UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
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 September 30, 2006
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.
(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 Ave., 17TH floor, 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 a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer / / Accelerated Filer / / Non-accelerated Filer /X/
Indicate by check mark whether the registrant is a shell company (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
November 11, 2006 was 23,691,756
DYNABAZAAR, INC.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS..................................................................................1
Condensed Consolidated Balance Sheets as of September 30, 2006 (unaudited) and December
31, 2005
Condensed Consolidated Statements of Operations for the three and
nine months ended September 30, 2006 (unaudited) and 2005
(unaudited)
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 2006 (unaudited) and 2005
(unaudited)
Notes to Condensed Consolidated Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ..............11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..........................................15
ITEM 4. CONTROLS AND PROCEDURES.............................................................................16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS...................................................................................16
ITEM 1A. RISK FACTORS......... ..............................................................................17
ITEM 6. EXHIBITS............................................................................................19
SIGNATURES.......................................................................................................19
ITEM 1. FINANCIAL STATEMENTS
DYNABAZAAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
2006 2005
(unaudited) (audited)
----------------- ------------------
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 3,102 $ 9,125
Accounts receivable, net....................................................... 1,950 --
Inventory, finished goods...................................................... 3,178 --
Prepaid expenses............................................................... 387 341
Other current assets........................................................... 36 --
--------- ---------
Total current assets........................................................ 8,653 9,466
Fixed assets.................................................................. 106 --
Goodwill...................................................................... 2,429 --
Deposits...................................................................... 4 --
Other assets, long-term prepaid expenses ..................................... 829 996
--------- ---------
Total assets................................................................ $ 12,021 $ 10,462
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................... $ 1,169 $ --
Accrued expenses and other current liabilities................................. 594 206
--------- ---------
Total current liabilities................................................... 1,763 206
--------- ---------
Stockholders' equity:
Common stock, $0.001 par value; 90,000,000 shares authorized; 29,726,385 shares
issued at September 30, 2006 and 29,526,385 December 31, 2005................ 30 30
Additional paid-in capital..................................................... 151,759 151,667
Accumulated other comprehensive income, net.................................... 260 260
Accumulated deficit............................................................ (137,321) (137,231)
--------- ---------
14,728 14,726
Less: Common stock held in treasury, at cost; 6,116,429 at September 30, 2006
and December 31, 2005....................................................... (4,470) (4,470)
--------- ---------
Total stockholders' equity..................................................... 10,258 10,256
--------- ---------
Total liabilities and stockholders' equity..................................... $ 12,021 $ 10,462
========= =========
See accompanying notes to condensed consolidated financial statements.
1
DYNABAZAAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts; unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ----------------------
2006 2005 2006 2005
------- ------ ------- -------
Revenues............................................ $ 3,614 $ -- $ 3,614 $ --
Cost of goods sold.................................. 2,856 -- 2,856 --
Gross profit........................................ 758 -- 758 --
Operating expenses, general and administrative...... 615 236 1,099 840
Income (loss) from operations 143 (236) (341) (840)
Other income
Interest............................................ 50 128 251 265
Gain on sale of asset............................... -- 2,000 -- 2,000
------- ------ ------- -------
50 2,128 251 $ 2,265
------- ------ ------- -------
Net income (loss)................................... $ 193 $1,892 $ (90) $ 1,425
======= ====== ======= =======
Net income (loss) per share:
Basic............................................... $ 0.01 $ 0.08 $ (0.00) $ 0.06
======= ====== ======= =======
Diluted............................................. $ 0.01 $ 0.08 $ (0.00) $ 0.06
======= ====== ======= =======
Weighted average number of common shares outstanding:
Basic............................................... 23,414 23,410 23,412 25,765
======= ====== ======= =======
Diluted............................................. 23,480 23,554 23,412 25,787
======= ====== ======= =======
See accompanying notes to condensed consolidated financial statements.
2
DYNABAZAAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands; unaudited)
Nine Months Ended
September 30,
-----------------------
2006 2005
------- -------
NET CASH USED IN OPERATING ACTIVITIES.................................... $ (600) $ (405)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES.....................................
Acquisition of Southern Imaging and Video Solution, net of cash (3,560) --
acquired of $240
Proceeds from sale of assets -- 2,000
------- -------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES...................... (3,560) 2,000
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES.....................................
Proceeds from issuance of common stock -- 31
Purchase of treasury stock -- (1,430)
Payment of revolver facility (1,863) --
------- -------
NET CASH USED IN FINANCING ACTIVITIES.................................... (1,863) (1,399)
------- -------
EFFECTS OF FOREIGN EXCHANGE RATES ON CASH AND CASH EQUIVALENTS........... -- (53)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................... (6,023) 143
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........................... 9,125 8,989
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................. $ 3,102 $ 9,132
======= ========
SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING
AND FINANCING ACTIVITIES:
The Company purchased substantially all of the assets of Southern Imaging
and Video Solutions, pursuant to the transactions contemplated by the
Asset Purchase Agreement for the initial consideration of $3,874,000. In
conjunction with the acquisition common stock was issued and liablities
were assumed as follows:
Fair value of assets acquired $ 7,371,000
Cash paid (3,800,000)
Common stock issued (74,000)
-----------
Liabilities assumed $ 3,497,000
===========
See accompanying notes to condensed consolidated financial statements.
