josipovich beneficially owns an aggregate of 3,017,083 shares of
common stock, consisting of 283,750 shares of common Stock and 2,733,333 shares
of common stock owned by The Freedom Family, LLC. These shares collectively
constitute 34.44% of the total number of shares of common stock currently issued
and outstanding, which for purposes of this calculation includes the 2,733,333
shares of common stock owned by The Freedom Family, LLC. Dorothy E. Josipovich
may be deemed to share beneficial ownership of the 2,733,333 shares of common
stock owned by The Freedom Family, LLC, but hereby disclaims beneficial
ownership of such shares. The address of Dorothy Josipovich is 21391 Avenida
Manantial, Lake Forest, CA 92630.
(4) The address of The Freedom Family, LLC is 21391 Avenida Manantial, Lake
Forest, CA 92630.
(5) Includes stock underlying a warrant to purchase up to 140,000 shares of
common stock at an exercise price of $1.31 per share. The address of Roaring
Fork Capital SBIC, L.P. is 5310 DTC Parkway, Suite i; Greenwood Village, CO
80111.
(6) Includes stock underlying a warrant to purchase up to 86,000 shares of
common stock at an exercise price of $1.31 per share. The address of
MicroCapital Fund LP is 410 Jessie Street, Suite 1002, San Francisco, CA 94103.
(7) Excludes stock underlying a warrant that may be issued to Chris Albrick to
purchase up to 90,000 shares of common stock at an exercise price of $1.40 per
share. The address of Chris Albrick is 25 Bridgeport, Dana Point, CA 92629.
DESCRIPTION OF SECURITIES
General
The following description includes the material terms of our common
stock. However, it is a summary and is qualified in its entirety by the
provisions of our Certificate of Incorporation, as amended, all of which have
been incorporated by reference or filed as exhibits to our registration
statement of which this prospectus is a part.
Our authorized capital stock consists of 150,000,000 shares of common
stock, par value $0.0001 per share, and 5,000,000 shares of preferred stock, par
value $0.0001 per share. As of January 6, 2005, 8,760,148 shares of common stock
were issued and outstanding and no shares of preferred stock were issued and
outstanding. We have reserved 686,689 shares of common stock for issuance
pursuant to warrants issued by the Company (including warrants registered for
resale hereunder).
Common Stock
Each holder of common stock is entitled to one vote for each share held.
Stockholders do not have the right to cumulate their votes in the election of
directors. Accordingly, holders of a majority of the issued and outstanding
common stock will have the right to elect all of our directors and otherwise
control the affairs of Bluebook Holding.
Holders of common stock are entitled to receive dividends on a pro rata
basis upon declaration of dividends by the Board of Directors, provided that
required dividends, if any, on the preferred stock have been provided for or
paid. Dividends are payable only out of funds legally available for the payment
of dividends.
Upon a liquidation, dissolution or winding up of Bluebook Holding,
holders of our common stock will be entitled to a pro rata distribution of the
assets of Bluebook, after payment of all amounts owed to Bluebook Holding's
creditors, and subject to any preferential amount payable to holders of
preferred stock, if any. Holders of common stock have no preemptive,
subscription, conversion, redemption or sinking fund rights.
Anti-Takeover Effects of Certain Provisions of Our Certificate of Incorporation
and Bylaws
Provisions of our Certificate of Incorporation and Bylaws may be deemed
to have an anti-takeover effect and may delay, deter or prevent a tender offer
or a takeover attempt, including attempts that might result in a premium being
paid over the market price for the shares held by stockholders.
Authorized and Unissued Preferred Stock. There are 5,000,000 authorized
and unissued shares of preferred stock. Our Certificate of Incorporation
authorizes the Board of Directors to issue one or more series of preferred stock
and to establish the designations, powers, preferences and rights of each series
17
of preferred stock, in accordance with the Delaware law. The existence of
authorized and unissued preferred stock may enable the Board of Directors to
render more difficult or to discourage an attempt to obtain control of us by
means of a merger, tender offer, proxy contest or otherwise. For example, if in
the due exercise of its fiduciary obligations, the Board of Directors were to
determine that a takeover proposal is not in our best interests, the Board of
Directors could cause shares of preferred stock to be issued without stockholder
approval in one or more private offerings or other transactions that might
dilute the voting or other rights of the proposed acquirer or insurgent
stockholder or stockholder group or create a substantial voting block that might
undertake to support the position of the incumbent Board of Directors.
Special Meetings of Stockholders. Our Certificate of Incorporation and
Bylaws provide that special meetings of the stockholders of Bluebook Holding may
be called only by the Board of Directors of Bluebook Holding, the President or
by holders of at least 10% of all shares entitled to vote at the meeting. This
provision will render it more difficult for stockholders to take any action
opposed by the Board of Directors.
Amendment of Bylaws. Our Bylaws state that they may be altered, amended
or repealed and new bylaws adopted by the Board of Directors. However, under
Delaware law, any bylaw or amendment may be altered, amended or repealed by a
vote of the stockholders entitled to vote on such bylaw or amendment, or a new
bylaw may be adopted instead by the stockholders.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
VIOLATIONS
Our Bylaws authorize indemnification of a director, officer, employee or
agent of the Company against expenses incurred by him in connection with any
action, suit, or proceeding to which he is named a party by reason of him having
acted or served in such capacity, except for liabilities arising from his own
misconduct or negligence in performance of his duty. In addition, even a
director, officer, employee, or agent of the Company who was found liable for
misconduct or negligence in the performance of his duty may obtain such
indemnification if, in view of all the circumstances in the case, a court of
competent jurisdiction determines such person is fairly and reasonably entitled
to indemnification.
In addition, our Certificate of Incorporation provides that a director of
the Company will not be liable to the Company for monetary damages for an act or
omission in the director's capacity as a director, except to the extent not
permitted by law. Delaware law does not permit exculpation of liability in the
case of (i) a breach of the director's duty of loyalty to the corporation, (ii)
an act or omission not in good faith or which involves intentional misconduct or
a knowing violation of the law, (iii) a transaction from which a director
received an improper benefit, or (iv) an act related to an unlawful stock
repurchase or dividend.
The selling stockholders are also required to indemnify our directors,
officers and controlling persons to the extent permitted by applicable law from
all losses generally arising from (i) such selling stockholder's failure to
comply with the prospectus delivery requirements of the Securities Act or (ii)
any untrue statement of a material fact contained in this registration statement
regarding such selling stockholder which was provided by such selling
stockholder for use in the registration statement or was reviewed and approved
by such selling stockholder for use in this registration statement.
The description above is a summary and is qualified in its entirety by
the provisions of our Certificate of Incorporation, as amended, By laws, and
that certain Registration Right Agreement, between the Company and the selling
stockholders, all of which have been incorporated by reference or filed as
exhibits hereto.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
Bluebook pursuant to the foregoing provisions, or otherwise, we have been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable.
We do not maintain any directors and officers liability insurance policy.
BUSINESS
Overview
We develop, market, and sell software solutions and information services
to the insurance and related industries. Our software solutions and services
automate, integrate, manage and quicken claims processing and communication
among participants in claims handling and underwriting processes. Bluebook
Holding conducts virtually all of its business through its wholly owned
subsidiary, Bluebook International.
18
Our mailing address and executive offices are located at 21098 Bake
Parkway, Suite 100, Lake Forest, California 92630-2163. Our telephone number is
(949) 470-9534. Our corporate website is www.bluebook.net. Information contained
on the website is not a part of this registration statement.
Background
Gama Computer Corporation, or Gama, was incorporated on December 17,
1997, as a Delaware corporation. Gama acquired Bluebook International, through
an exchange reorganization, effective as of October 1, 2001 followed by a merger
of Bluebook International into a wholly-owned, transitory subsidiary. As a
result of the exchange reorganization and merger, Bluebook International's
stockholders acquired control of Gama and Bluebook International became a
wholly-owned subsidiary of Gama. Gama then changed its name on November 6, 2001
to The Bluebook International Holding Company and its subsidiary changed its
name to Bluebook International, Inc.
Bluebook International was incorporated in Nevada on December 5, 2000,
succeeding operations that began in 1964. Daniel E. Josipovich and Dorothy E.
Josipovich, as sole proprietors under the trade name, "The Bluebook of Cleaning,
Reconstruction and Repair Costs" and related names, sold all of the assets of
their business to Bluebook International effective as of September 15, 2001.
Since 1964, THE BLUEBOOK (The Bluebook of Cleaning, Reconstruction and
Repair Costs) has been a reference for the insurance, cleaning, construction,
reconstruction, repair and service industries. 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. THE BLUEBOOK has an
estimated readership of many thousands of readers and is widely known and
utilized by professionals in the insurance repair and related industries that
create cost estimates for residential and light commercial structures. In 1982,
Bluebook introduced its estimating software program, "B.E.S.T." (Bluebook
Estimating Software Technology), which incorporated THE BLUEBOOK's proprietary
database to automate the calculations and many processes that are involved in
creating repair and replacement cost estimates.
Products and Services
For years, the insurance industry has been plagued with, among others,
excessive loss adjustment expenses, increased litigation, fraud, undervaluation
of premiums and increased complexity of underwriting and claims handling
process. Significant costs are being attributed to delays in paper-based
communication and the decentralization of information within the insurance and
related industries.
We believe our software solutions will help insurers mitigate losses and
assist in the direct delivery of information to the required participants, (e.g.
adjusters, contractors, inspectors, attorneys, independent experts, etc.). Our
solutions were designed to more accurately price, process and manage the
underwriting and claims process. We believe that the future market for
underwriting and claims management solutions will be lead by the providers of
products that simplify the management of this process and significantly reduce
risk associated with carrier non-compliance and underinsurance. Therefore, our
initiatives are aimed at making it easier for among others, insurers,
policyholders, adjusters and contractors to communicate and do business in a
near-paperless environment.
We believe our principal software solutions will expand the size and scope
of our target markets and enhance our revenue potential. These software
solutions may open up many new options for the utilization of our software
solutions as an installed or a remotely accessed (via the Internet) software
solution.
B.E.S.T.7
B.E.S.T.7 is a stand alone, residential and light commercial estimating
software solution for use on desktops, laptops, pen-based units and the Tablet
PCs. B.E.S.T.7 is scalable for multi-user environments and contains Bluebook's
proprietary database, training tutorial and estimating engine. B.E.S.T.7
provides the estimator with industry specific tools to estimate repair cost of
damage for various residential and light commercial structures.
B.E.S.T.8
The B.E.S.T.8 product is the Company's Internet integrated release. The
plans are to complete this product in two phases. The first phase release will
include enhancements of the estimating features of B.E.S.T.7, however, it will
allow for claims estimates and data to be delivered via the Internet. The first
Phase is expected to be released in the first quarter of 2005. The second phase
release is being designed to include an enhanced and integrated web-based access
and delivery system where customers can access the solution via the Internet
without having to install the solution on a local hard drive. The delivery date
of this software solution is expected to be the second or third quarter of 2005.
In addition to THE BLUEBOOK, B.E.S.T.7 and B.E.S.T.8, we offer the
following principal software solutions:
19
Labor and Materials Database
Bluebook has built a Labor, Material and Equipment database for the
cleaning, repair and replacement of residential structures to include probable
depreciation for many thousands of types of materials. This database is built
into our software solutions and is used to estimate the cost of cleaning, repair
and replacement of a residential structure including, in most cases, the average
material depreciation.
B.E.S.T.Net and B.E.S.T.Central
B.E.S.T.Net - Delivers insurance claims electronic to adjusters or
insurer selected claims professionals. It centralizes claims information for
easy access via the web in a standard file format that can be utilized across
multiple platforms. B.E.S.T.Net integrates with B.E.S.T.Central and delivers and
manages claims information electronically via the web to claims professionals
who are authorized to do the work and finalize the claim. B.E.S.T.Net and
B.E.S.T.Central were designed to provide the insurer, and the vendor, (e.g.
contractor, subcontractor, estimator, independent adjuster, etc.) with the
ability to access, edit and assign insurance claims electronically in order to
reduce the amount of paper intensive processing and usage and delays in the
delivery of information to required participants in the claims process.
InsureBASE
InsureBASE is an automated residential property information solution that
uses THE BLUEBOOK data to estimate the replacement cost of a residential
structure less the cost of the land to help insurers and homeowners calculate
the replacement cost of a single family structure. By automating the entry of
data fields, (e.g., number of bedrooms, bathrooms, square feet, number of
stories, etc,) as provided by First American Real Estate SolutionFs, this
system, with the proper use, can calculate replacement cost for residential
properties throughout the United States. InsureBASE can also provide current
market value, property characteristics and an array of neighborhood and other
underwriting information. InsureBASE is delivered via the Internet to insurers,
adjusters, agents and other related insurance professionals involved in the
insurance claims and underwriting process. We believe that this product can
minimize underinsurance and reduce liability by insuring residential properties
to proper insurance levels covering the insured in the event of a total loss.
