U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
AMENDMENT NO. 2 TO
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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, Second Floor, Fort Lauderdale, Florida 33311
(Address of principal executive offices, including zip code)
(954) 453-6575
(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)
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_____ No __X__
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The issuer's revenues for the fiscal year ended December 31, 1997 were
$4,540,271.
The number of shares outstanding of the issuer's common stock as of December 31,
1997, was 12,500,000 shares. The aggregate market value of the common stock
(1,247,000 shares) held by non-affiliates, based on the average of the bid and
asked prices ($1.44) of the common stock as of December 31, 1997 was $1,795,680.
Transactional Small Business Disclosure Format (Check one): Yes_____ No ___X___
<PAGE>
This Annual Report on Form 10-KSB (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. The undersigned
registrant hereby amends the following items, financial statements, exhibits or
other portions of the Annual Report on Form 10-KSB for the fiscal year ended
December 30, 1997, as set forth in the pages attached hereto:
<PAGE>
Item 1. Description of Business
General
The following should be read in conjunction with the Consolidated
Financial Statements of Columbia Capital Corp., a Delaware corporation and the
related notes thereto, contained elsewhere in this Report on Amendment No. 2 to
Form 10-KSB/A. This Report contains forward-looking statements which involve
risks and uncertainties. Actual results may differ significantly from the
results discussed in the forward-looking statements.
Columbia Capital Corp., a Delaware corporation ("Columbia"), operates
through its wholly-owned subsidiary, First Independent Computers, Inc., a Texas
corporation ("FICI"), which is a multi-faceted information service organization.
Unless stated otherwise, Columbia and FICI shall hereinafter be referred to as
the Company.
The services provided by the Company are: (i) credit and debit card
services; (ii) banking and financial services; and (iii) document management and
distribution services. The services the Company provides to most of its
customers serve as a link between consumers, merchants and financial
institutions by capturing the initial transaction at the point of sale, giving
the merchant credit for that transaction, posting the transaction to the
financial institution's accounts receivable and general ledger and ultimately
placing the transaction on the customer's statement.
The Company concentrates on a niche market consisting of small to
medium-sized accounts that have not achieved adequate economies of scale to
operate their own in-house programs and systems. In addition, the Company seeks
strategic alliances with appropriate size banks, thrifts, credit unions,
insurance companies, merchants, utilities, government agencies and other service
companies whose success depends upon successful data management. See
"Description of Business - The Company's Business."
In an information-based economy, the critical common denominator of
transaction and data processing is spurring alliances between data processors
and previously non-associative businesses, such as health care service
organizations, utility providers, travel and tourism organizations and Internet
merchandising companies. The Company can provide these services from a central
location through a standard, common and economical on-line interface to each of
its customer's principal offices as if they were located within the same
building as the Company. This seamless and easy-to-use interface gives the
customer instantaneous access to the information needed to properly manage and
direct those services offered by the Company. This situation represents an
opportunity for growth in demand for the Company's products and services.
However, no assurance to this effect can be given. See "Description of
Business-Sales and Marketing."
History of the Company
Columbia was organized under the laws of the State of Delaware on
February 5, 1993, for the purpose of creating an entity to obtain capital and to
seek out, investigate and acquire interests in products and businesses with the
potential for profit. At inception, Columbia's business plan was to seek
investments and to form wholly-owned subsidiaries and distribute their
securities to Columbia's shareholders in an attempt to diversify the potential
acquisitions which could be made on behalf of Columbia's shareholders. Columbia
subsequently abandoned this business plan. In connection with its organization,
Columbia issued an aggregate of 2,175,000 shares of restricted Common Stock to
its original officers and directors for $12,500. In 1993, Columbia completed a
private offering of 325,000 shares of Common Stock at an offering price of $0.20
per share, from which Columbia realized gross proceeds of $65,000.
On February 28, 1997, Columbia determined that its two subsidiaries,
Central Capital Corp., and Hudson Resources, Inc., had no value and would hinder
Columbia's plans for acquisition. Therefore, the shares of the two subsidiaries
were sold for $1,361, to Lynn Dixon, Columbia's then principal shareholder. See
"Item 12 Certain Relationships and Related Transactions."
<PAGE>
FICI started operations in 1968 as Data Processing Center ("DPC"),
which was a division of First State Bank of Abilene and was in the business of
processing the financial records for several Abilene area banks, on an outsource
basis. On October 21, 1983, DPC was incorporated in the State of Texas; it
changed its name to First Independent Computers, Inc. and became a subsidiary of
First Independent Bank Shares, Inc., the holding company of First State Bank of
Abilene, Texas ("SSI"). On September 11, 1987, all of the common stock of FICI
was sold to CCS Technologies, Inc. ("CCS") of Orlando, Florida. On January 4,
1989, all of the common stock of FICI was sold by CCS to Affiliated Computer
Services, Inc. ("ACS") of Dallas, Texas. On February 14, 1991, all of the common
stock of FICI was sold by ACS to a private group of investors in Abilene, Texas.
On May 31, 1994, all of the common stock of FICI was sold by the private
investor group back to SSI. FICI changed its business services to those
currently offered in or about April 1994.
On April 28, 1997, all of the common stock of FICI (the "FICI Common
Stock") was sold by SSI to Glenn M. Gallant ("Gallant") and Douglas R. Baetz
("Baetz") for $1,600,000 in cash. SSI is a party unaffiliated with Messrs. Baetz
and Gallant. Messrs. Baetz and Gallant are, as of the date of this Report, both
directors and principal shareholders of the Company. See "Item 11 - Security
Ownership of Certain Beneficial Owners and Management" and "Item 12 - Certain
Relationships and Related Transactions."
On September 23, 1997, Columbia acquired all of FICI Common Stock (the
"Acquisition") from Messrs. Baetz and Gallant. Pursuant to the terms of the
agreement of acquisition of the FICI Common Stock (the "Stock Purchase
Agreement") Messrs. Gallant and Baetz received 10,631,250 shares of Common Stock
(after Columbia effectuated a 1 for 2 reverse stock split of its common stock)
in exchange for the FICI Common Stock, which represented approximately 85% of
Columbia's then issued and outstanding Common Stock. In connection with the
purchase of the FICI common stock by the Company, the Company also issued
618,750 shares of Common Stock were issued by the Company to Baytree Associates,
Inc. ("Baytree"), 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. See "Item 12 - Certain
Relationships and Related Transactions."
The Company's Business
The Company engages in the financial services business by providing:
(i) credit and debit card services; (ii) banking and financial services; and
(iii) document management and distribution services. The Company provides, to
most of its customers, in connection with the three areas of services listed
above, a link between consumers, merchants and financial institutions by
capturing the initial transaction at the point of sale, giving the merchant
credit for that transaction, posting the transaction to the financial
institutions accounts receivables and general ledger and ultimately placing the
transaction on the customer's statement.
According to The Nilson Report of March, 1998, as the world is rapidly
moving toward electronic information processing, annual credit and debit card
purchases in the United States have reached the $1 trillion mark. The
combination of growth in the number of transactions and the continuing general
trend toward outsourcing data processing functions directly benefits the
Company. Outsourcing involves having a third party contractor perform a variety
of services or tasks, such as those provided by the Company to the issuer of the
credit and debit card. This trend is anticipated by management of the Company to
remain a source of increased business in the future. However, no assurance to
this effect can be given. The use of outsourcing is expected by management to
continue and accelerate as a trend. However, no assurance to this effect can be
given. See "Description of Business-Sales and Marketing," "Description of
Business-Competition" and "Description of Business-Risk Factors."
<PAGE>
Hardware and Software Upgrading
Since the practical beginning of electronic data management in the
1960's, the Company and its predecessors have been actively involved in the
development of the data processing industry and in the testing and research of
software products. The Company's policy of hardware and software upgrade and
acquisition has been pursued in order to facilitate the efficient processing
required by the expansion of its credit card service business. With the
continued upgrade of equipment and software, management of the Company believes
that the Company has the capability to handle its recent and significant growth
in the number of credit card processing transactions, as well as the further
anticipated increase in volume of credit card processing transactions, which are
expected to occur during fiscal year 1998. However, no assurance to this effect
can be given.
Further, as of December 30, 1997, the Company completed restructuring
of its prices and fees charged for financial data processing and customer
service. This restructuring brings the Company's fees in line with the industry
standard of approximately $2.00 per account per month for financial data
processing and $3.00 per account per month for customer service. See
"Description of Business-Credit and Debit Card Services," "Item 6 Management's
Discussion and Analysis or Plan of Operations" and "Item 12 - Certain
Relationships and Related Transactions."
Steps taken by the Company to insure that it will be able to provide
the efficient processing required by the expansion of the credit card service
business, including the recent installation of significant additional equipment
necessary to the operation of a full-service credit card transaction processing
company. The Company entered into a mainframe computer lease with IBM for 36
months, starting in October, 1997. Subsequently, the Company upgraded its
mainframe computer CPU again in March, 1998 for its anticipated growth in
business. The latest upgrade was accomplished pursuant to the existing IBM
lease, on a co-terminus basis. The Company was able to accomplish this increase
in computing capacity with IBM by depositing an aggregate of $500,000 in the
form of a certificates of deposit, $200,000 of which was drawn from a line of
credit supplied to the Company by Century Financial Group, Inc. ("Century").
Messrs. Baetz and Gallant, who are both directors and the principal shareholders
of the Company, own all of the equity securities of Century. The Company has
licensed numerous software programs, from unaffiliated third parties, to
implement its business using its hardware, both owned and leased and such new
banking software systems have been installed. See "Description of Business-The
Company's Business," "Description of Business-Year 2000 Dilemma and Compliance"
and "Item 12 - Certain Relationships and Related Transactions."
Year 2000 Dilemma and Compliance
One of the major challenges facing the consumer financial data
processing services industry is the problem of Year 2000 compliance. The Year
2000 dilemma deals with the underlying fact that many existing computer programs
use only two digits to identify a year in the date field. These programs were
designed and developed without considering the impact of the upcoming change in
the 21st century. If not corrected, many computer applications could fail or
create erroneous results by or at the year 2000. The Year 2000 dilemma affects
virtually all companies and organizations, including the Company.
The philosophy and practice regarding upgrades of equipment and
software, in the opinion of management of the Company, allow the Company to
offer a meaningful alternative to existing and prospective customers as an
outsource, rather than such customers' attempting to perform these tasks
in-house. Management feels that an additional opportunity to bring in bank
processing customers exists by providing a solution to the Year 2000 dilemma.
The Company's new banking software is certified and fully Year 2000 compliant
and, therefore, a solution for banks facing this processing crisis. However, no
assurance to this effect can be given. See "Description of Business-Sales and
Marketing" and "Description of Business-Competition."
