<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 001-13749
COLUMBIA CAPITAL CORP.
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(Name of small business issuer specified in its charter)
Delaware 11-3210792
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2701 West Oakland Park Boulevard, 2nd Floor, Fort Lauderdale, Florida 33311
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(Address of principal executive offices, including zip code)
954-453-6575
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(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange
Title of each class on which registered
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None None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.001 par value per share
------------------------------------------------
(Title of Class)
<PAGE>
Check whether the issuer: (i) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (ii) has been subject to such filing requirements for the past 90 days.
Yes X No
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The number of shares outstanding of the issuer's Common Stock as of May 1,
1998 was 12,650,000 shares.
Transactional Small Business Disclosure Format (Check one): Yes No X
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THIS QUARTERLY REPORT ON FORM 10-QSB (THE "REPORT") MAY BE DEEMED TO
CONTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 (THE "REFORM ACT"). FORWARD-LOOKING
STATEMENTS IN THIS REPORT OR HEREAFTER INCLUDED IN OTHER PUBLICLY AVAILABLE
DOCUMENTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE
"COMMISSION"), REPORTS TO THE COMPANY'S STOCKHOLDERS AND OTHER PUBLICLY
AVAILABLE STATEMENTS ISSUED OR RELEASED BY THE COMPANY INVOLVE KNOWN AND
UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH COULD CAUSE THE
COMPANY'S ACTUAL RESULTS, PERFORMANCE (FINANCIAL OR OPERATING) OR
ACHIEVEMENTS TO DIFFER FROM THE FUTURE RESULTS, PERFORMANCE (FINANCIAL OR
OPERATING) OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. SUCH FUTURE RESULTS ARE BASED UPON MANAGEMENT'S BEST ESTIMATES
BASED UPON CURRENT CONDITIONS AND THE MOST RECENT RESULTS OF OPERATIONS.
THESE RISKS INCLUDE, BUT ARE NOT LIMITED TO, THE RISKS SET FORTH HEREIN, EACH
OF WHICH COULD ADVERSELY AFFECT THE COMPANY'S BUSINESS AND THE ACCURACY OF
THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN.
ii
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
2
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COLUMBIA CAPITAL CORP.
CONSOLIDATED BALANCE SHEETS - UNAUDITED
<TABLE>
<CAPTION>
ASSETS March 31, December 31,
1998 1997
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<S> <C> <C>
Current assets
Cash and cash equivalents $ 312,828 $ 17,861
Interest bearing deposits with banks 603,578 303,578
Accounts receivable, net 568,842 522,538
Prepaid expenses and other assets 463,543 349,160
Deferred tax asset - 122,209
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Total current assets 1,948,791 1,315,346
Premises and equipment 661,039 562,598
Less accumulated depreciation 80,493 47,914
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Net property and equipment 580,546 514,684
Other assets
Goodwill, net of accumulated amortization
of $44,640 and $32,466 929,284 941,458
Other assets 52,033 52,033
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Total other assets 981,317 993,491
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TOTAL ASSETS $ 3,510,654 $ 2,823,521
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LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Bank overdraft $ 155,582 $ -
Accounts payable 262,250 104,033
Accrued liabilities 425,424 168,608
Accrued expenses and other liabilities 52,922 37,261
Federal income tax payable 100,314 1,628
Notes payable - related party 900,000 1,300,000
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Total current liabilities 1,896,492 1,611,530
SHAREHOLDERS' EQUITY
Common stock, $.001 par value; 50,000,000 shares
authorized; 12,500,000 issued and outstanding 12,500 12,500
Additional paid-in capital 1,681,230 1,681,230
Accumulated deficit (79,568) (481,739)
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Total shareholders' equity 1,614,162 1,211,991
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,510,654 $ 2,823,521
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</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements
F-1
<PAGE>
COLUMBIA CAPITAL CORP.
INCOME STATEMENTS - UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------
1998 1997
--------------- ---------------
Columbia First
Capital Corp. Independent
(Consolidated) Computers, Inc.
