<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 June 30, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________
Commission file number: 001-13749
COLUMBIA CAPITAL CORP.
--------------------------------------------------------
(Name of small business issuer specified in its charter)
Delaware 11-3210792
-------------------------------- ------------------
(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
----------------------------------------------------------------------------
(Address of principal executive offices, including zip code)
954-453-3170
------------------------------------------------
(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
------------------- ----------------------
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
----- -----
The number of shares outstanding of the issuer's Common Stock as of July 21,
1998 was 12,725,000 shares.
Transactional Small Business Disclosure Format (Check one): Yes No X
----- -----
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
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
2
<PAGE>
COLUMBIA CAPITAL CORP.
CONSOLIDATED BALANCE SHEETS
SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED) AND
YEAR ENDED DECEMBER 31, 1997 (AUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1998 1997
(Unaudited) (Audited)
------------- -------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 117,356 $ 17,861
Interest bearing deposits with banks 603,578 303,578
Accounts receivable, net 842,288 522,538
Prepaid expenses 894,371 255,959
Deferred tax asset - 122,209
Other assets 264,549 93,201
------------- -------------
Total current assets 2,722,142 1,315,346
Premises and equipment 1,007,118 562,598
Less accumulated depreciation 118,715 47,914
------------- -------------
Net property and equipment 888,403 514,684
Other assets
Deferred tax asset 28,685 52,033
Goodwill, net of accumulated amortization of $56,814 and $32,466 917,110 941,458
------------- -------------
Total other assets 945,795 993,491
------------- -------------
TOTAL ASSETS $ 4,556,340 $ 2,823,521
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable $ 380,957 $ 104,033
Accrued expenses and other liabilities 663,610 195,908
Notes payable - Security State Bank 160,000 -
Notes payable - related party 850,000 1,300,000
Accrued interest payable 6,986 11,589
------------- -------------
Total current liabilities 2,061,553 1,611,530
SHAREHOLDERS' EQUITY
Common stock, $.001 par value; 50,000,000 shares
authorized; 12,725,000 and 12,500,000 issued and
outstanding in 1998 and 1997 respectively 12,725 12,500
Additional paid-in capital 1,894,755 1,681,230
Retained earnings 587,307 (481,739)
------------- -------------
Total shareholders' equity 2,494,787 1,211,991
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,556,340 $ 2,823,521
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements
F-1
<PAGE>
COLUMBIA CAPITAL CORP.
CONSOLIDATED INCOME STATEMENTS - UNAUDITED
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------------------- -------------------------------
1998 1997 1998 1997
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUE
Pride $ 84,000 $ 125,800 $ 179,000 $ 125,800
Credit card 2,734,217 253,143 4,698,934 253,143
Banking 237,194 155,902 465,389 155,902
Mail operations 261,959 48,286 442,415 48,286
Courier 20,500 16,350 42,385 16,350
Other 4,192 8,906 9,316 8,906
--------------- -------------- -------------- --------------
Total operating revenue 3,342,062 608,387 5,837,439 608,387
EXPENSES
Salaries and employee benefits 780,222 298,404 1,451,505 298,404
Auto maintenance 7,264 3,374 12,076 3,374
Travel and entertainment 37,648 3,415 51,703 3,415
Equipment lease 437,870 144,370 828,320 144,370
Equipment maintenance 126,693 68,756 246,195 68,756
Facilities rent 114,974 24,200 220,163 24,200
Facilities maintenance 6,015 361 16,584 361
Depreciation 38,222 18,641 70,801 18,641
Amortization of goodwill 12,174 - 24,348 -
Insurance 26,262 4,231 39,985 4,231
Computer and office supplies 165,872 28,372 292,764 28,372
Postage and delivery fees 18,079 4,978 35,817 4,978
Telephone 284,464 23,962 440,305 23,962
Professional and outside services 143,547 17,273 267,390 17,273
Taxes 21,442 6,299 36,941 6,299
Other 98,385 5,569 135,777 5,569
--------------- -------------- -------------- --------------
Total operating expenses 2,319,133 652,205 4,170,674 652,205
--------------- -------------- -------------- --------------
INCOME (LOSS) FROM OPERATIONS 1,022,929 (43,818) 1,666,765 (43,818)
Other expense
Interest (9,937) (2,534) (46,999) (2,534)
--------------- -------------- -------------- --------------
Total other expense (9,937) (2,534) (46,999) (2,534)
--------------- -------------- -------------- --------------
INCOME (LOSS) BEFORE TAX 1,012,992 (46,352) 1,619,766 (46,352)
Income tax expense (benefit) 346,117 (961) 550,720 (961)
--------------- -------------- -------------- --------------
NET INCOME (LOSS) $ 666,875 $ (45,391) $ 1,069,046 $ (45,391)
--------------- -------------- -------------- --------------
--------------- -------------- -------------- --------------
Basic earnings (loss) per share $ 0.05 $ (0.00) $ 0.09 $ (0.00)
--------------- -------------- -------------- --------------
--------------- -------------- -------------- --------------
Diluted earnings (loss) per share $ 0.05 $ (0.00) $ 0.08 $ (0.00)
--------------- -------------- -------------- --------------
--------------- -------------- -------------- --------------
Weighted average shares outstanding 12,778,019 12,500,000 12,676,864 12,500,000
--------------- -------------- -------------- --------------
--------------- -------------- -------------- --------------
</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
SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED) AND
YEAR ENDED DECEMBER 31, 1997 (AUDITED)
<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Paid-In Retained
Shares Amount Capital Earnings 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 (AUDITED) 12,500,000 12,500 1,681,230 (481,739) 1,211,991