3
DYNABAZAAR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
OVERVIEW
Dynabazaar, Inc. (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, the Company sold
substantially all of its operating assets to eBay, Inc. ("eBay") for
consideration of $4.5 million in cash under the terms and conditions of an asset
purchase agreement the Company entered into with eBay on June 20, 2003.
Following the closing of the asset sale, the Company changed its name from
"Fairmarket, Inc." to "Dynabazaar, Inc."
In connection with the cessation of the Company's online auction business, the
Company relocated its principal executive offices as of January 1, 2004 to 888
Seventh Avenue, 17th Floor, New York, New York 10019, an office maintained by
Barington Capital Group, L.P. ("Barington"), a limited partnership whose general
partner is a corporation of which James Mitarotonda is Chairman, President and
Chief Executive Officer. Mr. Mitarotonda is the Company's President and Chief
Executive Officer and sits on the Company's Board of Directors.
From January 2003 until June 20, 2006, the Company did not operate any business
and was settling its remaining claims and liabilities while reviewing
alternatives for the use or disposition of our remaining assets.
The Company's common stock trades on the NASDAQ OTC Bulletin Board under the
symbol "FAIM.OB". The Company's common stock was quoted on the NASDAQ National
Market, but was delisted on June 24, 2004.
As previously disclosed in a Form 8-K filed by the Company on June 26, 2006,
Costar Video Systems, LLC ("Costar") and Video Solutions Technology Center, LLC
("VSTC"), direct and indirect wholly owned subsidiaries of the Company,
completed the acquisition (the "Acquisition") of substantially all of the assets
of Southern Imaging, Inc., a Texas corporation ("Southern Imaging"), and Video
Solutions Technology Center, Inc., a Nevada corporation ("Video Solutions"),
pursuant to the transactions contemplated by the asset purchase agreement, dated
as of June 20, 2006 ( the "Asset Purchase Agreement"), by and between Southern
Imaging, Video Solutions, the shareholders of Southern Imaging, Costar and VSTC.
Costar, the Company's subsidiary which acquired Southern Imaging's assets,
designs, sources and distributes video and imaging products for the security and
industrial markets. VSTC, a subsidiary of Costar which acquired the assets of
Video Solutions, provides product design and development, technical support and
repair services for Costar. The consideration for the Acquisition was up to
approximately $9.5 million, consisting of the issuance at closing of 200,000
shares of the common stock of Dynabazaar, a cash payment of $3 million less the
value of the 200,000 shares of Dynabazaar common stock, the assumption of
approximately $2.475 million of certain long-term debt and related party notes
payable, and deferred consideration of up to $4 million in cash, contingent upon
Costar and VSTC achieving certain levels of sales and EBITDA after the closing.
4
DYNABAZAAR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
As previously disclosed in a Form 8-K filed by the Company on September 21,
2006, Costar entered into a strategic alliance agreement with Sielox, LLC
("Sielox"), a subsidiary of L Q Corporation, Inc. ("L Q Corporation"), dated as
September 15, 2006, pursuant to which the companies have agreed to explore
mutually beneficial opportunities to work together, including, without
limitation, through a joint venture, joint sales or joint marketing arrangement,
or other business arrangement or strategic alliance. Sielox engages in the
development, design and distribution of open architecture access control
software, programmable controllers, readers and identity cards used to provide
access control security to end users such as office buildings, factories,
universities and hospitals. Costar and Sielox are also parties to a distribution
agreement, dated July 31, 2006, pursuant to which Sielox was appointed as an
authorized distributor of certain products of Costar.
Barington and a group of other investors which have joined with Barington in the
filing of a statement on Schedule 13D, collectively own greater than 10% of the
outstanding common stock of both Dynabazaar and L Q Corporation. James A.
Mitarotonda, who serves as a director, President and Chief Executive Officer of
Dynabazaar, is Chairman, President and Chief Executive Officer of a corporation
that is the general partner of Barington. Sebastian E. Cassetta, who serves as
the Chief Executive Officer of Costar, is a Senior Managing Director and the
Chief Operating Officer of Barington. Mr. Cassetta is also a director, President
and Chief Executive Officer of L Q Corporation. Barington is party to separate
administrative services agreements with Dynabazaar and L Q Corporation, pursuant
to which Barington performs certain administrative, accounting and other
services on behalf of each company.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION ($ IN THOUSANDS)
The accompanying condensed consolidated financial statements of the Company for
the three months and nine months ended September 30, 2006 and 2005 are unaudited
and have been prepared on a basis substantially consistent with our audited
consolidated financial statements for the year ended December 31, 2005. The
condensed 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 condensed consolidated interim financial statements should be read in
conjunction with our audited consolidated financial statements for the year
ended December 31, 2005, which are contained in our Annual Report on Form 10-K
filed with the Securities and Exchange Commission (the "SEC") on March 30,2006.
