UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
or
|_| TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-28536
-----------
BILLING CONCEPTS CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2781950
(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
7411 JOHN SMITH DRIVE, SUITE 200
SAN ANTONIO, TEXAS 78229
(Address of principal executive offices) (Zip code)
(210) 949-7000
(Registrant's telephone number, including area code)
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. |X| Yes |_| No
Indicated below is the number of shares outstanding of the registrant's
only class of common stock at May 7, 1999:
NUMBER OF SHARES
TITLE OF CLASS OUTSTANDING
Common Stock, $.01 par value 37,194,963
<PAGE>
BILLING CONCEPTS CORP. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - March 31, 1999 and September 30,
1998................................................................... 3
Condensed Consolidated Statements of Income - For the Three and Six Months
Ended March 31, 1999 and 1998.......................................... 4
Condensed Consolidated Statements of Cash Flows - For the Six Months Ended
March 31, 1999 and 1998................................................ 5
Notes to Interim Condensed Consolidated Financial Statements............... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................. 9
Item 3. Quantitative and Qualitative Disclosure about Market Risk.................. 19
PART II OTHER INFORMATION
Item 1. Legal Proceedings.......................................................... 20
Item 4. Submission of Matters to a Vote of Security Holders........................ 20
Item 6. Exhibits and Reports on Form 8-K........................................... 21
SIGNATURE........................................................................... 22
</TABLE>
2
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BILLING CONCEPTS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1999 1998
--------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................................... $ 1,426 $ 2,622
Accounts receivable, net ............................................ 15,531 9,696
Prepaids and other .................................................. 1,360 908
Net current assets of discontinued operations ....................... 58,285 54,068
--------- -------------
Total current assets .............................................. 76,602 67,294
Property and equipment, net .......................................... 5,506 4,387
Other assets, net .................................................... 6,118 6,505
Investment in equity affiliates ...................................... 7,769 8,000
Net non-current assets of discontinued operations .................... 19,503 19,859
--------- -------------
Total assets ...................................................... $ 115,498 $ 106,045
========= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ............................................. $ 1,244 $ 1,910
Accrued liabilities ................................................ 4,117 4,615
Current portion of long-term debt .................................. 5 471
--------- -------------
Total current liabilities ......................................... 5,366 6,996
Long-term debt, less current portion ................................. 7 1,654
Other liabilities .................................................... 493 1,272
Deferred income taxes ................................................ 1,767 1,931
--------- -------------
Total liabilities ................................................. 7,633 11,853
Commitments and contingencies (Note 4)
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized;
no shares issued or outstanding at March 31 or September 30 ........ 0 0
Common stock, $0.01 par value, 75,000,000 shares authorized;
37,170,785 shares issued and outstanding at March 31; 36,642,890
shares issued and outstanding at September 30 ...................... 372 349
Additional paid-in capital ........................................... 62,465 60,045
Retained earnings .................................................... 45,295 34,192
Deferred compensation ................................................ (267) (394)
--------- -------------
Total stockholders' equity ........................................ 107,865 94,192
--------- -------------
Total liabilities and stockholders' equity ........................ $ 115,498 $ 106,045
========= =============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
<PAGE>
BILLING CONCEPTS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating revenues:
Systems Group operating revenues .............................. 10,932 6,354 22,765 11,455
Operating expenses:
Cost of revenues ............................................... 5,281 3,839 11,300 6,487
Selling, general and administrative expenses ................... 3,671 2,270 7,298 3,962
Research and development ....................................... 843 465 1,703 898
Depreciation and amortization expense .......................... 1,006 608 1,943 1,076
-------- -------- -------- --------
Total operating expenses .................................. 10,801 7,182 22,244 12,423
-------- -------- -------- --------
Income (loss) from continuing operations ......................... 131 (828) 521 (968)
Other income (expense):
Equity in net loss of investee .................................. (570) 0 (770) 0
Interest income ................................................. 13 5 37 8
Interest expense ................................................ (14) (21) (39) (44)
Other, net ...................................................... (9) 11 (30) 31
-------- -------- -------- --------
Total other income (expense) ................................... (580) (5) (802) (5)
-------- -------- -------- --------
Loss from continuing operations before income
taxes ......................................................... (449) (833) (281) (973)
Income tax benefit ............................................... 125 257 4 248
-------- -------- -------- --------
Net loss from continuing operations .............................. (324) (576) (277) (725)
Discontinued operations: (Note 6)
Income from discontinued operations, net of income taxes
of $3,785, $4,908, $8,048, $9,292, respectively ............ 6,175 8,007 13,132 15,161
-------- -------- -------- --------
Net income ....................................................... $ 5,851 $ 7,431 $ 12,855 $ 14,436
======== ======== ======== ========
Basic and diluted earnings (loss) per common share (Note 2):
Continuing operations ......................................... $ (0.01) $ (0.02) $ (0.01) $ (0.02)
Discontinued operations ....................................... $ 0.17 $ 0.23 $ 0.36 $ 0.43
Net Income .................................................... $ 0.16 $ 0.21 $ 0.35 $ 0.41
Weighted average common shares outstanding ...................... 37,060 35,690 36,962 35,359
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
<PAGE>
BILLING CONCEPTS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................................................ $ 12,855 $ 14,436
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ....................................................... 4,492 3,299
Deferred compensation ............................................................... 127 390
Equity in net loss of investee ...................................................... 770 0
Changes in operating assets and liabilities:
Increase in accounts receivable ..................................................... (3,619) (11,717)
Increase (decrease) in prepaids and other ........................................... 255 (308)
Decrease in trade accounts payable .................................................. (2,024) (1,821)
Increase (decrease) in accrued liabilities .......................................... (1,463) 8,725
Increase in other liabilities ....................................................... (730) 117
Decrease in deferred taxes .......................................................... 0 72
--------- ---------
Net cash provided by operating activities .............................................. 10,663 13,193
Cash flows from investing activities:
Purchases of property and equipment ................................................... (3,322) (3,595)
Investments in net assets of affiliates .............................................. (539) 0
Collections of (payments for) purchased receivables from billing customers, net ....... 11,139 (34,602)
Collections of proceeds due (payments made) to billing customers, net ................. (20,795) 49,821
Collections of (payments for) sales taxes due on behalf of billing customers, net ..... (7,608) 3,556
Other investing activities ............................................................ (443) (14)
--------- ---------
Net cash (used in) provided by investing activities .................................... (21,568) 15,166
Cash flows from financing activities:
Proceeds from issuance of long-term debt .............................................. 0 242
Payments on long-term debt ............................................................ (3,187) (191)
Payments on capital leases ............................................................ (252) (235)
Proceeds from issuance of common stock ................................................ 1,774 5,560
--------- ---------
Net cash (used in) provided by financing activities .................................... (1,665) 5,376
--------- ---------
Net (decrease) increase in cash and cash equivalents ................................... (12,570) 33,735
Cash and cash equivalents, beginning of period ......................................... 120,972 42,826
--------- ---------
Cash and cash equivalents, end of period ............................................... $ 108,402 $ 76,561
========= =========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
<PAGE>
BILLING CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The interim condensed consolidated financial statements included herein
have been prepared by Billing Concepts Corp. ("BCC"), formerly known as Billing
Information Concepts Corp., and subsidiaries (collectively referred to as the
"Company"), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. In the opinion of the Company's management, the
accompanying interim condensed consolidated financial statements reflect all
adjustments that are necessary for a fair presentation of the Company's
financial position, results of operations and cash flows for such periods. All
such adjustments are of a normal recurring nature. It is recommended that these
interim condensed consolidated financial statements be read in conjunction with
the consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended September 30, 1998.