The Company has completed development of InsureBASE and is marketing and
selling the solution.
Insure To Value
Insure to Value uses the same software and Bluebook database as
InsureBASE, however, it does not include the automation of data fields from
First American Real Estate database. Insure to Value can generate a replacement
cost, however, the general property information, (e.g. number of bedrooms,
bathrooms, square feet, number of stories, etc,) has to be entered manually by
the user.
B.E.S.T. HIU (Home Inspection Underwriting)
HIU is a solution that was developed to incorporate the functionality
required by insurers to easily monitor and manage the inspection process in the
field while delivering the automated Replacement Cost Calculations delivered
from InsureBASE. HIU is a comprehensive, automated solution that was designed to
assign, dispatch and deliver, via the Internet, electronic inspection
information to and from the field, in single.
Strategic Partners
We work with the following industry-leading companies to facilitate the
development and marketing strategy of our technologies, products and services:
Microsoft
We are part of a Microsoft initiative in the financial services industry
called the Insurance Value Chain, or IVC. We are also a Microsoft Certified
Partner which requires the company to have qualified personnel with certain
credentials from Microsoft in the installation, use and training of their
solutions. The IVC (insurance value chain) is being marketed and promoted
20
through Microsoft and its community of partners that work today with the
insurance industry. The IVC was developed by Microsoft as part of a plan to
deliver integrated insurance solutions to the insurance industry. The IVC
technologies intend to deliver scalable, enterprise-level, ready software
solutions that significantly reduce the time it takes to implement solutions in
the insurance industry whereby producing faster return on insurer investment and
provide alternative solutions for existing in-place technology that, in many
cases, limits modernization. Other partners of the value chain include: EDS,
Avenade, Hewlett Packard and other Microsoft partners and invited participants
that play an active role in the deployment, implementation, integration and
support of IVC partner products and services. Bluebook's role in the IVC is to
provide software solutions for underwriting, claims facilitation, management,
auditing and estimating.
Hewlett-Packard
We entered into an agreement with Compaq, which was subsequently acquired
by Hewlett-Packard, Inc., to promote jointly our B.E.S.T.Net and B.E.S.T.Central
software solutions on Compaq's technology and services. Compaq agreed to promote
our products to its insurance customers through its existing insurance related
sales, marketing and distribution channels. Compaq can also provide assistance
with deployment, implementation, integration and support.
Basis100
Basis100, Inc. acquired by the First American Corporation, and Bluebook
jointly launched InsureBASE in late 2003, a software solution that integrates
with Bluebook's replacement cost calculator and Basis100's automated property
valuation technology, or AVM. Basis100 is a software solutions provider for the
financial services industry. By combining technologies, this scalable
underwriting analytical tool can assist with mitigating risks associated with
determining and maintaining accurate replacement cost values for residential
purposes.
Intuit
Our B.E.S.T.7 field estimating software integrates with Intuit's
Quickbooks accounting software program. We are one of Intuit's partners in the
construction and insurance industries.
Distribution
We market and sell THE BLUEBOOK and B.E.S.T.7 products primarily through
the mail, conventions and the Internet using the interactive sales tool on
Microsoft's terminal services solution. B.E.S.T.Central and B.E.S.T.Net will be
sold by direct, on-site demonstrations or by authorized partners and resellers.
The process for the delivery of these software solutions usually requires a
demonstration and the response to a Request for Proposal or a Proof of Concept.
Independent vendors such as policyholders, contractors and sub-contractors who
desire to utilize these systems to electronically receive assignments, will be
able to purchase a compatible license to B.E.S.T.Central or use a portal
connection or an integrated version of the installed B.E.S.T.8 software. We plan
to sell and deliver software updates and upgrades using the Internet or by
delivery of a compact diskette.
Customers
Our existing base of users of THE BLUEBOOK includes thousands of
insurance companies, contractors and service providers. We continue our sales of
THE BLUEBOOK and also have several hundred installations of our B.E.S.T.7
estimating software solution. We have two customers of InsureBASE and expect to
demonstrate, test and sell B.E.S.T.Net and B.E.S.T.Central to our existing and
new client base through direct sales and our strategic partners.
We expect these arrangements to lead to licensing of our software
solutions. We are in discussions or have signed proof of concept agreements with
several insurance carriers and providers for the use of InsureBASE, B.E.S.T.7,
B.E.S.T.Net or B.E.S.T.Central products.
Development of Products
The industry in which we compete is subject to rapid technological
developments, evolving industry standards, changes in customer requirements and
new product introductions. As a result, our success depends, in part, on our
ability to continue to enhance our existing software solutions and to develop
and introduce new software solutions that improve performance and reduce total
cost associated with the insurance claim process. We have invested significantly
in product development. We continue to enhance and extend our products and to
increase the efficiency, performance and management capabilities of our data,
estimating, underwriting and claims management solutions.
21
For the years ended December 31, 2003 and December 31, 2002, we invested
$809,186 and $3,047,144 in development of our products, respectively. Funds for
these investments came from revenues from operations, loans from officers and
loans from investors. These costs were primarily for the development of our
B.E.S.T.7, B.E.S.T.8, B.E.S.T.Net, B.E.S.T.Central and InsureBASE products. We
expect to maintain our high level of investment in development of products;
however, once the development of B.E.S.T.Net and B.E.S.T.Central is complete, we
expect our development costs to decrease.
Competition
We believe our primary competition is from Xactware, Inc., Marshall &
Swift and Simsol Software, Inc.
As the market for our products evolves, additional technologies may
become available for estimating, underwriting, and claims management and
processing. Software companies, insurance companies or other companies may
develop competitive products. To the extent that these products provide the
ability to integrate information from, among other participants, the agent,
insurer, administrator, vendor and supplier into the end-to-end process, they
may compete with our current and future products. We believe the competitive
factors in this market include product performance and features, product
reliability, price, ability to meet delivery schedules, customer support and
technical support.
Although we include the use of Bluebook's proprietary data, business
rules and processes, some of our competitors have significantly greater human
and financial resources. As a result, these competitors could adopt more
aggressive pricing policies and devote greater resources to the development,
promotion and sale of their products. These advantages could allow them to
respond more quickly to changes in customer and market requirements. In
addition, some of our competitors may be able to leverage their existing
relationships to discourage these customers from purchasing additional products
from us. These competitors may also be able to persuade our customers to replace
our products with their products. Increased competition may result in reduced
product prices, lower gross margins, reduced profitability and reduced market
share. We may not have the financial resources, technical expertise or
marketing, manufacturing, distribution and support capabilities to compete
successfully in the future. There can also be no assurance that we will be able
to compete successfully against current or future competitors or that current or
future competitive pressures will not materially harm our business.
Intellectual Property and Royalties
We rely on a combination of trademarks, copyrights and trade secrets that
we have used, in some cases, for over forty years. We also rely on
confidentiality agreements and other contractual restrictions with employees and
third parties to establish and protect our proprietary rights. Despite these
precautions, the measures we undertake may not prevent infringement of our
proprietary technology and data. These measures may not preclude competitors
from independently developing products with functionality or features similar to
our products.
We may receive in the future notice of claims of infringement of other
parties' proprietary rights. Infringement or other claims could be asserted
against us in the future, and it is possible that past or future assertions
could harm our operations and financial condition. Any such claims, with or
without merit, could be time-consuming, result in costly litigation and
diversion of technical and management personnel, cause delays in the development
and release of our products, or require us to develop non-infringing technology
or enter into royalty or licensing arrangements. Such royalty or licensing
arrangements, if required, may require us to license back our technology or may
not be available on terms acceptable to us, or at all. For these reasons,
infringement claims could materially harm our business.
As part of the Amended and Restated Asset Purchase and Sale Agreement,
dated September 15, 2001, we are obligated to pay a royalty to Daniel E.
Josipovich and Dorothy E. Josipovich, co-founders of our business, in the amount
of 6% of net revenue, defined as the aggregate of all gross revenues, sales, and
receipts of whatever nature or kind received by us, less any returns, rebates,
discounts, allowances rejections and credits, and less the actual out-of-pocket
costs and expenses incurred, except depreciation, reserves, taxes, interest and
extraordinary expenses. As of December 31, 2003, under the above definition, we
had negative net revenue, therefore no royalty expenses were accrued.
Bluebook for Adjusters & Contractors, DeeJay Adjusting and Bluebook of
Cleaning, Reconstruction and Repair Costs (including logos) are our trademarks.
We further claim trademarks for B.E.S.T., B.E.S.T.Net, Insure to Value,
InsureBASE and B.E.S.T.Central. We also own the following copyrights:
22
o Adjuster/Contractor Bluebook Southern California Edition, (C) 1979;
o "New" Bluebook for Adjusters & Contractors, (C) 1981;
o The Bluebook for Agents, Adjusters and Contractors, (C) 1981, 1984;
o Bluebook Estimating Systems Technology, (C) 1982;
o The Bluebook of Cleaning, Reconstruction and Repair Costs, (C) 1989, 1997,
1999; and
o The Bluebook of Cleaning, Reconstruction and Repair Costs, Pocket
Editions, (C) 1989, 1999, 2000, 2001, 2002, 2003 and 2004.
Employees
As of January 6, 2005, we had nine full-time employees. No employees are
represented by a labor union. We have not experienced any work stoppages and
consider our relations with employees to be good. Competition for technical
employees in the software industry continues to be significant. We believe that
our success depends, in part, on our ability to hire, assimilate and retain
qualified personnel. We cannot assure you that we will continue to be successful
at hiring, assimilating and retaining employees in the future.
Executive Officers
The following table sets forth information regarding our executive
officers as of January 6, 2005:
Name Age Position Director
Since
Mark A. Josipovich 38 Chairman of the Board, Chief Executive Officer, 2001
President, and Treasurer
Daniel T. Josipovich 39 Chief Operating Officer and Director 2001
Mark A. Josipovich is our Chairman of the Board, Chief Executive Officer,
President, and Treasurer. His responsibilities include guiding the business
through strategic milestones to ensure focus and conformity. He also assists in
the negotiation of contractual agreements; supporting the sales operation by
assisting in the pre-sale process; coordinating and preparing proposals; and
performing ancillary administrative functions. Over the past 16 years, Mark has
held various positions with Bluebook including management of marketing,
staffing, day-to-day operations and product development.
Daniel T. Josipovich, our Chief Operating Officer and Director, designed,
directed and managed development of Bluebook's most innovative products for the
past 22 years. He is also directly involved in marketing. Daniel has held
various positions with Bluebook including management of marketing, staffing,
day-to-day operations and product development.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the Consolidated
Financial Statements and supplementary data referred to in this registration
statement.
This discussion contains forward-looking statements that involve risks
and uncertainties. Such statements, which include statements concerning future
revenue sources and concentration, selling, general and administrative expenses,
research and development expenses, capital resources, additional financings and
additional losses, are subject to risks and uncertainties, including, but not
limited to, those discussed in this registration statement under "Risk Factors,"
that could cause actual results to differ materially from those projected. The
forward-looking statements set forth in this registration statement are as of
January 6, 2005, and we undertake no duty to update this information. See
"Cautionary Statement About Forward-Looking Information" on page 5 of this
prospectus.
23
Recent Events
In September 2004 we issued 57,775 shares of Rule 144 common stock as
settlement of $87,100 of debts to certain consultants and employees. We also
issued 10,000 shares of Rule 144A common stock as a partial payment of a
$30,000 loan from a related party and issued 3,000 shares of Rule 144 common
stock in connection with the settlement of outstanding litigation. 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 issued 2,773,333 shares of common
stock upon conversion of 2,050 shares of Series B Convertible Preferred Stock,
being all of the outstanding shares of Series B Convertible Preferred Stock. The
Company also settled $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.
Following the conversion of Series B Convertible Preferred Stock and the
settlement of debts, the Company authorized a one-for-twenty reverse stock
split. The reverse stock split was effective November 17, 2004. All share and
per share amounts in this prospectus have been adjusted to reflect the November
17, 2004 reverse stock split unless noted.
On November 19, 2004 the Company issued to accredited investors, pursuant
to a Securities Purchase Agreement, 2,131,033 shares of common stock of the
Company and warrants to purchase an aggregate of 426,206 shares of common stock
for an aggregate consideration of $2,237,585. The warrants issued to the
accredited investors have an exercise price of $1.31 per share and are
exercisable immediately. In addition, the Company issued a warrant to purchase
170,483 shares of common stock to the placement agent for the transactions
contemplated by the Securities Purchase Agreement. The warrant issued to the
placement agent has a term of five years and an exercise price of $1.15 per
share and is exercisable immediately.
