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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2005
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ___________ to ____________
Commission File Number 000-29423
DYNABAZAAR, INC.
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(Exact name of registrant as specified in its charter)
Delaware 04-3351937
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
888 Seventh Avenue, New York, NY 10019
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(212) 974-5730
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
The number of shares outstanding of the registrant's common stock as of May 1,
2005 was 26,967,944
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DYNABAZAAR, INC.
FORM 10-Q
For the Quarter Ended March 31, 2005
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)................................................1
(a) Condensed Consolidated Balance Sheets as of March 31, 2005
and December 31, 2004
(b) Condensed Consolidated Statements of Operations for
the Three Months Ended March 31, 2005 and 2004
(c) Condensed Consolidated Statements of Cash Flows for Three
Months Ended March 31, 2005 and 2004
(d) Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...........................................................8
Item 3. Quantitative and Qualitative Disclosures about Market Risk.....................10
Item 4. Controls and Procedures........................................................10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..............................................................11
Item 6. Exhibits.......................................................................11
i
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DYNABAZAAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 31,
2005 DECEMBER 31,
(UNAUDITED) 2004
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 8,753 $ 8,989
Prepaid expenses 372 331
Other current assets 2,000 2,000
------------ ------------
Total current assets 11,125 11,320
Other assets, long-term prepaid expenses 1,244 1,328
------------ ------------
Total assets $ 12,369 $ 12,648
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses $ 209 $ 196
Other current liabilities 2,000 2,000
------------ ------------
Total current liabilities 2,209 2,196
------------ ------------
Stockholders' equity:
Common stock, $0.001 par value; 90,000,000 shares authorized, 29,426,385
issued at March 31, 2005 and December 31, 2004 30 30
Additional paid-in capital 151,636 151,636
Treasury stock (at cost); 2,458,441 at March 31, 2005 and December 31, 2004 (3,040) (3,040)
Accumulated other comprehensive income, net 296 313
Accumulated deficit (138,762) (138,487)
------------ ------------
Total stockholders' equity 10,160 10,452
------------ ------------
Total liabilities and stockholders' equity $ 12,369 $ 12,648
============ ============
See accompanying notes to condensed consolidated financial statements.
1
DYNABAZAAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
MARCH 31,
2005 2004
------------ ------------
Revenue $ -- $ --
Operating expenses, general and administrative 334 661
------------ ------------
Loss from operations (334) (661)
Other income, net 59 81
------------ ------------
Net loss $ (275) $ (580)
============ ============
Net loss attributable to common shareholders $ (275) $ (580)
============ ============
Basic and diluted net loss per common share $ (0.01) $ (0.02)
============ ============
Shares used to compute basic and diluted net loss per
common share 26,968 27,050
============ ============
See accompanying notes to condensed consolidated financial statements.
2
DYNABAZAAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
----------------------------
2005 2004
----------- -----------
Cash flows from operating activities:
Net loss $ (275) $ (580)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation -- 8
Reserve for uncollectible accounts -- 2
Changes in operating assets and liabilities:
Accounts receivable -- 171
Prepaid expenses and other current assets (41) 333
Long-term prepaid expenses 84 83
Accounts payable -- (80)
Accrued expenses 13 (402)
Accrual for unutilized office space -- (300)
----------- -----------
Net cash used in operating activities (219) (765)
Net cash used in investing activities, decrease in restricted cash -- (528)
Effect of foreign exchange rates on cash and cash equivalents (17) 58
----------- -----------
Net decrease in cash and cash equivalents (236) (1,235)
Cash and cash equivalents, beginning of period 8,989 5,697
----------- -----------
Cash and cash equivalents, end of period $ 8,753 $ 4,463
=========== ===========
See accompanying notes to condensed consolidated financial statements.