--------------- ---------------
<S> <C> <C>
REVENUES
Pride revenue $ 95,000 $ 201,000
Credit card revenue 1,964,717 490,636
Banking revenue 228,196 237,717
Mail operations revenue 180,456 70,025
Courier revenue 21,885 24,025
Other 5,124 8,394
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Total revenues 2,495,378 1,031,797
EXPENSES
Salaries and employee benefits 671,283 435,640
Auto maintenance 4,813 6,224
Travel and entertainment 14,054 19,762
Equipment lease 390,449 215,456
Equipment maintenance 119,502 116,448
Facilities rent 105,190 36,300
Facilities maintenance 10,569 389
Depreciation 32,578 21,489
Amortization of goodwill 12,175 -
Insurance 13,723 9,132
Computer and office supplies 126,892 62,672
Postage and delivery fees 17,738 9,677
Telephone 155,840 36,805
Professional and outside services 123,843 23,020
Taxes 15,499 9,386
Other operating 37,393 8,711
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Total expenses 1,851,541 1,011,111
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INCOME FROM OPERATIONS 643,837 20,686
Other income (expense)
Net interest (37,062) (3,169)
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Total other income (expense) (37,062) (3,169)
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INCOME BEFORE TAX 606,775 17,517
Income tax expense 204,604 5,956
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NET INCOME $ 402,171 $ 11,561
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Basic earnings per share $ 0.03 $ 11.56
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Diluted earnings per share $ 0.03 $ 11.56
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Average shares outstanding 12,500,000 1,000
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</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements
F-2
<PAGE>
COLUMBIA CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - UNAUDITED
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
Common Stock
------------------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
----------- --------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1996 2,500,000 $ 2,500 $ 66,230 $ (57,371) $ 11,359
Effect of reverse stock split (1,250,000) (1,250) 1,250 - -
Equity acquired in stock exchange 11,250,000 11,250 1,588,750 - 1,600,000
Stock issued in exchange for services - - 25,000 - 25,000
Net loss - - - (424,368) (424,368)
----------- --------- ----------- ------------ -----------
BALANCE - DECEMBER 31, 1997 12,500,000 12,500 1,681,230 (481,739) 1,211,991
Net income - - - 402,171 402,171
----------- --------- ----------- ------------ -----------
BALANCE - MARCH 31, 1998 12,500,000 $ 12,500 $ 1,681,230 $ (79,568) $ 1,614,162
----------- --------- ----------- ------------ -----------
----------- --------- ----------- ------------ -----------
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements
F-3
<PAGE>
COLUMBIA CAPITAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS - UNAUDITED
FOR THE THREE MONTHS ENDED MARCH 31, 1998 and 1997
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
-----------------------------
1998 1997
-------------- ---------------
Columbia First
Capital Corp. Independent
(Consolidated) Computers, Inc.
-------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 402,171 $ 11,561
Adjustments to reconcile net income to
net cash provided by operations
Depreciation and amortization 44,753 21,489
Increase in
Accounts receivable (46,304) (59,770)
Deposits and prepaid expenses (114,383) (63,734)
Increase (decrease) in
Accruals and accounts payable 529,379 (209,171)
Deferred income taxes 122,209 -
-------------- ---------------
Net cash provided by (used in) operating
activities 937,825 (299,625)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (98,440) (48,629)
Investment in interest bearing deposit (300,000) -
-------------- ---------------
Net cash provided by (used in) investing
activities (398,440) (48,629)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit, net of payments (400,000) 385,580
Increase (decrease) in bank overdraft 155,582 (31,557)
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Net cash provided by (used in) financing
activities (244,418) 354,023
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NET INCREASE IN CASH
AND CASH EQUIVALENTS 294,967 5,769
Cash and cash equivalents at beginning of year 17,861 -
-------------- ---------------
CASH AND CASH EQUIVALENTS AT MARCH 31, 1998 $ 312,828 $ 5,769
-------------- ---------------
-------------- ---------------
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements
F-4
<PAGE>
COLUMBIA CAPITAL CORP.
SELECTED INFORMATION -- SUBSTANTIALLY ALL DISCLOSURES ARE NOT INCLUDED --
UNAUDITED
MARCH 31, 1998
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB. Therefore, they do
not include all information and footnotes necessary for a fair
presentation of financial position and results of operations and cash
flows in conformity with generally accepted accounting principles.