Following this sale, the Company;
o issued a total of 418,074 shares of common stock to a creditor of
the Company in settlement of debts totaling $438,978 pursuant to a
Convertible Promissory Note issued by the Company in August 2004;
o issued a total of 10,000 shares of common stock to another
creditor of the Company in settlement of debts totaling $10,000
pursuant to a Share Purchase Agreement dated November 8, 2004;
o issued a total of 306,667 shares of common stock to a consultant
to the Company for consulting services rendered; and
o may issue a warrant to purchase 90,000 shares of common stock at a
price of $1.40 per share to a consultant as a bonus payment.
These shares and warrants, as well as the shares underlying the warrant issued
to our placement agent, Roth Capital Partners, LLC are not being registered
under this prospectus.
On December 23, 2004, the Company filed a Form S-8 registration statement
registering 306,667 shares of the Company's common stock, $0.0001 par value per
share, which are to be offered upon the terms and subject to the conditions set
forth in the Engagement Letter, dated October 8, 2004, between the Company and a
consultant.
Results of Operation
Comparison of nine months ended September 30, 2004 to nine months ended
September 30, 2003
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. Revenue increased
primarily from a change in the estimate for the sales life of the B.E.S.T.7
product. This limited increase in revenue was due to 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
software solutions and continue sales of THE BLUEBOOK and our B.E.S.T.
estimating software solution.
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 our corporate restructuring.
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 our
assets being fully amortized in the first quarter 2004.
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.
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.
24
Comparison of Year Ended December 31, 2003 to Year Ended December 31,
2002
Net revenues for the year ended December 31, 2003 were $705,657, a
decrease of $153,548 or 18% compared with net revenues of $859,205 for the year
ended December 31, 2002. Revenue from the sales of B.E.S.T software products was
$527,392 for the fiscal year ended 2003 as compared to $573,873 for the year
ending 2002, a decrease of $46,481 or 9%. This decrease is the result of our
inability to recognize certain revenue and the Company having limited cash to
spend on marketing as a result of increased legal, accounting and consulting
fees. Revenue from the sales of The Bluebook handbook was $166,548 for the year
ended 2003 as compared to $285,332 for the year ended 2002, a decrease of
$118,784 or 42%. This decrease is the result of the Company having limited cash
to spend on marketing. Historically, sales of THE BLUEBOOK were the principal
source of our revenues. However, with our latest generation technologies of
Insure to Value, InsureBASE, B.E.S.T.Net and B.E.S.T.Central, we expect revenues
to increase over the next several quarters. As a result, revenues from these
software solutions will become the principal sources of our total revenue.
Although our revenue is not currently concentrated among a relatively
small number of customers, we expect that a significant portion of our future
revenues will come from sales of new products, Insure to Value, InsureBASE,
B.E.S.T.Net and B.E.S.T.Central, to a relatively smaller number of customers.
Therefore, in the future, the loss of any one significant customer, or a
decrease in the level of sales to any one significant customer, could harm our
financial condition and results of operations.
Selling, general and administrative expenses for the year ended December
31, 2003 were $2,003,986, an increase of $270,220 or 16% compared to $1,733,766
for the year ended December 31, 2002. This increase was primarily the result of
increased legal, accounting and consulting expenses. Selling, general and
administrative expenses consist primarily of salaries and related expenses for
personnel engaged in marketing and sales, corporate executives, professional
fees, corporate legal expenses, other corporate expenses and facilities
expenses. We believe that continued investment in sales and marketing is
critical to the success of our strategy to expand relationships with our
strategic partners and existing base of users of our products, including
insurance companies, contractors and service providers to the insurance and
related industries. The selling, general and administrative expenses in fiscal
year 2004 increased in absolute dollars. However, our operating expenses
increased more slowly than revenue increases.
Depreciation and amortization was $247,920 for the year ended December
31, 2003, an increase of $141,244 or 132% compared to $106,676 for the year
ended December 31, 2002. The increase was primarily due to amortization of
B.E.S.T.7. that started in 2003. Our depreciation and amortization decreased in
2004.
Interest expense for the year ended December 31, 2003 was $13,880, a
decrease of $8,821 or 64% compared to $22,701 for the year ended December 31,
2002. The decrease was primarily the result of a reduction in borrowings.
We had a net loss of $1,560,129 for the year ended December 31, 2003,
compared to a net loss of $1,003,938 for the year ended December 31, 2002. The
increase in net loss was primarily attributable to increased selling, general
and administrative expenses and depreciation and amortization.
Comparison of Year Ended December 31, 2002 to Year Ended December 31,
2001
Net revenues for the year ended December 31, 2002 were $859,205, an
increase of 24% compared with net revenues of $694,097 for the year ended
December 31, 2001. Revenue from the sales of B.E.S.T software products was
$573,873 for the fiscal year ended 2002 as compared to $505,196 for the year
ending 2001, an increase of $68,677 or 14%. This increase is the result of an
increase in unit sales of our software products. Revenue from the sales of The
Bluebook handbook was $285,332 for the year ended 2002 as compared to $188,901
for the year ended 2001, an increase of $96,431 or 51%. This increase is the
result of an increase in unit sales of THE BLUEBOOK. Historically, sales of THE
BLUEBOOK and B.E.S.T.7 were the principal source of our revenues.
Selling, general and administrative expenses for the year ended December
31, 2002 were $1,756,467, an increase of $739,951 or 65% compared to $1,016,516
for the year ended December 31, 2001. Selling, general and administrative
expenses consisted primarily of salaries and related expenses for personnel
engaged in marketing and sales, corporate executives, human resources,
professional fees, corporate legal expenses, other corporate expenses and
facilities expenses. The increase in selling, general and administrative
expenses was primarily due to the expansion of our sales and marketing group,
increased direct selling expenses, additional headcount and other expenses
necessary to manage and support increased levels of business activity.
25
Depreciation and amortization was $106,674 for the year ended December
31, 2002, an increase of $12,421 or 13% compared to $94,253 for the year ended
December 31, 2001. The increase was primarily due to additional assets that were
acquired in 2002, including software, office equipment and new furniture and
fixtures for our new office.
We had a net loss of $1,003,938 for the year ended December 31, 2002,
compared to a net loss of $538,283 for the year ended December 31, 2001. The
increase in net loss was primarily attributable to increased selling, general
and administrative expenses and depreciation and amortization.
Liquidity and Capital Resources
As of September 30, 2004, we had cash of $136,326, a net working capital
deficiency of $3.1 million and an accumulated deficit of $3.97 million.
In September 2004, we issued 57,775 shares of Rule 144 common stock as
settlement of $87,100 in debt to certain consultants and employees. We also
issued 10,000 shares of Rule 144 common stock as partial payment of a $30,000
loan from a related party.
In October 2004, we issued 2,733,333 shares of common stock to convert
2,050 previously issued shares of our Series B Convertible Preferred Stock. We
also settled $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. Following the conversion of our Series B Convertible
Preferred Stock and the settlement of debts, we authorized a one-for-twenty
reverse stock split. The reverse stock split was effective November 17, 2004.
Following the reverse stock split, we issued to accredited investors,
pursuant to a Securities Purchase Agreement effective as of November 19, 2004,
2,131,033 shares of common stock of the Company and warrants to purchase an
aggregate of 426,206 shares of common stock for an aggregate consideration of
$2,237,585. The warrants issued to the accredited investors have an exercise
price of $1.31 per share and are exercisable immediately. In addition, we issued
a warrant to purchase 170,483 shares of common stock to our placement agent,
Roth Capital Partners, LLC, for the transactions contemplated by the Securities
Purchase Agreement. The warrant issued to the placement agent has a term of five
years and an exercise price of $1.15 per share and is exercisable immediately.
Following this sale, the Company;
o issued a total of 418,074 shares of common stock to a creditor of
the Company in settlement of debts totaling $438,978 pursuant to a
Convertible Promissory Note issued by the Company in August 2004;
o issued a total of 10,000 shares of common stock to another
creditor of the Company in settlement of debts totaling $10,000
pursuant to a Share Purchase Agreement dated November 8, 2004;
o issued a total of 306,667 shares of common stock to a consultant
to the Company for consulting services rendered; and
o may issue a warrant to purchase 90,000 shares of common stock at a
price of $1.40 per share to a consultant as a bonus payment.
These shares and warrants, as well as the shares underlying the warrant issued
to our placement agent, Roth Capital Partners, LLC are not being registered
under this prospectus.
As of January 6, 2005, following the Company's debt settlements and the
private placement in the fourth quarter of 2004, our total indebtedness was
approximately $890,000.
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.
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.
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 enhancements to its
technology during the course of its business. Although we expect the customer to
reimburse costs associated with the delivery of our software 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
26
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. However, 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 THE BLUEBOOK and estimating software solutions, current products
and services, our development of additional products and other services would
likely be adversely affected or suspended altogether from such cost reductions.
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 software 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 software 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.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have or
are reasonably likely to have a current or future effect on the Company's
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
are material to its investors.
Commitments and Contingencies
Concentration of Credit Risk
The Company's financial instruments that are exposed to concentrations of
credit risk consist principally of cash and receivables. The Company places its
cash in what it believes to be credit-worthy financial institutions. However,
cash balances have exceeded FDIC insured levels at various times during the
year. The Company has not experienced any losses in such accounts and believes
it is not exposed to any significant risk in cash. The Company's trade
receivables are due from a broad customer base and each individual receivable
amount constitutes a relatively small value.
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.
Registration of Shares on Form S-8
On December 23, 2004, the Company filed a Form S-8 registration statement
registering 306,667 shares of the Company's common stock, $0.0001 par value per
share, which are to be offered upon the terms and subject to the conditions set
forth in the Engagement Letter, dated October 8, 2004, between the Company and a
consultant.
Loan Agreement
On March 31, 2004, we entered into a loan agreement for $120,000. The
loan bears interest at the rate of 10% per annum, and is due April 1, 2005. The
loan is secured by the Company's accounts receivable, tax refunds, deposit
accounts, and cash and cash equivalents. If the collateral securing the loan is
insufficient, the loan is also secured by the shares of the Company's common
stock held by Mark A. Josipovich, our Chairman of the Board, Chief Executive
Officer, President, and Treasurer. The loan is subject to certain preservation
of corporate status covenants which the Company was in compliance with as of
September 30, 2004.
27
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.
Employment Agreements
In September 2001, Bluebook International entered into employment
agreements with Mark A. Josipovich and Daniel T. Josipovich for a term of two
years with an automatic extension of successive one-year periods.
Effective October 1, 2001, Bluebook Holding assumed these agreements and
expanded the services to include each person's executive position. Under these
agreements, Mark A. Josipovich is employed as the Chief Executive Officer,
President, and Treasurer, and Daniel T. Josipovich is employed as the Chief
Operating Officer, each with an annual salary of $180,000, plus health insurance
benefits, term life insurance benefits and the right to participate in any
future employee stock option, retirement, profit sharing or other benefit plans
offered in the future to similarly situated employees. The employment agreements
also contain indemnification and confidentiality provisions. The agreements also
provide that we should reimburse the employee for all reasonable and necessary
expenses incurred on our behalf. In the event of termination without cause by
Mark A. Josipovich or Daniel T. Josipovich or termination with cause by us, Mark
A. Josipovich and Daniel T. Josipovich are entitled to all accrued and unpaid
compensation as of the date of termination. In the event of termination with
cause by Mark A. Josipovich or Daniel T. Josipovich or termination without cause
by us, Mark A. Josipovich or Daniel T. Josipovich are entitled to all accrued
and unpaid compensation as of the date of termination and the total amount of
annual salary from the date of termination until the end of the term of the
employment agreements.
License of InsureBASE software solution
On November 11, 2003 we signed an agreement with the Underwriters Rating
Board, a trade association of insurance companies, to license the InsureBASE
software solution. The URB account is of particular importance to us because it
demonstrated that an industry association selected our software solutions ahead
of those offered by the market leader and other competitors. The InsureBASE
solution was able to accommodate the demands of URB in that its proprietary
architecture meet the connectivity needs of at least 37 URB member insurance
companies.
Legal Proceedings
As of January 6, 2005, we are not subject to any pending legal
proceedings that would be deemed material to our business. From time to time, we
may be subject to certain routine litigation that is incidental to our business.
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' shares of
Bluebook 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.