Results of operations for interim periods are not necessarily indicative of
results that may be expected for any other interim periods or the full fiscal
year. Certain prior period amounts have been reclassified for comparative
purposes.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2. EARNINGS PER SHARE
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share," established standards for computing and presenting earnings per
share ("EPS") for entities with publicly held common stock or potential common
stock. SFAS No. 128 requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital structures.
Basic EPS excludes dilution and is computed by dividing net income by the
weighted average number of shares of common stock outstanding during the period.
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in earnings
of the Company. As the Company had a net loss from continuing operations for the
three and six-month periods ended March 31, 1999 and 1998, diluted EPS equals
basic EPS as potentially dilutive common stock equivalents are antidilutive in
loss periods. If the Company would have had income from continuing operations
for the three and six-month periods ended March 31, 1999 and 1998, the
denominator (weighted average number of common shares and common share
equivalents outstanding) in the diluted EPS calculation would have been
increased, through application of the treasury stock method, for each class of
options for which the average market price per share of the Company's common
stock exceeded the common stock equivalent's exercise price.
6
<PAGE>
BILLING CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. ACQUISITIONS
Effective October 1, 1998, the Company acquired Expansion Systems
Corporation ("ESC"), a privately held company headquartered in Glendale,
California that develops and markets billing and registration systems to
Internet Service Providers ("ISPs") under its flagship products TOTALBILL and
INSTANTREG. An aggregate of 170,000 shares of the Company's common stock was
issued in connection with this transaction, which has been accounted for as a
pooling of interests combination. The consolidated financial statements for
periods prior to the combination have not been restated to include the accounts
and results of operations of ESC due to the transaction not having a significant
impact on the Company's prior period financial position or results of
operations.
In December 1998, the Company completed the merger of Communications
Software Consultants, Inc. ("CommSoft") in consideration of 2,492,759 shares of
the Company's common stock. CommSoft was a privately held, international
software development and consulting firm specializing in the telecommunications
industry. The business combination has been accounted for as a pooling of
interests. The consolidated financial statements for periods prior to the
combination have been restated to include the accounts and results of operations
of CommSoft.
In September 1998, BCC acquired a 22% ownership position in Princeton eCom
Corporation, formerly known as Princeton TeleCom Corporation ("PTC"), which
provides Internet-based bill publishing and automated payment using secure
Internet transactions or integrated voice response accessed by toll-free
numbers. On March 30, 1999, BCC acquired additional shares of PTC stock,
increasing the Company's ownership position to 23.35%. The Company accounts for
its investment in PTC under the equity method.
NOTE 4. COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims, legal actions and regulatory
proceedings arising in the ordinary course of business. The Company believes it
is unlikely that the final outcome of any of the claims or proceedings to which
the Company is a party will have a material adverse effect on the Company's
financial position or results of operations; however, due to the inherent
uncertainty of litigation, there can be no assurance that the resolution of any
particular claim or proceeding would not have a material adverse effect on the
Company's results of operations for the fiscal period in which such resolution
occurred.
7
<PAGE>
BILLING CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. RELATED PARTY TRANSACTIONS
From time to time, the Company has made advances to or was owed amounts
from certain officers of the Company. The highest aggregate amount, including
interest outstanding, of advances to officers during the six months ended March
31, 1999 was $263,000. The Company had a $67,000 note receivable bearing
interest at 7.0% from a certain officer of the Company at March 31, 1999.
NOTE 6. SUBSEQUENT EVENTS
On April 22, 1999, the Company announced that its Board of Directors
approved a plan to separate its businesses into two separate public companies
(the "Distribution). The Systems and Software division ("Systems Group") will
operate under an undetermined corporate name, and the Local Exchange Carrier
("LEC") Billing division ("Billing Group") will operate under the name Billing
Concepts Corp. The terms of the various agreements between the proposed two
entities have not been finalized, and the Company continues to evaluate the
effects of taxation and other issues as they relate to this transaction. It is
anticipated that prior to September 30, 1999, stockholders of Billing Concepts
Corp. will receive a distribution of one share of the new company for each share
of Billing Concepts Corp. owned on a record date to be determined by the Board
of Directors. The Company anticipates that the details of the distribution will
be reported between June 15 and July 15, 1999.