In the opinion of management, all adjustments considered necessary
for a fair presentation have been included in the interim period.
Operating results for the three months ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the
year ended December 31, 1998.
Effective as of September 23, 1997, Columbia Capital Corp. (the
"Company") acquired all of the common stock (the"FICI Common Stock")
of the Company's operating subsidiary, First Independent Computers,
Inc. ("FICI") from Messrs. Douglas R. Baetz and Glenn M. Gallant.
Pursuant to the terms of the agreement of acquisition of the FICI
Common Stock, dated August 29, 1997 (the "Stock Purchase Agreement"),
Messrs. Gallant and Baetz received 10,631,250 shares of Common Stock
(after the Company effectuated a 1 for 2 reverse stock split of its
Common Stock) in exchange for the FICI Common Stock, which
represented approximately 85% of the Company's then issued and
outstanding Common Stock. In connection with the closing of the
Stock Purchase Agreement, the Company issued 618,750 shares of Common
Stock to Baytree Associates, Inc., a third party which is not an
affiliate of Messrs. Baetz and Gallant, as a fee for services
rendered to the Company for arranging the transactions which are the
subject of the Stock Purchase Agreement.
The accompanying financial statements have been presented, for
accounting purposes, as a recapitalization of FICI, with FICI as the
acquiror of the Company. Further, in connection with the
transactions relating to the Stock Purchase Agreement and the
acquisition of the FICI Common Stock by Messrs. Baetz and Gallant,
such persons obtained a controlling interest in FICI and, thereafter,
the Company. Therefore, for accounting purposes, these transactions
are deemed to be transactions between entities under common control.
Accordingly, the business combination between the Company and FICI
was accounted for in a manner similar to a pooling of interests,
whereby the accounts of the entities involved were not revalued,
rather they were combined at their historical basis. The Company's
consolidated financial statements were restated to include the
results of operations of FICI from May 1, 1997, the acquisition date
of FICI by Messrs. Baetz and Gallant. There were no adjustments to
net assets of the combining companies necessary for either to adopt
the same accounting practices.
On April 30, 1997, Messrs. Baetz and Gallant purchased all of the
issued and outstanding FICI Common Stock then owned by Security
Shares, Inc., a bank holding company, for $1,600,000. The
transaction was accounted for utilizing "pushdown accounting,"
whereby all assets and liabilities of FICI were restated at their
estimated market value on the purchase date. The excess of the total
acquisition cost over the fair value of net assets acquired was
recorded as goodwill. Total restated assets at May 1, 1997 amounted
to $2,174,670, which included $973,924 in goodwill to be amortized
over an estimated benefit period of twenty (20) years. Goodwill
amortization expense amounts to $4,058 monthly, with $12,175 of
amortization expense included in the three months ending March 31,
1998 results of operation.
F-5
<PAGE>
COLUMBIA CAPITAL CORP.
SELECTED INFORMATION -- SUBSTANTIALLY ALL DISCLOSURES ARE NOT INCLUDED --
UNAUDITED
MARCH 31, 1998
NOTE 1: BASIS OF PRESENTATION - CONTINUED
The unaudited income statement and statement of cash flows of FICI
for the three months ended March 31, 1997, is presented in
comparative format with the consolidated income statement and
statement of cash flows of Columbia Capital Corp. for the three
months ended March 31, 1998, and represents actual results of that
company prior to acquisition by Messrs. Baetz and Gallant. Columbia
Capital Corp. had insignificant operations for the three months ended
March 31, 1997 and is not presented.
NOTE 2: ACCOUNTING STANDARDS ADOPTED
In June 1997, Statements of Financial Accounting Standards (SFAS) No.
130, "Reporting of Comprehensive Income," was issued. This statement
requires that comprehensive income be reported in the basic financial
statements. Comprehensive income refers to the change in equity
during a period from transactions other than investments by and
distributions to owners. This statement applies to fiscal years
beginning after December 15, 1997. The Company adopted SFAS 130 on
January 1, 1998. Comprehensive income does not differ from income as
presented in the consolidated income statement for the three months
ended March 31, 1998.