Prospective and existing customers must comply with numerous required
regulatory mandates and are faced with the Year 2000 dilemma. These mandates
include: regulatory exams and audits supervised by the Federal Deposit Insurance
Corporation ("FDIC"), Office of the Comptroller of the Currency of the United
States and other state regulatory agencies, external audits by independent third
party auditors, proper disaster recovery planning and testing, installation of
proper procedures and controls, insurance that key personnel are properly backed
up so that reliance on key individuals for services are not interrupted and a
host of other issues. The removal of these overhead burdens is a significant
marketing opportunity for the Company with existing and prospective customers.
See "Description of Business-Year 2000 Dilemma and Compliance," "Description of
Business-Sales and Marketing," "Description of Business-Competition" and
"Description of Business-Regulation of the Company's Business."
<PAGE>
Over the past few years, the Company has attempted to actively address
the Year 2000 dilemma. The Company has had in place a project plan and project
team reviewing all hardware and software, as necessary. The Company has already
made much of the investment needed for the Year 2000 Issue. The Company has also
instituted policies and procedures that require all new hardware and software
acquired or licensed by the Company to be Year 2000 compliant. As of the date of
this Report, all hardware is expected to be Year 2000 compliant by the fourth
quarter of 1998. It is management's opinion that any remaining Year 2000 issues
are not significant and should be able to be funded through normal operating
revenue and income. See "Item 6 - Management's Discussion and Analysis or Plan
of Operation."
Specifically, to address this problem the Company has installed newly
acquired banking software systems, licensed from The Kirchman Corporation, an
unaffiliated third party ("Kirchman"), that provides a solution to the Year 2000
dilemma. The Company's new banking software is certified by Kirchman as fully
Year 2000 compliant, and, therefore, a solution for other companies which are
facing the need to solve this impending crisis. These software upgrades are
system and application functional upgrades. However, no assurance can be given
that all Year 2000 issues have been solved by the acquisition of this software.
Credit and Debit Card Services.
FICI provides a full range of card processing services for
approximately fourteen customers which consist of seven banks, three retailers
and four financial service organizations that do not operate their own in-house
programs and systems. PaySys International Inc., ("PaySys") has licensed FICI to
use its software known as CardPAC(C) and VisionPLUS(C), which addresses every
activity associated with credit card transaction processing. These software
packages provide specialized applications for customer credit, merchant
processing, credit bureau application processing, customer service, special
interchange processing, authorizations, transaction processing and collections.
In addition, FICI provides custom programming services on the licensed
application software for processing requirements that are unique to a customer's
business. The Company works closely with its customers to be a total solutions
provider. In providing a full range of credit card processing services, the
Company supports comprehensive card programs, including bankcard issuing and
acquiring (merchant services), co-branded, debit card, corporate card and
private label programs. The services include application processing, customer
service support, remittance processing, card embossing and production,
chargeback processing, billing and statement preparation, mail processing,
detailed reporting, account collections on behalf of its customers and merchant
services.
The Company has entered into multi-year agreements with most of its
customers. For the year ended December 31, 1997, BestBank of Colorado
("BestBank"), an unaffiliated third party which had a preexisting business
relationship with Messrs, Baetz and Gallant, accounted for 30%, Security State
Bank ("SSB"), a former affiliate of FICI, accounted for 27% and Pride Refining
Inc., an unaffiliated third party, accounted for 16%, of 1997 gross revenues.
The loss of any of these three customers could have a material adverse effect
upon the business of the Company. Agreements between the Company and its
customers provide that the Company will perform data processing in order to
provide to its customers computer programming and other services in connection
with the Company's programs with MasterCard International, Inc. ("MasterCard"),
Visa U.S.A., Inc. ("VISA") and private label credit card operations. These
agreements terminate at various times during the period from May, 1998 through
July 31, 2005, but automatically renew for an unlimited number of successive
years, unless notice of termination is given by either party no less then 180
days prior to a designated termination date.
During the year ended December 31, 1997, the Company's agreement with
Clark Refining, Inc. ("Clark"), an unaffiliated third party, expired and has not
been renewed. For the fiscal years ended December 31, 1996 and 1997 the revenue
derived by the Company from Clark was approximately $1,335,914 or 32% and
$530,224 or 11%, respectively. Further, SSB has been acquired since the
beginning of this fiscal year by a company that has its own data processing
operations. Management of the Company anticipates that the Company will retain
SSB's credit card and certain other processing business. However, no assurance
to this effect can be given, but management anticipates a loss of a portion of
the business of SSB, which loss is estimated by management to amount to
approximately $500,000 in annual revenue for fiscal year 1998. However, no
assurance can be given to this effect. Furthermore, revenues from Pride
Refining, Inc. ("Pride"), were $715,500 for the twelve months ended December 31,
1997 as compared to $804,000 for the twelve months ended December 31, 1996. This
represented a decrease of 11% during 1997. This revenue decrease was due to a
decision of the management of Pride to take their computer processing activities
in-house. This removal of processing business 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. "Item 6 - Management's Discussion and Analysis or Plan
of Operations - Results of Operations for Years Ended December 31, 1997 and
December 31, 1996."
<PAGE>
Agreements with BestBank and Century Financial Group, Inc.. On October
1, 1997, the Company entered into a master agreement with BestBank (the "Master
Agreement") for processing and services for its customers with which BestBank
has entered in contractual agreements. BestBank is unaffiliated with the Company
or its affiliates.
BestBank is a Colorado state-chartered bank and operates primarily as a
provider of credit card and debit card programs. The primary contractor to
BestBank for such programs is Century, an affiliate of Messrs. Baetz and
Gallant, which handles such programs on a turn-key basis. BestBank oversees
Century's operations to monitor Century's compliance with all federal and state
laws and regulations. As a small community bank, BestBank competes in the credit
and debit card arena by targeting niche markets that have been overlooked by
major institutions. Management of the Company believes that a majority of
BestBank's income is derived from the Century-administered credit and debit card
programs.
Century offers turn-key solutions in the credit and debit card
industries for small banks wishing to enter this field. Century has developed
credit card programs for BestBank, Berthoud National Bank and First Premier
Bank. For most small banks, the cost of starting up a credit card program may be
prohibitive. The costs of development of such a program, the systems staffing
and marketing may take more capital than such small banks can prudently invest.
Century, can assume risks that would not be reasonable and prudent for a small
bank. Century provides the marketing (directly or through related and unrelated
third parties), customer service, credit underwriting dispute resolution,
collections (through its affiliate, Berwyn Holdings, Inc. ["Berwyn"]) and data
processing through the Company. In the event that the account becomes
delinquent, Century purchases the receivable from the bank at par.
Because the Master Agreement provides BestBank with fixed cost pricing
for services provided by the Company for credit and debit cards and merchant
processing, BestBank is able to market its programs and services to other
non-issuing entities. BestBank initiates new programs for card issuers while the
Company obtains the processing of these accounts through the marketing efforts
of BestBank. It is anticipated by management of the Company that as BestBank
adds new customers or new programs for existing customers, the Company will be
able to expand its own business operations. However, no assurance to this effect
can be given. As of February 28, 1998, the number of credit card accounts
serviced by the Company is 417,816, of which 397,504 are derived by the Company
pursuant to the Master Agreement with BestBank. BestBank has approximately
130,000 additional credit card accounts which are currently committed to a
competitor of the Company for processing. BestBank, has agreed, in principle, to
begin conversion of these accounts over to the Company as soon as practicable.
However, no assurance can be given that such accounts will be converted to the
Company. See "Description of Business-Sales and Marketing."
In October, 1997, Century entered into an agreement with BestBank to
service a new program for the introduction of debit cards, commencing on April
1, 1998. Berwyn is in the process of setting up the VISA debit card program for
BestBank for this new program. Through the Company's Master Agreement with
BestBank, the Company will process and service this debit card program. This
program will be marketed by Financial Management Services, Inc. ("FMS"), an
unaffiliated third party. The debit cards are to be introduced through the
national chain of check cashing retail outlets, Check Cashing Store, Inc.
("CCSI") owned by FMS. FMS is currently testing this program and expects to
market this program throughout the country over the next 12 months. The delivery
of the debit card product is expected to be completed by August, 1998 in over
3,500 stores in the United States. However, no assurance to this effect can be
given.
<PAGE>
Agreement with FiScrip. On March 1, 1998, the Company entered into an
agreement with FiScrip, Inc., a Nevada corporation ("FiScrip"), which may be
deemed to be an affiliate of Messrs. Baetz and Gallant. FiScrip markets
processing services for Automatic Teller Machines ("ATM's") transactions, debit
terminal transactions and Electronic Benefits Transfer systems ("EBT")
transactions. FiScrip and its co-venturer, Norstar, Inc., of Orlando, Florida,
an unaffiliated third party, contract with independent sales organizations
("ISO's") for deployment of terminals and services.
The Company is the sole provider of these services to FiScrip for
operation of these systems. The Company performs: (i) the daily settlement
function which consists of the reconciliation and balancing of these daily
transactions received so that funds are accounted for by the banks, merchants
and the Federal Reserve; (ii) monthly statement generation to merchants and
ISO's reflecting all transactions and associated fees; (iii) merchant and
network adjustment procedures, which process and reconcile all network and
merchant adjustments generated through automated clearing house transactions
("ACH") and other transaction types; (iv) merchant telephone support through the
use of a toll free telephone support; and (iv) merchant terminal loading of
software and application processing for merchant approval of ATM and debit
terminals.
FiScrip designs, programs and tests the software that is reloaded into
ATM's and debit card point-of-sale machines. FiScrip is one of four companies
certified by Deluxe Payment Systems, an unaffiliated third party, to process EBT
transactions. EBT is a new process and method of distributing federal
entitlements, initially including food stamps, welfare and social security
payments to beneficiaries. In place of printing and issuing checks and other
financial instruments, some beneficiaries of government entitlement programs
receive a debit style card (a "QUEST Card") which operates in the same manner as
an ATM or debit card. The beneficiary of the entitlement program uses this
federally issued card to purchase items utilizing the EBT system. The federal
government may eventually establish individual accounts which will be debited
when a beneficiary makes a withdrawal or purchase. However, no assurance can be
given as to when the federal government will establish this process. It is
expected by FiScrip that there will be substantial competition in the provision
of the service offered by FiScrip. No assurance can be given that FiScrip will
be successful in competing for this business; thus, the Company may not receive
the processing business anticipated by management of the Company to be derived
from EBT transactions.
The transactions based on this medium of exchange through FiScrip and
the Company are estimated to produce a gross transaction fee of between $0.06 to
$0.09, of which the Company will be paid a per transaction fee of $0.02 and a
fee of $3.50 per monthly statement generated by the Company. The transaction fee
is in addition to the merchant application and statement fees. However, no
assurance can be given as to the volume of transactions that will be processed
or rates at which such processing will take place. FiScrip is newly in operation
in connection with the EBT business, with no more than 5,000 transactions in
February, 1998 and 7,000 transactions in March, 1998. FiScrip anticipates a
significant increase in the number of transaction, but no assurance to this
effect can be given.