3
DYNABAZAAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. NATURE OF BUSINESS AND RECENT EVENTS
Dynabazaar, Inc. ("we," "us", "Dynabazaar" or the "Company") was incorporated in
the State of Delaware in February 1997 as "Fairmarket, Inc." Through September
3, 2003, the Company was an online auction and promotions technology service
provider that enabled marketers to create results-oriented rewards programs and
helped commerce companies automate the process of selling their excess inventory
online to wholesale and retail buyers. On September 4, 2003, we sold
substantially all our operating assets to eBay, Inc. ("eBay") for consideration
of $4.5 million in cash under the terms and conditions of an asset purchase
agreement we entered into with eBay on June 20, 2003. Following the closing of
the asset sale, we changed our name from "Fairmarket, Inc." to "Dynabazaar,
Inc."
We are currently reviewing alternatives for the use of our remaining assets,
which may include other business opportunities unrelated to our historical
business, including the possible acquisition of other businesses. Neither our
board of directors nor our stockholders have yet approved any such
opportunities. We cannot assure you that we will be able to identify or
successfully capitalize on any appropriate business opportunities.
The Company has not yet settled on an operating plan, although the Company feels
its existing cash and cash equivalents are sufficient to fund the Company's
current operations and satisfy its obligations. The Company believes these
obligations will primarily relate to costs associated with the operation as a
public company (legal, accounting, insurance, etc.), as well as the satisfaction
of any potential legal judgments or settlements and the expenses associated with
any new business activities which may be undertaken by the Company. The Company
continues to consider future alternatives, including the possible acquisition of
other businesses. However, the Company has not consummated any significant
transactions to date and the Company's business prospects remain uncertain. To
the extent that management of the Company moves forward on any alternative
strategy, such strategy may have an impact on the Company's liquidity.
On January 31, 2005, the Board of Directors appointed Karen Schneider to serve
as a Class II director. In connection with the agreement, we granted to Karen
Schneider an option to purchase up to 50,000 stock options of our common stock.
The option is fully exercisable and was granted with an exercise price per share
equal to $0.30, the fair market value of our common stock on the grant date.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Dynabazaar for
the three months ended are unaudited and have been prepared on a basis
substantially consistent with our audited consolidated financial statements for
the year ended December 31, 2004. The consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Consequently, these statements do not include all
disclosures normally required by generally accepted accounting principles for
annual financial statements. These consolidated interim financial statements
should be read in conjunction with our audited consolidated financial statements
for the year ended December 31, 2004, which are contained in our Annual Report
on Form 10-K, filed with the Securities and Exchange Commission the ("SEC"). The
condensed consolidated interim financial statements, in the opinion of
management, reflect all adjustments (including all normal recurring accruals)
necessary to present fairly the Company's financial position, results of
operations and cash flows for the interim periods ended March 31, 2005 and 2004.
The results of operations for the interim periods are not necessarily indicative
of the results of operations to be expected for the fiscal year. The
consolidated interim financial statements include the accounts of Dynabazaar and
its wholly owned inactive subsidiaries. All material intercompany transactions
and balances have been eliminated in consolidation.
CASH EQUIVALENTS
The Company considers all highly liquid investment instruments purchased with an
original maturity of three months or less to be cash equivalents. Cash
equivalents consist of cash placed in an overnight investment account,
commercial paper and money market accounts. The Company maintains cash balances
in certain financial institutions that may exceed the Federal Deposit Insurance
Corporation coverage of $100,000.
4
DYNABAZAAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
ACCOUNTING FOR STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," encourages but does not require companies to record
compensation costs for stock-based employee compensation at fair value. The
Company has chosen to account for stock-based compensation granted to employees
using the intrinsic value method prescribed in Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Accordingly, compensation costs for stock options granted to
employees is measured as the excess, if any, of the fair value of the Company's
stock at the date of the grant over the amount that must be paid by the employee
to acquire the stock under the terms of the stock option. Subsequent changes to
option terms can also give rise to compensation. Stock-based compensation issued
to non-employees is measured and recorded using the fair value method prescribed
in SFAS No. 123.
The Company accounts for stock issued to non-employees in accordance with the
provisions of SFAS No. 123 and Emerging Issues Task Force ("EITF") Issue No.