For purposes of governing certain ongoing relationships between Systems
Group and Billing Group after the Distribution and to provide for an orderly
transition, Systems Group and Billing Group will enter into certain agreements.
Such agreements include: (i) the Distribution Agreement, providing for, among
other things, the Distribution and the division between Systems Group and
Billing Group of certain assets and liabilities and material indemnification
provisions, (ii) the Benefits Plans and Employment Matters Allocation Agreement,
providing for certain allocation of responsibilities with respect to benefit
plans, employee compensation, and labor and employment matters, (iii) the Tax
Sharing Agreement pursuant to which Systems Group and Billing Group will agree
to allocate tax liabilities that relate to periods prior to and after the
Distribution Date.
As a result of the Board's decision, the operating results of Billing
Group are segregated and reported as discontinued operations in the accompanying
Condensed Consolidated Statements of Income in accordance with Accounting
Principles Board Opinion No. 30. Prior period operating results and financial
position have been restated to reflect continuing operations, including
identifying the corporate costs and net assets that are directly related to the
Systems Group and the Billing Group. Operating revenues of the discontinued
operations were $34.8 million and $37.8 million for the three months ended March
31, 1999 and 1998, respectively. For the six months ended March 31, 1999 and
1998, operating revenues of the discontinued operations were $70.9 million and
$73.6 million, respectively. At March 31, 1999 and September 30, 1998, the net
assets of the Billing Group consisted of:
MARCH 31, SEPTEMBER 30,
1999 1998
--------- -------------
Current assets:
Current assets ................................ $ 186,943 $ 212,292
Current liabilities ........................... (128,658) (158,224)
--------- -------------
Net current assets .......................... 58,285 54,068
Net fixed assets ............................... 18,322 19,499
Other non-current assets ....................... 2,611 2,555
Non-current liabilities ........................ (1,430) (2,195)
--------- -------------
Total net assets ............................ $ 77,788 $ 73,927
========= =============
8
<PAGE>
ITEM 2.
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS CERTAIN "FORWARD-LOOKING"
STATEMENTS AS SUCH TERM IS DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995 AND INFORMATION RELATING TO THE COMPANY AND ITS SUBSIDIARIES THAT
ARE BASED ON THE BELIEFS OF THE COMPANY'S MANAGEMENT AS WELL AS ASSUMPTIONS MADE
BY AND INFORMATION CURRENTLY AVAILABLE TO THE COMPANY'S MANAGEMENT. WHEN USED IN
THIS REPORT, THE WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE," "EXPECT" AND
"INTEND" AND WORDS OR PHRASES OF SIMILAR IMPORT, AS THEY RELATE TO THE COMPANY
OR ITS SUBSIDIARIES OR COMPANY MANAGEMENT, ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REFLECT THE CURRENT RISKS,
UNCERTAINTIES AND ASSUMPTIONS RELATED TO CERTAIN FACTORS INCLUDING, WITHOUT
LIMITATIONS, COMPETITIVE FACTORS, GENERAL ECONOMIC CONDITIONS, CUSTOMER
RELATIONS, RELATIONSHIPS WITH VENDORS, THE INTEREST RATE ENVIRONMENT,
GOVERNMENTAL REGULATION AND SUPERVISION, SEASONALITY, DISTRIBUTION NETWORKS,
PRODUCT INTRODUCTIONS AND ACCEPTANCE, TECHNOLOGICAL CHANGE, CHANGES IN INDUSTRY
PRACTICES, ONETIME EVENTS AND OTHER FACTORS DESCRIBED HEREIN AND IN OTHER
FILINGS MADE BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION. BASED
UPON CHANGING CONDITIONS, SHOULD ANY ONE OR MORE OF THESE RISKS OR UNCERTAINTIES
MATERIALIZE, OR SHOULD ANY UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL
RESULTS MAY VARY MATERIALLY FROM THOSE DESCRIBED HEREIN AS ANTICIPATED,
BELIEVED, ESTIMATED, EXPECTED OR INTENDED. THE COMPANY DOES NOT INTEND TO UPDATE
THESE FORWARD-LOOKING STATEMENTS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following is a discussion of the consolidated financial condition and
results of operations for Billing Concepts Corp. ("BCC"), formerly known as
Billing Information Concepts Corp., and subsidiaries (collectively referred to
as the "Company"), for the quarters and six months ended March 31, 1999 and
1998. It should be read in conjunction with the Interim Condensed Consolidated
Financial Statements of the Company, the notes thereto and other financial
information included elsewhere in this report, and the Company's Annual Report
on Form 10-K for the year ended September 30, 1998. For purposes of the
following discussion, references to year periods refer to the Company's fiscal
year ended September 30 and references to quarterly periods refer to the
Company's fiscal quarter ended March 31.
On April 22, 1999, the Company announced that its Board of Directors
approved a plan to separate its businesses into two separate public companies
(the "Distribution"). The Systems and Software division ("Systems Group") will
operate under an undetermined corporate name, and the Local Exchange Carrier
("LEC") Billing division ("Billing Group") will operate under the name Billing
Concepts Corp. The terms of the various agreements between the proposed two
entities have not been finalized, and the Company continues to evaluate the
effects of taxation and accounting other issues as they relate to this
transaction. It is anticipated that prior to September 30, 1999, stockholders of
Billing Concepts Corp. will receive a distribution of one share of the new
company for each share of Billing Concepts Corp. owned on a record date to be
determined by the Board of Directors. The Company anticipates that the details
of the distribution will be reported between June 15 and July 15, 1999.
For purposes of governing certain ongoing relationships between Systems
Group and Billing Group after the Distribution and to provide for an orderly
transition, Systems Group and Billing Group will enter into certain agreements.