Issuance of common stock 225,000 225 213,525 - 213,750
Net income - - - 1,069,046 1,069,046
----------- ----------- ----------- ---------- -------------
BALANCE - JUNE 30, 1998 (UNAUDITED) 12,725,000 $ 12,725 $ 1,894,755 $ 587,307 $ 2,494,787
----------- ----------- ----------- ---------- -------------
----------- ----------- ----------- ---------- -------------
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements
F-3
<PAGE>
COLUMBIA CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------------------- --------------------------------
1998 1997 1998 1997
--------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 666,875 $ (45,391) $ 1,069,046 $ (45,391)
Adjustments to reconcile net income to
net cash provided by operations
Depreciation and amortization 50,396 18,641 95,150 18,641
Deferred income taxes 11,674 - 145,557 -
(Increase) decrease in accounts receivable (273,446) 332,062 (319,750) 332,062
Increase in deposits and prepaid expenses (707,051) (35,048) (809,760) (35,048)
Increase in accruals and accounts payable 238,409 34,325 740,022 34,325
--------------- --------------- ------------- ---------------
Net cash (used in) provided by operating activities (13,143) 304,589 920,265 304,589
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (346,079) (13,785) (444,520) (13,785)
Investment in interest bearing deposit - - (300,000) -
--------------- --------------- ------------- ---------------
Net cash used in investing activities (346,079) (13,785) (744,520) (13,785)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit, net of payments (50,000) (87,000) (290,000) (87,000)
Issuance of common stock 213,750 - 213,750 -
--------------- --------------- ------------- ---------------
Net cash provided by (used in) financing activities 163,750 (87,000) (76,250) (87,000)
--------------- --------------- ------------- ---------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (195,472) 203,804 99,495 203,804
Cash and cash equivalents at beginning of period 312,828 34,304 17,861 34,304
--------------- --------------- ------------- ---------------
CASH AND CASH EQUIVALENTS AT JUNE 30, $ 117,356 $ 238,108 $ 117,356 $ 238,108
--------------- --------------- ------------- ---------------
--------------- --------------- ------------- ---------------
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION:
Interest paid $ 9,937 $ 2,534 $ 46,999 $ 2,534
Taxes paid 436,000 - 436,000 -
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements
F-4
<PAGE>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of Columbia Capital Corp. (the Company) and its wholly-owned
subsidiary, First Independent Computers, Inc. (the Subsidiary).
Intercompany accounts and transactions have been eliminated. The
consolidated income statements and statements of cash flows of the
Company for the six months ended June 30, 1998 and 1997 reflect the
results of operations and cash flows of the parent holding company for
the four months ended April 30, 1997, and the consolidated results of
operations and cash flows of the parent holding company and the
Subsidiary for the six months ended June 30, 1998 and the two months
ended June 30, 1997. (See Note 5)
ORGANIZATION
The Company was organized under the laws of the State of Delaware on
February 5, 1993. The Company completed a private offering of its
common stock in November 1993 (See Note 2)
Central Capital Corp. (a former Subsidiary) was organized under the
laws of the State of Delaware on February 5, 1993. Hudson Resources,
Inc. (a former Subsidiary) was organized under the laws of the State
of Delaware on May 17, 1994. (See Note 3)
The Subsidiary was incorporated on October 21, 1983, pursuant to the
provisions of the Texas Business Corporation Act. The Subsidiary's
business activities include the processing of credit card purchases
for numerous businesses in various industries throughout the United
States and data processing for various banks. (See Note 5)
CASH AND CASH EQUIVALENTS
The Company considers investments with an original maturity of three
months or less to be cash equivalents.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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 consolidated financial statements and the reported amounts
of revenues and expenses during the reporting periods. Actual results
could differ from those estimates.
ACCOUNTS RECEIVABLE
The Company utilizes the allowance method for uncollectible accounts
receivable. Management estimates the uncollectible accounts and
provides for them in the allowance. The balance of the allowance for
uncollectible accounts was $20,000 at June 30, 1998.
REVENUE RECOGNITION
The Company recognizes revenue when services have been provided to the
customer.
F-5
<PAGE>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
PROPERTY, PLANT AND EQUIPMENT
Fixed assets of the Company are reported at historical cost.
Depreciation and amortization on assets purchased are computed by the
following methods and useful lives:
<TABLE>
<S> <C> <C>
Furniture and fixtures Straight-line 5 years
Electronic equipment Straight-line 5-7 years
Automobiles Straight-line 3-5 years
Office equipment Straight-line 5 years
Computer software Straight-line 3 years
</TABLE>
Depreciation is computed using the straight line method over the
estimated useful lives for financial statement purposes and an
accelerated method of cost recovery over statutory recovery periods
for tax purposes. Repairs and maintenance are expensed, whereas
additions and improvements are capitalized.
INTANGIBLE ASSETS
Intangible assets are reported at historical cost and consist of
goodwill. Goodwill is amortized using the straight-line method over
20 years. The Company has adopted the provisions of SFAS 121, under
which the Company reviews its long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying
amount of the asset may not be recovered. No provision for impairment
has been recognized with respect to the Company's long lived assets.