According to federal government surveys, it is anticipated that by the
year 2000, 60% of the population of the United States will be receiving monthly
income issued electronically and accessible through the use of a QUEST Card.
However, no assurance to this effect can be given. The total dollar value of EBT
transactions (food stamps, aid to families with dependent children and welfare)
in 1998 is estimated by FiScrip to be $60 billion, with an average transaction
size of approximately $23.00, or approximately 450 million transactions per
year. FiScrip's target market share of total dollar volume of EBT transactions
is estimated to be $6 billion or 65 million transactions per year) by January 1,
2000. However, no assurance can be given that there will be this volume of
transactions or that FiScrip will service such a volume of transactions.
The Social Security System will begin distributing benefits using EBT
beginning on January 1, 1999 and expects to have completed full implementation
of the distribution system for benefit distribution using EBT by January 2,
2002. The dollar value for all EBT transactions by the Social Security System is
expected to reach $470 billion annually. However, no assurance to this effect
can be given.
<PAGE>
FiScrip has been certified by Citibank and Lockheed Martin as an EBT
third party processor according to federally established guidelines in twenty
eight states and two counties in California. Eleven other states will require
simple certification, which is anticipated to be completed in 1998. However, no
assurance to this effect can be given. FiScrip's EBT development plans include
full certification for six additional states as, if and when government
contracts are awarded to Lockheed Martin or Deluxe Payment Systems, both of
which are unaffiliated with the Company or FiScrip, for EBT transaction
processing.
Processor Services. As a processor of credit card and banking
transactions, the Company assumes all responsibility for the processing systems,
software maintenance and compliance. The Company data processing center is
staffed twenty-four hours a day, seven days a week, and processes and balances
all incoming and outgoing file transmissions, provides ACH transmissions, daily
updates, reports, generates statements, microfiche reports and statements,
maintains system backup and provides customer support. Other processor services
include the issuance of user documentation explaining the features and
functionality of the processing system (card holder and merchant processing,
authorizations, collections and customer service). In addition, the Company
provides user training to its customers.
On-site and off-site backups of daily activity and systems are
maintained. In the event of a disaster, the Company has a hot site disaster
recovery center at its immediate disposal from IBM. A comprehensive disaster
recovery plan and testing of that plan are required in the regulatory
environment that the Company operates in, which is a part of the Company's
policy of hardware upgrade and acquisition in order to facilitate the efficient
processing required by the expansion of the card business and to create a solid
foundation for the growth of the Company and to maintain its goal of being a
total solutions provider. See "Description of Business-Regulation of the
Company's Business."
Each customer is assigned a Client Support Specialist. These
representatives provide support and assistance to research problems, clarify
system functionality, setup new programs and promotions and training. All
banking customers of the Company have direct 24 hour, 7 day a week "helpdesk"
support from Kirchman. The Company provides on-site support during conversions
and major software enhancements or releases. The Company also provides
collection services to its customers. In addition, the Company has established a
business relationship with several full-time collection agencies and will
provide appropriate information at the customer's request. The Company provides
the capability to do file transfers files to these agencies and, in several
cases, these agencies are on-line, real time connected to the collection
management system. Further, the Company offers a complete dispute resolution
service to its customers utilizing a state-of-the-art interchange tracking
system. Service representatives process all copy requests and chargebacks. In
conjunction with the chargeback processing procedures, service representatives
perform other fraud and risk management functions in an effort to assist the
Company's customer from being victimized by fraudulent and unscrupulous
transactions. The Company also provides over 350 standard reports that are
readily available to the customer. These reports can be generated daily, weekly,
monthly, quarterly or by special request. All of the standard reports are made
available through hard copy, microfiche and on-line. In addition, customized and
ad hoc reporting services are available to the customer.
Bankcard and Private Label Card Processing Services. The banking and
financial services and data processing component of the Company's operations are
equipped and capable to perform the "back room" operations for banks, thrifts,
credit unions, insurance companies, merchants, utilities, government agencies
and others. The Company provides full back room operations for its customer's
credit and debit products.
FICI's Backroom Services. The Company utilizes Search and
Scoreware software licensed from Fair Isaac(R), to access the three major credit
bureaus and score applicants credit applications. The particular credit data is
entered into the credit decision management system and transmitted directly to
the credit bureau. Based on the customer's business requirements, these
applications are pre-screened and requested credit scoring or reporting is
secured from the credit bureau. Upon approval, an account is automatically set
up with the customer and the applicant is issued a credit card. Applications
that are declined are maintained in the database, and the applicant is
automatically sent a letter of notification. All records and applications are
retained for historical purposes based upon the customer's requirements and
appropriate requirements for regulatory purposes.
<PAGE>
The Company offers its customers full customer service support, both
automated and service representative support. A fully automated system, using
voice response and direct talk software, allows credit card holders to activate
their cards, verify account balance information and report lost or stolen cards.
The voice response system immediately and automatically blocks accounts that
have been reported lost or stolen and prevents any additional transactions from
being authorized. With proper security and passwords the voice response system
automatically activates a credit card holder's card, relieving the service
representative from those tedious tasks and allowing the service representative
time to concentrate on assisting credit card holders with other important
concerns. Additionally, the Company offers a toll free telephone service to
process all other customer service calls. The service representative utilizes
the customer service management system to assist credit card holders in solving
their questions and concerns. The customer service management system allows the
customer to automate and custom-tailor the customer service processing. This
allows for efficient tracking and reporting of all customer service activities.
The Company utilizes several proprietary and third party networks for
its authorization, capture and merchant accounting services. Utilizing the
merchant processing system, the Company offers toll free telephone services and
service representatives to provide merchants the support needed for
authorizations, basic inquiries, researching disputes and settlement processing.
The warehousing and deployment of point of sale ("POS") terminals can be an
overwhelming task. Through the Company's strategic relationship with Triumphant
Enterprises, Inc. of Dallas, Texas, an unaffiliated third party, which is in the
business of terminal deployment, this task is accomplished and integrated with a
degree of certainty and accuracy.
A vital and important part of the Company's backroom services is the
assistance of the customer's daily balancing and reconciliation of the
processing solution. These processes are used daily to determine the settlement
with VISA, MasterCard, retailers and remittance of funds. Providing this
important service insures that the customer is getting cash management
information expeditiously and accurately for cash flow purposes.
Credit Card Production. The Company produces credit cards for
its customers, and such cards may be upgraded to include smart card
personalization as an additional service. The Company maintains a dual security
system which will meet VISA and MasterCard standards for card security and
production. The Company's software allows the customer to define various card
types and programs and to define special processing parameters for billing and
statement preparation. With the ability to provide multiple statement messages,
the statement is frequently used by the Company's customers to announce new
services, contests, and credit line increases. In addition, the Company may
design and customize the statements, which act as a basic marketing tool. Data
entry support can be supplied for customers who have special promotions and
other marketing events. The Company also offers direct marketing services.
Direct mail marketing items can be sent to any list of current or prospective
card holders. The Company's affiliation with other marketing organizations allow
the Company to support multiple marketing programs including both in-bound and
out-bound telemarketing campaigns. These telemarketing campaigns are designed to
enhance and grow the customers' card base and to efficiently handle the
potentially large volume of specific calls. Various programs can be custom
tailored to focus upon a customer's particular needs and specific market
penetration.
Banking and Financial Services
The Banking and Financial Services component of the Company performs
the processing and "backroom" operations of banks, thrifts, credit unions,
insurance companies, merchants, utilities, government agencies, and others. The
Company processes for several banks and financial institutions which represents,
in the aggregate, 20% of its gross billing for 1997. Although this segment does
not comprise a majority of the Company's revenues for 1997, the Company believes
that it can grow and expand this line of business. However, no assurance to this
effect can be given. See "Description of Business-Sales and Marketing."
The financial institutions processing services from the Company begin
with the implementation of the processing system, proceeds with the customer's
use of the system and ends with other services offered by the Company. The
processing system retains the data for the total customer relationship, meaning
the customer is viewed from both sides of the balance sheet. This integrated
information is the foundation for an institution's improved risk management,
better marketing for product penetration and better servicing of the customer
base. The processing system manages all liabilities from checking accounts to
time deposits, each with capabilities that range from fixed rates to tiered
rates and from bonus rates to overdraft protection.
<PAGE>
The Company provides proof and data entry services for all cash and
transit items for the customer. Checks, debit advice and credit advices are micr
encoded. On a daily basis, all items rejected are researched and re-entered to
insure that the customer receives full credit for all monetary items submitted.
Upon completion, the debit and credit captured data is electronically
transferred to the processing systems. After the capturing process, the Company
generates and creates the necessary cash letters for the financial institutions
and delivers such letters to the Federal Reserve according to their mandated
instructions and delivery times.
Using the processing system and in-house developed software, the
Company offers a full line of ACH services including: (i) payroll check
deposits; (ii) social security payments; (iii) deposits and withdrawals; (iv)
corporate transactions; (v) retail transactions; and (vi) return items and
automated reversals. Utilizing the Company's direct connection to the Federal
Reserve through the Fed Line, ACH transactions and wire transfers are completed.
Document Management and Distribution Services
The document management and distribution services the Company provides
to its customers simplify an otherwise overwhelming task of processing inbound
and outbound paper items. In document management, the Company offers processes
for producing and reducing the amount of paper reports and statements for the
customer, with its online tools for reports, microfiche processing and with the
acquisition of digital document technology and Computer Output to Laser Disk
("COLD") product. As of the date of this Report, the Company processes over
800,000 mail pieces per month. The Company intends to increase this business to
over 1,500,000 pieces per month during the next year. However, no assurance to
this effect can be given. This increased volume is anticipated to be generated
from the growth of the other operations of the Company. However, the Company
expects to also add other customers with specific mailing and distribution
needs. However, no assurance to this effect can be given. See "Description of
Business-Sales and Marketing."
Through its sophisticated software products, in conjunction with the
latest available hardware, the Company gives the customer an avenue into an
almost paperless world. These services include on-line real time access to its
daily reports and statements. The customer only needs to print locally those
items for which they wish to have hard copy. This on-line service of reports is
an efficient and time saving solution to the customer for viewing and retrieval
of data. The Company offers customers the opportunity to receive reports on
microfiche.
Besides the advantage of processing efficiency over traditional analog
file storage, the use of COLD storage and retrieval methodologies have
application for customer service operations. Through the Company, clients'
Customer Service Representatives will be able not only to inspect customer
statements by line item data, but will be able to retrieve, view and reference
digitized images of original documents on a real time basis. For added customer
services, these items may then be reprinted or faxed on demand. The customer's
need for manpower support is consequently, greatly reduced while increasing the
productivity of customer service personnel.