On April 24, 2003, Cotelligent, Inc. filed a demand for arbitration
against Bluebook in Case No. 731310018503 ARC, asserting a claim for breach of
contract arising out of a consulting services agreement between Cotelligent and
Bluebook. Bluebook filed cross-claims on May 29, 2003. Effective as of May 3,
2004, Bluebook and Cotelligent agreed to a mutual settlement of the entire
arbitration pursuant to a Settlement Agreement. Under the terms of the
Settlement Agreement, Cotelligent converted all of its approximately 5.3 million
shares of Bluebook Series C Preferred Stock into shares of Bluebook common stock
on a one-for-one basis. These shares represent 265,825 shares of the Company's
common stock. In addition, Cotelligent agreed to deliver source code developed
by Cotelligent for Bluebook pursuant to the consulting services agreement.
28
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.
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 is 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.
29
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, or 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, SAB 105 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 April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities". SFAS No. 149 amends and
clarifies under what circumstances a contract with initial investments meets the
characteristics of a derivative and when a derivative contains a financing
component. SFAS No. 149 is effective for contracts entered into or modified
after June 30, 2003. The Company does not expect that the adoption of SFAS No.
149 will have a significant effect on the Company's financial statement
presentation or disclosures.
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, or FASB, issued Interpretation No. 46, "Consolidation of
Variable Interest Entities", an interpretation of Accounting Research Bulletin,
or 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.
PROPERTIES
Description of Property
Our principal administrative, sales and marketing, customer support, and
research and development facilities are located in approximately 3,732 square
feet of leased office space in Lake Forest, California. We sublease this office
space from Carl Zeiss IMT Corporation, a New York corporation. The master
30
landlord of the premises is Pacific Gulf Properties, a Maryland Corporation,
which assigned its interest in the underlying lease to Cal-West Industrial
Properties, LLC, a California limited liability company. In September 2004, we
entered into a new lease agreement for this office space. The lease will expire
in September 2005 at which time may be extended for renewal in successive one
year terms. The monthly base rent for our current facility for year one is
$4,441.08, and thereafter, we must pay as additional rent, our proportionate
shares of expenses and taxes, initially estimated to be $1,418.16 per month.
Investment Policies
We do not have any policies with respect to investments in real estate or
interests in real estate, real estate mortgages or securities of or interests in
persons primarily engaged in real estate activities.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As part of an Amended and Restated Asset Purchase and Sale Agreement,
dated September 15, 2001, the Company is obligated to pay a royalty to Daniel E.
and Dorothy E. Josipovich in the amount of 6% of net revenue, defined as the
aggregate of all gross revenues, sales, and receipts of whatever nature or kind
received by the Company, less any returns, rebates, discounts, allowances,
rejections and credits, and less the actual out-of-pocket costs and expenses
incurred, except depreciation, reserves, taxes, interest and extraordinary
expenses. As of December 31, 2003 and 2002, under the above definition, the
Company has negative net revenue; therefore no royalty expenses were accrued.
Effective as of January 1, 2002, Bluebook International entered into a
consulting agreement with Daniel E. Josipovich, father of the Company's
executive officers Mark A. Josipovich and Daniel T. Josipovich. Aggregate fees
paid or payable to Daniel E. Josipovich, for consulting services rendered and
related expenses during the years ended December 31, 2003 and 2002 were $150,000
and $189,708, respectively.
Paul D. Sheriff, a Director, serves as President of PDSA, Inc., one of
the Company's consultants. Aggregate fees billed to us by PDSA for consulting
services rendered during the year ended December 31, 2002 was $158,770, and is
included in Programming costs. As of December 31, 2003, accounts payable
includes $95,000 due to this vendor. We believe that the services rendered to us
by PDSA were on terms no more favorable than those with unrelated parties.
In August 2002 we entered into a Stock Purchase Agreement with
Cotelligent, Inc. in which we agreed to sell Cotelligent approximately 5.3
million shares of our Series C Convertible Preferred Stock for $5.1 million in
31
two tranches. The first tranche closed in August 2002 in which Cotelligent
purchased approximately 3.055 million shares of Series C Convertible Preferred
Stock with a combination of cash in the amount of $1.5 million and
extinguishment of $2.1 million of outstanding accounts payable. The second
tranche closed in December 2002 for the purchase of the remaining shares of
Series C stock in cash in the amount of $1.5 million. In connection with this
financing, we also entered into the Consulting Agreement with Cotelligent under
which Cotelligent was to complete development of B.E.S.T.Net and
B.E.S.T.Central, which was recently terminated. Prior to termination of the
Consulting Agreement, we paid Cotelligent $2,413,375 for its services. Pursuant
to a mutual settlement agreement entered into by the Company and Cotelligent,
all of the approximately 5.3 million shares of Series C Convertible Preferred
Stock were converted into the same number of shares of our common stock on May
6, 2004. These shares represent 265,835 shares of the Company's common stock.
In September 2004, we issued 57,775 shares of 144A common stock as
settlement of $87,100 of debts to certain consultants and employees. The Company
also issued 10,000 shares of Rule 144A common stock as a partial payment of a
$30,000 loan from a related party.
In October, 2004 related parties converted all 2,050 shares of the
Company's outstanding Series B Convertible Preferred Stock pursuant to the terms
thereof into 2,733,333 shares of common stock. Also in October, 2004 the Company
issued a total of 1,387,833 shares of common stock in settlement of $1,040,874
of debts due to related parties upon the same conversion terms as those of the
Series B Convertible Preferred Stock.
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. This amount was converted into
shares of common stock in October 2004 as described above.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is quoted on the OTC Bulletin Board under the symbol
"BBKH." The following table sets forth the high and low bid information of the
common stock for the quarters indicated as quoted on the OTC Bulletin Board.
2002 2003 2004(1)
High Low High Low High Low
First Quarter $140.00 $93.00 $22.00 $6.00 $5.01 $0.80
Second Quarter $139.00 $41.00 $15.00 $0.20 $6.00 $1.00
Third Quarter $ 44.00 $24.00 $16.00 $1.20 $5.00 $2.40
Fourth Quarter $ 40.00 $ 6.00 $13.00 $1.00 $8.00 $2.20
Notes:
(1) Trading under ticker symbol BBIC through November 22, 2004 and under ticker
symbol BBKH thereafter.
The source of the above high and low bid information is the Yahoo!
Finance website at http://finance.yahoo.com. The above quotations represent
prices between dealers without adjustments for retail markups, markdowns or
commissions and may not represent actual transactions. The stock prices above
have been retroactively stated to reflect the 1 for 20 reverse stock split
declared on November 17, 2004.
According to the records of our transfer agent, we had 167 stockholders
of record of our common stock at January 6, 2005.
We have never declared or paid any cash dividends on our capital stock
and do not anticipate paying any cash dividends on our common stock in the
foreseeable future. We currently expect to retain future cash flows to finance
our operations and fund the growth of our business. Any payment of future
dividends will be at the discretion of our Board of Directors and will depend
upon, among other things, our earnings, financial condition, capital
requirements, level of indebtedness, contractual restrictions in respect to the
payment of dividends and other factors that our Board of Directors deems
relevant.
EXECUTIVE COMPENSATION
The following table sets forth compensation information for our Chief Executive
Officer and other executive officers as of the end of fiscal year 2004, 2003 and
2002.
Summary Compensation Table Annual Compensation
Other Annual
Name and Principal Fiscal Year Salary Bonus Compensation
- ------------------------------- ----------- ----------- --------- ------------
Positions
Mark A. Josipovich 2004 $180,000(1) -- --
President and Chief 2003 $180,000(2) $39,500 $19,186(3)
Executive Officer 2002 $180,000 -- $19,721(4)
Daniel T. Josipovich 2004 $180,000(5) -- --
Chief Operating Officer 2003 $180,000(6) $35,800 $25,577(7)
2002 $180,000 -- $25,233(8)
32
(1) Excludes $265,879 of debt in the form of accrued but unpaid compensation,
which amount was paid off in November of 2004 upon receipt of 345,505 shares of
the Company's common stock.
(2) Includes $128,834.76 that was deferred at the election of the executive
officer, none of which amount has yet been paid to the executive officer.
(3) Includes reimbursement of $9,267 for automobile expenses and $9,880
for health insurance.
(4) Includes reimbursement of $7,746 for automobile expenses and $9,880.32 for
health insurance.
(5) Excludes $358,113 of debt in the form of accrued but unpaid compensation,
which amount was paid off in November of 2004 upon receipt of 477,484 shares of
the Company's common stock.
(6) Includes $150,000.00 that was deferred at the election of the executive
officer, none of which amount has yet been paid to the executive officer.
(7) Includes reimbursement of $15,658.36 for automobile expenses and $9,918
for health insurance.
(8) Includes reimbursement of $15,393.08 for automobile expenses and $8,593
for health insurance.
Employment agreements
For a description of the Company's employment agreements see
"Management's Discussion and Analysis of Financial Condition and Results of
Operation - Commitments and Contingencies--Employment Agreements."
Director Compensation
Our directors who are not employees of the Company are not paid annual
cash fees, and do not receive any fees for attending the Board meetings or
Committee meetings.
LEGAL MATTERS
Latham Watkins LLP, Costa Mesa, California will opine as to the validity
of the common stock being offered by this prospectus.
EXPERTS
The consolidated financial statements as of and for the years ended
December 31, 2003 and 2002 included in the Prospectus have been audited by
Weinberg & Company, P.A., independent certified public accountants, to the
extent and for the periods set forth in their report (which contains an
explanatory paragraph regarding Bluebook's ability to continue as a going
concern) appearing elsewhere herein and are included in reliance upon such
report given upon the authority of said firm on experts in auditing and
accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form SB-2 with the SEC, of
which this prospectus is a part, under the Securities Act with respect to the
shares of common stock offered by this prospectus. This prospectus does not
contain all of the information included in the registration statement, and
statements contained in this prospectus concerning the provisions of any
document are not necessarily complete. For further information about Bluebook
and the common stock offered under this prospectus, you should read the
registration statement, including its exhibits.
We file annual, quarterly and current reports, proxy statements and other
information with the SEC under the Securities Exchange Act of 1934. You may read
and copy this information at SEC's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C., 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the SEC's Public Reference Room. The SEC also
maintains an Internet site that contains reports, proxy statements and other
information about issuers, like us, who file electronically with the SEC. The
address of the SEC's web site is www.sec.gov.
33
Our Internet web site is www.bluebook.net. The reports we file with or
furnish to the SEC, including our annual report and quarterly reports, are
available free of charge on our web site.
34
INDEX TO FINANCIAL STATEMENTS
Audited Financial Statements Page
Independent Auditors' Report of Registered Independent Accounting Firm F-2
Consolidated Balance Sheet as of as of December 31, 2003 F-3
Consolidated Statements of Operations for the Years ended December 31, 2002 and F-4
December 31, 2003
Consolidated Statements of Stockholders' Deficiency for the Years ended December 31, F-5
2002 and December 31, 2003
Consolidated Statements of Cash Flows for the Years ended December 31, 2002 and F-6
December 31, 2003
Notes to Consolidated Financial Statements as of December 31, 2002 and F-7 - F-15
December 31, 2003
Condensed Consolidated Balance Sheets as of September 30, 2004 (unaudited)
and December 31, 2003 F-16
Condensed Consolidated Statements of Operations for the nine months ended F-17
September 30, 2003 and September 30, 2004 (unaudited)
Consolidated Statements of Stockholders' Equity (Deficiency) for the nine months F-18
ended September 30, 2004 (unaudited)
Condensed Consolidated Statements of Cash Flows for nine months ended F-19
September 30, 2003 and September 30, 2004 (unaudited)
Notes to Condensed Consolidated Financial Statements for the nine months ended F-20 - F-24
September 30, 2004 (unaudited)
F-1
Report of Independent Registered Accounting Firm
To the Board of Directors of
The Bluebook International Holding Company:
We have audited the accompanying consolidated balance sheets of The Bluebook
International Holding Company and subsidiary (the "Company"), as of December 31,
2003 and 2002, and the related consolidated statements of operations, changes in
stockholders' deficiency and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audits in accordance with auditing standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly in all material respects, the financial position of The Bluebook
International Holding Company, Inc. and subsidiary as of December 31, 2003 and
2002, and the results of their operations and their cash flows for the year then
ended, in conformity with accounting principles generally accepted in the United
States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's working capital deficiency of $1,912,156 and
stockholders' deficiency of $2,551,670 as of December 31, 2003, net loss from
operations of $1,560,129 and net cash used in operations of $819,511 in 2003,
raise substantial doubt about its ability to continue as a going concern.
Management's plan in regards to these matters is also described in Note 1. These
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Weinberg & Company, P.A.
- ----------------------------
Weinberg & Company, P.A.