Such agreements include: (i) the Distribution Agreement, providing for, among
other things, the Distribution and the division between Systems Group and
Billing Group of certain assets and liabilities and material indemnification
provisions, (ii) the Benefits Plans and Employment Matters Allocation Agreement,
providing for certain allocation of responsibilities with respect to benefit
plans, employee compensation, and labor and employment matters, (iii) the Tax
Sharing Agreement pursuant to which Systems Group and Billing Group will agree
to allocate tax liabilities that relate to periods prior to and after the
Distribution Date.
9
<PAGE>
As a result of the Board's decision to separate its businesses, the
accompany the Condensed Consolidated Statements of Income reflect the operating
results of the Billing Group as discontinued operations in accordance with
Accounting Principles Board Opinion No. 30. Prior period operating results have
been restated to reflect continuing operations, including identifying the
corporate costs that are directly related to the Systems Group and the Billing
Group. The operating results of the Billing Group for the three and six-month
periods ended March 31, 1999 and 1998 are discussed below. A Systems Group
Condensed Consolidated Pro Forma Balance Sheet and Systems Group Condensed
Consolidated Pro Forma Statements of Income are also included and discussed in a
separate section below.
RESULTS OF CONTINUING OPERATIONS - SYSTEMS GROUP
The following table presents certain items in the Company's Condensed
Consolidated Statements of Income as a percentage of total revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
----------------- -----------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Systems Group operating revenues ........... 100.0% 100.0% 100.0% 100.0%
Cost of revenues ........................... 48.3 60.4 49.6 56.6
------ ------ ------ ------
Gross profit ............................... 51.7 39.6 50.4 43.4
Selling, general and administrative expenses 33.6 35.7 32.1 34.6
Research and development ................... 7.7 7.3 7.5 7.8
Depreciation and amortization expense ...... 9.2 9.6 8.5 9.4
------ ------ ------ ------
Income (loss) from continuing operations ... 1.2 (13.0) 2.3 (8.4)
Other income (expense), net ................ (5.3) (0.1) (3.5) (0.0)
------ ------ ------ ------
Income (loss) before income taxes .......... (4.1) (13.1) (1.2) (8.5)
Income tax benefit ......................... 1.1 4.0 0.0 2.2
------ ------ ------ ------
Net income (loss) from continuing operations (3.0)% (9.1)% (1.2)% (6.3)%
====== ====== ====== ======
</TABLE>
OPERATING REVENUES
The Systems Group develops, sells and supports convergent billing systems
for telecommunications and Internet service providers and provides direct
billing outsourcing services. In addition to license and maintenance fees
charged by the Systems Group for the use of its billing software applications,
fees are also charged on a time and materials basis for software customization
and professional services. Processing fees for direct billing services provided
through the Systems Group's service bureau are assessed to customers based on
volume. Systems Group revenues also include retail sales of third party computer
hardware and software. Total revenues for the quarter ended March 31, 1999 were
$10.9 million, an increase of 70.3% from the comparable prior year quarter of
$6.4 million. During the first six months of 1999, total revenues increased
98.3% to $22.8 million from $11.5 million during the comparable period of 1998.
The increase in revenues from the prior year periods was primarily attributable
to the increase in professional services revenues.
COST OF REVENUES
Cost of revenues includes the cost of third party computer hardware and
software sold, and the salaries and benefits of software development, technical,
service bureau and professional service personnel who generate revenue from
contracted services. The gross profit margin of 51.7% reported for the quarter
ended March 31, 1999, increased from 39.6% achieved in the second quarter of
1998. The gross profit margin of 50.4% reported for the six months ended March
31, 1999, increased from 43.4% achieved in the respective prior year period. The
increase in software license fees as a percentage of total revenues in 1999
served to improve gross margin due to the higher margins associated with systems
sales.
10
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses are comprised of all
selling, marketing and administrative costs incurred in direct support of the
business operations of the Software Group. Additionally, costs driven
exclusively by corporate-level activities have been included in the operating
results of the Software Group. Consequently, restated historical SG&A expenses
for the Software Group may not be indicative of the amount of SG&A expenses that
the Software Group would have incurred as an independent, stand-alone entity.
SG&A expenses for the second quarter of 1999 and 1998 were $3.7 million and $2.3
million, representing 33.6% and 35.7% of revenues, respectively. SG&A expenses
for the first six months of 1999 increased to $7.3 million, or 32.1% of
revenues, from $4.0 million, or 34.6% of revenues, in the comparable period of
1998. The decrease in SG&A from the prior year periods as a percentage of total
revenues was primarily attributable to the growth in revenues.
RESEARCH AND DEVELOPMENT
Research and development ("R&D") expenses are comprised of the salaries
and benefits of the employees involved in software development and related
expenses. R&D expenses in the second quarter of 1999 were $843,000 compared to
$465,000 in the second quarter of 1998. For the six months ended March 31, 1999
and 1998, R&D expenses were $1.7 million and $898,000, respectively. The Systems
Group intends to continue its research and development efforts in the future and
anticipates spending up to $4 million during 1999 for such expenses.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses are incurred with respect to
certain assets, including computer hardware, software, office equipment,
furniture, leasehold improvements, goodwill and other intangibles. Asset lives
range between three and fifteen years. Depreciation and amortization expense was
$1.0 million in the second quarter of 1999 compared with $608,000 in the second
quarter of 1998. Depreciation and amortization expense as a percentage of
revenues was 9.2% and 9.6% in the second quarter of 1999 and 1998, respectively.
For the first six months of 1999, depreciation and amortization expense was $1.9
million, or 8.5% of revenues, compared to $1.1 million, or 9.4% of revenues, for
the first six months of 1998. The decrease in depreciation and amortization
expense as a percentage of revenues from the prior year periods is attributable
to increased revenues.
INCOME (LOSS) FROM CONTINUING OPERATIONS
Income from operations in the second quarter of 1999 was $131,000,
compared to a loss from operations of $828,000 in the second quarter of 1998.
Income from operations in the first six months of 1999 increased to $521,000
from a loss of $968,000 in the first six months of 1998. The increase in income
from operations from the prior year periods is attributable to a higher gross
profit margin and lower SG&A and depreciation expenses as a percentage of
revenues.