PREPAID ASSETS
The Company has expenditures which benefit future periods which are
recorded as prepaid assets or deferred costs and are amortized on a
straight-line basis over the estimated or known period of benefit.
Such prepaid assets and deferred costs include prepaid insurance,
maintenance contracts, certain software licenses and supplies used in
the normal operation of business.
FEDERAL INCOME TAXES
Deferred tax assets and liabilities are recognized for deductible and
taxable temporary differences respectively. Temporary differences are
the differences between the reported amounts of assets and liabilities
and their tax bases. Deferred tax assets may be reduced by a
valuation allowance when and if, in the opinion of management, the
tax asset will, in part or in all, not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.
F-6
<PAGE>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
PER SHARE DATA
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (SFAS 128) was issued. Under SFAS 128, net
earnings per share ("EPS") are computed by dividing net earnings by
the weighted average number of shares of common stock outstanding
during the period. SFAS 128 replaces fully diluted EPS, which the
Company was not previously required to report, with EPS, assuming
dilution. The Company adopted SFAS 128 effective December 31, 1997.
The effect of this accounting change on previously reported EPS data
is not significant. The computation of earnings (loss) per share of
common stock is based on the weighted average number of shares
outstanding in 1998 and 1997 of 12,574,586 and 12,500,000
respectively, adjusted retroactively to reflect the one for two
reverse split effective September 1, 1997. The computation of diluted
earnings (loss) per share of common stock is based on the weighted
average number of shares and equivalent shares outstanding in 1998 and
1997 of 12,676,864 and 12,500,000, respectively. No potential common
shares existed at December 31, 1997; therefore, basic loss per share
equals diluted loss per share at that date.
PREFERRED STOCK
The Company, under its articles of incorporation, has the authority to
issue up to five million (5,000,000) shares of preferred stock with a
par value of $.001 each, totaling five thousand dollars ($5,000). The
Board of Directors is authorized to provide for the issuance of the
shares of preferred stock in series by filing a certificate pursuant
to the applicable law of the State of Delaware, to establish the
number of shares to be included in each such series, and to fix the
designations, powers, preferences rights and limitations of the shares
of each series.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating fair values of financial instruments as disclosed herein:
CASH AND SHORT-TERM INSTRUMENTS. The carrying amounts of cash and
short-term instruments approximate their fair value.
INTEREST BEARING DEPOSITS WITH BANKS. The carrying amounts of
interest bearing deposits with banks approximate their fair value.
ACCOUNTS RECEIVABLE. For accounts which are not past due greater than
90 days and have no significant change in credit risk, fair values are
based on carrying values.
NOTES PAYABLE. The Company's notes payable arrangement bears a
variable interest rate and represents terms and conditions currently
available for the same or similar debt facility in the marketplace.
Thus, the fair value of notes payable approximates the carrying
amount.
F-7
<PAGE>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
NEW 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 and events 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. The standard does not have a material impact on the
Company's current presentation of net income.
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 vs. 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. The implementation of this
standard did not have any impact on the financial position or
disclosures of the Company or results of its operations.
NOTE 2: PRIVATE OFFERINGS OF COMMON STOCK
The Company offered shares of its common stock, $.001 par value, to a
limited number of qualified investors in 1993. The company sold
325,000 shares of common stock, at a price of $.20 per share for a
total of $65,000. The investors subscribed to a minimum of 1,000
shares. There was no minimum offering amount and there was no escrow
of any funds received from the offering and such funds were utilized
by the Company as they were received. Proceeds from the offering were
used to provide working capital to the Company.
NOTE 3: DISPOSITION OF FORMER SUBSIDIARIES CENTRAL CAPITAL CORP. AND HUDSON
RESOURCES, INC.
On February 28, 1997, the Company determined that its two subsidiary
corporations, Central Capital Corp. and Hudson Resources, Inc. had no
value and would hinder the Company in it's acquisition efforts.
Therefore, the two companies were sold to the Company's principal
shareholder, Mr. Lynn Dixon for nominal value. For accounting
purposes the Company treated the sold subsidiaries as discontinued
operations, effective February 28, 1997. The results of the
subsidiaries have been reported separately as a component of
discontinued operations in the income statement.
F-8
<PAGE>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: DISPOSITION OF FORMER SUBSIDIARIES CENTRAL CAPITAL CORP. AND HUDSON
RESOURCES, INC. - CONTINUED
The Company's investment in subsidiaries was sold for current book
value of $1,361 recognizing no gain or loss. Details of the net
assets and operations for the subsidiaries are presented below.