In June 1997, Statements of Financial Accounting Standards (SFAS) No.
131, "Disclosures about Segments of an Enterprise and Related
Information," was issued. This statement requires that a public
business enterprise report financial and descriptive information
about its reportable operating segments. Financial information
should include a measure of segment profit or loss, certain specific
revenue and expense items, and segment assets. Descriptive
information should include detail on how segments were determined,
products and services provided by each, and any differences in the
measurements used in reporting segment information versus those used
in the general-purpose financial statements. This statement is
effective for financial statements for periods beginning after
December 15, 1997. The Company adopted SFAS 131 on January 1, 1998.
NOTE 3: CONSULTING AGREEMENT
The consulting agreement disclosed in prior financial statements has
been restated as follows:
On March 20, 1998, Columbia Capital Corp. entered into a consulting
agreement with Worldwide Corporate Finance ("Worldwide"). Worldwide,
through its individual affiliate, Michael Markow, provides the
Company with consulting services, including long term business,
managerial and financial planning; investigating and analysis in
corporate reorganizations and expansion in merger and acquisition
opportunities; and the introduction of business opportunities for
credit card processing services. The consulting agreement expires on
March 19, 1999. As the initial compensation for services, the
Company granted to Mr. Markow options to purchase up to 300,000
shares of Common Stock, which are the subject of a currently
effective registration statement, on the following terms and
conditions: (i) options to purchase up to 150,000 shares of Common
Stock at an exercise price of $0.95 per share, exercisable from April
1, 1998 until March 31, 1999; (ii) options to purchase up to 75,000
shares of Common Stock at an exercise price of $0.95 per share,
exercisable from June 19, 1998 until March 19, 1999; and (iii)
options to purchase up to 75,000 shares of Common Stock at an
exercise price of $0.95 per share, exercisable from September 19,
1998 until September 19, 1999.
F-6
<PAGE>
NOTE 3: CONSULTING AGREEMENT - CONTINUED
Worldwide has elected to receive payment in the form of non-cash
transactions by exercising the options against amounts otherwise
payable for services rendered by Mr. Markow, in which the fee will be
considered to be paid in full by delivery to Mr. Markow of the shares
underlying such options upon exercise thereof.
Additional compensation, consisting of options to purchase up to
400,000 shares of Common Stock, has also been issued to Mr. Markow,
which is the subject of a currently effective registration statement,
on the following terms and conditions: (i) options to purchase up to
100,000 shares of Common Stock at an exercise price of $1.70 per
share, exercisable from April 1, 1998 until August 31, 1998; (ii)
options to purchase up to 100,000 shares of Common Stock at an
exercise price of $1.70 per share, exercisable from April 1, 1998
until October 31, 1998; (iii) options to purchase up to 100,000
shares of Common Stock at a per share exercise price equal to 85% of
the closing bid market value of the Common Stock on the date of
exercise of such options, exercisable from April 1, 1998 until March
31, 1999; and (iv) options to purchase up to 100,000 shares of Common
Stock at a per share exercise price equal to 85% of the closing bid
market value of the Common Stock on the date of exercise of such
options, exercisable from April 1, 1998 until March 31, 2000.
On March 20, 1998, the Company entered into an additional consulting
agreement with Worldwide relating to prospective financing
transactions. Compensation for these services will be paid in the
form of restricted securities and on a transaction by transaction
basis.
NOTE 4: MARKET RISK AND CONCENTRATIONS
For the three months ended March 31, 1998, revenue from Security
State Bank (12%) and Best Bank (79%) accounted for approximately
91% of the Company's total revenues. No other customers accounted
for 10% or more of the Company's total revenues.
F-7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
THIS REPORT, INCLUDING THE DISCLOSURES BELOW, CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES.
WHEN USED HEREIN, THE TERMS "ANTICIPATES," "EXPECTS," "ESTIMATES," "BELIEVES"
AND SIMILAR EXPRESSIONS, AS THEY RELATE TO THE COMPANY OR ITS MANAGEMENT, ARE
INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL
RESULTS, PERFORMANCE OR ACHIEVEMENTS MAY DIFFER MATERIALLY FROM THOSE
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH MATERIAL DIFFERENCES INCLUDE THE FACTORS
DISCLOSED IN THE "RISK FACTORS" SECTION OF THIS REPORT, WHICH READERS OF THIS
REPORT SHOULD CONSIDER CAREFULLY.