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 September 30, 2006 and
2005. The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the fiscal year.
PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of our
direct and indirect wholly-owned subsidiaries Costar and VSTC. Significant
intercompany transactions and balances have been eliminated.
STOCK-BASED COMPENSATION
On January 1, 2006, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No.123(R) Accounting for Stock-Based Compensation. Among
other items, SFAS No. 123(R) requires companies to record compensation expense
for share-based awards issued to employees and directors in exchange for
services provided. The amount of the compensation expense is based on the
estimated fair value of the awards on their grant dates and is recognized over
the applicable vesting period.
The Company adopted SFAS No.123(R) using the modified prospective transition
method, which requires the application of the accounting standard to all
share-based awards issued on or after January 1, 2006, and any outstanding
share-based awards that were issued but not vested as of January 1, 2006.
Accordingly, the Company's condensed consolidated financial statements as of
September 30, 2005 and for the nine months then ended have not been restated to
reflect the impact of SFAS No.123(R).
In the nine months ended September 30, 2006, the Company recognized stock-based
compensation expense of $19,000 in its condensed consolidated financial
statements, all of which was for stock options. This amount includes
compensation expense for fully vested stock options granted subsequent to
January 1, 2006 based on the grant date fair value estimated in accordance with
the provisions of SFAS No. 123(R).
5
DYNABAZAAR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Prior to January 1, 2006, the Company had chosen to account for stock-based
compensation granted to employees using the intrinsic value method prescribed in
APB No. 25 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.
Consistent with the disclosure provisions of SFAS No. 123, the Company's net
income (loss) and basic and diluted net income (loss) per share, for the three
and nine month periods ended September 30, 2005, would have been adjusted to the
pro forma amounts indicated below (in thousands, except per share amounts).
Three Months Nine Months
Ended Ended
September 30, September 30,
2005 2005
---------------- --------------
(unaudited) (unaudited)
---------------- --------------
Net income - as reported $ 1,892 $ 1,425
Less stock-based compensation expense determined under
fair value based method, net of tax effects -- (10)
---------------- --------------
Net loss, pro forma $ 1,892 $ 1,415
================ ==============
Basic and diluted net income (loss) per share - as reported $ 0.08 $ 0.06
Basic and diluted net income (loss) per share - pro forma $ 0.08 $ 0.06
The estimated fair value underlying our calculation of compensation expense for
stock options is based on the Black-Scholes pricing model, which takes into
account the stock price at the grant date, the exercise price, the expected life
of the option, the volatility of the underlying stock and the expected dividends
on it, and the risk free interest rate over the expected life of the option.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes -
an interpretation of FASB Statement No. 109." FIN 48 clarifies the accounting
for uncertainty in income taxes recognized in a company's financial statements
under SFAS No. 109, "Accounting for Income Taxes." Under FIN 48, the tax effects
of a position taken on a tax return should be recognized only if it is
"more-likely-than-not" that the position would be sustained based solely on its
technical merits as of the reporting date. FIN 48 also provides guidance on
derecognition, measurement, classification, interest and penalties, accounting
in interim periods, disclosure and transition, and also requires significant new
annual disclosures in the notes to the consolidated financial statements.
Differences between the amounts recognized in the statements of financial
position prior to the adoption of FIN 48 and the amounts reported after adoption
must be accounted for as a cumulative-effect adjustment recorded to the
beginning balance of retained earnings. FIN 48 is effective for fiscal years
beginning after December 15, 2006. As such, the Company is required to adopt FIN
48 at the beginning of its fiscal year 2007. The Company is currently evaluating
the various requirements of FIN 48, but we have not yet determined the impact,
if any, on our consolidated financial statements.
6
DYNABAZAAR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
("SFAS 157"). SFAS 157 establishes a single authoritative definition of fair
value, sets out a framework for measuring fair value, and requires additional
disclosures about fair-value measurements. SFAS 157 applies only to fair value
measurements that are already required or permitted by other accounting
standards (except for measurements of share-based payments) and is expected to
increase the consistency of those measurements. Accordingly, SFAS 157 does not
require any new fair value measurements. However, for some entities, the
application of SFAS 157 will change current practice. SFAS 157 is effective for
fiscal years beginning after November 15, 2007, and interim periods within those
fiscal years. We do not expect the adoption of SFAS 157 to have a material
impact on our consolidated financial statements.