Former Subsidiaries Assets and Liabilities:
<TABLE>
<CAPTION>
February 28,
ASSETS 1997
-------------
<S> <C>
Cash $ 1,109
Organization costs, net 252
-------------
Total Assets $ 1,361
-------------
-------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Common stock $ 5,000
Contributed capital 23,609
Retained earnings (27,248)
-------------
Total Liabilities and Stockholder's Equity $ 1,361
-------------
-------------
Subsidiaries Operations:
Legal and professional expense $ 1,400
Amortization expense 32
-------------
Net loss related to discontinued operations $ (1,432)
-------------
-------------
</TABLE>
NOTE 4: AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION
In a September 19, 1997 Certificate of Amendment to Certificate of
Incorporation, pursuant to the terms of an agreement and plan of
reorganization dated August 29, 1997, the Company effectuated a 1 for
2 reverse stock split as to its shares of common stock outstanding as
of September 1, 1997, which decreased the shares from 2,500,000 to
1,250,000. The Certificate of Amendment also resolved that the
Corporation shall, as amended, have the authority to issue fifty
million (50,000,000) shares of common stock with par value of $.001
each, totaling fifty thousand dollars ($50,000) and five million
(5,000,000) shares of preferred stock with par value of $.001 each,
totaling five thousand dollars ($5,000). The board of directors is
authorized, subject to limitations prescribed by law and the
provisions of this Article, to provide for the issuance of the shares
of preferred stock in series by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish the number of
shares, to fix the designations, powers, preferences, rights,
qualifications, limitations and/or restrictions, to be included in
each such series. At June 30, 1998 and December 31, 1997, there were
no preferred shares issued or outstanding.
F-9
<PAGE>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5: ACQUISITION OF FIRST INDEPENDENT COMPUTERS, INC.
On April 30, 1997, Mr. Glenn M. Gallant and Mr. Douglas R. Baetz
purchased all of the issued and outstanding stock of First Independent
Computers, Inc. (FICI) 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 period ending
March 31, 1998 and $32,466 (from May 1, 1997 to December 31, 1997) of
amortization expense included in the year ending December 31, 1997
results of operation.
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 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.
F-10
<PAGE>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6: FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments at
June 30, 1998 were as follows:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
------------ ------------
<S> <C> <C>
Financial assets:
Cash and interest bearing deposits
with banks $ 720,934 $ 720,934
Accounts receivable 842,288 842,288
Financial liabilities:
Notes payable $ 1,010,000 $ 1,010,000
Accrued interest payable 6,986 6,986
The estimated fair values of the Company's financial instruments at
December 31, 1997 were as follows:
Carrying Fair
Amount Value
------------ ------------
Financial assets:
Cash and interest bearing deposits
with banks $ 321,439 $ 321,439
Accounts receivable 522,538 522,538
Financial liabilities:
Notes payable $ 1,300,000 $ 1,300,000
Accrued interest payable 11,589 11,589
</TABLE>
The method(s) and assumptions used to estimate the fair value of
financial instruments are disclosed in Note 1 "Fair Values of
Financial Instruments".
NOTE 7: INCOME TAXES
The Company files a consolidated federal income tax return; however,
federal income taxes are allocated between the Company and Subsidiary
based on statutory rates. The consolidated income tax expense
(benefit), as a percentage of pretax earnings, differs from the
statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -----------------
1998 1997 1998 1997
------ -------- ------ --------
<S> <C> <C> <C> <C>
Statutory federal income tax rate 34.00% (34.00)% 34.00% (34.00)%
Non-deductible expenses 0.17 - - -
Valuation allowance - (31.90) - (31.90)
------ -------- ------ --------
Effective income tax rate 34.17% (2.10)% 34.00% (2.10)%
------ -------- ------ --------
------ -------- ------ --------
</TABLE>
F-11
<PAGE>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7: INCOME TAXES - CONTINUED
Income tax expense (benefit) is comprised of the following:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -------------------------
1998 1997 1998 1997
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Current income tax expense (benefit) $ 334,443 $ (961) $ 405,163 $ (961)
Deferred income tax expense 11,674 - 145,557 -
--------- --------- ---------- ----------
$ 346,117 $ (961) $ 550,720 $ (961)
--------- --------- ---------- ----------
--------- --------- ---------- ----------
</TABLE>
The tax effects of temporary differences that gave rise to deferred
tax assets as of June 30, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
--------- ---------
<S> <C> <C>
Net operating loss carryforwards $ - $ 122,209
Depreciation and amortization 28,685 52,033
--------- ---------
Net deferred tax assets $ 28,685 $ 174,242
--------- ---------
--------- ---------
</TABLE>
The Company had available consolidated net operating loss
carryforwards for federal income tax purposes of $359,438 for December
31, 1997. The consolidated net operating loss carryforwards at
December 31, 1997 will expire as shown below.
<TABLE>
<CAPTION>
Year Amount
------ ----------
<S> <C>
2008 $ 804
2009 4,297
2010 21,545
2011 3,359
2012 329,433
</TABLE>
The Company expects to utilize all or substantially all of the net
operating loss carryforwards in 1998; therefore, no valuation
allowance has been recorded against the deferred tax asset generated
by the net operating loss carryforward.
NOTE 8: NOTES PAYABLE
The Subsidiary, has an operating line of credit through Century
Financial Group, Inc., a company owned by the Company's primary
shareholders. Century Financial Group, Inc. provides the Subsidiary
with a maximum operating line of credit of two million dollars
($2,000,000). Advances on the line of credit, not to exceed the
maximum limit, are made at the discretion of the Subsidiary's
management. The line of credit is secured by all assets of the
Subsidiary. The line of credit carries an annual percentage rate of
ten percent (10%). Under the terms of the line of credit, the
Subsidiary pays interest on a monthly basis with the unpaid principal
due at maturity, September 15, 1998. The outstanding balance on the
line of credit as of June 30, 1998 and December 31, 1997 was $850,000
and $1,300,000.