Boca Raton, Florida
May 14, 2004
F-2
THE BLUEBOOK INTERNATIONAL HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2003
2003 2002
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 44,831 $ 1,528,773
Accounts receivable, net of allowance for doubtful accounts
of $4,600 in 2003 26,798 36,931
Prepaid expenses and other 10,000 65,621
------------ ------------
TOTAL CURRENT ASSETS 81,629 1,631,325
------------ ------------
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $148,546 and $98,890 in 2003 and 2002, respectively 98,064 88,974
------------ ------------
OTHER ASSETS
Program development costs, net of accumulated amortization
of $423,759 and $234,917, in 2003 and 2002, respectively 3,777,200 3,156,856
Intangible assets, net of accumulated amortization
of $19,836 and $10,414, in 2003 and 2002, respectively 24,885 32,808
Other assets 5,017 5,017
------------ ------------
TOTAL OTHER ASSETS 3,807,102 3,194,681
------------ ------------
TOTAL ASSETS $ 3,986,795 $ 4,914,980
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,063,013 $ 943,196
Due to stockholders and related party 484,688 107,491
Deferred revenue 241,084 205,614
Note payable due to related party 205,000 --
------------ ------------
TOTAL CURRENT LIABILITIES 1,993,785 1,256,301
------------ ------------
OTHER LIABILITIES
Deferred revenue, net of current portion -- 105,540
Series C convertible preferred stock, $0.001 par value,
5,316,704 shares issued and outstanding, subject to
mandatory redemption 4,544,680 4,544,680
------------ ------------
TOTAL OTHER LIABILITIES 4,544,680 4,650,220
------------ ------------
COMMITMENTS AND CONTINGENCIES -- --
------------ ------------
STOCKHOLDERS' 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;
1,436,671 shares issued and outstanding 143 143
Additional paid in capital 599,467 599,467
Accumulated deficit (3,151,280) (1,591,151)
------------ ------------
(2,551,670) (991,541)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 3,986,795 $ 4,914,980
============ ============
See accompanying Notes to Consolidated Financial Statements
F-3
THE BLUEBOOK INTERNATIONAL HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
THE YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
------------ ------------
SALES, net $ 705,657 $ 859,205
------------ ------------
OPERATING EXPENSES
Selling, general and administrative expenses 2,003,986 1,733,766
Depreciation and amortization expenses 247,920 106,676
------------ ------------
Total Operating Expenses 2,251,906 1,840,442
------------ ------------
OTHER EXPENSE
Interest Expense (13,880) (22,701)
------------ ------------
Total Other Expense (13,880) (22,701)
------------ ------------
NET LOSS $ (1,560,129) $ (1,003,938)
============ ============
Weighted average number of shares of
common stock outstanding, basic and diluted 1,436,671 1,749,171
============ ============
Loss per share, basic and diluted $ (1.09) $ (0.57)
============ ============
See accompanying Notes to Consolidated Financial Statements
F-4
THE BLUEBOOK INTERNATIONAL HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
COMMON STOCK PREFERRED STOCK
-------------------------- ------------------------ ADDITIONAL ACCUMULATED
SHARES AMOUNT SHARES AMOUNT PAID IN CAPITAL DEFICIT TOTAL
------------- ----------- ----------- ----------- ----------------- -------------- --------------
Balance, January 1, 2002 1,936,671 $ 193 2,050 $ 599,417 $ (587,213) $ 12,397
Cancellation of stock (500,000) (50) 50 -
Net loss in 2002 (1,003,938) (1,003,938)
------------- ----------- ----------- ----------- ----------------- -------------- --------------
Balance, December 31, 2002 1,436,671 $ 143 2,050 - 599,467 (1,591,151) (991,541)
Net loss in 2003 (1,560,129) (1,560,129)
------------- ----------- ----------- ----------- ----------------- -------------- --------------
Balance, December 31, 2003 1,436,671 $ 143 2,050 $ - $ 599,467 $ (3,151,280) $ (2,551,670)
============= =========== =========== =========== ================= ============== ==============
See accompanying Notes to Consolidated Financial Statements
F-5
THE BLUEBOOK INTERNATIONAL HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,560,129) $(1,003,938)
Adjustment to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 247,920 106,674
Provision for bad debt expense 4,600
Changes in operating assets and liabilities:
(Increase) Decrease in Accounts receivable 5,533 (36,931)
(Increase) Decrease in Prepaid expenses and other 55,621 (62,396)
Increase in Accounts payable and accrued expenses 119,817 744,140
Increase in Due to stockholders and related party 377,197 107,491
(Decrease) in Deferred revenue (70,070) (28,289)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (819,511) (173,249)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (58,746) (24,961)
Program development costs (809,186) (947,144)
Purchase of intangible assets (1,499) (6,520)
Other assets -- (855)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (869,431) (979,480)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans from stockholder 205,000 --
Proceeds from sale of Series C Convertible Redeemable Preferred Stock -- 2,444,680
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 205,000 2,444,680
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,483,942) 1,291,951
CASH AND CASH EQUIVALENTS, BEGINNING OF THE YEAR 1,528,773 236,822
----------- -----------
CASH AND CASH EQUIVALENTS, END OF THE YEAR $ 44,831 $ 1,528,773
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 13,880 $ 22,701
=========== ===========
Taxes $ 4,472 $ 2,378
=========== ===========
Disclosure of non-cash investing and financing activities:
Issuance of Series C Preferred Stock for extinguishment of accounts
payable incurred in the acquisition of program development costs $ -- $ 2,100,000
=========== ===========
See accompanying Notes to Consolidated Financial Statements
F-6
THE BLUEBOOK INTERNATIONAL HOLDING COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BUSINESS ACTIVITY
Background of the Company
The Bluebook International Holding Company (the "Company") was incorporated as
Gama Computer Corporation in Delaware on December 17, 1997. On January 9, 1998,
the Company merged with Gama, Inc., a Colorado corporation, and Gama Computer
Corporation became the surviving company. On September 24, 2001, Gama Computer
Corporation entered into a certain Agreement and Plan of Merger (the
"Agreement") with (a) The Bluebook International, Inc., a Nevada corporation
("Bluebook International"); (b) Bluebook Acquisition Corp., a Nevada
corporation, wholly owned by the Company ("Acquisitions"); (c) each of Mark A.
Josipovich, Daniel T. Josipovich, Daniel E. Josipovich and Dorothy E. Josipovich
(each, a "Bluebook Stockholder"); and (d) Andrew Hromyk. Among other things, the
Agreement provided for the Company's purchase from the Bluebook Stockholders of
all of the issued and outstanding capital stock of Bluebook International in
exchange for the issuance of an aggregate of 1,635,000 shares of the Company's
authorized but unissued Common Stock (the "Exchange").
Effective October 1, 2001, the Company underwent a change of control in
connection with the consummation of the Exchange in which (i) Andrew Hromyk, the
Company's only executive officer, resigned his position, and the Board of
Directors appointed Mark A. Josipovich to serve as the Company's President,
Chief Executive Officer, Chief Financial Officer and Secretary and Daniel T.
Josipovich to serve as the Company's Chief Operations Officer; (ii) the
Company's majority stockholder surrendered and subsequently cancelled 960,000
shares and (iii) the Bluebook Stockholders became the holders of an aggregate of
1,635,000 shares of the Company's Common Stock, or approximately 84.4% of the
Company's Common Stock issued and outstanding after the consummation of the
Exchange. In addition, effective October 1, 2001, Daniel E. Josipovich and
Dorothy E. Josipovich were jointly issued 1,000 shares of Series A Convertible
Preferred Stock with voting rights in exchange for the cancellation of a related
party note of $1,000,000 (see note 7). Upon consummation of the Exchange, Mr.
Hromyk resigned as the then-sole member of the Company's Board of Directors.
At consummation of the Exchange on October 1, 2001, the Company acquired all of
the 354,167 issued and outstanding capital shares of Bluebook International, and
issued a total of 1,635,000 shares of Common Stock to the Bluebook Stockholders.
Immediately following the Exchange, the Company had a total of 1,936,671 shares
of Common Stock issued and outstanding. As a result of the Exchange, Bluebook
International became a wholly owned subsidiary of the Company. Immediately
following the Exchange, the Company caused Acquisitions and Bluebook
International to be merged pursuant to a Certificate of Merger filed with the
California Secretary of State on October 4, 2001 (the "Merger"). Acquisitions
survived the Merger, and concurrently Acquisitions changed its name to The
Bluebook International, Inc. (the "Surviving Subsidiary"). On November 6, 2001,
the Company changed its name from GAMA Computer Corporation to The Bluebook
International Holding Company. The Company intends to continue to hold the
Surviving Subsidiary as a wholly owned subsidiary of the Company and intends to
cause the Surviving Subsidiary to continue the operations of Bluebook
International, more fully described below.
Bluebook International was incorporated on December 5, 2000 under the laws of
the State of Nevada. On September 15, 2001, the Company purchased all of the
business assets owned by Daniel E. Josipovich and Dorothy E. Josipovich, husband
and wife (the "Sole Proprietorship"), used in the business of creating,
developing and distributing products and services related to The Bluebook of
Cleaning, Reconstruction and Repair Cost (the "Bluebook") and Bluebook
Estimating Software Technology ("B.E.S.T.") for over 38 years.
For accounting purposes, the transaction was treated as a purchase acquisition
of the Company by Bluebook International and as a recapitalization of Bluebook
International. The historical financial statements prior to the acquisition were
those of sole proprietorship and became those of Bluebook International. In the
recapitalization, historical stockholders' equity of Bluebook International
prior to the merger was retroactively restated for the equivalent number of
shares received in the merger with an offset to paid-in capital. Accumulated
deficit of the Company was reversed to paid-in capital. Basic earnings (loss)
per share prior to the merger was restated to reflect the number of equivalent
shares issued to Bluebook International stockholders.
The consolidated financial statements include the accounts of The Bluebook
International Holding Company and its wholly owned subsidiary. Intercompany
transactions and balances have been eliminated.
Business activity
Until September 15, 2001, the Company was in a development stage. After
September 15, 2001 when it was acquired, the principal business of the Company
has been developing and selling The Bluebook and B.E.S.T.. The Bluebook is a
book in the form of both a desk and pocket size book containing the information
of the average unit costs attendant to the cleaning, reconstruction and repair
industries. B.E.S.T. is a software format of The Bluebook which allows
subscribers the option to retrieve The Bluebook data and calculate the cost to
clean, reconstruct or repair, then file claims electronically. Currently the
Company is developing B.E.S.T. Net (TM) and B.E.S.T. Central (TM), web-based
cost estimation and claims management software.
Going Concern
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplate continuation of the Company as a going concern. However, the Company
has a net loss from operations of $1,560,129 and a negative cash flow from
operations of $819,511 for 2003, and has a working capital deficiency of
F-7
THE BLUEBOOK INTERNATIONAL HOLDING COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
$1,912,156 and shareholders' deficiency of $2,551,670 as of December 31, 2003.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. Without realization of additional capital, it would be unlikely
for the Company to continue as a going concern. These financial statements do
not include any adjustments relating to the recoverability and classification of
recorded asset amounts, or amounts and classification of liabilities that might
result from this uncertainty.
As of December 31, 2003, the Company had cash of $44,831 and an accumulated
deficit of $3,151,280. Our 2003 negative operating cash flows were funded
primarily through operations, loans from a majority shareholder and cash
existing at December 31, 2002.
The Company has recently taken steps to improve liquidity, including obtaining
additional funding, reduction of its workforce and deferment of its Chief
Executive Officer's and Chief Operating Officer's salaries. If it is not
successful in raising additional capital, it will further reduce operating
expenses through headcount reductions in restructurings and modify its business
model and strategy to accommodate licensing of its technology and databases.
Further, the Company would continue sales of THE BLUEBOOK and B.E.S.T. software
solutions and recently released InsureBase and Insured to Value solutions. The
Company does not expect any significant impact on its sales of THE BLUEBOOK and
B.E.S.T. 7 from such restructurings; however, they may adversely affect sales of
InsureBase and Insured to Value solutions, as well as development of any new
solutions.
The Company intends to seek additional capital in the next six months through
additional private placements, loan from stockholders and sales of various
products. If it is not successful in raising additional capital, it will reduce
operating expenses through headcount reductions in restructuring.
We do not expect any significant impact on our products and sales from such
restructurings; however, they would adversely affect development of new
products.
On November 17, 2004, the Company declared a 1 for 20 reverse stock split. All
share and per share amounts herein have been retroactively restated to show the
effect of the reverse stock split as if it occurred at the beginning of the
period.
Reclassifications
Certain reclassifications have been made to the prior year balance sheet to
conform to the current year presentation. In the Company's Annual Report on Form
10-KSB for the year ended December 31, 2002, the Company reported interest
expense as a part of selling, general, and administrative expenses. In 2003, the
Company reported the interest expense as a separate line item shown as other
income (expense). The interest expense for 2002 was reclassified as a separate
line item.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount 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.