96-18 "Accounting for Equity Instruments That Are Issued to Other Than Employees
for Acquiring, or in Conjunction with Selling, Goods or Services."
Consistent with the disclosure provisions of SFAS 123, the Company's net loss
and basic and diluted net loss per share would have been adjusted to the pro
forma amounts indicated below (in thousands, except per share amounts).
THREE MONTHS ENDED
MARCH 31,
------------------------
2005 2004
--------- ---------
Net loss attributable to common stockholders
As reported $ (275) $ (580)
Add: Stock-based employee compensation expense
Included in reported results -- --
Deduct: Total stock-based employee compensation
expense determined under the fair-value-based
method for all awards (10) --
--------- ---------
Pro forma loss $ (285) $ (580)
========= =========
Net loss per common share
As reported $ (0.01) $ (0.02)
========= =========
Pro forma $ (0.01) $ (0.02)
========= =========
3. NET LOSS PER SHARE
Basic net loss per common share is computed using the weighted average number of
common shares outstanding during the period. Diluted net loss per common share
is computed using the weighted average number of common shares outstanding
during the period plus the effect of any dilutive potential common shares.
Dilutive potential common equivalent shares consist of the assumed exercise of
stock options, the proceeds of which are then assumed to have been used to
repurchase outstanding stock using the treasury stock method, and the assumed
conversion of convertible preferred stock and warrants. Potential common shares
were excluded from the calculation of net loss per common share for the periods
presented since their inclusion would be anti-dilutive. For the three months
ended March 31, 2005 and 2004, basic and diluted net loss per common share is
computed based on the weighted average number of common shares outstanding
during the period because the effect of potential common equivalent shares would
be anti-dilutive.
4. COMPREHENSIVE LOSS
For the three months ended March 31, 2005 and 2004, total comprehensive income
loss was as follows (in thousands):
5
DYNABAZAAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------------
2005 2004
--------- ---------
Net loss $ (275) $ (580)
Changes in other comprehensive loss:
Foreign currency translation adjustments (17) 61
--------- ---------
Total comprehensive loss $ (292) $ (519)
========= =========
5. COMMITMENTS AND CONTINGENCIES
We are a defendant in certain purported class action lawsuits filed by
individual shareholders in the U.S. District Court for the Southern District of
New York against Dynabazaar, Scott Randall (former President, Chief Executive
Officer and Chairman of the Board of Dynabazaar), John Belchers (former Chief
Financial Officer of Dynabazaar), U.S. Bancorp Piper Jaffray Inc., Deutsche Bank
Securities Inc. and FleetBoston Robertson Stephens, Inc. The lawsuits have been
filed by individual shareholders who purport to seek class action status on
behalf of all other similarly situated persons who purchased the common stock of
Dynabazaar between March 14, 2000 and December 6, 2000. The lawsuits allege that
certain underwriters of Dynabazaar's initial public offering solicited and
received excessive and undisclosed fees and commissions in connection with that
offering. The lawsuits further allege that the defendants violated the federal
securities laws by issuing a registration statement and prospectus in connection
with Dynabazaar's initial public offering which failed to accurately disclose
the amount and nature of the commissions and fees paid to the underwriter
defendants. On or about October 8, 2002, the Court entered an Order dismissing
the claims asserted against certain individual defendants in the consolidated
actions, including the claims against Mr. Randall and Mr. Belchers, without any
payment from these individuals or the Company. On or about February 19, 2003,
the Court entered an Order dismissing with prejudice the claims asserted against
the Company under Section 10(b) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). As a result, the only claims that remain against
the Company are those arising under Section 11 of the Securities Act of 1933, as
amended (the "Securities Act"). The Company has entered into an
agreement-in-principle to settle the remaining claims in the litigation. The
proposed settlement will result in a dismissal with prejudice of all claims and
will include a release of all claims that were brought or could have been
brought against the Company and its present and former directors and officers.