F-12
<PAGE>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8: NOTES PAYABLE - CONTINUED
The subsidiary has a real estate lien note through Security State
Bank, its former parent company. The real estate note, dated April 2,
1998, in the amount of one hundred sixty thousand dollars ($160,000)
carries an annual interest rate of Wall Street prime plus one percent
(1%), with a maturity date of September 29, 1998. The note is secured
by a Deed of Trust to a building in which the note proceeds were used
to purchase and renovate.
NOTE 9: LEASE OBLIGATIONS
The Company has entered into various operating lease agreements.
Under terms of an operating lease with IBM Corporation, certificates
of deposit with a carrying value of $603,578 at June 30, 1998, were
pledged as collateral against Bank One letters of credit in favor of
IBM.
The future minimum payments for leased property under these
noncancellable lease agreements for each of the next five years ending
December 31, 2003, are as follows:
<TABLE>
<S> <C>
1998 $ 691,191
1999 1,033,467
2000 676,489
2001 198,204
2002 174,760
2003 73,958
-------------
Lease obligations $ 2,848,069
-------------
-------------
</TABLE>
No commitments for leased property extend more than five years.
NOTE 10: MARKET RISK AND CONCENTRATIONS
For the six months ended June 30, 1998, revenue from Security State
Bank (10%) and Best Bank (82%) accounted for approximately 92% of the
Company's total revenues. No other customers accounted for 10% or
more of the Company's total revenues. On June 30, 1997 the Subsidiary
had a significant credit card portfolio processing contract expire.
This contract was not renewed. The contract represented approximately
one hundred thousand dollars ($100,000) or thirty percent (30%) of the
Subsidiary's monthly operating revenue, and its loss substantially
affected the Subsidiary's profitability in 1997. As a result,
substantial operating losses were recognized in the months July
through October 1997. For the year ending December 31, 1997, revenue
from Security State Bank (25%), Best Bank (43%) and Pride (14%)
accounted for approximately 82% of the Company's total revenues. No
other customers accounted for 10% or more of the Company's total
revenues. On October 1, 1997 the Subsidiary entered into a five year
contract to process credit card activity and produce account
statements for Best Bank. This contract represents in excess of
$500,000 per month in additional operating revenue. In December,
1997, the Subsidiary earned approximately five hundred thirty-five
thousand ($535,000) on the bank contract which represents seventy-two
percent (72%) of total revenue for the month.
F-13
<PAGE>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11: RELATED PARTY TRANSACTIONS
The Subsidiary continues to provide data processing services to
Security State Bank (the "Bank") its former parent company.
Additionally, the Subsidiary has a real estate note payable to the
Bank and continues to lease its office space, 52,248 square feet, from
the Bank at an annual cost of approximately $390,000. Accounts
receivable from the Bank amounted to $132,554 at June 30, 1998. On
December 1, 1997, the Subsidiary entered into a lease agreement with
The Century Group, Inc., (the "Landlord"), owned by the Company's
primary shareholders Glenn Gallant and Douglas Baetz, for office space
located at 2701 West Oakland Park Boulevard, Ft. Lauderdale, Florida,
33311. The term of the lease is for one (1) year for the sum of
thirty-one thousand seven hundred forty-six dollars ($31,746), plus
applicable sales and use taxes. The Company also agrees to pay the
Landlord, as additional rent for its share of the operating expenses
associated with the premises. The Subsidiary's financing source,
Century Financial Group, Inc., is owned by the Company's primary
shareholders, Glenn Gallant and Douglas Baetz. Interest expense and
accrued interest payable to Century Financial Group, Inc. amounted to
$46,999 and $6,986 as of June 30, 1998.
NOTE 12: STOCK OPTION PLAN
The Company has adopted an incentive stock plan to provide for the
granting of options to senior management of the Company. At June 30,
1998, the Company had allocated 1,250,000 shares of stock for issuance
under the plan. As of June 30, 1998 no options had been granted.
However, on July 1, 1998 the Company granted 350,000 options. The
following table shows the vesting schedule and the exercise price for
each of the seven directors awarded options.
<TABLE>
<CAPTION>
Options vested
-------------------------------------- Total
Exercise July 1, October 1, January 1, Options
Director Price 1998 1998 1999 Granted
---------------------- -------- ------ ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Glenn M. Gallant $ 2.96 16,666 16,667 16,667 50,000
Douglas R. Baetz $ 2.96 16,666 16,667 16,667 50,000
Kenneth A. Klotz $ 2.28 16,666 16,667 16,667 50,000
Charles LaMontagne $ 2.28 16,666 16,667 16,667 50,000
Olan Beard $ 2.28 16,666 16,667 16,667 50,000
Donald Thone $ 2.28 16,666 16,667 16,667 50,000
Robert Feldman $ 2.28 16,666 16,667 16,667 50,000
---------
350,000
---------
---------
</TABLE>
The Company plans to account for the options in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," under which compensation cost will be recognized
for the difference in the option's exercise price and the fair market
value of the stock at the date of the grant. The effect of further
compensation cost for the plan, as determined by applying Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," on the Company's net earnings and earnings per share
will be disclosed on a pro forma basis, based on estimates using an
accepted options pricing model.
F-14
<PAGE>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13: CONDENSED FINANCIAL INFORMATION - PARENT COMPANY
The following represents consolidated financial information of the
parent company as of June 30, 1998 and December 31, 1997 presented
utilizing the equity method of accounting.