Fair value of financial instruments
Statement of Financial Accounting Standards No. 107 "Disclosure about Fair Value
of Financial Instruments" requires disclosures of information about the fair
value of certain financial instruments for which it is practicable to estimate
the value. For purposes of this disclosure, the fair value of a financial
instrument is the amount at which the instrument could be exchanged in a current
transaction between willing parties other than in a forced sale of liquidation.
The Company believes that the carrying value of its cash, receivables, accounts
payable and accrued liabilities and related party debts as of December 31, 2003
approximates their respective fair values due to the demand or short-term nature
of those instruments.
Accounts Receivable
The Company grants credit to its customers and performs ongoing credit
evaluations. The Company generally does not require collateral or charge
interest. The Company establishes an allowance for doubtful accounts based upon
factors surrounding the credit risk of specific customers, historical trends,
economic and market conditions, and the age of the receivable.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method of depreciation over estimated useful lives of the related
assets ranging from 3 to 7 years.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the related carrying amount may not be recoverable.
Recovery of assets to be held and used is measured by a comparison of the
carrying amount of the assets to the future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount of which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less the cost
to sell.
Program development costs
The Company accounts 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 the
Company has defined as the completion of beta testing of a working product. The
cost of purchased computer software that has no alternative future use is
F-8
THE BLUEBOOK INTERNATIONAL HOLDING COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
accounted for in the same manner as the costs incurred to internally develop
such software. Costs of purchased computer software is 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 (which ranges from three to five years).
The carrying value of software and development costs is reviewed regularly by
the Company to determine if there has been an impairment loss that needs to be
recognized.
Intangible assets
Intangible assets consist of customer list, graphic arts and other. Graphic arts
and other are amortized over the estimated useful life of 5 years. Customer list
is amortized over the estimated useful life of 10 years.
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 loss per share is calculated assuming the issuance of common
shares, if dilutive, resulting from the exercise of stock options and warrants.
The Company has no outstanding options or warrants, therefore basic and diluted
loss per share are the same for the years ended December 31, 2003 and 2002. Loss
per share amounts have been retroactively restated to show the effect of the 1
for 20 reverse stock split declared on November 17, 2004.
Revenue recognition
Revenue is recognized when earned. The Company's revenue recognition policies
for its 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.
Income taxes
The Company accounts for income taxes using the liability method whereby
deferred income taxes are recognized for the tax consequences of temporary
differences by applying statutory tax rates applicable to future years to
difference between the financial statement carrying amounts and the tax bases of
certain assets and liabilities. Changes in deferred tax assets and liabilities
include the impact of any tax rate changes enacted during the year.
Recent financial accounting standards
In December 2002, the Financial Accounting Standards Board issued Statement No.
148, "Accounting for Stock-Based Compensation-Transaction and Disclosure - an
amendment of FASB Statement No. 123," ("SFAS 148"). SFAS 148 amends FASB
Statement No. 123, "Accounting for Stock Based compensation" ("SFAS 123") and
provides alternative methods for accounting for a change by registrants to the
fair value method of accounting for stock-based compensation. Additionally, SFAS
148 amends the disclosure requirements of SFAS 123 to require disclosure in the
significant accounting policy footnote of both annual and interim financial
statements of the method of accounting for stock based compensation and the
related pro forma disclosures when the intrinsic value method continues to be
used. The statement is effective for fiscal years beginning after December 15,
2002, and disclosures are effective for the first fiscal quarter beginning after
December 15, 2002. The Company believes the adoption of this Statement will have
no material impact on its financial statements.
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
F-9
THE BLUEBOOK INTERNATIONAL HOLDING COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
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. The
Company does not expect that the adoption of FASB Interpretation No. 46 will
have a significant effect on the Company's financial statement presentation or
disclosures.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". SFAS No. 149 amends and
clarifies under what circumstances a contract with initial investments meets the
characteristics of a derivative and when a derivative contains a financing
component. SFAS No. 149 is effective for contracts entered into or modified
after June 30, 2003. The Company does not expect that the adoption of SFAS No.
149 will have a significant effect on the Company's financial statement
presentation or disclosures.
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 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, or 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, SAB 105 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.
Concentration of credit risk
The Company's financial instruments that are exposed to concentrations of credit
risk consist principally of cash and receivables. The Company places its cash in
what it believes to be credit-worthy financial institutions. However, cash
balances have exceeded FDIC insured levels at various times during the year. The
Company has not experienced any losses in such accounts and believes it is not
exposed to any significant risk in cash. The Company's trade receivables are due
from a broad customer base and each individual receivable amount constitutes a
relatively small value.
2. CHANGE IN ESTIMATE
In September 2003 the management of the Company decided to change the estimated
useful life of B.E.S.T.7 from 24 months to 15 months, which resulted in a
corresponding change in the life for the amortization of the deferred revenue
related to B.E.S.T.7. Development costs of B.E.S.T.7 that pertain to the data
base, approximately 80% of the net book value as of June 30, 2003, will be
amortized over 24 months and the remaining 20%, will be amortized over 9 months.
The impact of the change in estimate was an increase in revenue during the year
ended December 31, 2003 of $136,854. There is no impact on the results of
operations because of the change in the amortization.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31, 2003 and
2002:
F-10
THE BLUEBOOK INTERNATIONAL HOLDING COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
2003 2002
-------- --------
Furniture $ 43,714 $ 43,714
Office equipment 202,896 144,150
-------- --------
246,610 187,864
Less accumulated depreciation 148,546 98,890
-------- --------
$ 98,064 $ 88,974
======== ========
Depreciation expense charged to operations in 2003 and 2002 was $49,656 and
$29,791, respectively.
4. PROGRAM DEVELOPMENT COSTS
Program development costs consist of the following as of December 31, 2003 and
2002:
2003 2002
---------- ----------
Cost of developed software $ 620,349 $ 265,911
Cost of software in development 3,580,610 3,125,862
---------- ----------
4,200,959 3,391,773
Less accumulated amortization 423,759 234,917
---------- ----------
$3,777,200 $3,156,856
========== ==========
Amortization of program development costs charged to operations in 2003 and 2002
was $188,841 and $68,127 respectively. As of December 31, 2003, program
development costs consist primarily of the Company's investments in B.E.S.T.7,
B.E.S.T.Net and B.E.S.T.Central which are expected to be placed in service
during 2004. The following is a schedule by years of future minimum amortization
of programming costs as of December 31, 2003:
YEAR ENDING DECEMBER 31, AMOUNT
2004 $ 135,676
2005 956,066
2006 895,153
2007 895,153
2008 895,152
-----------
Total $3,777,200
===========
5. INTANGIBLE ASSETS
Intangible assets consist of the following as of December 31, 2003 and
2002:
2003 2002
------- -------
Graphic arts & other $39,711 $38,212
Customer list 5,010 5,010
------- -------
44,721 43,222
Less accumulated amortization 19,836 10,414
------- -------
$24,885 $32,808
======= =======
F-11
THE BLUEBOOK INTERNATIONAL HOLDING COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
Amortization of intangibles charged to operations in 2003 and 2002 was $9,422
and $8,756, respectively. The following is a schedule by years of future minimum
amortization of intangible assets as of December 31, 2003:
YEAR ENDING DECEMBER 31, AMOUNT
2004 $ 9,241
2005 7,036
2006 5,548
2007 1,098
2008 and after 1,962
---------
Total $24,885
=========
6. CAPITAL STOCK TRANSACTIONS
Common Stock
On August 19, 2002, the Company retired 500,000 shares the Company's common
stock that were returned to the Company by certain stockholders. Such shares
were returned in order to facilitate the completion of the offering of the
Series C Convertible Preferred Stock.
On November 17, 2004, the Company declared a 1 for 20 reverse stock split. All
share and per share amounts herein have been retroactively restated to show the
effect of the reverse stock split as if it occurred at the beginning of the
period.
Preferred Stock
At November 2004, the Company amended its Articles of Incorporation to decrease
the number of authorized shares of Preferred Stock from 10,000,000 to 5,000,000
shares.
Series A and B Convertible Preferred Stock
Effective October 2001, Daniel E. Josipovich and Dorothy E. Josipovich, were
jointly issued 1,000 shares of Series A Convertible Preferred Stock in exchange
for cancellation of a note payable due Bluebook International, Inc (a related
party) in the amount of $1,000,000. Also effective October 2001, the Company
sold 1,050 shares of Series A Convertible Preferred Stock to a third party for
net proceeds of $960,000.
The Series A Convertible Preferred Stock ("Series A Stock") was subsequently
cancelled during 2001 and exchanged for Series B Convertible Preferred Stock
with a $.0001 par value ("Series B Stock") in order to correct a mistake that
was made to the certificate of designation that had been filed with the Delaware
Secretary of State to establish the preferences for the Series A Stock. All
2,050 shares of Series A Stock have been cancelled and replaced with 2,050
Series B Stock. No additional shares of Series B Stock were issued, and the
Company has not authorized the issuance of any additional Series B Stock.
The holders of Series B Stock have a preferred return of capital in the amount
of the purchase price totaling $2,050,00.00 and a right to convert such shares
to common stock at the rate of the lesser of 75% of market value or $1.67 per
share. In the event of liquidation, the stockholders of the Series B Stock shall
be entitled to receive an amount equal to $1,000 per share, plus any accrued and
unpaid dividends. The stockholders of the Series B Stock have the same voting
rights as each share of Common Stock.
F-12
THE BLUEBOOK INTERNATIONAL HOLDING COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
The Company has the right to repurchase all of the outstanding shares of Series
B Convertible Preferred Stock as follows (i) prior to the date which is eighteen
months following the day on which the Company receives payment in full, 120% of
the purchase price; or (ii) on or after the date which is eighteen months
following the issuance date, 130% of the purchase price.
Series C Convertible Preferred Stock
In August 2002 the Company entered into a Stock Purchase Agreement with
Cotelligent, Inc ("Cotelligent") in which the Company agreed to issue to them
5,316,704 shares of the company's newly authorized Series C Preferred
Stock at a stated value of $.959241 per share, for aggregate proceeds of
$5,100,000. Of this amount, $3,000,000 was issued for cash, and $2,100,000 was
issued in exchange for services rendered by Cotelligent. The Company received
net proceeds of $4,544,680, after investment banking fees and other closing
costs which included cash of $2,444,680 and extinguishment of outstanding
accounts payable of $2,100,000 incurred in the acquisition of program
development costs
The holder of Series C Preferred Stock ("Series C Holder") has the right to
cause the Company to repurchase the Series C Preferred Stock at approximately
$0.96 per share beginning on the earlier of August 19, 2006 or upon the
occurrence of a "Liquidation" event. A "Liquidation" event includes (a) a
liquidation, dissolution or winding up of the Company, (b) sale of all or
substantially all of the assets to a party not controlled by or in common
control with the Company or the Series C Holder, or (c) an acquisition or merger
of the Company in which more than 50% of the control of the Company is
transferred to a unaffiliated third party. This repurchase right will expire on
August 19, 2008. The Series C Holder may convert the Series C Preferred Stock
into common stock at any time on a one-for-one basis. The Series C Holder may be
entitled to additional common stock upon (a) any issuance of equity securities
below the price per share of Series C Preferred Stock paid by the Series C
Holder, subject to certain exceptions or (b) the failure by the Company to meet
certain gross revenue and gross profit targets for the 12-month period ending
January 31, 2005. The Series C Preferred Stock is entitled to certain voting
rights. The Series C Holder has the same voting rights as common stock holders
with each share of Series C Preferred Stock having that number of votes such
holder would receive if it had converted into common stock. In addition, the
Company may not take certain actions without consent of at least 50% of the
issued and outstanding Series C Preferred Stock.
7. INCOME TAXES
As of December 31, 2003, the Company had Federal net operating loss
carryforwards of approximately $ 2,675,000 expiring in various years through
2023, which can be used to offset future taxable income, if any. No deferred tax
benefit for these operating losses has been recognized in the financial
statements due to the uncertainty as to their realizability in future periods
Due to the restrictions imposed by the Internal Revenue Code regarding
substantial changes in ownership of companies with loss carryforwards, the
utilization of a portion of the Company's federal net operating loss
carryforwards may be limited as a result of changes in stock ownership in prior
fiscal years.