OTHER EXPENSE
Net other expense of $580,000 and $802,000 for the quarter and six months
ended March 31, 1999 compares to net other expense of $5,000 in both the
comparable periods of 1998. The increase from the prior year periods was
primarily due to the Systems Group's equity in the loss of its investee,
Princeton eCom Corporation, since the Systems Group's initial investment in
September 1998.
11
<PAGE>
RESULTS OF DISCONTINUED OPERATIONS - BILLING GROUP
The following table reflects the operations of Billing Group for the three
and six-month periods ended March 31, 1999 and 1998, which are reflected as
discontinued operations on the Condensed Consolidated Statements of Income.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
-------------------- --------------------
(IN THOUSANDS)
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Billing Group operating revenues ........... $ 34,782 $ 37,813 $ 70,861 $ 73,573
Cost of revenues ........................... 22,125 23,170 44,636 45,337
-------- -------- -------- --------
Gross profit ............................... 12,657 14,643 26,225 28,236
Selling, general and administrative expenses 3,720 3,486 7,281 6,737
Research and development ................... 208 75 645 450
Advance funding program income, net ........ (975) (2,240) (2,183) (4,264)
Depreciation and amortization expense ...... 1,258 1,125 2,549 2,251
-------- -------- -------- --------
Income from discontinued operations ........ 8,446 12,197 17,933 23,062
Other income, net .......................... 1,514 718 3,247 1,391
-------- -------- -------- --------
Income before income taxes ................. 9,960 12,915 21,180 24,453
Income tax expense ......................... (3,785) (4,908) (8,048) (9,292)
-------- -------- -------- --------
Net income from discontinued operations .... $ 6,175 $ 8,007 $ 13,132 $ 15,161
======== ======== ======== ========
</TABLE>
OPERATING REVENUES
Billing Group services revenues decreased 8.0% to $34.8 million in the
second quarter of 1999, from $37.8 million in the second quarter of 1998. For
the first six months of 1999, Billing Group services decreased 3.7% to $70.9
million, from $73.6 million in the first six months of 1998. The decrease in
Billing Group services revenue from the prior periods was attributable to a
decrease in the number of call records processed. The number of call records
processed for billing was impacted by "slamming and cramming" issues that have
occurred in the long distance industry. These "slamming and cramming" issues
have caused some of the larger LECs to affect the ability of certain of the
Billing Group's customers to market certain services. Also, as a proactive
measure, the Billing Group has taken action against certain customers that
include, but is not limited to, the cessation of billing for certain new or
existing products. Management believes that its actions have mitigated the
effects of "slamming and cramming" issues on the call record volumes of its
current customer base. Telephone call record volumes were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
--------------- ---------------
1999 1998 1999 1998
------ ------ ------ ------
(IN MILLIONS) (IN MILLIONS)
Direct dial long distance services ...... 152.1 164.6 304.3 324.9
Operator services ....................... 23.4 36.9 47.9 73.8
Enhanced billing services ............... 1.0 3.3 2.4 6.4
Billing management services ............. 60.6 86.9 113.8 183.8
Although billing management records decreased significantly from the prior
quarter, the impact on revenues was minimal because revenue per record for
billing management customers, who have their own billing and collection
agreements with the local telephone companies, is significantly less than
revenue per record for the Billing Group's other customers.
COST OF REVENUES
The gross profit margin of 36.4% and 37.0% reported for the quarter and
six months ended March 31, 1999, decreased from 38.7% and 38.4% achieved in the
respective prior year periods. The decrease in margin from the prior periods is
attributable to the loss of certain higher margin revenues in enhanced billing
services and the decrease in revenues from billing inquiry calls to the
Company's call centers. The decrease in both of these revenue sources is the
result of certain LEC's actions regarding slamming and cramming issues.
12
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses are comprised of all selling, marketing and administrative
costs incurred in direct support of the business operations of the Billing
Group. Costs driven by corporate-level activities have been included in the
operating results of the Software Group. Consequently, restated historical SG&A
expenses for the Billing Group may not be indicative of the amount of SG&A
expenses that the Billing Group would have incurred as an independent,
stand-alone entity. SG&A expenses for the second quarter of 1999 and 1998 were
$3.7 million and $3.5 million, representing 10.7% and 9.2% of revenues,
respectively. SG&A expenses for the first six months of 1999 increased to $7.3
million, or 10.3% of revenues, from $6.7 million, or 9.2% of revenues, in the
comparable period of 1998. The increase in SG&A as a percentage of revenue was
primarily due to the decrease in revenues.
RESEARCH AND DEVELOPMENT
Research and development expenses are comprised of the salaries and
benefits of the employees involved in software development and related expenses.
Research and development expenses were $208,000 in the second quarter of 1999
and $645,000 for the first six months of 1999 compared to $75,000 and $450,000
in the second quarter and first six months of 1998. The Billing Group intends to
continue its research and development efforts in the future and anticipates
spending up to $700,000 during the last six months of 1999 for such expenses.
ADVANCE FUNDING PROGRAM INCOME AND EXPENSE
Advance funding program income decreased 55.7% to $1.0 million for the
second quarter of 1999 from $2.3 million for the second quarter of 1998. Advance
funding program income for the first six months of 1999 decreased 48.1% to $2.2
million from $4.3 million in the first six months of 1998. The decrease was
primarily the result of financing a lower level of customer receivables under
the Billing Group's advance funding program. The quarterly average balance of
purchased receivables was $55.3 million and $88.4 million for the six months
ended March 31, 1999 and 1998, respectively.
Advance funding program expense was flat at $61,000 and $63,000 for the
first six months of 1999 and 1998, respectively. The Billing Group financed all
customer receivables during both periods with internally generated funds rather
than with funds borrowed through the Billing Group's revolving credit facility.