In September 2006, the Securities and Exchange Commission issued Staff
Accounting Bulletin 108, "Considering the Effects of Prior Year Misstatements
When Quantifying Misstatements in Current Year Financial Statements" ("SAB
108"). SAB 108 clarifies the staff's views regarding the process of quantifying
financial statement misstatements. SAB 108 allows registrants to adjust prior
year financial statements for immaterial errors in the carrying amount of assets
and liabilities as of the beginning of this fiscal year, with an offsetting
adjustment being made to the opening balance of retained earnings. SAB 108 is
effective for fiscal years ending on or after November 15, 2006 with earlier
adoption encouraged. We do not expect the adoption of SAB 108 to have a material
impact on our consolidated financial statements.
NOTE 2 - ACQUISITION:
On June 20, 2006, Costar Video and VSTC, completed the acquisition of
substantially all of the assets of Southern Imaging and Video Solutions pursuant
to the transactions contemplated by the Asset Purchase Agreement. However, the
Acquisition is being accounted for as if it was effectively completed on June
30, 2006. Results of operations of Southern Imaging and Video Solutions are
included in the condensed consolidated financial statements since June 30, 2006.
Costar, the Company's subsidiary which acquired Southern Imaging's assets,
designs, sources and distributes video and imaging products for the security and
industrial markets. VSTC, a subsidiary of Costar which acquired the assets of
Video Solutions, provides product design and development, technical support and
repair services for Costar.
The consideration for the Acquisition was up to approximately $9.8 million,
consisting of the issuance at closing of 200,000 shares of the common stock of
Dynabazaar, a cash payment of $3 million less the value of the 200,000 shares of
Dynabazaar common stock, the assumption of aproximately $2.475 million of
certain long-term debt and related party notes payable, and deferred
consideration of up to $4 million in cash, contingent upon Costar and VSTC
achieving certain level of sales and EBITDA after the closing.
In addition the Company paid certain acquisition related fees of approximately
$262,000. These included a finders fee of approximately $154,000, and a payment
of $108,000 to Barington.
There were no material relationships between the Company or its affiliates and
any of the parties to the Asset Purchase Agreement, other than in respect of
such agreement.
7
DYNABAZAAR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
ALLOCATION OF PURCHASE PRICE
Purchase Price Paid $3,874
Allocated to:
Fair value of assets acquired:
Cash 240
Prepaids 105
Deposits 4
Accounts receivable, net 1,875
Inventory 2,623
Property and equipment, net 95
Goodwill 2,429
-----
Total 7,371
Liabilities assumed:
Accounts payable and other (1,634)
Revolver facility (1,863)
Issuance of common stock (74)
------
Net purchase price $3,800
------
An independent appraisal will be conducted of all tangible and intangible assets
(including, but not limited to, inventory, fixed assets, developed software,
hardware designs, customers lists, patents, trademarks and trade names, etc.)
received as a result of the acquisition of Southern Imaging and Video Solutions.
The results of this appraisal may give rise to among other things, goodwill.
Goodwill of approximately $2,429 will be adjusted for amounts provided for in
the Asset Purchase Agreement and will be reclassified upon results of an
independent appraisal.
The following proforma information gives effect to the acquisition as if it had
occurred on the first day of each of the periods ended September 30, 2006 and
2005.
Three Months Ended Nine Months Ended
September 30, September 30,
unaudited unaudited
--------- ---------
2006 2005 2006 2005
------ ---- ------ ----
Total revenue......................... $ 3,614 $ 2,906 $ 11,154 $ 6,870
Net income (loss)..................... 193 2,261 404 2,094
Net income (loss) per share
Basic................................. $ 0.01 $ 0.10 $ 0.02 $ 0.08
Diluted............................... $ 0.01 $ 0.09 $ 0.02 $ 0.08
NOTE 3 - NET INCOME (LOSS) PER SHARE:
The difference between the number of shares used to compute basic income (loss)
per share and diluted income (loss) per share relates to additional shares to be
issued upon the assumed exercise of stock options and warrants, net of shares
hypothetically repurchased at the average market prices with the proceeds of the
exercise. For the three months ended September 30, 2006 and the three and nine
months ended September 30, 2005, the additional shares amounted to 65,103 in
2006 and 143,746 and 21,706 in 2005, respectively. For the nine months ended
September 30, 2006, basic and diluted net income (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.
8
DYNABAZAAR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 - LEGAL PROCEEDINGS:
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., DB Alex.