The Company's net deferred tax assets (using a federal corporate income rate of
34%) consist of the following at December 31, 2003 and 2002:
2003 2002
----------- -----------
Benefit of operating loss carryforward $ 1,070,000 $ 470,000
Increase in valuation allowance (1,070,000) (470,000)
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
As a result of the Company's significant operating loss carryforward and the
corresponding valuation allowance, no income tax expense (benefit) has been
recorded at December 31, 2003 and 2002. The provision for income taxes using the
statutory federal income tax rate as compared to the Company's effective tax
rate is summarized below:
December 31,
-----------------
2003 2002
------ ------
Tax expense (benefit) at statutory rate (34%) (34%)
Adjustments to change in valuation allowance 34% 34%
------ ------
-- --
====== ======
F-13
THE BLUEBOOK INTERNATIONAL HOLDING COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
8. RELATED PARTY TRANSACTIONS
Effective as of January 1, 2002, Bluebook International entered into a
consulting agreement with Daniel E. Josipovich, father of the Company's
executive officers Mark A. Josipovich and Daniel T. Josipovich. Aggregate fees
paid or payable to Daniel E. Josipovich, for consulting services rendered and
related expenses during the years ended December 31, 2003 and 2002 were $150,000
and $189,708, respectively.
As part of an Amended and Restated Asset Purchase and Sale Agreement, dated
September 15, 2001, the Company is obligated to pay a royalty to Daniel E. and
Dorothy Josipovich in the amount of 6% of net revenue, defined as the aggregate
of all gross revenues, sales, and receipts of whatever nature or kind received
by the Company, less any returns, rebates, discounts, allowances, rejections and
credits, and less the actual out-of-pocket costs and expenses incurred, except
depreciation, reserves, taxes, interest and extraordinary expenses. As of
December 31, 2003 and 2002, under the above definition, the Company has negative
net revenue; therefore no royalty expenses were accrued.
Paul D. Sheriff, a Director, serves as President of PDSA, Inc., one of the
Company's consultants. Aggregate fees billed to us by PDSA for consulting
services rendered during the year ended December 31, 2002 was $158,770, and is
included in Programming costs. As of December 31, 2003, accounts payable
includes $95,000 due to this vendor. We believe that the services rendered to us
by PDSA were on terms no more favorable than those with unrelated parties.
In August 2002 the Company entered into a Stock Purchase Agreement with
Cotelligent, Inc. for $5.1 million. The Company also entered into a consulting
agreement with Cotelligent under which Cotelligent was to complete development
of B.E.S.T.Net and B.E.S.T.Central. For the year ended December 31, 2002, the
Company paid Cotelligent $2,413,375 for services rendered under the consulting
agreement. As of December 31, 2002, accounts payable included $270,893 due to
this vendor. The amount payable was liquidated during 2003. The Company has
terminated the Consulting Services Master Agreement between Cotelligent and
Bluebook International under which Cotelligent was required to complete and
deliver B.E.S.T.Net and B.E.S.T.Central to us in August 2002. The Company took
this action because it lost confidence in Cotelligent's ability to complete
development of these products. Cotelligent had refused to complete the
development work unless we agreed to pay over $400,000 in invoices that exceed
the total project cost provided in the Consulting Agreement. The Company
disputes that any further amounts are due under the Consulting Agreement. As a
result, our launch of B.E.S.T.Net and B.E.S.T.Central was delayed and revenue
from sales of these products were not realized. We have engaged a Microsoft
Certified Partner to complete development of B.E.S.T.Net and B.E.S.T.Central
products and have obtained an estimate of $275,000 to $350,000 to complete
development of these products. We may seek to recover this amount from
Cotelligent; however, there can be no assurance that we will successfully
recover these expenses. As a result of both of these transactions Cotelligent,
Inc. became a related party through its ownership of the convertible series C
preferred stock.
The related party note payable consisted of a note in the amount of $205,000
plus accrued interest at an interest rate of 8%. The note is payable to a
shareholder and is due June 15, 2004.
9. COMMITMENTS AND CONTINGENCIES
Operating leases
The Company leases office space, certain office equipment and a vehicle under
non-cancelable operating leases expiring through January 2006. Total rental
expense for the leases for the years ended December 31, 2003 and 2002 was
$64,440 and $64,440, respectively. The following is a schedule by years of
future minimum rental payments required under the operating leases that have
initial or remaining non-cancelable lease terms in excess of one year as of
December 31, 2003.
YEAR ENDING DECEMBER 31, AMOUNT
2004 $58,338
2005 3,492
2006 232
----------
Total $62,062
==========
Employment agreements
In September 2001, Bluebook International entered into employment agreements
with Mark A. Josipovich and Daniel T. Josipovich for a term of two years with an
F-14
THE BLUEBOOK INTERNATIONAL HOLDING COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
automatic extension of successive one-year periods. Effective October 1, 2001
the Company assumed these agreements and expanded the services to include each
person's executive position. Under these agreements, Mark A. Josipovich is
employed as the Chief Executive Officer, President, and Secretary, and Daniel T.
Josipovich is employed as the Chief Operating Officer, each with an annual
salary of $180,000, plus health insurance benefits, term life insurance benefits
and the right to participate in any future employee stock option, retirement,
profit sharing or other benefit plans offered in the future to similarly
situated employees. The employment agreements also contain indemnification and
confidentiality provisions. The agreements also provide that we should reimburse
the employee for all reasonable and necessary expenses incurred on our behalf.
In the event of termination without cause by Mark A. Josipovich or Daniel T.
Josipovich or termination with cause by us, Mark A. Josipovich and Daniel T.
Josipovich are entitled to all accrued and unpaid compensation as of the date of
termination. In the event of termination with cause by Mark A. Josipovich or
Daniel T. Josipovich or termination without cause by us, Mark A. Josipovich or
Daniel T. Josipovich are entitled to all accrued and unpaid compensation as of
the date of termination and total amount of annual salary from the date of
termination until the end of the term of the employment agreements. As of
December 31, 2003 and 2002, the Company has accrued salaries of $180,000 for
each executive officer.
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 September 11, 2002, Bluebook was named as a defendant in Mason Yamishiro v.
Bluebook International Holding Company, Inc., et al., Orange County Superior
Court Case No. 02CC14478. The litigation arose from a stock purchase agreement
and put agreement that Yamashiro entered into with a third party to purchase
stock in Bluebook Holding. Bluebook was dismissed from this case and the
litigation was subsequently settled.
On February 3, 2003, Bluebook was also named as a defendant in Morris Diamond,
et al. v. The Bluebook International Holding Company, New York Supreme Court,
Monroe County Case No. 1204/03. Plaintiffs allege that the Company wrongfully
withheld the issuance and delivery of plaintiffs' Company shares, thereby
damaging plaintiffs in the loss of the value of their Company stock. The Company
has no record of any stock ownership for one of the plaintiffs and, pending
discovery, disputes that there is any basis for any claim against the Company.
The Company does not dispute the stock ownership of the other plaintiffs. After
the other plaintiffs presented the Company with lost stock certificates and
representation letters, the other plaintiffs' shares were reissued to them. The
Company is in settlement discussions with all plaintiffs but will defend this
suit fully if it proceeds.
On April 24, 2004, Cotelligent, Inc. filed a demand for arbitration against
Bluebook in Case No. 731310018503 ARC, asserting a claim for breach of contract
arising out of a consulting services agreement between Cotelligent and Bluebook.
Bluebook filed cross-claims on May 29, 2003. Effective as of May 3, 2004,
Bluebook and Cotelligent agreed to a mutual settlement of the entire arbitration
pursuant to a Settlement Agreement. Under the terms of the Settlement Agreement,
Cotelligent converted all of its shares of Bluebook Series C Preferred Stock
into shares of Bluebook common stock on a one-for-one basis. In addition,
Cotelligent agreed to deliver source code developed by Cotelligent for Bluebook
pursuant to the consulting services agreement.
10. SUBSEQUENT EVENTS
o Pursuant to the Settlement Agreement with Cotelligent, On May 6, 2004, the
Company issued 265,835 shares of Common Stock and cancelled 5,316,704 shares of
Series C Convertible Redeemable Preferred Stock.
o An agreement was signed to issue 1,775 shares of common stock to settle a
consulting fee debt of $4,200
o Entered into a loan agreement in the amount of $120,000. The note was entered
into March 31, 2004 and matures April 1, 2005. The interest rate charged on the
note is 10% per annum.
o Pending settlement of outstanding legal costs of approximately $399,000 in
exchange for 99,799 shares within 30 days of request and an additional 19,960
shares upon closing of the agreement
F-15
THE BLUEBOOK INTERNATIONAL HOLDING COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
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
F-16
THE BLUEBOOK INTERNATIONAL HOLDING COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months
Ended September 30,
--------------------------
2004 2003
(unaudited) (unaudited)
----------- -----------
SALES, net $ 547,857 $ 536,963
----------- -----------
OPERATING EXPENSES
Selling, general and administrative expenses 1,191,235 1,680,982
Depreciation and amortization expenses 145,348 185,832
----------- -----------
Total Operating Expenses 1,336,583 1,866,814
----------- -----------
OTHER EXPENSE
Interest expense 29,058 8,095
----------- -----------
Total Other Expense 29,058 8,095
----------- -----------
LOSS FROM OPERATIONS (817,784) (1,337,946)
INCOME TAX EXPENSE -- 800
----------- -----------
NET LOSS $ (817,784) $(1,338,746)
=========== ===========
Weighted average number of shares of
common stock outstanding, basic and diluted 1,578,855 1,436,671
=========== ===========
Loss per share, basic and diluted $ (0.52) $ (0.93)
=========== ===========
See accompanying Notes to Condensed Consolidated Financial Statements
F-17
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
F-18
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
F-19
THE BLUEBOOK INTERNATIONAL HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 nine months
ended September 30, 2004 and 2003, and cash flows for the 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.
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.
F-20
THE BLUEBOOK INTERNATIONAL HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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.
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.
F-21
THE BLUEBOOK INTERNATIONAL HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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)
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
F-22
THE BLUEBOOK INTERNATIONAL HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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.
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:
50% of the shares No restriction
25% of the shares April 8, 2005
25% of the shares October 8, 2005
F-23
THE BLUEBOOK INTERNATIONAL HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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).
F-24
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Effective November 4, 2002, we dismissed our principal independent
accountant, Good Swartz Brown & Berns LLP, of Los Angeles, California. Our board
of directors approved the replacement of Good Swartz Brown & Berns with Weinberg
& Company, P.A., of Los Angeles, California. We replaced Swartz Brown & Berns
LLP with Weinberg & Company, P.A. when the partner in charge of our account at
Good Swartz Brown & Berns LLP changed firms and joined Weinberg & Company, P.A.
Prior to our engagement of Weinberg & Company, P.A., we did not consult Weinberg
& Company, nor this particular partner while at Weinberg & Company, with respect
to (i) the application of accounting principles to a specific transaction or the
type of audit opinion that might be rendered on our financial statements or (ii)
any matter that was the subject of any prior disagreement between us and our
previous independent accountant.
The report of Good Swartz Brown & Berns on our financial statements for
the years ended December 31, 2001 and December 31, 2000 did not contain an
adverse opinion or disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles. The dismissal of Good Swartz
Brown & Berns was effective as of November 4, 2002 and was not due to any
disagreement between us and Good Swartz Brown & Berns.
During the two fiscal years prior to and preceding the resignation of
Good Swartz Brown & Berns and any subsequent interim period preceding such
resignation, there were no disagreements with Good Swartz Brown & Berns on any
matter of accounting principles or practices, financial statement disclosures or
auditing scope or procedure, which disagreements if not resolved to the
satisfaction of Good Swartz Brown & Berns would have caused them to make
reference thereto in their report on our financial statements for the period.
We have provided Good Swartz Brown & Berns with a copy of the disclosures
contained in this prospectus and have requested that Good Swartz Brown & Berns
furnish to us a letter addressed to the Securities and Exchange Commission
stating whether or not it agrees with the statements made in this prospectus. A
copy of Good Swartz Brown & Berns' letter is attached as Exhibit 16.1 to this
prospectus.
Effective November 4, 2002, the Company engaged Weinberg & Company, P.A.,
of Boca Raton, Florida, and Los Angeles, California, as its independent auditor.
35
----------
----------
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus. You should
not rely on any unauthorized information. This prospectus does not offer to sell
or buy any shares in any jurisdiction in which it is unlawful. The information
in this prospectus is only current as of January 6, 2005.
Up to 2,557,239 Shares
THE BLUEBOOK INTERNATIONAL HOLDING COMPANY
Common Stock
Prospectus
____________, 2005
36
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Bylaws authorize indemnification of a director, officer, employee or
agent of the Company against expenses incurred by him in connection with any
action, suit, or proceeding to which he is named a party by reason of him having
acted or served in such capacity, except for liabilities arising from his own
misconduct or negligence in performance of his duty. In addition, even a
director, officer, employee, or agent of the Company who was found liable for
misconduct or negligence in the performance of his duty may obtain such
indemnification if, in view of all the circumstances in the case, a court of
competent jurisdiction determines such person is fairly and reasonably entitled
to indemnification.