Sales and Marketing
The marketing goals of the Company are to expand the already created
and operating multi-faceted information service organization dedicated to the
provision of financial data processing, document management, electronic commerce
services and customer service. The Company has focused on customers, such as
denovo banks (banks in the process of being formed) and businesses in the credit
card industry that may be overwhelmed with new regulatory and related problems
and want to outsource their operations. During the 1980's the trend for
community banks was to bring their processing in-house. Faced with the Year 2000
dilemma and ever increasing data processing costs, these institutions are prime
candidates to again contract their processing to service companies such as the
Company. Further, the Company can process for institutions in all facets of
their operations, although no assurance can be given to this effect. See
"Description of Business-Year 2000 Dilemma and Compliance."
<PAGE>
Because the Company serves as a link between consumers, merchants and
financial institutions and has been and continues to concentrate on: (i) the
fulfillment of a niche market consisting of small to medium-sized accounts that
have not achieved adequate economy of scale to operate their own in-house
programs and systems; (ii) seeking out strategic alliances with appropriate
service companies whose advantage depends upon successful data management; and
(iii) providing a personalized customer-service oriented strategy, the Company
believes that its marketing approach will earn it a substantial number of new
customers and customer conversions. However, no assurance to this effect can be
given.
For small and denovo banks, credit card operations can be highly
lucrative. However, for most small banks, the cost of starting up a credit card
program is prohibitive because the costs of development of the program, the
systems staffing and marketing take more capital than the banks can prudently
invest. The Company can alleviate some of this cost and make a bank credit card
operation feasible in some cases, although no assurance can be given to this
effect.
A significant part of the sales of the Company's services are made by
its executive officers. Additionally, the marketing efforts of Century, Berwyn
and BestBank have resulted in a significant growth in the number of credit card
accounts being serviced by the Company. Management of the Company anticipates
that as Century, Berwyn and BestBank initiate new programs, either for
themselves or for credit card issuers, the Company will obtain the processing of
these accounts. However, no assurance to this effect can be given. In addition
to the foregoing, the Company receives referrals of possible customers from its
software vendors See "Item 9 Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a) of the Exchange Act."
There has been a trend over the last several years for banks and other
financial institutions to consolidate, thereby causing a shrinkage in the number
of possible customers for the Company's services. The Company is partially
protected from this trend by having relatively long term agreements with its
customers. One such consolidation is the recent purchase of SSB, causing an
anticipated decline in revenue from that account to the Company. The effects of
this trend in consolidation could have a material adverse effect upon the
Company's future business prospects. However, the effects of this trend, in the
opinion of management, are off-set by the fact that there are approximately 300
denovo banks currently in formation and there has been the introduction of new
financial instrument programs on a continuous basis. Many of such programs are
potential customers for the Company's services. It is uncertain whether the
Company will benefit from such new financial instrument programs. No assurance
can be given that the Company will be able to replace customers lost to
consolidations within the banking industry, and if the Company is successful in
replacing such customers, that such replacement customers will result in enough
revenue to off-set lost revenue and profits. See "Description of Business-Credit
and Debit Card Services," "Description of Business-Sales and Marketing,"
"Description of Business-Competition" and "Item 12 - Certain Relationships and
Related Transactions."
Competition
The industry segments in which the Company's business operates are
highly competitive. The Company competes with major and independent providers of
services in the credit card industry. Some of the companies with which the
Company competes are substantially larger, have more substantial histories,
backgrounds, experience and records of successful operations, greater financial,
technical, marketing and other resources, more employees and more extensive
facilities than the Company has or will have in the foreseeable future. In
addition, the Company competes with businesses that internally perform data
processing or other services offered by the Company.
The industry in which the Company competes is highly fragmented. The
Company believes that with its vast range of services and the Year 2000
compliance issues, those banking and financial institutions looking for a new
and compliant solution will begin to migrate from their in-house solutions to
companies on an outsource basis. Management of the Company believes that to
succeed in competing for customers in its industry segments the Company's
factors for success are its capabilities, quality of service, price, reputation
and, in some cases, convenience of location to the client.
<PAGE>
The Company's ability to compete effectively may also depend on the
availability of capital. Many of the Company's competitors have access to
significantly greater capital and management resources then does the Company.
The Company is not aware of any competitor which provides the same range of
services as the Company. However, no assurance can be given that such
competitors do not exist. The Company's competitive capabilities are a fact of
the Company's state of the art card software solutions systems and a focus on a
customer-service oriented approach for the small- to medium- sized customers.
Furthermore, management of the Company believes that the Company enjoys an
advantage as a total provider and can thereby offer these services at a reduced
costs to its customers. However, no assurance to this effect can be given. See
"Item 12 - Certain Relationships and Related Transactions."
Further, with the focus of most of the Company's competitors being on
large, high-volume accounts, the Company has an added competitive advantage in
seeking out customers in the small to medium-sized card issuers market, which is
believed by management to comprise nearly 30% of the nearly 250 million accounts
which form the card industry in the United States. However, there is an
increasing trend of bank mergers and consolidations which may, over time, cause
the market for the Company's services to shrink and thus significantly increase
competition. See "Description of Business-Sales and Marketing."
Employees
As of March 27, 1998, the Company had eighty-two (82) full-time
employees, including three (3) corporate executives, sixty-nine (69) operations
persons, ten (10) administrative personnel and three (3) part-time employees.
The Company intends to hire additional personnel as the development of
the Company's business makes such action appropriate. The loss of the services
of key personnel, including its three executive officers, could have a material
adverse effect on the Company's business. Since there is intense competition for
qualified personnel knowledgeable about the Company's industry, no assurance can
be given that the Company will be successful in retaining and recruiting needed
key personnel. The Company does not have key-man life insurance for any of its
employees.
The Company's employees are not represented by a labor union and are
not covered by a collective bargaining agreement. The Company believes that its
employee relations are good.
Regulation of the Company's Business
Various aspects of the Company's businesses are subject to federal and
state regulation which, depending on the nature of any noncompliance, may result
in the suspension or revocation of licenses, registrations or certifications, as
well as the imposition of civil fines and criminal penalties. Since the
Company's services are performed on behalf of the customer and the Company does
not take possession of the receivables or funds collected from credit card
holders, the Company is not required to have any specific licensing or
registration in the states in which the Company's customers operate. However,
the Company is required to have the software and procedures that it utilizes be
in compliance with various regulations. Among such regulations are: Regulation Z
of the Truth in Lending Act and Regulation E of the Electronic Fund Transfers
Act. Furthermore, there are portions of the regulations of the FDIC that are
applicable to the activities of the Company, as are regulations of the Office of
the Comptroller of the Currency of the United States and those of various state
regulatory agencies. The Company believes that it is in material compliance with
all such regulations in accordance with the Federal Financial Institutions
Examination Council, Information Systems Examination Handbook; and VISA and
MasterCard certification and compliance mandates.
With respect to the above requirements, the Company has been audited
annually by banking examiners and third party auditors to monitor compliance
with all regulations. The Company has received satisfactory ratings on these
audits. During the current fiscal year, the Company's third party audit will be
expanded from a regulatory compliance review to a full Statement on Auditing
Standards ("SAS") 70 audit. This SAS 70 audit is being conducted to determine
whether all areas of the Company's processing procedures, application software
and internal controls are operating in compliance with prescribed independent
auditing standards. Management of the Company believes that the Company meets
all required standards and materially complies with all applicable regulations.
However, no assurance to this effect can be given.
<PAGE>
Risk Factors
This Report may be deemed to contain forward-looking statements within
the meaning of the Reform Act. Forward-looking statements in this Report or
hereafter included in other publicly available documents filed with 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, risks set
forth herein, each of which could adversely affect the Company's business and
the accuracy of the forward-looking statements contained herein.
There is a limited public market for the Company's Common Stock.
Persons who may own or intend to purchase shares of Common Stock in any market
where the Common Stock may trade should consider the following risk factors,
together with other information contained elsewhere in the Company's reports,
proxy statements and other available public information, as filed with the
Securities and Exchange Commission, prior to purchasing shares of the Common
Stock:
Financial Risks
Need for Additional Capital for Expansion. The Company's current
business plan includes a strategy to expand as a provider of processing services
through the development of new customers. Financing for such acquisitions or
development may not be available to the Company on commercially reasonable
terms. In the event the Company cannot obtain the additional financing needed to
fulfill its acquisition strategy, the Company may be unable to achieve its
proposed expansion strategy. See "Item 6 - Management's Discussion and Analysis
or Plan of Operation."
Reliance on Affiliates As Source of Business. The recent growth in
volume of credit card processing transactions serviced by the Company is due to
new customers of the Company arranged for by Messrs. Baetz and Gallant and their
affiliates. Much of the anticipated short term future growth in the business of
the Company is expected to be derived from agreements with BestBank and FiScrip,
which were similarly arranged for by Messrs. Baetz and Gallant or their
affiliates. Messrs. Baetz and Gallant operate businesses in other aspects of the
credit card industry. No assurance can be given that such companies will
continue to do business with the Company in the future or that the basis upon
which they do business with the Company will be profitable to the Company. A
loss of involvement in the Company by Messrs. Baetz and Gallant could have a
material adverse effect upon the Company. Further, Century, an affiliate of
Messrs. Baetz and Gallant, has provided secured debt financing to the Company.
Should that debt go into default, Century could foreclose on its debt and the
control of all of the business of the Company could pass to Century, which could
have a material adverse effect upon the Company. See "Description of
Business-Competition" and "Item 12 - Certain Relationship and Related
Transactions."
Reliance on Customers. The Company relies upon three customers for 73%
of gross revenues. The Company's largest customer represents over 30% of the
Company's revenue for the fiscal year ended December 31, 1997 and 70% of the
Company's gross revenue during the three months ended December 31, 1997 and is
expected to represent a larger percentage of revenue in the future. If one or
more of these three customers were to cease doing business with the Company, it
could have a material adverse effect on the Company's business. The Company's
largest customer has committed to a five-year contract which began on October 1,
1997. This customer and the anticipated short term future growth in the business
are derived from the Master Agreement with BestBank which was arranged for by
Messrs. Baetz and Gallant or their affiliates. Management believes that the
contract will be honored for the full term and ultimately renewed. However, no
assurance can be given to this effect. See "Description of Business-Credit and
Debit Card Services" and Item 6 - Management's Discussions and Analysis or Plan
of Operation."