The expense recognized during both 1999 and 1998 represents unused credit
facility fees and is the minimum expense that the Billing Group could have
incurred during these periods.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense was $1.3 million in the second
quarter of 1999 compared with $1.1 million in the second quarter of 1998.
Depreciation and amortization expense as a percentage of revenues was 3.6% and
3.0% in the second quarter of 1999 and 1998, respectively. For the first six
months of 1999, depreciation and amortization expense was $2.5 million, or 3.6%
of revenues, compared to $2.3 million, or 3.1% of revenues, for the first six
months of 1998.
INCOME FROM DISCONTINUED OPERATIONS
Income from discontinued operations in the second quarter of 1999 was $8.4
million, or 24.3% of revenues, compared to income from discontinued operations
of $12.2 million, or 32.3% of revenues, in the second quarter of 1998. Income
from discontinued operations in the first six months of 1999 decreased to $17.9
million, or 25.3% of revenues, from $23.1 million, or 31.3% of revenues, in the
first six months of 1998. The decrease in income from discontinued operations as
a percentage of revenues from the prior year periods is attributable to higher
SG&A and depreciation expenses as a percentage of revenues and a lower gross
profit margin.
OTHER INCOME
Net other income of $1.5 million and $3.2 million in the quarter and six
months ended March 31, 1999 increased from $718,000 and $1.4 million in the
quarter and six months ended March 31, 1998, respectively. The increase from the
prior year periods was primarily due to increased interest income from
short-term investments due to higher cash reserves. Interest expense was also
lower in the first six months of 1999 due to the paydown of long-term debt.
13
<PAGE>
EFFECTS OF SEPARATION OF SYSTEMS GROUP AND BILLING GROUP BUSINESSES
The Condensed Consolidated Statements of Income included in this report
reflect the continuing and discontinued operations of the Company for the three
and six-month periods ended March 31, 1999 and 1998. Included below is
supplemental pro forma financial information that management believes is
important to provide a more complete understanding of the results of Systems
Group, excluding its Billing Group, on a stand-alone basis. Condensed
Consolidated Pro Forma Statements of Income are presented below for each of the
last three fiscal years, as well as for the six-month periods ended March 31,
1999 and 1998. These Condensed Consolidated Pro Forma Statements of Income are
based on the historical statements of the periods presented, adjusted to reflect
the items discussed in the accompanying notes to the pro forma financial
statements. The Condensed Consolidated Pro Forma Statements of Income give
effect to the Distribution as if it had occurred on October 1, 1995. A Condensed
Consolidated Pro Forma Balance Sheet at March 31, 1999 is also presented which
gives effect to the Distribution as if it had occurred on March 31, 1999. The
pro forma adjustments reflect the anticipated terms of the Distribution
Agreement and the related spinoff agreements, which are expected to have a
continuing impact on Systems Group. Neither the Condensed Consolidated Pro Forma
Statements of Income nor the Condensed Consolidated Pro Forma Balance Sheet
reflects an estimate of the direct costs to be incurred in connection with the
Distribution.
The unaudited consolidated pro forma financial information is presented
for informational purposes only and should be read in conjunction with the
accompanying notes and with the Company's historical financial statements and
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" set forth herein and in the Company's Annual Report
on Form 10-K for the fiscal year ended September 30, 1998. The pro forma
financial statements are forward-looking and should not be considered indicative
of the operating results or financial positions which Systems Group will achieve
in the future if it were operated on an independent, stand-alone basis because,
among other things, these statements are based on historical rather than
prospective information and include certain assumptions which are subject to
change.
The unaudited Condensed Consolidated Pro Forma Statements of Income and
the Condensed Consolidated Pro Forma Balance Sheet reflect, in management's
opinion, all adjustments necessary to fairly state the pro forma results of
operations for the periods presented and financial position at March 31, 1999 to
make the unaudited pro forma statements not misleading.
14
<PAGE>
SYSTEMS GROUP
CONDENSED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED SEPTEMBER 30, ENDED MARCH 31,
-------------------------------- --------------------
1998 1997 1996 1999 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Operating revenues .................................. $ 28,481 $ 11,786 $ 5,537 $ 22,765 $ 11,455
Cost of revenues .................................... 15,417 6,963 3,507 11,300 6,487
-------- -------- -------- -------- --------
Gross profit ...................................... 13,064 4,823 2,030 11,465 4,968
Selling, general and administrative expenses ........ 9,539 2,015 1,154 7,298 3,962
Research and development ............................ 2,109 1,067 335 1,703 898
Depreciation and amortization expense ............... 2,514 494 141 1,943 1,076
Special charges ..................................... 2,000 13,011 0 0 0
-------- -------- -------- -------- --------
Income (loss) from operations ..................... (3,098) (11,764) 400 521 (968)
Equity in net loss of investee ...................... 0 0 0 (770) 0
Other income (expense), net ......................... 116 40 10 (32) (5)
-------- -------- -------- -------- --------
Income (loss) before provision for income taxes ..... (2,982) (11,724) 410 (281) (973)
Provision for income taxes (A) ...................... 0 0 (166) 0 0
-------- -------- -------- -------- --------
Net income (loss) ................................... $ (2,982) $(11,724) $ 244 $ (281) $ (973)
======== ======== ======== ======== ========
</TABLE>
15
<PAGE>
SYSTEMS GROUP
CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
AT MARCH 31, 1999
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENT PRO FORMA
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Total current assets ....................... $ 18,317 $ 111,236(B) $ 129,553
Net property and equipment ................. 5,506 -- 5,506
Other assets, net .......................... 13,887 -- 13,887
---------- ---------- ----------
Total assets ............................. $ 37,710 $ 111,236 $ 148,946
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Total current liabilities .................. $ 5,366 -- $ 5,366
Long-term obligations ...................... 2,267 -- 2,267
Total stockholders' equity ................. 30,077 $ 111,236 141,313
---------- ---------- ----------
Total liabilities and stockholders' equity $ 37,710 $ 111,236 $ 148,946
========== ========== ==========
</TABLE>
Notes to unaudited condensed consolidated pro forma financial statements:
(A)On its historical Condensed Consolidated Statements of Income, the Company
has reported income on a pre-tax basis and, consequently, income tax expense.