Brown (as successor-in-interest to Deutsche Bank Securities, Inc.), Robertson
Stephens, Inc. (formerly known as FleetBoston Robertson Stephens, Inc.), Banc of
America Securities, LLC, Goldman Sachs & Co., Inc., Merrill Lynch, Pierce,
Fenner & Smith, Incorporated, Citigroup Global Markets, Inc. (as
successor-in-interest to Salomon Smith Barney, Inc.), and J.P. Morgan
Securities, Inc. (as successor-in-interest to Hambrecht & Quist, LLC). 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. 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 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 parties have negotiated and executed a definitive
settlement agreement. The proposed settlement provides that the class members in
the class action cases brought against the participating issuer defendants will
be guaranteed a recovery of $1 billion by insurers of the participating issuer
defendants. If recoveries totaling $1 billion or more are obtained by the class
members from the underwriter defendants, the monetary obligations to the class
members under the proposed settlement will be satisfied. In addition, Dynabazaar
and any other participating issuer defendants will be required to assign to the
class members certain claims that they may have against the underwriters of
their IPO's. The proposed settlement contemplates that any amounts necessary to
fund the settlement or settlement-related expenses would come from participating
issuers' directors and officers' liability insurance policy proceeds as opposed
to funds of the participating issuer defendants themselves. A participating
issuer defendant could be required to contribute to the costs of the settlement
if that issuer's insurance coverage were insufficient to pay that issuer's
allocable share of the settlement costs. If ultimately approved by the Court,
the proposed settlement would result in the dismissal, with prejudice, of all
claims in the litigation against Dynabazaar and all of the other issuer
defendants who have elected to participate in the proposed settlement, together
with the current or former officers and directors of participating issuers who
were named as individual defendants. The proposed settlement does not provide
for the resolution of any claims against the underwriter defendants, and the
litigation as against those defendants is continuing. Consummation of the
proposed settlement remains conditioned upon obtaining approval by the Court. On
September 1, 2005, the Court granted preliminary approval of the proposed
settlement and directed that notice of the terms of the proposed settlement be
provided to class members. Thereafter, the court held a fairness hearing, on
April 24, 2006, at which objections to the proposed settlement were heard. After
the fairness hearing, the Court, took under advisement whether to grant final
approval to the proposed settlement.
9
DYNABAZAAR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 - INCOME TAXES:
Deferred tax assets and liabilities are recognized based on the expected future
tax consequences, using current tax rates, of temporary differences between the
financial statement carrying amounts and the income tax basis of assets and
liabilities. A valuation allowance is applied against any net deferred tax asset
if, based on the available evidence, it is more likely than not that some or all
of the deferred tax assets will not be realized.
NOTE 6 - MAJOR CUSTOMERS AND SUPPLIERS:
At September 30, 2006, the Company generated revenues of approximately 19% from
one customer. Approximately 8% of accounts receivable at September 30, 2006 was
from this customer.
At September 30, 2006, the Company had two major suppliers that were owed
approximately 49% of the total accounts payable.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE COMPANY
OVERVIEW AND RECENT EVENTS
Dynabazaar, Inc. (the "Company", "Dynabazaar" or "we") was incorporated in the
State of Delaware in February 1997 as "Fairmarket, Inc." Through September 3,
2003, we were 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
of 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."
In connection with the cessation of our online auction business, we relocated
our principal executive offices as of January 1, 2004 to 888 Seventh Avenue,
17th Floor, New York, New York 10019, an office maintained by Barington Capital
Group, L.P., a limited partnership whose general partner is a corporation of
which James Mitarotonda is Chairman, President and Chief Executive Officer. Mr.
Mitarotonda is our President and Chief Executive Officer and sits on our Board
of Directors.
From January 2003 until June 20, 2006, the Company did not operate any business
and was settling its remaining claims and liabilities while reviewing
alternatives for the use or disposition of our remaining assets.
The Company's common stock trades on the NASDAQ OTC Bulletin Board under the
symbol "FAIM.OB". The Company's common stock was quoted on the NASDAQ National
Market, but was delisted on June 24, 2004.
As previously disclosed in a Form 8-K filed by the Company on June 26, 2006,
Costar Video Systems, LLC ("Costar") and Video Solutions Technology Center, LLC
("VSTC"), direct and indirect wholly owned subsidiaries of the Company completed
the acquisition (the "Acquisition") of substantially all of the assets of
Southern Imaging, Inc., a Texas Corporation ("Southern Imaging"), and Video
Solutions Technology Center, Inc., a Nevada corporation ("Video Solutions"),
pursuant to the transactions contemplated by the asset purchase agreement, dated
as of June 20, 2006 ( the "Asset Purchase Agreement"), by and between Southern
Imaging, Video Solutions, the shareholders of Southern Imaging, Costar and VSTC.