It is anticipated that any payment to the plaintiff class and their counsel will
be funded by the Company's directors' and officers' liability insurance and that
no direct payment will be made by the Company. The proposed settlement is
subject to the execution of a definitive settlement agreement, final approval of
the settlement by the Company's directors' and officers' liability insurance
carriers and by the plaintiff class, and the approval of the settlement by the
Court.
6. NEW ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123(R), "Accounting for Stock-Based Compensation (Revised)." SFAS No. 123(R)
supersedes APB No. 25 and its related implementation guidance. SFAS No. 123(R)
establishes standards for the accounting for transactions in which an entity
exchanges its equity instruments for goods or services. It also addresses
transactions in which an entity incurs liabilities in exchange for goods or
services that are based on the fair value of the entity's instruments or that
may be settled by the issuance of those equity instruments. SFAS No. 123(R)
focuses primarily on accounting for transactions in which an entity obtains
employee services in share-based payment transactions. SFAS No. 123(R) requires
a public entity to measure the cost of employee services received in exchange
for an award of equity instruments based on the grant-date fair value of the
award (with limited exceptions). That cost will be recognized over the period
during which an employee is required to provide service in exchange for the
award the requisite service period (usually the vesting period). No compensation
costs are recognized for equity instruments for which employees do not render
the requisite service. The grant-date fair value of employee share options and
similar instruments will be estimated using option-pricing models adjusted for
the unique characteristics of those instruments (unless observable market prices
for the same or similar instruments are available). If an equity award is
modified after the grant date, incremental compensation cost will be recognized
in an amount equal to the excess of the fair value of the modified award over
the fair value of the original immediately before the modification. The Company
has not completed its evaluation of SFAS No. 123(R) but expects the adoption of
this new standard, which will take effect January 1, 2006, will not have a
material impact on the operating results of the Company.
6
DYNABAZAAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. INCOME TAXES
In connection with ownership changes, it was determined that certain of the
Company's net operating loss carryforwards ("NOL") have been limited. The
Company recently completed an Internal Revenue Code Section 382 evaluation that
quantified the limitation of the ("NOL"). As of December 31, 2004, the Company
has approximately $15.0 million of NOL's that can be utilized in the current tax
year. These NOL's begin to expire in 2022. A valuation allowance has been
established for the full amount of the deferred tax asset since it is more
likely than not that the deferred tax asset will not be realized.
Ownership changes resulting from the Company's issuance of capital stock may
further limit the amount of net operating loss carryforwards that can be
utilized annually to offset future taxable income. The amount of the annual
limitation is determined based upon the Company's value immediately prior to the
ownership change. Subsequent significant changes in ownership could further
affect the limitation in future years.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Dynabazaar, Inc. ("we," "us", "Dynabazaar" or the "Company") was incorporated in
the State of Delaware in February 1997 as "Fairmarket, Inc." Through September
3, 2003, the Company was an online auction and promotions technology service
provider that enabled marketers to create results-oriented rewards programs and
helped commerce companies automate the process of selling their excess inventory
online to wholesale and retail buyers. On September 4, 2003, we sold
substantially all our operating assets to eBay, Inc. ("eBay") for consideration
of $4.5 million in cash under the terms and conditions of an asset purchase
agreement we entered into with eBay on June 20, 2003. Following the closing of
the asset sale, we changed our name from "Fairmarket, Inc." to "Dynabazaar,
Inc."
We are currently reviewing alternatives for the use of our remaining assets,
which may include other business opportunities unrelated to our historical
business, including the possible acquisition of other businesses. Neither our
board of directors nor our stockholders have yet approved any such
opportunities. We cannot assure you that we will be able to identify or
successfully capitalize on any appropriate business opportunities.
The Company has not yet settled on an operating plan, although the Company feels
its existing cash and cash equivalents are sufficient to fund the Company's
current operations and satisfy its obligations. The Company believes these
obligations will primarily relate to costs associated with the operation as a
public company (legal, accounting, insurance, etc.), as well as the satisfaction
of any potential legal judgments or settlements and the expenses associated with
any new business activities which may be undertaken by the Company. The Company
continues to consider future alternatives, including the possible acquisition of
other businesses. However, the Company has not consummated any significant
transactions to date and the Company's business prospects remain uncertain. To
the extent that management of the Company moves forward on any alternative
strategy, such strategy may have an impact on the Company's liquidity.