On a pro forma stand-alone basis, Systems Group has incurred losses with the
exception of the year ended September 30, 1996. However, no tax benefit is
reflected on the pro forma Condensed Consolidated Statements of Income for
those years and periods for which a loss was reported.
(B)Cash has historically been managed by a centralized cash management
department in the Company. Consequently, cash was not allocated among the
subsidiaries but was recorded on the balance sheet of the Company. The
anticipated terms of the Distribution Agreement call for Billing Group to
transfer to Systems Group an amount of cash on the Distribution Date equal to
the working capital balance of the consolidated balance sheet prior to the
distribution in addition to as much as $40,000,000. The calculation of the
cash amount to be transferred by Billing Group to Systems Group will be based
on current assets and current liabilities as reported on the consolidated
balance sheet on the month end immediately preceding the Distribution and is
subject to change at any time prior to the execution of the Distribution
Agreement in light of changes in the financial position and results of
operation of Billing Group and Systems Group. Had the Distribution Date been
March 31, 1999, the amount of cash that could have been transferred from
Billing Group to Systems Group would have been $111,236,000.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES - THE COMPANY
The Company's cash balance, including that held by its discontinued
operations, decreased to $108.4 million at March 31, 1999 from $121.0 million at
September 30, 1998. Large fluctuations in daily cash balances are normal due to
the large amount of customer receivables that the Company collects on behalf of
its customers. The Company's working capital position increased to $71.2 million
at March 31, 1999 from $60.2 million at September 30, 1998. Net cash provided by
operating activities was $10.7 million and $13.2 million in the first six months
of 1999 and 1998, respectively.
The Company has a $50.0 million revolving line of credit facility with
certain lenders primarily to draw upon to advance funds to its billing customers
prior to collection of the funds from the local telephone companies. This credit
facility terminates on December 20, 1999. Borrowings under the credit facility
are limited to a portion of the Company's eligible receivables. Management
believes that the capacity under the credit facility will be sufficient to fund
advances to its billing customers for the foreseeable future. No amounts were
borrowed by the Company under its credit facility to finance the advance funding
program at either March 31, 1999 or September 30, 1998. At March 31, 1999, the
amount available under the Company's receivable financing facility was $50.0
million.
Under certain of its credit agreements, the Company is prohibited from
paying dividends on its common stock, is required to comply with certain
financial covenants and is subject to certain limitations on the issuance of
additional secured debt. The Company was in compliance with all required
covenants at March 31, 1999.
Capital expenditures amounted to approximately $3.3 million in the first
six months of 1999 and related primarily to purchases of computer equipment and
software. The Company anticipates capital expenditures before acquisitions of up
to $8 million in the next six months of 1999, including expenditures for
development, leasehold improvements and computer equipment and software. The
Company believes that it will be able to fund expenditures with internally
generated funds and borrowings, but there can be no assurance that such funds
will be available or expended.
The Company's cash requirements consist principally of working capital
requirements, requirements under its advance funding program, scheduled payments
of principal on its outstanding indebtedness and capital expenditures. The
Company believes that it has the ability to continue to secure long-term
equipment financing and that this ability, combined with cash flows generated
from operations and periodic borrowings under its receivable financing facility,
will be sufficient to fund capital expenditures, advance funding requirements,
working capital needs and debt repayment requirements for the foreseeable
future.
Effective October 1, 1998, the Company acquired Expansion Systems
Corporation ("ESC"), a privately held company headquartered in Glendale,
California that develops and markets billing and registration systems to
Internet Service Providers ("ISPs") under its flagship products TOTALBILL and
INSTANTREG. An aggregate of 170,000 shares of the Company's common stock was
issued in connection with this transaction, which has been accounted for as a
pooling of interests combination. The consolidated financial statements for
periods prior to the combination have not been restated to include the accounts
and results of operations of ESC due to the transaction not having a significant
impact on the Company's prior period financial position or results of
operations.
In December 1998, the Company completed the merger of Communications
Software Consultants, Inc. ("CommSoft") in consideration of 2,492,759 shares of
the Company's common stock. CommSoft was a privately held, international
software development and consulting firm specializing in the telecommunications
industry. The business combination was accounted for as a pooling of interests.
The consolidated financial statements for periods prior to the combination have
been restated to include the accounts and results of operations of CommSoft.
17
<PAGE>
YEAR 2000 COMPLIANCE
The operation of the Company's business is highly dependent on its
computer software programs and operating systems (collectively, "Programs and
Systems"). These Programs and Systems are used in several key areas of the
Company's business, including information management services, third-party
billing clearinghouse services (including the advance funding program), direct
billing services and financial reporting, as well as in various administrative
functions. In providing information management, third-party billing
clearinghouse and direct billing services, the Company processes telephone call
records which are date sensitive. The Company also develops, sells and supports
sophisticated billing systems and software (the "Billing Systems") which must be
able to process date-dependent data correctly. Certain of the Billing Systems
sold by the Company have been warranted to process information related to or
including dates that are prior to, on or after January 1, 2000.
The Company has been evaluating its Programs and Systems to identify
potential Year 2000 readiness problems, as well as manual processes, external
interfaces with customers and services supplied by vendors to coordinate Year
2000 compliance and conversion. The Year 2000 problem refers to the limitations
of the programming code in certain existing software programs to recognize
date-sensitive information for the Year 2000 and beyond. Unless modified prior
to December 31, 1999, such systems may not properly recognize such information
and could generate erroneous data or cause a system to fail to operate properly.