CONDENSED BALANCE SHEET:
<TABLE>
<CAPTION>
ASSETS June 30, December 31,
1998 1997
----------- -------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ - $ 1,689
Prepaid expenses and other assets 178,524 15,024
Federal income tax due from subsidiary 80,636 13,284
----------- -------------
Total current assets 259,160 29,997
Investment in subsidiary 2,579,755 1,379,969
----------- -------------
TOTAL ASSETS $ 2,838,915 $ 1,409,966
----------- -------------
----------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Bank overdraft $ 153 $ -
Accrued expenses and other liabilities 7,000 5,000
Due to subsidiary 336,975 192,975
----------- -------------
Total current liabilities 344,128 197,975
SHAREHOLDERS' EQUITY
Common stock, $.001 par value; 5,000,000 shares
authorized; 12,725,000 and 12,500,000 issued and
outstanding in 1998 and 1997 respectively 12,725 12,500
Capital surplus 1,894,755 1,681,230
Accumulated deficit 587,307 (481,739)
----------- -------------
Total shareholders' equity 2,494,787 1,211,991
----------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,838,915 $ 1,409,966
----------- -------------
----------- -------------
</TABLE>
F-15
<PAGE>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13: CONDENSED FINANCIAL INFORMATION - PARENT COMPANY -CONTINUED
CONDENSED INCOME STATEMENT:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- -------------
<S> <C> <C>
REVENUES
Undistributed earnings (loss) of
subsidiary $ 1,199,786 $ (220,031)
----------- -------------
Total revenues 1,199,786 (220,031)
EXPENSES
Stockholder costs and fees 3,980 581
Professional and outside services 193,871 27,851
Amortization expense - 189
Costs related to acquisition - 186,921
Other operating 240 647
----------- -------------
Total expenses 198,091 216,189
Net loss related to discontinued operations - (1,432)
----------- -------------
INCOME (loss) BEFORE FEDERAL INCOME TAX 1,001,695 (437,652)
Income tax benefit (67,351) (13,284)
----------- -------------
Net income (loss) $ 1,069,046 $ (424,368)
----------- -------------
----------- -------------
CONDENSED STATEMENT OF CASH FLOWS:
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 1,069,046 $ (424,368)
Adjustments to reconcile net income (loss) to
net cash provided by operations
Undistributed earnings in subsidiary (1,199,786) 220,031
Depreciation and amortization - 189
Increase in tax due from subsidiary (67,352) (13,284)
Prepaid expenses and other assets (163,500) (13,436)
Accruals and accounts payable 146,153 222,799
----------- -------------
Net cash used by operating activities (215,439) (8,069)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 213,750 -
----------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS (1,689) (8,069)
Cash and cash equivalents at beginning of
year 1,689 9,758
----------- -------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ - $ 1,689
----------- -------------
----------- -------------
</TABLE>
F-16
<PAGE>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14: CONSULTING AGREEMENT
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.
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.
As of June 30, 1998, Worldwide has exercised options to purchase
225,000 shares of Columbia Capital Corp. Common Stock. Details of the
transactions are as follows:
On April 17, and June 1, 1998, Worldwide exercised options to
purchase 150,000 and 75,000 shares, respectively, of the
Company's Common Stock at $0.95 per share resulting in a
transaction valued at $142,500 and $71,250, respectively.
The fair value of the options granted approximate the value of the
services to be provided by Mr. Markow.
F-17
<PAGE>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15: YEAR 2000
The year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year.
Computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather that the year 2000, which
could result in miscalculations. The Company has assessed financial
and operational systems and developed plans to address systems
modifications. The Company is also communicating with others with
which it conducts business to help identify and resolve the year 2000
issue. The total cost associated with the required modifications is
not expected to be material to the Company's consolidated results of
operations and financial position and is being expensed as incurred.
F-18
<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.
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 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.
FICI's assets and liabilities have been restated at their estimated fair
market value as of May 1, 1997 on the balance sheets of the Company at June 30,
1998 and December 31, 1997, in the Company's consolidated financial statements
for the six (6) months ended June 30, 1998 and 1997, included elsewhere herein
at May 1, 1997, utilizing "pushdown accounting." Total 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 $48,696 per year over
such period.
The Company has included in this Report the unaudited consolidated
financial statements of the Company for the six (6) months ended June 30,
1998 and 1997, which include the consolidated balance sheets of the Company
as of June 30, 1998 (unaudited) and December 31, 1997 (audited), and the
related consolidated income statements and statements of changes in
shareholders' equity and cash flows for the six (6) month periods ended June
30, 1998 and 1997. The consolidated income statements and statements of cash
flows of the Company for the six (6) months ended June 30, 1998 and 1997,
which form a part of the Company's consolidated financial statements for such
periods, reflect the results of operations and cash flows of the parent
holding company for the four (4) months ended April 30, 1997, and the
consolidated results of operations and cash flows of the parent holding
company and FICI for the six (6) months ended June 30, 1998 and the two (2)
months ended June 30, 1997.
3
<PAGE>
The Company has also included elsewhere in this Report the unaudited pro
forma consolidated financial statements of the Company for the six (6) months
ended June 30, 1998 and 1997 (the "Pro Forma Financial Statements"). The Pro
Forma Financial Statements include the consolidated balance sheets of the
Company as of June 30, 1998 and December 31, 1997, and the related consolidated
income statements and statements of changes in shareholders' equity and cash
flows for the six (6) month periods ended June 30, 1998 and 1997, and have been
presented to reflect a recapitalization of FICI, with FICI as the acquiror of
the Company as of September 23, 1997.