On January 31, 2005, the Board of Directors appointed Karen Schneider to serve
as a Class II director. In connection with the agreement, we granted to Karen
Schneider an option to purchase up to 50,000 stock options of our common stock.
The option is fully exercisable and was granted with an exercise price per share
equal to $0.30, the fair market value of our common stock on the grant date.
CRITICAL ACCOUNTING POLICIES
In December 2001, the SEC requested that all registrants discuss their most
"critical accounting policies" in management's discussion and analysis of
financial condition and results of operations. The SEC indicated that a
"critical accounting policy" is one which is both important to the portrayal of
the company's financial condition and results and requires management's most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain. Our
significant accounting policies are more fully described in Note 2, Summary of
Significant Accounting Policies, to our consolidated financial statements
included in our Annual Report on Form 10-K for the year ended December 31, 2004.
These critical accounting policies relate to revenue recognition, allowance for
doubtful accounts and deferred tax assets. No changes to these critical polices
have taken place during the quarter ended March 31, 2005.
8
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2005 AND 2004
For the three months ended March 31, 2005 and March 31, 2004, our net loss was
$275 and $580, respectively, a decrease of 53%.
REVENUE
For the three months ended March 31, 2005 and March 31, 2004, total revenue was
$0 due to the cessation of business activity.
OPERATING EXPENSES
For the three months March ended March 31, 2005, general and administrative
expenses were $334 compared to $661 for the three months ended March 31, 2004, a
decrease of 49%. The decrease was due primarily to the reduction in facilities
expense, employee compensation expense, employee benefits expense and
depreciation expense.
OTHER INCOME, NET
For the three months ended March 31, 2005 and March 31, 2004, other income, net,
was $59 and $81, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2005, cash and cash equivalents totaled $8.8 million.
Cash used in operating activities was $219 for the three months ended March 31,
2005 and $765 for the three months ended March 31, 2004. Cash used in operating
activities for the period ended March 31, 2005 primarily reflects the Company's
net loss of $275, offset by an increase in prepaid expenses of $41 and a
reductionin long-term prepaid expenses of $84. Net cash used in operating
activities for the three months ended March 31, 2004 primarily reflects the
Company's net loss of $580, offset by a reduction in accounts receivable of
$171, prepaid expenses and other current assets of $333, an increase in accrued
expenses of $402, and an increase in accrual for unutilized office space of
$300.
Cash used in investing activities for the three months ended March 31, 2005 and
March 31, 2004 was $0 and $528, respectively. Cash used in provided by investing
activities for the period ended March 31, 2004 was primarily from the release of
restricted cash held as a security deposit relating to the lease on the
Company's headquarters in Woburn, Massachusetts.
Cash used in financing activities for the three months ended March 31, 2005 and
March 31, 2004 was $0.
FACTORS THAT MAY AFFECT RESULTS OF OPERATIONS AND FINANCIAL CONDITION
This Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. You can identify
forward-looking statements by the use of the words "believe," "expect,"
"anticipate," "intend," "estimate," "assume" and other similar expressions which
predict or indicate future events and trends and which do not relate to
historical matters. You should not rely on forward-looking statements, because
they involve known and unknown risks, uncertainties and other factors, some of
which are beyond our control. Our actual results could differ materially from
those set forth in the forward-looking statements.
Some of the factors that might cause these differences include those set forth
in Item 7 of the Company's Annual Report on Form 10-K for the year ended
December 31, 2004 which is incorporated herein by reference. You should
carefully review all of these factors, and you should be aware that there may be
other factors that could cause these differences. These forward-looking
statements were based on information, plans and estimates at the date of this
9
Form 10-Q, and we do not promise to update any forward-looking statements to
reflect changes in underlying assumptions or factors, new information, future
events or other changes.