Costar, the Company's subsidiary which acquired Southern Imaging's assets,
designs, sources and distributes video and imaging products for the security and
industrial markets. VSTC, a subsidiary of Costar which acquired the assets of
Video Solutions, will provide product design and development, technical support
and repair services for Costar. The consideration for the Acquisition was up to
approximately $9.8 million (including contingent consideration), consisting of
$73,600 through the issuance of 200,000 shares of the the Company's common stock
(valued at $0.368 which was the arithmetic average of the previous 10 trading
days close), a cash payment of approximately $3.8 million (including a finders
fee payment of approximately $154,000, payment of $108,000 to Barington and the
payoff of shareholder loans of approximately $612,000) less the value of the
200,000 shares of the Company's common stock and the assumption of certain long
term liabilities of approximately $1.9 million, and deferred consideration of up
to $4 million in cash, contingent upon Costar and VSTC achieving certain levels
of sales and EBITDA after the closing through 2009. On September 29, 2006, the
200,000 shares of Dynabazaar common stock were issued.
As previously disclosed in a Form 8-K filed by the Company, on September 21,
2006 Costar entered into a strategic alliance agreement with Sielox, LLC
("Sielox"), a subsidiary of LQ Corporation, Inc. ("LQ Corporation"), dated as
September 15, 2006, pursuant to which the companies have agreed to explore
mutually beneficial opportunities to work together, including, without
limitation, through a joint venture, joint sales or joint marketing arrangement,
or other business arrangement or strategic alliance. Sielox engages in the
development, design and distribution of open architecture access control
software, programmable controllers, readers and identity cards used to provide
access control security to end users such as office buildings, factories,
universities and hospitals. Costar and Sielox are also parties to a distribution
agreement, dated July 31, 2006, pursuant to which Sielox was appointed as an
authorized distributor of certain products of Costar.
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BUSINESS
Costar designs, sources and distributes video and imaging products for the
security and industrial markets. The product line for the security market
consists primarily of closed circuit television ("CCTV") cameras, while the
product line for the industrial market is comprised of cameras and lenses
utilized by biomedical and manufacturing companies.
The production of all units distributed by Costar is outsourced to contract
manufacturers, and the majority of revenues are derived from sales of products
under the CostarTM brand. The balance of Costar's business is generated from (a)
a private label business and (b) the distribution of other companies' branded
products.
Video Solutions provides product design and development, technical support and
repair services for Costar.
BUSINESS ACQUISITION ($ IN THOUSANDS)
On June 20, 2006, Costar Video Systems, LLC ("Costar") and Video Solutions
Technology Center, LLC ("VSTC"), direct and indirect wholly owned subsidiaries
of Dynabazaar, Inc., a Delaware corporation (the "Registrant", "Dynabazaar", the
"Company" or "we"), completed the acquisition (the "Acquisition") of
substantially all of the assets of Southern Imaging, Inc., a Texas Corporation
("Southern Imaging"), and Video Solutions Technology Center, Inc., a Nevada
corporation ("Video Solutions"), pursuant to the transactions contemplated by
the asset purchase agreement, dated as of June 20, 2006 (the "Asset Purchase
Agreement"), by and between Southern Imaging, Video Solutions, the shareholders
of Southern Imaging, Costar and VSTC. However, the acquisition is being
accounted for as if it was effectively completed on June 30, 2006.
Costar, the Company's subsidiary which acquired Southern Imaging's assets,
designs, sources and distributes video and imaging products for the security and
industrial markets. VSTC, a subsidiary of Costar which acquired the assets of
Video Solutions, provides product design and development, technical support and
repair services for Costar.
The consideration for the Acquisition was up to approximately $9.8 million,
consisting of the issuance at closing of 200,000 shares of the common stock of
Dynabazaar, a cash payment of $3 million less the value of the 200,000 shares of
Dynabazaar common stock, the assumption of aproximately $2.475 million of
certain long-term debt and related party notes payable, and deferred
consideration of up to $4 million in cash, contingent upon Costar and VSTC
achieving certain levels of sales and EBITDA after the closing.
In addition the Company paid certain acquisition related fees of approximately
$262,000. These included a finders fee of approximately $154,000 and a payment
of $108,000 financial advisory fee to Barington.
There were no material relationships between Registrant or its affiliates and
any of the parties to the Asset Purchase Agreement, other than in respect of
such agreement.
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ALLOCATION OF PURCHASE PRICE
Purchase Price Paid $3,874
Allocated to:
Fair value of assets acquired:
Cash 240
Prepaids 105
Deposits 4
Accounts receivable, net 1,875
Inventory 2,623
Property and equipment, net 95
Goodwill 2,429
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Total 7,371
Liabilities assumed:
Accounts payable and other (1,634)
Revolver facility (1,863)
Issuance of common stock (74)
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Net purchase price $3,800
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An independent appraisal will be conducted of all tangible and intangible assets
(including, but not limited to, inventory, fixed assets, developed software,
hardware designs, customers lists, patents, trademarks and trade names, etc.)
received as a result of the acquisition of Southern Imaging and Video Solutions.
The results of this appraisal may give rise to among other things, goodwill.
Goodwill of approximately $2,429 will be adjusted for amounts provided for in
the Asset Purchase Agreement and will be reclassified upon results of an
independent appraisal.