For purposes of the following discussion and analysis, the results of
operations for the six (6) months ended June 30, 1998 and 1997 have been
presented from the financial information set forth in the Pro Forma Financial
Statements. The following discussion reflects, on a pro forma basis, the
consolidated results of operations of the parent holding company and FICI for
the six (6) months ended June 30, 1998 and the results of operations of FICI for
the six (6) month period ended June 30, 1997. This method of presentation was
set forth herein to permit useful comparison between the aggregated six (6)
month periods ended June 30, 1998 and 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 six months ended June 30, 1998 and
the two (2) month period ended June 30, 1997 and the operations of the parent
holding company during the four (4) months ended April 30, 1997 are not
meaningful because the parent holding company had insignificant operations
during such earlier period.
CREDIT CARD PROCESSING AGREEMENTS. On June 30, 1997, a credit card
processing agreement (the "Clark Agreement") expired between the Company and
Clark. The Clark Agreement was the source of 25% of the Company's total
revenues during the six (6) months ended June 30, 1997.
As of October 25, 1997, the Company entered into the Master Agreement with
BestBank. The credit card portfolios represented by the Master Agreement
principally relate to certain portfolios controlled and directed by Messrs.
Baetz and Gallant, through their business relationships with BestBank, which is
not an affiliate of Messrs. Baetz and Gallant. The Master Agreement was the
source of 77% of the Company's gross revenues during the six (6) months ended
June 30, 1998.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30,
1997. Total operating revenues for the six (6) months ended June 30, 1998
increased approximately 196% to $5,837,439 from $1,970,580 for the six (6)
months ended June 30, 1997. Total operating revenues principally include: (i)
credit card processing revenues, and (ii) banking and financial services
revenues.
Credit card processing revenues during the six (6) months ended June 30,
1998 increased 426% to $4,698,934 from $892,843 during the six (6) months ended
June 30, 1997. This increase primarily relates to the revenues associated with
the Master Agreement. The Master Agreement with Best Bank represented 93% of
the credit card revenues for the six (6) months ended June 30, 1998. There were
no revenues associated with the Master Agreement in the six (6) months ended
June 30, 1997 because it was not put in place until October, 1997. Credit card
processing revenues during the six (6) months ended June 30, 1997 primarily
related to the Clark Agreement, which expired on June 30, 1997.
Banking and financial services revenues during the six (6) months ended
June 30, 1998 decreased to $465,389 from $472,017. 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. As of August 1, 1998, the Company anticipates that banking and
financial services revenue will be reduced by approximately $50,000 per month
due to the acquisition and merger of Security State Bank and the resulting
4
<PAGE>
conversion to their in-house processing system. The Company has generated
revenues of approximately $75,000 per month from this account during the
previous three (3) years. The Company has agreed to continue the item and
backroom processing services for the former Security State Bank with anticipated
revenues of approximately $25,000 per month. Management believes that
anticipated increases from the Company's credit card operations and future bank
processing opportunities will replace this reduced source of revenues and that
the loss of the Security State Bank account is not anticipated to have a
material adverse effect on total revenue for fiscal 1998. However, no assurance
to this effect can be given.
Revenues from Pride Refining, Inc. ("Pride") decreased to $179,000 for the
six (6) months ended June 30, 1998 from $389,700 for the six (6) months ended
June 30, 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 six (6) months ended June 30, 1998
increased 95% to $4,170,674 from $2,142,542 during the six (6) months ended June
30, 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:
Cost of salaries and employee benefits during the six (6) months ended June
30, 1998 increased 65% to $1,451,505 from $877,244 during the six (6) months
ended June 30, 1997. This increase primarily resulted from an increase of
approximately 27 full time employees at June 30, 1998 from June 30, 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 six (6) months ended
June 30, 1998 increased 65% to $1,074,515 from $650,018 during the six (6)
months ended June 30, 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 six (6) months ended June 30, 1998 increased 259% to
$1,140,040 from $317,783 during the six (6) months ended June 30, 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 six (6) months ended
June 30, 1998 increased 221% to $236,747 from $73,865 during the six (6) months
ended June 30, 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 six (6)
months ended June 30, 1998 increased 98% from $95,149 to $188,402 during the six
(6) months ended June 30, 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.
5
<PAGE>
Other revenues and expenses resulted in total other expenses of $46,999
during the six (6) months ended June 30, 1998, as compared to total other
expenses of $2,534 during the six (6) months ended June 30, 1997. This increase
in expenses between the respective periods resulted from increased interest
expense of $22,890 in the second 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 $2,534 in the second quarter of 1997 relating to borrowings from People's
State Bank. In the second quarter of 1998, $12,670 of interest income was
netted against interest expense. There was no interest income earned during the
second quarter of 1997.
As a result of the foregoing, the Company experienced net income of
$1,069,046 during the six (6) months ended June 30, 1998, as compared to a net
loss of $173,535 during the six (6) months ended June 30, 1997. The Company
experienced income from operations of $1,666,765 during the six (6) months ended
June 30, 1998, as compared to a loss from operations of $171,962 during the six
(6) months ended June 30, 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 June 30, 1998, the ratio of current
assets to current liabilities as 1.32 to 1 compared to 0.82 to 1 at December 31,
1997.