RISKS RELATED TO OUR BUSINESS
The information contained in Item 7 of the Company's Form 10-K for the year
ended December 31, 2004 is incorporated herein by reference.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INVESTMENT PORTFOLIO
We do not use derivative financial instruments for investment purposes and only
invest in financial instruments that meet high credit quality standards. Due to
the conservative nature of our investments, we do not believe that we have a
material exposure to interest rate risk.
ITEM 4. CONTROLS AND PROCEDURES
As required by rule 13a-15(b) under the Exchange Act, as of the end of the
period covered by this Quarterly Report, our management conducted an evaluation
with the participation of our Chief Executive Officer and Chief Financial
Officer of the effectiveness of our disclosure controls and procedures. In
designing and evaluating our disclosure controls and procedures, we recognize
that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives,
and our management necessarily was required to apply its judgment in evaluating
and implementing possible controls and procedures. The effectiveness of our
disclosure controls and procedures is necessarily limited by the staff and other
resources available to us. Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that, as of the end of the period
covered by this Quarterly Report, our disclosure controls and procedures were
effective in that they provide reasonable assurance that information required to
be disclosed by us in the reports we file or submit under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the SEC's rules and forms. There was no change in our internal control over
financial reporting that occurred during the period covered by this Quarterly
Report on Form 10-Q that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting. In connection
with these rules, we will continue to review and document our disclosure
controls and procedures, including our internal controls and procedures for
financial reporting, and may from time to time make changes aimed at enhancing
their effectiveness and to ensure that our system evolve with our business.
10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are a defendant in certain purported class action lawsuits field by
individual shareholders in the U.S. District Court for the Southern District of
New York against Dynabazaar, Scott Randall (former President, Chief Executive
Officer and Chairman of the Board of Dynabazaar), John Belchers (former Chief
Financial Officer of Dynabazaar), U.S. Bancorp Piper Jaffray Inc., Deutsche Bank
Securities Inc. and FleetBoston Robertson Stephens, Inc. The lawsuits have been
filed by individual shareholders who purport to seek class action status on
behalf of all other similarly situated persons who purchased the common stock of
Dynbazaar between March 14, 2000 and December 6, 2000. The lawsuits allege that
certain underwriters of Dynabazaar's initial public offering solicited and
received excessive and undisclosed fees and commissions in connection with that
offering. The lawsuits further allege that the defendants violated the federal
securities laws by issuing a registration statement and prospectus in connection
with Dynabazaar's initial public offering, which failed to accurately disclose
the amount and nature of the commissions and fees paid to the underwriter
defendants. On or about October 8, 2002, the Court entered an Order dismissing
the claims asserted against certain individual defendants in the consolidated
actions, including the claims against Mr. Randall and Mr. Belchers, without any
payment from these individuals or the Company. On or about February 19, 2003,
the Court entered an Order dismissing with prejudice the claims asserted against
the Company under Section 10(b) of the Exchange Act. As a result, the only
claims that remain against the Company are those arising under Section 11 of the
Securities Act. The Company has entered into an agreement-in-principle to settle
the remaining claims in the litigation. The proposed settlement will result in a
dismissal with prejudice of all claims and will include a release of all claims
that were brought or could have been brought against the Company and its present
and former directors and officers. It is anticipated that any payment to the
plaintiff class and their counsel will be funded by the Company's directors' and
officers' liability insurance and that no direct payment will be made by the
Company. The proposed settlement is subject to a number of significant
conditions and contingencies, including the execution of a definitive settlement
agreement, final approval of the settlement by the Company's directors' and
officers' liability insurance carriers and by the plaintiff class, and the
approval of the settlement by the Court.
ITEM 6. EXHIBITS
31.1 Certification of the Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification of the Chief Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 Certification of the Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DYNABAZAAR, INC.
Date: May 13, 2005 By: /s/ William J. Fox
------------------
William J. Fox
Chief Executive Officer
(Principal Executive Officer)
Date: May 13, 2005 By: /s/ Melvyn Brunt
----------------
Melvyn Brunt
Chief Financial Officer (Principal
Financial and Accounting Officer)
12