CRITICAL ACCOUNTING POLICIES
In December 2001, the Securities and Exchange Commission (the "SEC") requested
that all registrants discuss their most "critical accounting policies" in
management's discussion and analysis of financial condition and results of
operations. The SEC indicated that a "critical accounting policy" is one which
is both important to the portrayal of the company's financial condition and
results and requires management's most difficult, subjective or complex
judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain.
Our significant accounting policies are more fully described in Note 1, Summary
of Significant Accounting Policies, to our consolidated financial statements
included in this Quarterly Report on Form 10-Q.
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RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005 ($IN THOUSANDS)
Net Income
For the three months ended September 30, 2006 and September 30, 2005, our net
income was $193 and $1,892, respectively. Net income in 2005 included $2,000
from the proceeds of an escrow agreement with eBay Inc. ("eBay").
Revenue
For the three months ended September 30, 2006 and September 30, 2005, total
revenue was $3,614 and $0, respectively. Total revenue for the three months
ended September 30, 2006 is entirely attributable to the activities of our
recently acquired subsidiaries Costar and Video Solutions.
Operating Expenses
For the three months ended September 30, 2006, general and administrative
expenses were $615 compared to $236 for the three months ended September 30,
2005. The increase is due primarily to new business.
Other Income, net
For the three months ended September 30, 2006 and September 30, 2005, other
income, net was $50 and $2,128, respectively. The decrease is due primarily to
the receipt of approximately $2,000 in proceeds pursuant to an Escrow Agreement
with eBay in 2005.
NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005 ($ IN THOUSANDS)
Net Income (Loss)
For the nine months ended September 30, 2006 and September 30, 2005, the
Company's net income (loss) was $(90) and $1,425, respectively.
Revenue
For the nine months ended September 30, 2006 and September 30, 2005, total
revenue was $3,614 and $0, respectively.
Operating Expenses
For the nine months ended September 30, 2006, general and administrative
expenses were $1,099, compared to $840 for the nine months ended September 30,
2005. This represents a general increase in expenses due to the activities of
our recently acquired subsidiaries, Costar and Video Solutions.
Other Income and Expenses
For the nine months ended September 30, 2006 and September 30, 2005, other
income and expense, net, was $251 and $2,265, respectively. The decrease
reflects the receipt of approximately $2,000 from the proceeds of an escrow
agreement with eBay.
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LIQUIDITY AND CAPITAL RESOURCES ($ IN THOUSANDS)
At September 30, 2006, cash and cash equivalents totaled $3,102.
Cash used in operating activities was $600 for the nine months ended September
30, 2006, compared to cash used of $405 for the nine months ended September 30,
2005. Cash used in operating activities for the period ended September 30, 2006
primarily reflects the activities of our recently acquired subsidiaries, Costar
and Video Solutions.
Cash used in investing activities for the nine months ended September 30, 2006
was $3,560 compared to cash provided of $2,000 for the nine months ended
September 30, 2005. The cash used represents net cash disbursed to the former
owners of Southern Imaging pursuant to the Asset Purchase Agreement. The cash
provided represents the receipt of approximately $2,000 in proceeds pursuant to
an escrow agreement with eBay.
Cash used in financing activities for the nine months ended September 30, 2006
was $1,863, compared to $1,399 for the period ended September 30, 2005. The cash
used for the nine months ended September 30, 2006 reflects a payment to a bank
to pay off liability assumed by one of our subsidiaries in connection with the
Acquisition. The cash used for the nine months ended September 30, 2005 was for
the purchase of treasury stock.
We believe that our existing cash and cash equivalents will be sufficient to
meet our anticipated cash needs for working capital and capital expenditures in
the near future.
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 Securities Exchange Act, of
1934 as amended (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 of the Company's Annual Report on Form 10-K for the year ended December 31,
2005 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. Forward-looking statements herein are based on
information, plans and estimates at the date of this 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.
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.
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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 (as
defined in Rule 13d-15(e) or Rule 15d-15(e) of the Exchange Act). 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 to ensure 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. No change in our internal control over financial reporting (as
defined in Rule 13d-15(f) or Rule 15d-15(f) of the Exchange Act) 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
systems evolve with our business.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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., DB Alex.