<PAGE>
General Business Operations Risks
Adverse Trends in the Company's Business. There has been a trend over
the last several years for banks and other financial institutions to
consolidate, thereby causing a shrinkage in the number of possible customers for
the Company's services. The Company is partially protected from this trend by
having relatively long term agreements with its customers. One such
consolidation is the recent purchase of SSB, causing an anticipated decline in
revenue from that account to the Company. The effects of this trend in
consolidation could have a material adverse effect upon the Company's future
business prospects. However, the effects of this trend, in the opinion of
management, is off-set by fact that there are approximately 300 denovo banks
currently in formation and there has been the introduction of new financial
instrument programs on a continuous basis. Many of such programs are potential
customers for the Company's services. It is uncertain whether the Company will
benefit from such new financial instrument programs. No assurance can be given
that the Company will be able to replace customers lost to consolidations within
the banking industry, and if the Company is successful in replacing such
customers, that such replacement customers will result in enough revenue to
off-set lost revenue and profits. See "Description of Business-Sales and
Marketing."
Government Regulation of Business. Various aspects of the Company's
businesses are subject to federal and state regulation which, depending on the
nature of any noncompliance, may result in the suspension or revocation of
licenses, registrations or certifications, as well as the imposition of civil
fines and criminal penalties. Since the Company's services are performed on
behalf of the customer and the Company does not take possession of the
receivables or funds collected from credit card holders, the Company is not
required to have any specific licensing or registration in the states in which
the Company's customers operate. However, the Company is required to have the
software and procedures that it utilizes be in compliance with various
regulations. The Company believes that it is in material compliance with all
such regulations in accordance with the Federal Financial Institutions
Examination Council, Information Systems Examination Handbook; and VISA and
MasterCard certification and compliance mandates. However, no assurance to that
effect can be given. See "Description of Business-Regulation of Company's
Business."
Competition. The credit card service industry is fragmented and highly
competitive. The Company directly and indirectly competes with other businesses,
including businesses in the credit card service industry. In many cases, these
competitors are larger and more firmly established than the Company. In
addition, many of such competitors have greater marketing and development
budgets and greater capital resources than the Company. Accordingly, there can
be no assurance that the Company will be able to achieve and maintain a
competitive position in the Company's industry. See "Description of
Business-Competition."
Certain Conflicts of Interest. Due to the nature of certain
transactions between Messrs. Gallant, Baetz and their affiliates, such as
Century, Berwyn and FiScrip, and the Company, the terms under which these
agreements were negotiated may not be deemed to have been negotiated on an arm's
length basis. The nature of these relationships may be deemed to be a conflict
of interest between Messrs. Gallant, Baetz and their affiliates on the one hand
and the Company on the other hand. See "Item 12 - Certain Relationships and
Related Transactions."
Dependence on Subcontractors for Marketing. The Company's success in
marketing its services and in the recent growth of its business and revenues has
been dependent upon various companies in the financial services business, some
of which are affiliated with Messrs. Baetz and Gallant. In addition to
affiliates of Messrs. Baetz and Gallant, BestBank has been a significant source
of expansion of the volume of business of the Company. Although the receipt of
business from these companies has significantly expanded the Company's business
and revenues and reduced the Company's investment in marketing, it may also
subject the Company to certain risks associated with reliance on others for
marketing, such as loss of business for reasons other than the cost or quality
of the Company's services. See "Description of Business-Sales and Marketing."
Need for Liability Insurance. The Company's products and services
subject the Company to potential exposure from customer claims in the event of
financial loss resulting from the operation of the Company's business. The
Company maintains insurance coverage from St. Paul Fire and Marine Insurance
Company in the amount of $1,000,000 per occurrence and a $2,000,000 aggregate
limit. Any product liability claim against the Company seeking damages in excess
of the amount of the Company's insurance coverage then in place, if any, could
expose the Company to damages or legal expenses which could be significant and
which could have a material adverse effect on the Company. The inability of the
Company to retain this insurance coverage or obtain adequate product liability
insurance coverage in the future or the entry of a judgment against the Company
in excess of available insurance coverage could force the Company either to
reduce operations or cease business activities altogether.
See "Description of Business."
<PAGE>
Dependence on Key Personnel. The Company is dependent upon the skills
of its management team and the relationships of key executive personnel. There
is strong competition for qualified personnel in the financial services industry
and an inability to continue to attract, retain and motivate key personnel could
adversely affect the Company's intended business. The Company does not have
employment agreements with its key personnel. There can be no assurances that
the Company will be able to retain its existing key personnel or to attract
additional qualified personnel. The Company does not have any key man life
insurance on any members of senior management, but will consider purchasing such
insurance when such insurance is deemed affordable. See "Item 9 Directors,
Executive Officers, Promoters and Control Persons; Compliance with Section 16(a)
of the Exchange Act" and "Item 12 - Certain Relationships and Related
Transactions."
Control by Principal Stockholders. The Company's principal
stockholders, directors and executive officers of the Company and their
affiliates control the voting power of approximately 85% of the outstanding
Common Stock. As a result of such Common Stock ownership, such persons will be
in a position to exercise significant control with respect to the affairs of the
Company and the election of directors. See "Item 11 Security Ownership of
Certain Beneficial Owners and Management."
No Independent Directors. The Board of Directors consists of five
directors, none of whom is independent. Although all directors are required to
act in the best interests of the Company and its stockholders, directors not
employed by the Company may be able to more independently assess certain key
areas, such as compensation of management as it relates to operations and
progress of the Company, and reviewing accounting issues, including the scope
and adequacy of internal control procedures, and recommending independent
auditors to serve the Company. The Company has no compensation committee.
Independent directors also aid in avoiding conflicts of interest that exist by
virtue of affiliation with the Company. Management has undertaken to appoint
independent directors to the Board at such time as qualified candidates are
available. There can be no assurance that such candidates will be available. See
"Item 9 - Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act."
Securities Risks
Limited Public Market for Common Stock. There is currently a limited
public market for the Company's Common Stock. Holders of the Company's Common
Stock may, therefore, have difficulty selling their Common Stock, should they
decide to do so. In addition, there can be no assurances that such markets will
continue or that any shares of Common Stock which may be purchased may be sold
without incurring a loss. Further, the market price for the Common Stock may be
volatile depending on a number of factors, including business performance,
industry dynamics, news announcements or changes in general economic conditions.
See "Item 5 - Market for Common Equity and Related Shareholder Matters."
Disclosure Relating to Low-Priced Stocks. The Company's Common Stock is
currently listed for trading in the over-the-counter market on the NASD
Electronic Bulletin Board or in the "pink sheets" maintained by the National
Quotation Bureau, Inc., which are generally considered to be less efficient
markets than markets such as NASDAQ or other national exchanges, and which may
cause difficulty in conducting trades and in obtaining future financing. The
Company's securities are subject to the "penny stock rules" adopted pursuant to
Section 15 (g) of the Exchange Act. The penny stock rules apply to non-NASDAQ
companies whose common stock trades at less than $5.00 per share or which have
tangible net worth of less than $5,000,000 ($2,000,000 if the company has been
operating for three or more years). Such rules require, among other things, that
brokers who trade "penny stock" to persons other than "established customers"
complete certain documentation, make suitability inquiries of investors and
provide investors with certain information concerning trading in the security,
including a risk disclosure document and quote information under certain
circumstances. Many brokers have decided not to trade "penny stock" because of
the requirements of the penny stock rules and, as a result, the number of
broker-dealers willing to act as market makers in such securities is limited.
See "Item 5 - Market for Common Equity and Related Shareholder Matters."
<PAGE>
Lack of Dividends on Common Stock. The Company has paid no dividends on its
Common Stock as of the date of this Report and there are no plans for paying
dividends on the Common Stock in the foreseeable future. The Company intends to
retain earnings, if any, to provide funds for the expansion of the Company's
business. See "Item 5 - Market for Common Equity and Related Shareholder
Matters."
Future Issuances of Preferred Stock. The Company's Certificate of
Incorporation authorizes the issuance of preferred stock with such designation,
rights, preferences and privileges as may be determined from time to time by the
Board of Directors, without stockholder approval. In the event of issuance of
preferred stock, such issuance could be utilized, under certain circumstances,
as a method of discouraging, delaying or preventing a change in control of the
Company. Although the Company has no present intention to issue any shares of
its preferred stock, there can be no assurances that the Company will not do so
in the future. See "Item 5 Market for Common Equity and Related Shareholder
Matters."
Shares Eligible for Future Sale; Issuance of Additional Shares. Future
sales of shares of Common Stock by the Company and its stockholders could
adversely affect the prevailing market price of the Common Stock. There are
currently 1,247,000 shares of Common Stock which are free trading shares or are
eligible to have the restrictive legend removed pursuant to Rule 144(k)
promulgated under the Securities Act. Sales of substantial amounts of Common
Stock in the public market, or the perception that such sales may occur, could
have a material adverse effect on the market price of the Common Stock. Pursuant
to its Certificates of Incorporation, the Company has the authority to issue
additional shares of Common Stock. The issuance of such shares could result in
the dilution of the voting power of the currently issued and outstanding Common
Stock. See "Item 5 - Market for Common Equity and Related Shareholder Matters."
Potential Anti-Takeover Effect of Certain Charter Provisions. The
Company's Certificate of Incorporation includes certain provisions which are
intended to protect the Company's stockholders by rendering it more difficult
for a person or persons to obtain control of the Company without cooperation of
the Company's management. The Company is subject to the General Corporation Law
of the State of Delaware, including Section 203, an anti-takeover law enacted in
1988. In general, the law restricts the ability of a publicly held Delaware
corporation from engaging in certain "business combinations" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder. Such provisions are often
referred to as "anti-takeover" provisions. The "anti-takeover" provisions in the
Certificate of Incorporation may delay, deter or prevent a takeover of the
Company which the stockholders may consider to be in their best interests,
thereby possibly depriving holders of the Company's Securities of certain
opportunities to sell or otherwise dispose of their securities at above-market
prices, or limit the ability of stockholders to remove incumbent directors as
readily as the stockholders may consider to be in their best interests. See
"Item 5 - Market for Common Equity and Related Shareholder Matters."
Limitations on Director Liability. The Company's Certificate of
Incorporation provides, as permitted by governing Delaware law, that a director
of the Company shall not be personally liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director, with certain
exceptions. These provisions may discourage stockholders from bringing suit
against a director for breach of fiduciary duty and may reduce the likelihood of
derivative litigation brought by stockholders on behalf of the Company against a
director. See "Item 10 - Executive Compensation - Indemnification of Officers
and Directors."
Item 2. Description of Properties.
The Company maintains offices at 2701 West Oakland Park Boulevard,
Second Floor, Fort Lauderdale, Florida 33311, where the Company utilizes 2,886
square feet of office space at an annual cost of $45,881, including sales and
use taxes. This office space is leased from Century which may be deemed to be an
affiliate of Messrs. Baetz and Gallant, who are directors and principal
stockholders of the Company, for a period of 12 months or until November 30,
1998. Management of the Company believes that the terms of this lease are at
least as good as may be obtained from an unaffiliated third party. See "Item 12
- - Certain Relationships and Related Transactions."