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 June 30, 1998 and the year ended December 31, 1997 were primarily
provided from operations and from the Line of Credit. At June 30, 1998, all
trade payables and receivables were current. At June 30, 1998, a $20,000
unallocated reserve for bad debts was carried by the Company. At June 30, 1998,
prepaid expenses and inventories were $894,371 and are anticipated to be
expensed as used in the future. The net property and equipment was $888,403 at
June 30, 1998. Major capital additions during the three months ended June 30,
1998 were the construction of a credit card production facility at a cost of
$257,019 and personal computer system and network upgrades of $26,973. As of
June 30, 1998, the Company had obtained an interim construction loan from
Security State Bank in the principal amount of $160,000 related to the purchase
and construction of a credit card production facility. The loan is secured by
the production facility building, bears interest at the prime rate plus 1%, and
is due and payable on September 29, 1998. Management believes that, as of June
30, 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. 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 June 30, 1998,
the principal outstanding obligation to Century on the Line of Credit had been
reduced to $850,000 from cash flow generated from the Company's operations.
6
<PAGE>
Cash and cash equivalents were $117,356, as of June 30, 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 June 30, 1998.
As of June 30, 1998 and December 31, 1997, the Company had no long-term
borrowings.
As of June 30, 1998, the Company had short-term borrowings in the aggregate
amount of $1,010,000, 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 second 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 by operating activities was $1,080,265 and $204,200 for
the six (6) months ended June 30, 1998 and 1997, respectively. Net cash
provided by operations during the six (6) months ended June 30, 1998 primarily
consisted of net income from operations and increases in accounts payable,
deferred income taxes and depreciation and amortization, offset by decreases in
accounts receivable and deposits and prepaid expenses. Net cash used by
operations during the six (6) months ended June 30, 1997 primarily consisted of
decreases in accounts receivable and depreciation and amortization, offset by
decreases in accounts payable, deposits and prepaid expenses and deferred tax
benefits.
Net cash (used) by investing activities was ($744,520) and ($53,115) for
the six (6) month periods ended June 30, 1998 and 1997, respectively. In the
six (6) months ended June 30, 1998, the Company utilized $444,520 to purchase
certain fixed assets, including the upgrade of the IBM equipment lease and
personal computer and network systems upgrades and a credit card production
facility, 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 six (6) months ended June 30, 1997, the Company utilized $50,537
to purchase certain fixed assets, including office furniture, credit card
computer equipment and computer software and $2,578 to invest in certain
interest bearing deposits.
Net cash provided (used) by financing activities was ($76,250) and $87,023
for the six (6) month periods ended June 30, 1998 and 1997, respectively. In
the six (6) months ended June 30, 1998, the Company utilized $450,000 to reduce
the principal obligations underlying the Line of Credit, which was offset by the
receipt of $213,750 from the issuance of Common Stock upon the exercise of stock
options and the receipt of $160,000 pursuant to an interim construction loan
from Security State Bank to finance the construction of a credit card production
facility. In the six (6) months ended June 30, 1997, the Company obtained
$118,580 from the Line of Credit, net of payments, 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.
7
<PAGE>
The Company 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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS.
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings Per Share,"
which is effective for financial statements issued for periods ending after
December 31, 1997. SFAS No. 128 requires public companies to present specific
disclosure of basic earnings per share and, if applicable, diluted earnings per
share, instead of primary and fully diluted earnings per share based on the
dilutive impacts of outstanding stock options or other convertible securities.
There was no material difference between reported earnings per share and diluted
earnings per share for the periods presented in the Company's financial
statements.
FASB recently issued SFAS No. 130, "Reporting Comprehensive Income," which
is required to be adopted for financial statements issued for periods beginning
after December 15, 1997. This statement establishes standards for the reporting
and display of comprehensive income and its components. Comprehensive income is
defined as revenue, expenses, gains and losses that, under generally accepted
accounting principles, are included in comprehensive income, but excluded from
net income (such as extraordinary and non-recurring gains and losses). SFAS No.
130 requires that items of comprehensive income be classified separately in the
financial statements. SFAS No. 130 also requires that the accumulated balance
of comprehensive income items be reported separately from retained earnings and
paid-in capital in the equity section of the balance sheet. SFAS No. 130 is not
anticipated to have a material effect on the Company's financial position or
results of operations.
FASB recently issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which is required to be adopted for
financial statements issued for periods beginning after December 15, 1997. SFAS
No. 131 is not required to be applied to interim financial statements in the
initial year of application. SFAS No. 131 requires that financial and
descriptive information about operating segments be reported. Generally,
financial information will be required to be reported on the basis that it is
used internally for evaluating segment performance and deciding how to allocate
resources to segments. SFAS No. 131 is not anticipated to have any effect on
the Company's financial position or results of operations.
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 June 30, 1998.
8
<PAGE>
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 June 30, 1998.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
27. Financial Data Schedule.
(b) REPORTS ON FORM 8-K
The Company did not file any Reports on Form 8-K during the quarter ended
June 30, 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.
9
<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: July 21, 1998 By: /s/ Kenneth A. Klotz
------------------------------------
Kenneth A. Klotz
President
Dated: July 21, 1998 By: /s/ Charles La Montagne
------------------------------------
Charles La Montagne
Chief Financial Officer
10
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