OVERVIEW OF PRESENTATION. As of September 23, 1997, the Company
entered into a Stock Purchase Agreement with Douglas R. Baetz and Glenn M.
Gallant, pursuant to which the Company issued an aggregate of 10,631,250
shares of the Company's common stock, par value $0.001 per share (the "Common
Stock") in exchange for 100% of the issued and outstanding shares of common
stock (the "FICI Common Stock") of the Company's wholly-owned subsidiary,
First Independent Computers, Inc. ("FICI"), through which the Company
principally conducts its business operations. The Company also issued
618,750 shares of Common Stock to a third party, which is not an affiliate of
Messrs. Baetz and Gallant, for services rendered to the Company for arranging
the transactions which are the subject of the Stock Purchase Agreement. In
connection with the closing of the Stock Purchase Agreement, FICI became the
sole operating subsidiary of the Company.
As of May 1, 1997, Messrs. Baetz and Gallant had acquired 100% of the
issued and outstanding capital stock of FICI for $1,600,000 in cash from
certain unaffiliated parties.
In connection with the transactions relating to the Stock Purchase
Agreement and the acquisition of the FICI Common Stock by Messrs. Baetz and
Gallant, such persons obtained a controlling interest in FICI and,
thereafter, the Company. Therefore, for accounting purposes, the transactions
relating to the Stock Purchase Agreement are deemed to be transactions
between entities under common control. Accordingly, the business combination
between the Company and FICI was accounted for in a manner similar to a
pooling of interests, whereby the accounts of the entities involved were not
revalued, but were combined at their historical basis.
As a result, the Company's assets and liabilities have been restated
at their estimated fair market value as of May 1, 1997, on the Company's
consolidated balance sheet, which forms a part of the Company's unaudited
consolidated financial statements for the three (3) month periods ended March
31, 1998 and 1997, included elsewhere herein, on a "pushdown accounting"
basis. Total restated assets were $2,174,670 based on their fair market
value as of May 1, 1997. The difference between the fair market value of
such assets and the $1,600,000 purchase price paid by Messrs. Baetz and
Gallant for the FICI Common Stock, or $973,924, was recorded on the Company's
consolidated balance sheet as goodwill as of May 1, 1997. The goodwill is
anticipated to be amortized over 20 years in accordance with generally
accepted accounting principles, with a resulting expense to the Company from
goodwill amortization of $4,058 per month and $12,174 per quarter over such
period.
On June 30, 1997, a credit card processing agreement (the "Clark
Agreement") expired between the Company and Clark Refining, Inc., an
unaffiliated third party. The Clark Agreement was the source of 26% and 32%
of the Company's total revenues during the six months ended June 30, 1997 and
the year ended December 31, 1996, respectively.
As of October 25, 1997, the Company entered into a master agreement (the
"Master Agreement") with Best Bank of Colorado ("Best Bank") for processing and
services for the Company's customers with which Best Bank has entered into
contractual agreements. Best Bank is unaffiliated with the Company or its
affiliates. The credit card portfolios represented by the Master Agreement
principally relate to certain
3
<PAGE>
portfolios controlled and directed by Messrs. Baetz and Gallant, through
their business relationships with Best Bank, which is not an affiliate of
Messrs. Baetz and Gallant. The Master Agreement was the source of 79% of the
Company's gross revenues during the three months ended March 31, 1998.