In addition, our Certificate of Incorporation provides that a director of
the Company will not be liable to the Company for monetary damages for an act or
omission in the director's capacity as a director, except to the extent not
permitted by law. Delaware law does not permit exculpation of liability in the
case of (i) a breach of the director's duty of loyalty to the corporation, (ii)
an act or omission not in good faith or which involves intentional misconduct or
a knowing violation of the law, (iii) a transaction from which a director
received an improper benefit, or (iv) an act related to an unlawful stock
repurchase or dividend.
We do not maintain any directors and officers liability insurance policy.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses payable by the Registrant in
connection with the registration of the securities offered by this Registration
Statement.
SEC registration fee ......................... $ 1,508
Printing expenses ............................ $ 3,400*
Legal fees and expenses ...................... $60,000*
Accounting fees and expenses ................. $15,000*
Miscellaneous ................................ $ 8,000*
-------
Total ........................................ $87,908
=======
- ---------------
*Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In August and December of fiscal year 2002, we issued an aggregate of
5,316,704 shares of Series C Preferred Stock at a stated value of $0.959241 per
share to Cotelligent for aggregate proceeds of $5,100,000.
On April 24, 2004, Cotelligent, Inc. filed a demand for arbitration
against Bluebook in Case No. 731310018503 ARC, asserting a claim for breach of
contract arising out of a consulting services agreement between Cotelligent and
Bluebook. Bluebook filed cross-claims on May 29, 2003. On May 6, 2004, Bluebook
and Cotelligent mutually entered into an agreement to dismiss Arbitration Case
No. 731810018503 ARC and convert all of Cotelligent's preferred shares into
265,835 common shares.
In September 2004 the Company issued a total of 57,775 shares of common
stock to certain consultants and employees of the Company in settlement of debts
totaling $87,100. The Company also issued 10,000 shares of common stock as
partial payment of a loan to a related party and issued 3,000 shares in
connection with the settlement of litigation.
37
In October 2004, the Company has issued a total of 2,733,333 shares of
common stock on conversion of the Company's outstanding 2,050 shares of Series B
Convertible Preferred Stock and has issued 1,387,883 shares of common stock in
settlement of debts of the Company totaling $1,040,874.
On November 19, 2004 the Company issued to accredited investors, pursuant
to a Securities Purchase Agreement, 2,131,033 shares of common stock of the
Company and warrants to purchase an aggregate of 426,206 shares of common stock
for an aggregate consideration of $2,237,585. The warrants issued to the
accredited investors have an exercise price of $1.31 per share and are
exercisable immediately. In addition, the Company issued a warrant to purchase
170,483 shares of common stock to the placement agent, Roth Capital Partners,
LLC, for the transactions contemplated by the Securities Purchase Agreement. The
warrant issued to the placement agent has a term of five years and an exercise
price of $1.15 per share and is exercisable immediately.
In November 2004 the Company issued a total of 418,074 shares of common
stock to a creditor of the Company in settlement of debts totaling $438,978
pursuant to a Convertible Promissory Note issued by the Company in August 2004
and issued 10,000 shares of common stock in settlement of debt owed for
consulting services rendered of $10,000.
The common stock and warrants discussed above were issued in reliance
upon (i) the exemptions from registration provided by section 4(2) of the
Securities Act of 1933 and Regulation D promulgated there under as the
securities were offering in a private transactions which did not involve any
public offering or (ii) the exemption from registration provided by Regulation
S.
ITEM 27. EXHIBITS.
Exhibit Description Of Document
- ---------- --------------------------------------------------------------------
3.1(a)(4) Certificate of Incorporation filed with the Delaware Secretary
of State on December 18, 1997. 3.1(b)(3) Amendment to Certificate of
Incorporation filed with the Delaware Secretary of State on December
16, 2002.
3.1(b)(3) Amendment to Certificate of Incorporation filed with the Delaware
Secretary of State on December 16, 2002.
3.1(c)* Amendment to Certificate of Incorporation filed with the Delaware
Secretary of State on November 17, 2004.
3.2(4) Bylaws of the Registrant.
4.1* Form of Registration Rights Agreement, dated as of November 17,
2004, between The Bluebook International Holding Company and the
investors party thereto.
5.1* Opinion of Latham & Watkins LLP
10.1(2) Agreement and Plan of Merger, dated as of September 24,
2001, by and among Gama Computer Corporation, The Bluebook
International, Inc. Bluebook Acquisitions Corp., Bluebook's
Shareholders and Andrew Hromyk, incorporated by reference to
the Information Statement filed with the Securities and
Exchange Commission of October 12, 2001.
10.2(1) Employment Agreement by and between The Bluebook International,
Inc. and Mark A. Josipovich, dated September 27, 2001.
38
Exhibit Description Of Document
- ---------- --------------------------------------------------------------------
10.3(1) Employment Agreement by and between The Bluebook
International, Inc. and Daniel T. Josipovich, dated
September 27, 2001.
10.4(5) Convertible Promissory Note Purchase Agreement made as of
August 13, 2004 between The Bluebook International Holding
Company and Christopher Albrick (together with Convertible
Promissory Note)
10.5(5) Engagement Letter dated August 19, 2004 between The Bluebook
International Holding Company and Roth Capital Partners, LLC.
10.6* Debt Settlement Agreement, dated October 14, 2004, between The
Bluebook International Holding Company and Mark A. Josipovich.
10.7* Debt Settlement Agreement, dated October 14, 2004, between The
Bluebook International Holding Company and Daniel T. Josipovich.
10.8* Debt Settlement Agreement, dated October 14, 2004, between The
Bluebook International Holding Company and Michela Josipovich.
10.9* Debt Settlement Agreement, dated October 14, 2004, between The
Bluebook International Holding Company and Daniel E. Josipovich.
10.10* Debt Settlement Agreement, dated October 14, 2004, between The
Bluebook International Holding Company and Brian Jones.
10.11* Engagement Letter, dated November 12, 2004, between The Bluebook
International Holding Company and Century Capital Management Ltd.
10.12* Form of Securities Purchase Agreement, dated as of November 12,
2004, between The Bluebook International Holding Company and
the investors party thereto.
10.13* Form of Warrant Certificate issued by The Bluebook International
Holding Company dated as of November 17, 2004.
10.14* Warrant Certificate issued by The Bluebook International Holding
Company to Roth Capital Partners, LLC dated as of November 17, 2004.
10.15* Lock-Up Agreement, dated as of November 17, 2004, between The
Bluebook International Holding Company and certain of its
stockholders.
16.1(6) Letter dated as of November 7, 2002 from Good Swartz Brown &
Berns addressed to the Securities and Exchange Commission.
21.1(3) Subsidiaries of The Bluebook International Holding Company.
23.1* Consent of Weinberg & Company, P.A.
23.2* Consent of Latham & Watkins LLP (filed herewith as Exhibit 5.1).
24.1 Power of Attorney (included on signature page).
- ----------
* Filed herewith.
(1) Incorporated by reference from Bluebook's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 2001.
(2) Incorporated by reference from Bluebook's Information Statement filed on
October 12, 2001.
(3) Incorporated by reference from Bluebook's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 2002.
(4) Incorporated by reference from Bluebook's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 2003.
(5) Incorporated by reference from Bluebook's Quarterly Report on Form 10-QSB
for the fiscal quarter ended September 30, 2004.
(6) Incorporated by reference from Bluebook's Report on Form 8-K filed with the
Securities and Exchange Commission on November 7, 2002.
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
A. Include any prospectus required by section 10(a)(3) of the Securities Act;
B. Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
registration statement; and notwithstanding the forgoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation From the low or high end of the estimated maximum offering range
may be reflected in the form of prospects filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in the volume
and price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement; and
39
C. Include any additional or changed material information on the plan of
distribution.
2. For determining liability under the Securities Act, to treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
3. To file a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officer, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, we have been
advised that, in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and win be governed by the final
adjudication of such issue.
================================================================================
40
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing of Form SB-2 and authorized this registration
statement to be signed of its behalf by the undersigned, thereunto duly
authorized, in Lake Forest, California on January 6, 2005.
THE BLUEBOOK INTERNATIONAL HOLDING COMPANY
By: /s/ Mark A. Josipovich
--------------------------------------------------
Name: Mark A. Josipovich
Title: Chairman of the Board, Chief Executive Officer,
President, and Treasurer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Mark A. Josipovich as his or her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, or
their or his substitutes or substitute, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
Signature Title Date
By: /s/ Mark A. Josipovich Chairman of the Board, Chief Executive January 6, 2005
----------------------------- Officer, President, and Treasurer
Mark A. Josipovich (Principal Accounting Officer)
By: /s/ Daniel T. Josipovich Chief Operating Officer and Director January 6, 2005
-----------------------------
Daniel T. Josipovich
By: /s/ Paul D. Sheriff Director January 6, 2005
-----------------------------
Paul D. Sheriff
By: /s/ David M. Campatelli Director January 6, 2005
-----------------------------
David M. Campatelli
41
INDEX TO EXHIBITS
Exhibit Description Of Document
3.1(a)(4) Certificate of Incorporation filed with the Delaware Secretary
of State on December 18, 1997.
3.1(b)(3) Amendment to Certificate of Incorporation filed with the
Delaware Secretary of State on December 16, 2002.
3.1(c)* Amendment to Certificate of Incorporation filed with the Delaware
Secretary of State on November 17, 2004.
3.2(4) Bylaws of the Registrant.
4.1* Form of Registration Rights Agreement, dated as of November 17,
2004, between The Bluebook International Holding Company and the
investors party thereto.
5.1* Opinion of Latham & Watkins LLP
10.1(2) Agreement and Plan of Merger, dated as of September 24, 2001, by
and among Gama Computer Corporation, The Bluebook International,
Inc. Bluebook Acquisitions Corp., Bluebook's Shareholders and Andrew
Hromyk, incorporated by reference to the Information Statement filed
with the Securities and Exchange Commission of October 12, 2001.
10.2(1) Employment Agreement by and between The Bluebook International,
Inc. and Mark A. Josipovich, dated September 27, 2001.
10.3(1) Employment Agreement by and between The Bluebook International,
Inc. and Daniel T. Josipovich, dated September 27, 2001.
10.4(5) Convertible Promissory Note Purchase Agreement made as of August
13, 2004 between The Bluebook International Holding Company and
Christopher Albrick (together with Convertible Promissory Note)
10.5(5) Engagement Letter dated August 19, 2004 between The Bluebook
International Holding Company and Roth Capital Partners, LLC.
10.6* Debt Settlement Agreement, dated October 14, 2004, between The
Bluebook International Holding Company and Mark A. Josipovich.
10.7* Debt Settlement Agreement, dated October 14, 2004, between The
Bluebook International Holding Company and Daniel T. Josipovich.
10.8* Debt Settlement Agreement, dated October 14, 2004, between The
Bluebook International Holding Company and Michela Josipovich.
10.9* Debt Settlement Agreement, dated October 14, 2004, between The
Bluebook International Holding Company and Daniel E. Josipovich.
10.10* Debt Settlement Agreement, dated October 14, 2004, between The
Bluebook International Holding Company and Brian Jones.
10.11* Engagement Letter, dated November 12, 2004, between The Bluebook
International Holding Company and Century Capital Management Ltd.
10.12* Form of Securities Purchase Agreement, dated as of November 12,
2004, between The Bluebook International Holding Company and the
investors party thereto.
10.13* Form of Warrant Certificate issued by The Bluebook International
Holding Company dated as of November 17, 2004.
10.14* Warrant Certificate issued by The Bluebook International Holding
Company to Roth Capital Partners, LLC dated as of November 17, 2004.
10.15* Lock-Up Agreement, dated as of November 17, 2004, between The
Bluebook International Holding Company and certain of its
stockholders.
16.1(6) Letter dated as of November 7, 2002 from Good Swartz Brown & Berns
addressed to the Securities and Exchange Commission.
21.1(3) Subsidiaries of The Bluebook International Holding Company.
42
23.1* Consent of Weinberg & Company, P.A.
23.2* Consent of Latham & Watkins LLP (filed herewith as Exhibit 5.1).
24.1 Power of Attorney (included on signature page).
- -------
* Filed herewith.
(1) Incorporated by reference from Bluebook's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 2001.
(2) Incorporated by reference from Bluebook's Information Statement filed on
October 12, 2001.
(3) Incorporated by reference from Bluebook's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 2002.
(4) Incorporated by reference from Bluebook's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 2003.
(5) Incorporated by reference from Bluebook's Quarterly Report on Form 10-QSB
for the fiscal quarter ended September 30, 2004.
(6) Incorporated by reference from Bluebook's Report on Form 8-K filed with the
Securities and Exchange Commission on November 7, 2002.
43