<PAGE>
The Company leases 52,248 square feet of office space located at 1157
North 5th, Abilene, Texas 79601, from SSI, formerly an affiliate of the Company,
now unaffiliated with the Company, at an aggregate monthly rental of $33,477.
Most of this leased office space is leased for a period of two years, from
August 1, 1997 to July 31, 1999. A small portion of this office space is only
leased for one year, with the lease on that portion terminating on July 31,
1998. All portions of the leased space are automatically renewable for a like
period of time, if notification of termination is not made by SSI to the Company
or vice versa, within 180 days prior to the expiration of the term of the lease.
The lease is subject to adjustment at the time of renewal if there is an
increase in the Consumer Price Index for the year prior to the renewal date.
Furthermore, SSI has granted to the Company a right of first refusal to lease
any additional office space that may become available at that address. See "Item
12 - Certain Relationships and Related Transactions."
Item 3. Legal Proceedings.
To the knowledge of management, there is no material litigation pending
or threatened against the Company or any of its executive officers or directors.
Item 4. Submission of Matters to a Vote of Security Holders.
During the year ended December 31, 1997, the Company's stockholders did
not adopt any resolutions at a meeting or by written consent.
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Common Stock
As of March 27, 1998, the authorized capital stock of the Company
consisted of 50,000,000 shares of common stock, par value $0.001 per share (the
"Common Stock") and 5,000,000 shares of preferred stock, par value $0.001 per
share (the "Preferred Stock"). As of March 27, 1998, there were issued and
outstanding 12,500,000 shares of Common Stock and no shares of Preferred Stock
have been issued. See "Item 12 - Certain Relationships and Related
Transactions."
The Company's Common Stock is listed for trading on the
Over-The-Counter Bulletin Board ("OTCB") maintained by the National Association
of Securities Dealers under the symbol "CLCK." The Company's Common Stock has a
very limited trading history and has only been quoted on the OTCB since July 28,
1997.
The following table sets forth quotations for the bid and asked prices
for the Company's Common Stock for the periods indicated below, based upon
quotations between dealers, without adjustments for retail mark-ups, mark-downs
or commissions, and therefore may not represent actual transactions:
Bid Prices Asked Prices
---------- ------------
High Low High Low
---- --- ---- ---
Year Ending December 31, 1997
3rd Quarter 3.50 3.25 5.25 5.00
4th Quarter 1.375 1.00 1.50 1.25
The bid and asked sales prices of the Company's Common Stock, as traded
in the over-the-counter market, on March 27, 1998, were $1.375 and $1.625,
respectively. These prices are based upon quotations between dealers, without
adjustments for retail mark-ups, mark-downs or commissions, and therefore may
not represent actual transactions.
No dividend has been declared or paid by the Company since inception.
The Company does not anticipate that any dividends will be declared or paid in
the future.
The transfer agent for the Company is Interwest Stock Transfer Co.,
Inc., 1981 East 4800 South, Salt Lake City, Utah 84117.
<PAGE>
Certain Business Combination and Other Provision of Certificate of Incorporation
As a Delaware corporation, the Company is currently subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporation Law
("Section 203"). Section 203 provides, with certain exceptions, that a Delaware
corporation may not engage in any of a broad range of business combinations with
a person or an affiliate, or associate of such person, who is an "interested
stockholder" for a period of three (3) years from the date that such person
became an interested stockholder unless: (i) the transaction resulting in a
person becoming an interested stockholder, or the business combination, is
approved by the Board of Directors of the corporation before the person becomes
an interested stockholder; (ii) the interested stockholder acquired eighty five
percent (85%) or more of the outstanding voting stock of the corporation in the
same transaction that makes such person an interested stockholder (excluding
shares owned by persons who are both officers and directors of the corporation,
and shares held by certain employee stock ownership plans); or (iii) on or after
the date the person becomes an interested stockholder, the business combination
is approved by the corporation's board of directors and by the holders of at
least sixty-six and two-thirds percent (66-2/3%) of the corporation's
outstanding voting stock at an annual or special meeting, excluding shares owned
by the interested stockholder. Under Section 203, an "interested stockholder" is
defined as any person who is: (i) the owner of fifteen percent (15%) or more of
the outstanding voting stock of the corporation or (ii) an affiliate or
associate of the corporation and who was the owner of fifteen percent (15%) or
more of the outstanding voting stock of the corporation at any time within the
three (3) year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or bylaws by action of
its stockholders to exempt itself from coverage, provided that such bylaw or
certificate of incorporation amendment shall not become effective until twelve
(12) months after the date it is adopted. The Company has not adopted such an
amendment to its Certificate of Incorporation or Bylaws.
Item 6. 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 the Stock Purchase Agreement with Messrs. Baetz and 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 of FICI. 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 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.
<PAGE>
FICI's assets and liabilities have been restated at their estimated
fair market value as of May 1, 1997 on the balance sheet of FICI, which forms a
part of the Company's consolidated financial statements for the years ended
December 31, 1997 and 1996, 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.
Further, the Company's consolidated income statements for the years
ended December 31, 1997 and 1996, which form a part of the Company's
consolidated financial statements for such years, reflect the results of
operations of the parent holding company for the year ended December 31, 1996
and the four months ended April 30, 1997 and the consolidated results of
operations of the parent holding company and FICI for the eight months ended
December 31, 1997. The Company has also included in this Report the financial
statements of FICI for the year ended December 31, 1996 and the four months
ended April 30, 1997.
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 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 70% of the Company's gross revenues during the three months ended
December 31, 1997.
For purposes of the following discussion and analysis, the results of
operations for the years ended December 31, 1997 and December 31, 1996,
presented herein, reflect the consolidated results of operations of the parent
holding company and FICI for the eight months ended December 31, 1997 and the
results of operations of FICI for the four months ended April 30, 1997 and the
year ended December 31, 1996. This method of presentation was set forth herein
to permit useful comparison between the aggregated twelve month periods ended
December 31, 1997 and December 31, 1996 with respect to FICI, the Company's sole
operating subsidiary. Comparisons between the consolidated operations of the
parent holding company and FICI for the eight month period ended December 31,
1997 and the operations of the parent holding company during the four months
ended April 30, 1997 and the twelve month period ended December 31, 1996 are not
meaningful because the parent holding company had insignificant operations
during such earlier periods.
Results of Operations for the Years Ended December 31, 1997 and
December 31, 1996. Total operating revenues for the year ended December 31, 1997
increased approximately 11% to $4,508,363 from $4,065,782 for the year ended
December 31, 1996. Total operating revenues principally include: (i) credit card
processing revenues, and (ii) banking and financial services revenues.
Credit card processing revenues during the year ended December 31, 1997
increased to $2,495,762 from $1,955,911 during the year ended December 31, 1996.
This increase primarily relates to the revenues associated with the Master
Agreement during the fourth quarter of the year ended December 31, 1997.
Moreover, the Clark Agreement had expired at the end of June, 1997 and the
Company had lost a significant source of revenues from the Clark Agreement which
was not replaced until October 25, 1997 with the commencement of the Master
Agreement.
Banking and financial services revenues during the year ended December
31, 1997 increased to $929,164 from $927,747. 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.
<PAGE>
Revenues from Pride Refining, Inc. ("Pride"), were $715,500 for the
twelve months ended December 31, 1997 as compared to $804,000 for the twelve
months ended December 31, 1996. This represented a decrease of 11% during 1997.
This revenue decrease was due to a decision of the management of Pride to take
their 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. See "Item 1 -
Description of Business-Credit and Debit Card Services."
Total operating expenses during the year ended December 31, 1997
increased 26% to $4,950,018 from $3,924,372 during the year ended December 31,
1996. 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 year ended December
31, 1997 increased to $2,027,449 from $1,644,534 during the year ended December
31, 1996. This increase primarily resulted from an increase of approximately 25
full time employees during the year ended December 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 year ended December
31, 1997 increased to $1,422,770 from $1,328,222 during the year ended December
31, 1996. 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 year ended December 31, 1997 increased to $634,511
from $531,482 during the year ended December 31, 1996. 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 year ended
December 31, 1997 increased to $288,243 from $139,443 during the year ended
December 31, 1996. 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. See "Item 2 - "Description of
Properties."
In addition, depreciation and amortization expenses during the year
ended December 31, 1997 increased to $237,704 from $111,826 during the year
ended December 31, 1996. 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.
Other revenues and expenses resulted in total other expenses of
$219,727 during the year ended December 31, 1997 as compared to total other
revenues of $67,967 during the year ended December 31, 1996. This increase in
expenses between the respective years resulted primarily from: (i) decreased
revenues of $31,908 in 1997 relating to pass through equipment sales as compared
to $86,776 in 1996 relating to the settlement of a contract dispute, a sales tax
adjustment and pass through equipment sales; (ii) increased interest expense of
$63,282 in 1997 relating to the Line of Credit provided by Century and
borrowings from Peoples State Bank as compared to $15,684 in 1996 relating to
borrowings from Peoples State Bank; and (iii) acquisition costs of $186,921
relating to the Stock Purchase Agreement in 1997 as compared to none in 1996.
<PAGE>
As a result of the foregoing, the Company experienced a net loss of
$507,720 during the year ended December 31, 1997, as compared to net income of
$145,317 during the year ended December 31, 1996. The Company experienced losses
from operations of $441,655 during the year ended December 31, 1997 as compared
to income from operations of $141,410 during the year ended December 31, 1996.
Management believes that this decrease in income from operations primarily
resulted from the loss of the Clark revenue at June 30, 1997 and increased
expense from the conversion of the BestBank credit card portfolio and
acquisition costs. Although the Company believes that some of the expenses
related to the acquisition costs may not be recurring expenses, there can be no
assurances that comparable amounts of expenses may not arise in connection with
the development of the Company's proposed business plan, particularly as may
relate to any financings, acquisitions or development which may occur. However,
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."
The Company had net operating loss carryforwards, as of December 31,
1997 and 1996, totaling approximately $359,438 and $30,005 for federal and state
income tax purposes, respectively. Utilization of the Company's net operating
loss may be subject to limitation under certain circumstances.
Liquidity and Capital Resources. At December 31, 1997, the ratio of
current assets to current liabilities was 0.82 to 1 compared to 1.66 to 1 at
December 31, 1996.