For purposes of the following discussion and analysis, the results of
operations for the three (3) month periods ended March 31, 1998 and March 31,
1997, presented herein, reflect the consolidated results of operations of the
parent holding company and FICI for the three (3) month period ended March
31, 1998 and the results of operations of FICI for the three (3) month period
ended March 31, 1997. This method of presentation was set forth herein to
permit useful comparison between the aggregated three month periods ended
March 31, 1998 and March 31, 1997 with respect to FICI, the Company's sole
operating subsidiary. Comparisons between the consolidated operations of the
parent holding company and FICI for the three month period ended March 31,
1998 and the operations of the parent holding company during the three months
ended March 31, 1997 are not meaningful because the parent holding company
had insignificant operations during such earlier periods.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
MARCH 31, 1997. Total operating revenues for the three (3) months ended
March 31, 1998 increased approximately 142% to $2,495,378 from $1,031,797 for
the three (3) months ended March 31, 1997. Total operating revenues
principally include: (i) credit card processing revenues, and (ii) banking
and financial services revenues.
Credit card processing revenues during the three (3) months ended
March 31, 1998 increased to $1,964,717 from $490,636 during the three (3)
months ended March 31, 1997. This increase primarily relates to the revenues
associated with the Master Agreement. The Master Agreement with Best Bank
represented 92% of the credit card revenues for the three (3) months ended
March 31, 1998. There were no revenues associated with the Master Agreement
in the three (3) months ended March 31, 1997 because it was not put in place
until October, 1997. Credit card processing revenues during the three (3)
months ended March 31, 1997 primarily related to the Clark Agreement, which
expired on June 30, 1997.
Banking and financial services revenues during the three (3) months
ended March 31, 1998 decreased to $228,196 from $237,717. This source of
revenues generally remained constant during the comparative periods because
the Company maintained its customer base and did not make significant
marketing efforts to develop this business segment. The Company intends to
expand this line of business by targeting banks and financial institutions
based on the increased capacity of the Company's equipment and hardware in
connection with the upgraded lease with IBM and the installation of the
Kirchman Dimension 3000 banking software.
Revenues from Pride Refining, Inc. ("Pride") decreased to $95,000 for
the three (3) months ended March 31, 1998 from $201,000 for the three (3)
months ended March 31, 1997. This revenue decrease was due to a decision of
the management of Pride to take its computer processing activities in-house.
This removal of processing from the Company to Pride is being converted in
stages and should be completed by the summer of 1999. Due to the expected
increase in revenues from the Company's credit card operations and bank
processing, the loss of the Pride revenue is not anticipated to have a
material adverse effect on total revenue for fiscal year 1998. However, no
assurance to this effect can be given.
Total operating expenses during the three (3) months ended March 31,
1998 increased 83% to 1,851,541 from $1,011,111 during the three (3) months
ended March 31, 1997. Total operating expenses principally include: (i) cost
of salaries and employee benefits, (ii) equipment expenses, (iii) cost of
office supplies and services, (iv) rental and facilities maintenance
expenses, and (v) depreciation and amortization expenses, as follows:
4
<PAGE>
Cost of salaries and employee benefits during the three (3) months
ended March 31, 1998 increased to $671,283 from $435,640 during the three (3)
months ended March 31, 1997. This increase primarily resulted from an
increase of approximately 20 full time employees at March 31, 1998 from March
31, 1997 to enable the Company to accommodate increased demand for credit
card processing services relating to the Master Agreement.
Equipment lease and maintenance expenses during the three (3) months
ended March 31, 1998 increased to $509,951 from $331,904 during the three (3)
months ended March 31, 1997. This increase primarily related to the
negotiation of an equipment lease with IBM to upgrade the Company's computer
hardware and the lease of Data Card 9000 credit card production equipment
during the last quarter of the year ended December 31, 1997.
Cost of office supplies and services, including professional and
outside services, during the three (3) months ended March 31, 1998 increased
to $456,903 from $167,292 during the three (3) months ended March 31, 1997.
This increase related to the expanded volume of services provided by the
Company as a result of the Master Agreement.
Rental and facilities maintenance expenses during the three (3)
months ended March 31, 1998 increased to $115,759 from $36,689 during the
three (3) months ended March 31, 1997. This increase related to the
negotiation of a new office lease agreement in August, 1997 which increased
the Company's office space from 22,000 square feet to 52,000 square feet.
In addition, depreciation and amortization expenses during the three
(3) months ended March 31, 1998 increased to $44,753 from $21,489 during the
three (3) months ended March 31, 1997. The increase related to the
revaluation of the Company's assets to fair market value on May 1, 1997 in
connection with the completion of the transactions relating to the Stock
Purchase Agreement and equipment purchases related to volume increases as a
result of the Master Agreement.