Brown (as successor-in-interest to Deutsche Bank Securities, Inc.), Robertson
Stephens, Inc. (formerly known as FleetBoston Robertson Stephens, Inc.), Banc of
America Securities, LLC, Goldman Sachs & Co., Inc., Merrill Lynch, Pierce,
Fenner & Smith, Incorporated, Citigroup Global Markets, Inc. (as
successor-in-interest to Salomon Smith Barney, Inc.), and J.P. Morgan
Securities, Inc. (as successor-in-interest to Hambrecht & Quist, LLC). 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. 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 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 parties have negotiated and executed a definitive
settlement agreement. The proposed settlement provides that the class members in
the class action cases brought against the participating issuer defendants will
be guaranteed a recovery of $1 billion by insurers of the participating issuer
defendants. If recoveries totaling $1 billion or more are obtained by the class
members from the underwriter defendants, however, the monetary obligations to
the class members under the proposed settlement will be satisfied. In addition,
Dynabazaar and any other participating issuer defendants will be required to
assign to the class members certain claims that they may have against the
underwriters of their IPO's. The proposed settlement contemplates that any
amounts necessary to fund the settlement or settlement-related expenses would
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come from participating issuers' directors and officers' liability insurance
policy proceeds as opposed to funds of the participating issuer defendants
themselves. A participating issuer defendant could be required to contribute to
the costs of the settlement if that issuer's insurance coverage were
insufficient to pay that issuer's allocable share of the settlement costs. If
ultimately approved by the Court, the proposed settlement would result in the
dismissal, with prejudice, of all claims in the litigation against Dynabazaar
and all of the other issuer defendants who have elected to participate in the
proposed settlement, together with the current or former officers and directors
of participating issuers who were named as individual defendants. The proposed
settlement does not provide for the resolution of any claims against the
underwriter defendants, and the litigation as against those defendants is
continuing. Consummation of the proposed settlement remains conditioned upon
obtaining approval by the Court. On September 1, 2005, the Court granted
preliminary approval of the proposed settlement and directed that notice of the
terms of the proposed settlement be provided to class members. Thereafter, the
court held a fairness hearing, on April 24, 2006, at which objections to the
proposed settlement were heard. After the fairness hearing, the Court, took
under advisement whether to grant final approval to the proposed settlement.
ITEM 1A. RISK FACTORS
RELIANCE ON MANUFACTURING SOURCES
We outsource production of our products to contract manufacturers. Our
manufacturers' ability to complete our orders on a timely basis while
maintaining high product quality is important to our operational success. The
manufacturers' failure to live up to the production standards might cause brand
equity damage and legal liability exposure. Such events could have a material
adverse effect on our financial performance. Despite the precautionary measures
we have taken to avoid manufacturing defects and delays, replacing an existing
manufacturer with a new one is a complicated and a time intensive process.
RAPID TECHNOLOGY CHANGES WITHIN INDUSTRY
Vision imaging products are subject to technology changes, causing the industry
to set new standards and practices. Such changes could substantially decrease
the demand for our current product lines, thus hindering our operational and
financial performance.
INTENSIFYING COMPETITION
Competitiveness has intensified in recent years. Larger competitors may respond
more quickly to rapid technological changes, as they have more capital and
resources available to devote to research and development, manufacturing changes
and marketing. Increased competition could force us to decrease our prices thus
eroding our margins, which could negatively impact our operational and financial
performance.
RETAINING QUALITY PERSONNEL
The key to our success is dependant on the dedication, talents and hard work of
our personnel. In order to fulfill our growth targets we must retain and attract
high quality employees and management. Losing key personnel would likely be
detrimental to our success.
MERGER AND ACQUISITION COSTS
Our growth strategy may include the acquisition of complimentary businesses. The
integration of an acquired business might have difficult consequences.
Transaction and integration costs could affect operational and financial
Performance of our business as a whole. Synergies identified pre-closing may not
materialize. Management's attention might be temporarily diverted from running
our business.
DELISTED FROM THE NASDAQ NATIONAL MARKET
Registrant's common stock was delisted from trading on The NASDAQ National
Market in 2004 by reason of not maintaining listing requirements due to the lack
of tangible business operations and significantly reduced market price of the
common stock. As a result, Registrant's common stock currently trades over the
counter on the NASDAQ OTC Bulletin Board, and the ability of Registrant's
stockholders to obtain liquidity and consistent market prices for Registrant's
shares has been significantly impaired.
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PUBLIC COMPANY EXPENSES
As a public company, Registrant incurs significant legal, accounting and other
expenses. In addition, the Sarbanes-Oxley Act of 2002, as well as rules
subsequently implemented by the Securities and Exchange Commission and NASDAQ,
has required changes in corporate governance practices of public companies.
These rules and regulations increase legal and financial compliance costs and
make some activities more time consuming and costly. In addition, Registrant
incurs additional costs associated with its public company reporting
requirements. These rules and regulations also may make it more difficult and
more expensive for Registrant to obtain director and officer liability
insurance, and Registrant may be required to accept reduced policy limits and
coverage or incur substantially higher costs to obtain the same or similar
coverage.
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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.
99.2 Press Release of Dynabazaar, Inc. dated June 26, 2006 (1)
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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: November 14, 2006 By: /s/ James Mitarotonda
------------------------------
James Mitarotonda
Chief Executive Officer (Principal
Executive Officer)
Date: November 14, 2006 By: /s/ Melvyn Brunt
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Melvyn Brunt
Chief Financial Officer (Principal
Financial and Accounting Officer)
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