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
year ended December 31, 1997 were primarily provided from operations and from a
$2,000,000 working line of credit (the "Line of Credit") provided through
Century Financial Group, Inc., an affiliate of Messrs. Baetz and Gallant. At
December 31, 1997, all trade payables and receivables were current, with the
exception of one trade receivable in the amount of $7,943 which was 60 days past
due. At December 31, 1997, a $20,000 unallocated reserve for bad debts was
carried by the Company. Prepaid expenses and inventories were $349,160 and are
anticipated to be expensed as used in the future. The net property and equipment
was $514,684 at December 31, 1997. Major capital additions during the year ended
December 31, 1997 were leasehold improvements and furnishings of $144,000 and
personal computer system and network upgrades of $119,000. Management believes
that, as of December 31, 1997, 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 27, 1998,
the principal outstanding obligation 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 $17,861 as of December 31, 1997, as
compared to a $31,557 over draft as of December 31, 1996. This increase was
primarily attributable to the availability of the Century provided Line of
Credit and positive cash flow during December, 1997.
As of December 31, 1997 and 1996, the Company had no long-term
borrowings.
As of December 31, 1997, the Company had short-term borrowings in the
aggregate amount of $1,300,000, as compared to $131,420 at December 31, 1996.
The increase in short-term borrowings was attributable to the establishment of
the Line of Credit in September, 1997.
<PAGE>
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 and the Company pays Bank One an annual fee of 1.5% of
the principal amount of the letter of credit.
Net cash provided (used) by operating activities was ($557,265) and
$76,848 for the years ended December 31, 1997 and 1996, respectively. Net cash
(used) by operating activities during the year ended December 31, 1997 primarily
consisted of net losses, decreases in accruals and accounts payable and
increases in deferred income taxes, tax assets and deposits and prepaid
expenses, offset by depreciation and amortization and decreases in accounts
receivable. Net cash provided by operating activities during the year ended
December 31, 1996 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 ($537,351) and ($239,335)
for the years ended December 31, 1997 and 1996, respectively. In the year ended
December 31, 1997, the Company utilized $368,077 to purchase certain fixed
assets, including office furniture, credit card computer equipment and computer
software, and $203,578 to invest in the Certificates of Deposit which are
pledged to finance the lease agreements on the Company's main frame computer
system. Further, the Company's acquisition of $34,304 of cash in connection with
the transactions related to the Stock Purchase Agreement in September, 1997 and
the acquisition of FICI by the Principal Stockholders in May, 1997. In the year
ended December 31, 1996, the Company utilized $239,335 to purchase certain fixed
assets, including the upgrade of existing computer hardware and software and the
purchase of additional computer hardware and software.
Net cash provided by financing activities was $1,137,023 and $119,238
for the years ended December 31, 1997 and 1996, respectively. In the year ended
December 31, 1997, the Company utilized $1,168,500 obtained from lines of credit
(net of payments), including $963,000 from the Line of Credit, to finance the
Company's business operations, which was offset by a decrease of $31,557 in the
Company's bank overdraft position. In the year ended December 31, 1996, the
Company utilized $87,681 obtained from a line of credit (net of payments) to
finance the Company's business operations, and the Company increased its bank
overdraft position by $31,557.
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.
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.
<PAGE>
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.
Item 7. Financial Statements.
Consolidated balance sheets of Columbia Capital Corp. and subsidiary as
of December 31, 1997 and 1996, and the consolidated statements of operations,
stockholders' equity and cash flows for the years then ended.
The financial statements required by this Item 7 are included elsewhere
in this Report and incorporated herein by this reference.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
By letter dated December 4, 1997, the Company terminated David T. Thompson,
P.C. as independent certified accountants for the Company.
The Company's former independent certified accountants' annual report
covering the fiscal year ended December 31, 1996 did not include an adverse
opinion or disclaimer of opinion, and was not modified as to uncertainty, audit
scope or accounting principles. In connection with the audits of the most recent
fiscal year and during any subsequent interim periods preceding such
termination, there has not developed any disagreement between such former
independent certified accountants and management of the Company or other
reportable events which have not been resolved to the Company's former
independent certified accountants' satisfaction. David T. Thompson, P.C. had
been the Company's independent certified accountants since February, 1993.
As of December 4, 1997, the Company engaged Davis, Kinard & Co., P.C.
as the Company's independent auditors to replace David T. Thompson, P.C., whose
report with respect to the Company's financial statements for the fiscal years
ended December 31, 1996, has been included in this Report.
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
The directors of the Company currently have terms which will end at the
next annual meeting of the stockholders of the Company or until their successors
are elected and qualify, subject to their prior death, resignation or removal.
There is no familial relationship among any of the officers or directors of the
Company. The following reflects certain biographical information on the current
directors and executive officers of the Company:
Name Position Age
Glenn M. Gallant Secretary, Chairman of the Board of 43
Directors and Director
Douglas R. Baetz Director 47
Kenneth A. Klotz President and Director 52
Charles LaMontagne Chief Financial Officer and 44
Director
Olan Beard Vice President and Director 43
Glenn M. Gallant has served as the Company's Chairman of the Board of
Director and Secretary since September 23, 1997. Mr. Gallant is a financier with
years of experience in development and management in a wide range of industries.
Together with Douglas R. Baetz, Mr. Gallant owns and supervises the management
of New SeaEscape Cruises, Inc., a cruise line operating from South Florida, and
Network Holdings International, Inc., a publicly-traded sales organization that
markets various travel products. In addition, Mr. Gallant owns and supervises
the operations for Berwyn, a credit card service company and Century a credit
card issuing company. There have been and will continue to be significant
business transactions between the Company and affiliates of Mr. Gallant. See
"Item 12 - Certain Relationships and Related Transactions."
Douglas R. Baetz has served as a director of the Company since September
23, 1997. Mr. Baetz is a financier with years of experience in development and
management in a wide range of industries. Together with Glenn Gallant, Mr. Baetz
owns and supervises the management of New SeaEscape Cruises, Inc., a cruise line
operation from South Florida and Network Holdings International, Inc., a
publicly-traded sales organization that markets travel products. In addition,
Mr. Baetz owns and supervises the operations for Berwyn, a credit card service
company and Century a credit card issuing company. There have been and will
continue to be significant business transactions between the Company and
affiliates of Mr. Baetz. See "Item 12 - Certain Relationships and Related
Transactions."
Kenneth A. Klotz joined FICI in 1994 as President and Chief Executive
Officer. Mr. Klotz became a member of the Company's Board of Directors on
September 23, 1997 and has served as the Company's President and Chief Executive
Officer since that date. Mr. Klotz has worked extensively in the computer data
processing industry for over thirty years, generally focusing on the management
of information systems using mainframe computer equipment. Mr. Klotz has served
in key executive roles for the last fourteen years.
<PAGE>
Charles LaMontagne joined FICI in 1994 as Senior Vice President of
Banking Services and Chief Financial Officer. Mr. LaMontagne became a member of
the Company's Board of Directors on September 23, 1997 and has served as the
Company's Senior Vice President of Banking Services since that date. On March
10, 1998, Mr. LaMontagne was appointed Chief Financial Officer of the Company.
Prior to joining FICI, Mr. LaMontagne worked in a variety of Texas banks and
refining companies for over nineteen years, generally focusing on controller
responsibilities. Mr. LaMontagne has extensive experience in a wide array of
issues pertaining to financial control and budgeting.
Olan Beard joined FICI in 1994 as Senior Vice President of Credit Card
Services and Chief Operations Officer. Mr. Beard became a member of the
Company's Board of Directors on September 23, 1997, and has served as the
Company's Senior Vice President and Chief Operations Officer since that date.
Prior to joining FICI, Mr. Beard worked in a variety of Texas banks for over
twenty years, gradually ascending the line of command, and serving in key
executive positions for the past sixteen years. Mr. Beard has extensive
experience in operations generally and in credit card operations particularly.
Compliance with Section 16 of the Securities Exchange Act of 1934.
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors and executive officers and beneficial holders
of more than 10% of the Company's Common Stock to file with the Commission
initial reports of ownership and reports of changes in ownership and reports of
changes in ownership of such equity securities of the Company. The first time
that such reports first were required to be filed was March 2, 1998, when the
Company first became subject to the reporting requirements of the Exchange Act.
As of the date of this Report, the Company believes that all reports needed to
be filed have been filed in a timely manner.
Limitation on Directors' Liabilities.
Pursuant to the Company's Certificate of Incorporation and under
Delaware law, directors of the Company are not liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty, except for
liability in connection with a breach of duty of loyalty, for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, for dividend payments or stock repurchases illegal under Delaware law or
any transaction in which a director has derived an improper personal benefit.
Item 10. Executive Compensation.
The Company does not have any written compensation agreements with any
of its executive officers.
Summary Compensation Table. The following table sets forth certain
information concerning compensation of certain of the Company's executive
officers (the "Named Executives"), including the Company's Chief Executive
Officer and all executive officers whose total annual salary and bonus exceeded
$100,000, for the years ended December, 1997 and 1996:
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
-------------------- ------- -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other LTIP All other Compen-
Name and Principal Year Salary Compen- Restricted Options/ Payouts ($) sation ($)
---- ------ ----------- ----------
Position ($) Bonus ($) sation Awards ($) SARs (#)
- -------- ------ --------- ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kenneth A. Klotz (1) 1997 86,000 -0- -0- 2,400 - - -
1996 86,000 -0- -0- 2,400 - - -
Lynn Dixon (2) 1997 -0- -0- -0- -0- - - -
1996 -0- -0- -0- -0- - - -
</TABLE>
(1) Mr. Klotz was appointed as the Company's Chief Executive Officer on
September 23, 1997. Mr. Klotz's combined annualized base compensation
during the fiscal year ended December 31, 1997 was $86,000. Mr. Klotz
does not have a written employment agreement with the Company or FICI.
(footnotes continued on next page)
<PAGE>
(2) Mr. Lynn Dixon served as Chief Executive Officer without compensation.
Stock Option Plan
As of March 25, 1998, the Company's Board of Directors approved a 1998
Stock Option Plan (the "Stock Option Plan"), which was approved by Board of
Directors on March 25, 1998 and will be submitted to the Shareholders for
approval at the next annual meeting of shareholders anticipated to take place in
the first half of 1998. The Company has reserved for issuance thereunder an
aggregate of 500,000 shares of Common Stock. The Stock Option Plan provides for
the grant to employees of the Company of incentive stock options within the
meaning of Section 422 of the Code, and for the grant to employees and
consultants of nonstatutory stock options. The Stock Option Plan limits the
number of shares that can be granted to any one individual in any fiscal year to
125,000 shares. A description of the Stock Option Plan is set forth below. The
description is intended to be a summary of the material provisions of the Stock
Option Plan and does not purport to be complete.
General. The general purposes of the Stock Option Plan are to attract
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to employees and consultants of
the Company and to promote the success of the Company's business. It is intended
that these purposes will be effected through the granting of stock options,
which may be either "incentive stock options" as defined in Section 422 of the
Code, or nonstatutory stock options.
The Stock Option Plan provides that options may be granted to the
employees (including officers and directors who are employees) and consultants
of the Company, or of any parent or subsidiary of the Company. Incentive stock
options may be granted only to employees. An employee or consultant who has been
granted an option may, if otherwise eligible, be granted additional options. The
Company has not granted any options to purchase shares of Common Stock under the
Stock Option Plan.