Other revenues and expenses resulted in total other expenses of
$37,062 during the three (3) months ended March 31, 1998, as compared to
total other expenses of $3,169 during the three (3) months ended March 31,
1997. This increase in expenses between the respective periods resulted from
increased interest expense of $45,938 in the first quarter of 1998 relating
to a $2,000,000 working line of credit (the "Line of Credit") provided by
Century Financial Group, Inc. ("Century"), an affiliate of Messrs. Baetz and
Gallant, as compared to $3,169 in the first quarter of 1997 relating to
borrowings from People's State Bank. In the first quarter of 1998, $8,876 of
interest income was netted against interest expense. There was no interest
income earned during the first quarter of 1997.
As a result of the foregoing, the Company experienced net income of
$402,171 during the three (3) months ended March 31, 1998, as compared to net
income of $11,561 during the three (3) months ended March 31, 1997. The
Company experienced income from operations of $643,837 during the three (3)
months ended March 31, 1998, as compared to income from operations of $20,686
during the three (3) months ended March 31, 1997. Management believes this
increase in income from operations primarily resulted from increased revenue
related to the conversion of the Best Bank credit card portfolio in October,
1997. Due to economies of scale related to the increased number of accounts
processed, expenses increased at a much lower percentage than revenues.
Also, the Company's proposed business plan contemplates the growth of
revenues in connection with the Company's expansion strategy. There can be
no assurance that the Company's expansion strategy will result in continued
growth of demand for the Company's services or increased revenues or
profitability. See "Liquidity and Capital Resources."
LIQUIDITY AND CAPITAL RESOURCES. At March 31, 1998, the ratio of
current assets to current liabilities as 1.02 to 1 compared to 0.82 to 1 at
December 31, 1997.
5
<PAGE>
The Company has historically financed its operations through the use
of working capital and loans to the Company. The Company's cash flow needs
for the quarter ended March 31, 1998 were primarily provided from operations
and from the Line of Credit provided through Century. At March 31, 1998, all
trade payables and receivables were current. At March 31, 1998, a $20,000
unallocated reserve for bad debts was carried by the Company. At March 31,
1998, prepaid expenses and inventories were $463,543 and are anticipated to
be expensed as used in the future. The net property and equipment was
$580,546 at March 31, 1998. Major capital additions during the three (3)
months ended March 31, 1998 were credit card equipment of $32,000 and
personal computer system and network upgrades of $21,000. Management
believes that, as of March 31, 1998, and for the foreseeable future, the
Company will be able to finance costs of current levels of operations from
revenues and the Line of Credit.
On September 11, 1997, as a result of the reduced cash flow relating
to the expiration of the Clark Agreement on June 30, 1997, the Company
entered into the Line of Credit through Century, an affiliate of Messrs.
Baetz and Gallant. The Line of Credit provides for an aggregate maximum
amount of $2,000,000 of credit, secured by all of the Company's assets, at an
interest rate of ten percent (10%) PER ANNUM. Century is not obligated to
make advances to the Company under the Line of Credit.
As of October 31, 1997, the Company had drawn down the principal
amount of $1,400,000 on the Line of Credit. The Line of Credit constituted a
principal source of cash flow during the period between the expiration of the
Clark Agreement and the commencement of the Master Agreement. As of March
31, 1998, the principal outstanding obligation to Century on the Line of
Credit had been reduced to $900,000 from cash flow generated from the
Company's operations.
Cash and cash equivalents were $312,828 as of March 31, 1998, as
compared to a $17,861 as of December 31, 1997. This increase was primarily
attributable to the availability of the Line of Credit and positive cash flow
during the quarter ended March 31, 1998.
As of March 31, 1998 and 1997, the Company had no long-term
borrowings.
As of March 31, 1998, the Company had short-term borrowings in the
aggregate amount of $900,000, as compared to $1,300,000 at December 31,
1997. The decrease in short-term borrowings was attributable to payments on
the Line of Credit in the first quarter of 1998 generated through positive
cash flow from operations.