The Company filed a Year 2000 Certification Request with ITAA (Information
Technology Association of America) in January 1999. The Company has installed
its Year 2000 compliant Modular Business Applications ("MBA") Version 4.0 in its
Service Bureau operation, which is processing 11 clients, and also has
successfully installed the MBA Version 4.0 into production at one of its largest
MBA clients. The Company made a general release of MBA Version 4.0 available in
the second fiscal quarter of 1999. The Company believes that all significant
modifications and replacements required to make its systems that perform LEC
billing Year 2000 compliant were completed during April 1999. It is anticipated
that modification or replacement of the Company's Programs and Systems will be
performed in-house by Company personnel.
The Company believes that, with modifications to existing software and
conversions to new software, the Year 2000 problem will not pose a significant
operational problem for the Company. However, because the Company's business
relies on processing date-sensitive telephone call records supplied by third
parties, it is possible that non-compliant third-party computer systems may not
be able to provide accurate data for processing through the Company's computer
systems. The Company's business, financial condition and results of operations
could be materially adversely affected by the Year 2000 problem if it or
unrelated parties fail to successfully address this issue.
Management of the Company currently anticipates that the total expenses
and capital expenditures associated with its Year 2000 readiness project,
including costs associated with modifying the Programs and Systems and the cost
of purchasing or leasing certain hardware and software, will be less than $3
million. As of March 31, 1999, the Company has spent approximately $1.5 million
on capital expenditures for related hardware and software and incurred and
expensed approximately $450,000 in personnel and other costs related to the Year
2000 readiness process. The Company anticipates incurring less than $1 million
in additional personnel and other costs, which will be expensed as incurred. The
cost of Year 2000 readiness and the expected completion dates are the best
estimates of Company management and are believed to be reasonably accurate.
In the event the Company's plan to address the Year 2000 problem is not
successfully or timely implemented, the Company may need to devote more
resources to the process and additional costs may be incurred, which could have
a material adverse effect on the Company's financial condition and results of
operations. Problems encountered by the Company's vendors, customers and other
third parties also may have a material adverse effect on the Company's financial
condition and results of operations.
In the event the Company determines, following the Year 2000 date change,
that its Programs and Systems are not Year 2000 ready, the Company will be
unable to process date-sensitive telephone call records and thus be unable to
provide most of its revenue-producing services, which will have a material
adverse effect on the Company's financial condition and results of operations.
The Company also will likely experience considerable delays in compiling
information required for financial reporting and performing various
administrative functions. In addition, in the event the Company's Billing
Systems are not Year 2000 ready, the Company will be required to devote more
monetary and other resources to achieving such readiness, which could have a
18
<PAGE>
material adverse effect on the Company's financial condition and results of
operations.
The Company is currently developing a contingency plan for implementation
in the event its Programs and Systems are not Year 2000 ready prior to December
31, 1999. Such contingency plan will be modeled upon the Company's Disaster
Recovery Plan. The Disaster Recovery Plan outlines a strategy for reduced
continued operations following a natural disaster which damages the Company's
operations center in San Antonio, Texas.
The above Year 2000 disclosure constitutes a "Year 2000 Readiness
Disclosure" as defined in The Year 2000 Information and Readiness Disclosure Act
(the "Act"), which was signed into law on October 19, 1998. The Act provides
added protection from liability for certain public and private statements
concerning a company's Year 2000 readiness.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company does not believe that there is any material market risk
exposure with respect to derivative or other financial instruments, which would
require disclosure under this item.
19
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various claims, legal actions and regulatory
proceedings arising in the ordinary course of business. The Company believes it
is unlikely that the final outcome of any of the claims or proceedings to which
the Company is a party would have a material adverse effect on the Company's
financial position or results of operations; however, due to the inherent
uncertainty of litigation, there can be no assurance that the resolution of any
particular claim or proceeding would not have a material adverse effect on the
Company's results of operations for the fiscal period in which such resolution
occurred.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders held on February 25, 1999, the
following matters were adopted by the margins indicated:
1. To elect directors Parris H. Holmes, Jr. and Alan W. Saltzman to serve
until the 2002 Annual Meeting of Stockholders.
For: 30,366,099
Against: 611,532
Abstain: N/A
2. To ratify the appointment of Arthur Andersen LLP as independent public
accountants of the Company for the fiscal year ending September 30,
1999.
For: 30,823,751
Against: 122,760
Abstain: 31,120
The following directors continue their term of office subsequent to the
Annual Meeting: Lee Cooke, James E. Sowell and Thomas G. Loeffler.
<PAGE>
PART II OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The exhibits listed below are filed as part of or incorporated by
reference in this report. Where such filing is made by incorporation
by reference to a previously filed document, such document is
identified in parentheses.
EXHIBIT
NUMBER DESCRIPTION
27.1 Financial Data Schedule (filed herewith)
(b) Current Reports on Form 8-K:
8-K dated April 22, 1999, filed April 29, 1999, regarding the news
release announcing the Board approval to separate BCC into two companies.
ITEMS 2, 3, AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
21
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
BILLING CONCEPTS CORP.
(Registrant)
Date: May 14, 1999 By: /s/ KELLY E. SIMMONS
Kelly E. Simmons
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(Duly authorized and principal
financial officer)
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE RESTATED FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR BILLING CONCEPTS CORP. AND SUBSIDIARIES AS OF AND FOR THE SIX MONTHS ENDED
MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,426
<SECURITIES> 0
<RECEIVABLES> 15,633
<ALLOWANCES> 102
<INVENTORY> 0
<CURRENT-ASSETS> 76,602
<PP&E> 7,651
<DEPRECIATION> 2,145
<TOTAL-ASSETS> 115,498
<CURRENT-LIABILITIES> 5,366
<BONDS> 7
0
0
<COMMON> 372
<OTHER-SE> 107,493
<TOTAL-LIABILITY-AND-EQUITY> 115,498
<SALES> 5,009
<TOTAL-REVENUES> 22,765
<CGS> 3,765
<TOTAL-COSTS> 11,300
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39
<INCOME-PRETAX> (281)
<INCOME-TAX> 4
<INCOME-CONTINUING> (277)
<DISCONTINUED> 13,132
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,855
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.35
</TABLE>