In October, 1997, the Company entered into a 36-month equipment lease
with IBM related to the Company's credit card processing operations. The
Company upgraded the equipment lease in March, 1998 to provide for continued
increases in the Company's processing volume and efficiencies, and expansion
of business operations. The Company financed the lease agreement by the
pledge of certificates of deposit in the aggregate amount of $500,000,
$200,000 of which had initially been drawn down from the Line of Credit and
the balance of which was generated by cash flow from operations.
The certificates of deposit are for one-year terms and are
automatically renewable for an additional year. The certificates of deposit
bear varying rates of interest based on the date of the establishment of the
certificates of deposit.
Net cash provided (used) by operating activities was $937,825 and
($299,625) for the three (3) months ended March 31, 1998 and 1997,
respectively. Net cash provided by operations during the three (3) months
ended March 31, 1998 primarily consisted of net income from operations and
increases in accruals and accounts payable, deferred income taxes and
depreciation and amortization, offset by decreases in accruals and accounts
receivable and deposits and prepaid expenses. Net cash used by operations
during the three (3)
6
<PAGE>
months ended March 31, 1997 primarily consisted of net income and
depreciation and amortization, offset by decreases in accounts receivable,
accruals and accounts payable and deposits and prepaid expenses.
Net cash (used) by investing activities was ($398,440) and ($48,629)
for the three (3) month periods ended March 31, 1998 and 1997, respectively.
In the three (3) months ended March 31, 1998, the Company utilized $98,440 to
purchase certain fixed assets, including the upgrade of the IBM equipment
lease and personal computer and network systems upgrades, and utilized
$300,000 to invest in the Certificates of Deposit which are pledged to
finance the lease agreements on the Company's main frame computer system. In
the three (3) months ended March 31, 1997, the Company utilized $48,629 to
purchase certain fixed assets, including office furniture, credit card
computer equipment and computer software.
Net cash provided (used) by financing activities was ($244,418) and
$354,023 for the three (3) month periods ended March 31, 1998 and 1997,
respectively. In the three (3) months ended March 31, 1998, the Company
utilized $400,000 to reduce the principal obligations underlying the Line of
Credit, which was offset by an increase of $155,582 in the Company's bank
overdraft position. In the three (3) months ended March 31, 1997, the
Company obtained $385,580 from a line of credit which was utilized to finance
the Company's business operations, which was offset by a decrease of $31,557
in the Company's bank overdraft position.
The Company's business plan contemplates continued expansion of
operations from such increased operational capacity and to acquire additional
and upgraded equipment and software based on future perceived needs by
management. There can be no assurances that the Company will be able to
generate business sources to meet existing operational capacity or that the
Company will generate sufficient positive cash flow or develop additional
sources of financing to continue the Company's business plan of growth and
expansion.
7
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
To the knowledge of management, there is no material litigation,
pending or threatened, or judgment entered against the Company or any
executive officers or directors of the Company in his capacity as such.
ITEM 2. CHANGES IN SECURITIES.
Not applicable. The Company did not issue any unregistered
securities during the quarter ended March 31, 1998.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's stockholders did not adopt any resolutions at a meeting
or by written consent during the quarter ended March 31, 1998.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
REPORTS ON FORM 8-K
The Company did not file any Reports on Form 8-K during the quarter
ended March 31, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
The Company is currently subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith files reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information
may be inspected and copied at the public reference facilities of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549;
at its New York Regional Office, Suite 1300, 7 World Trade Center, New York,
New York, 10048; and at its Chicago Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and copies of such materials can be
obtained from the Public Reference Section of the Commission at its principal
office in Washington, D.C., at prescribed rates. In addition, such materials
may be accessed electronically at the Commission's site on the World Wide
Web, located at http://www.sec.gov.
8
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities and Exchange
Act of 1934, the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
COLUMBIA CAPITAL CORP.
Dated: May 14, 1998 By: /s/ Kenneth A. Klotz
------------------------------
Kenneth A. Klotz
President
Dated: May 14, 1998 By: /s/ Charles La Montagne
------------------------------
Charles La Montagne
Chief Financial Officer
9
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