Administration of and Eligibility Under Restated Stock Option Plan. The
Stock Option Plan, as adopted, provides for the issuance of options to purchase
shares of Common Stock to officers, directors, employees, independent
contractors and consultants of the Company and its subsidiaries as an incentive
to remain in the employ of or to provide services to the Company and its
subsidiaries. The Stock Option Plan authorizes the issuance of incentive stock
options ("ISOs"), non-qualified stock options ("NSOs") and stock appreciation
rights ("SARs") to be granted by a committee (the "Committee") to be established
by the Board of Directors to administer the Stock Option Plan, which will
consist of at least two (2) outside directors of the Company.
Subject to the terms and conditions of the Stock Option Plan, the
Committee will have the sole authority to determine: (a) the persons
("optionees") to whom options to purchase shares of Common Stock and SARs will
be granted, (b) the number of options and SARs to be granted to each such
optionee, (c) the price to be paid for each share of Common Stock upon the
exercise of each option, (d) the period within which each option and SAR will be
exercised and any extensions thereof, and (e) the terms and conditions of each
such stock option agreement and SAR agreement which may be entered into between
the Company and any such optionee.
All officers, directors and employees of the Company and its
subsidiaries and certain consultants and other persons providing significant
services to the Company and its subsidiaries will be eligible to receive grants
of options and SARs under the Stock Option Plan. However, only employees of the
Company and its subsidiaries are eligible to be granted ISOs.
Stock Option Agreements. All options granted under the Stock Option
Plan will be evidenced by an option agreement or SAR agreement between the
Company and the optionee receiving such option or SAR. Provisions of such
agreements entered into under the Stock Option Plan need not be identical and
may include any term or condition which is not inconsistent with the Stock
Option Plan and which the Committee deems appropriate for inclusion.
<PAGE>
Incentive Stock Options. Except for ISOs granted to stockholders
possessing more than ten percent (10%) of the total combined voting power of all
classes of the securities of the Company or its subsidiaries to whom such
ownership is attributed on the date of grant ("Ten Percent Stockholders"), the
exercise price of each ISO must be at least one hundred percent (100%) of the
fair market value of the Company's Common Stock as determined on the date of
grant. ISOs granted to Ten Percent Stockholders must be at an exercise price of
not less than one hundred ten percent (110%) of such fair market value.
Each ISO must be exercised, if at all, within ten (10) years from the
date of grant, but, within five (5) years of the date of grant in the case of
ISO's granted to Ten Percent Stockholders. An optionee of an ISO may not
exercise an ISO granted under the Stock Option Plan so long as such person holds
a previously granted and unexercised ISO. The aggregate fair market value
(determined at time of the grant of the ISO) of the Common Stock with respect to
which the ISOs are exercisable for the first time by the optionee during any
calendar year shall not exceed $100,000.
As of the date of this Report, no ISO's have been granted.
Non-Qualified Stock Options. The exercise price of each NSO will be
determined by the Committee on the date of grant. The Company hereby undertakes
not to grant any non-qualified stock options under the Stock Option Plan at an
exercise price less than eighty five percent (85%) of the fair market value of
the Common Stock on the date of grant of any non-qualified stock option under
the Stock Option Plan. The exercise period for each NSO will be determined by
the Committee at the time such option is granted, but in no event will such
exercise period exceed ten (10) years from the date of grant.
As of the date of this Report no NSO's have been granted.
Stock Appreciation Rights. Each SAR granted under the Stock Option Plan
will entitle the holder thereof, upon the exercise of the SAR, to receive from
the Company, in exchange therefor, an amount equal in value to the excess of the
fair market value of the Common Stock on the date of exercise of one share of
Common Stock over its fair market value on the date of exercise of one share of
Common Stock over its fair market value on the date of grant (or in the case of
an SAR granted in connection with an option, the excess of the fair market of
one share of Common Stock at the time of exercise over the option exercise price
per share under the option to which the SAR relates), multiplied by the number
of shares of Common Stock covered by the SAR or the option, or portion thereof,
that is surrendered.
SARs will be exercisable only at the time or times established by the
Committee. If an SAR is granted in connection with an option, the SAR will be
exercisable only to the extent and on the same conditions that the related
option could be exercised. The Committee may withdraw any SAR granted under the
Stock Option Plan at any time and may impose any conditions upon the exercise of
an SAR or adopt rules and regulations from time to time affecting the rights of
holders of SARs.
As of the date of this Report, no SAR's have been granted.
Termination of Option and Transferability. In general, any unexpired
options and SARs granted under the Stock Option Plan will terminate: (a) in the
event of death or disability, pursuant to the terms of the option agreement or
SAR agreement, but not less than six (6) months or more than twelve (12) months
after the applicable date of such event, (b) in the event of retirement,
pursuant to the terms of the option agreement or SAR agreement, but no less that
thirty (30) days or more than three (3) months after such retirement date, or
(c) in the event of termination of such person other than for death, disability
or retirement, until thirty (30) days after the date of such termination.
However, the Committee may in its sole discretion accelerate the exercisability
of any or all options or SARs upon termination of employment or cessation of
services. The options and SARs granted under the Stock Option Plan generally
will be non-transferable, except by will or the laws of descent and
distribution.
<PAGE>
Adjustments Resulting from Changes in Capitalization. The number of
shares of Common Stock reserved under the Stock Option Plan and the number and
price of shares of Common Stock covered by each outstanding option or SAR under
the Stock Option Plan will be proportionately adjusted by the Committee for any
increase or decrease in the number of issued and outstanding shares of Common
Stock resulting from any stock dividends, splits, consolidations,
recapitalizations, reorganizations or like event.
Amendment or Discontinuance of Stock Option Plan. The Board of
Directors has the right to amend, suspend or terminate the Stock Option Plan at
any time. Unless sooner terminated by the Board of Directors, the Stock Option
Plan will terminate on December 31, 2006, the tenth anniversary date of the
effectiveness of the Stock Option Plan.
Other Options. As of the date of this Report, the Company has not granted
options to purchase any shares of the Company's Common Stock.
Compensation of Directors
The Company does not currently compensate directors for services
rendered as directors.
Indemnification of Officers and Directors
The Company's Certificate of Incorporation and Bylaws designate the
relative duties and responsibilities of the Company's officers, establish
procedures for actions by directors and stockholders and other items. The
Company's Certificate of Incorporation and Bylaws also contain extensive
indemnification provisions which will permit the Company to indemnify its
officers and directors to the maximum extent provided by Delaware law.
Termination of Employment and Change of Control Agreements
Except as set forth in employment agreements of certain employees of
the Company and its subsidiaries, the Company has no compensatory plans or
arrangements which relate to the resignation, retirement or any other
termination of an executive officer or key employee with the Company or a change
in control of the Company or a change in such executive officer's or key
employee's responsibilities following a change in control.
Compensation Committee Interlocks and Insider Participation
The Board of Directors has no standing compensation committee or other
board committee performing equivalent functions.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
As of March 27, 1998, the Company had issued and outstanding 12,500,000
shares of Common Stock. The following table reflects, as of March 27, 1998, the
beneficial Common Stock ownership of: (a) each director of the Company, (b) each
current named executive officer, (c) each person known by the Company to be a
beneficial owner of five percent (5%) or more of its Common Stock and (d) all
executive officers and directors of the Company as a group:
<PAGE>
Name and Address of Beneficial Owner Number of Shares Percent
Glenn M. Gallant
3020 N.W. 33rd Avenue
Fort Lauderdale, Florida 33311 5,315,625 42.53
Douglas R. Baetz
3030 N.W. 33rd Avenue
Fort Lauderdale, Florida 33311 5,315,625 42.53
Kenneth A. Klotz
1157 North 5th
Abilene, Texas 79601 2,000 (2)
Charles LaMontagne
1157 North 5th
Abilene, Texas 79601 1,000 (2)
Olan Beard
1157 North 5th
Abilene, Texas 79601 2,000 (2)
All Directors and Officers as a Group
(5 persons) 10,634,250 85.07
- --------------------
# Pursuant to the rules of the Commission, shares of Common Stock which
an individual or group has a right to acquire within 60 days pursuant to the
exercise of options or warrants are deemed to be outstanding for the purpose of
computing the percentage ownership of such individual or group, but are not
deemed to be outstanding for the purpose of computing the percentage ownership
of any other person shown in the table.
(1) These numbers give effect to a 1 for 2 reverse stock split which
occurred on September 23, 1997.
(2) Represents less than 1% of the issued and outstanding shares of the
Company.
Item 12. Certain Relationships and Related Transactions.
On February 28, 1997, the Company determined that its two subsidiaries,
Central Capital Corp. and Hudson Resources, Inc. has no value and would hinder
the Company's plans for acquisition. Therefore, the shares of the two
subsidiaries were sold to Lynn Dixon, the Company's then principal shareholder,
for $1,361.
On September 23, 1997, Columbia acquired all of the FICI Common Stock
from Messrs. Baetz and Gallant. Pursuant to the terms of the agreement of
acquisition of the FICI Common Stock, Messrs. Baetz and Gallant received
10,631,250 shares of Common Stock (after Columbia effectuated a 1 for 2 reverse
stock split of its common stock) in exchange for the FICI Common Stock, which
represented approximately 85% of Columbia's then issued and outstanding Common
Stock.
On July 11, 1997, the Company entered into an agreement with Baytree,
for Baytree to act as an exclusive agent in connection with the possible merger
or reorganization of the Company with the Company. Baytree received from the
Company $150,000 in cash and 618,750 shares of the Company's Common Stock, as a
fee for services rendered to the Company for arranging the transactions which
are the subject of the Stock Purchase Agreement.
<PAGE>
Messrs. Baetz and Gallant, officers, directors and the largest
shareholders of the Company, have existing business relationships and
affiliations involving entities with which the Company is doing business. These
business entities include Century, Berwyn and FiScrip. All transactions between
the Company and any of these affiliated entities may be deemed to not be at
arms' length. However, management of the Company believes that in all such cases
the terms of the agreements between the Company and any of these affiliated
entities are on terms at least equal to, if not better than, the terms available
from unaffiliated third parties.
On July 11, 1997, Messrs. Baetz and Gallant purchased FiScrip, which
produces the software and firmware that drives ATMs and a wide-array of credit
card and debit card point-of-sale swipe machines. FiScrip has entered into and
agreement with the Company to provide services in connection with a certain
agreement that FiScrip has, with an unaffiliated third party. The transaction
fee is in addition to the merchant application and statement fees. EBT
transactions will produce $0.06 to $0.09 per transaction, paid by the federal
government, of which the Company will be paid a per transaction fee of $0.02 and
a fee of $3.50 per monthly statement generated by the Company. This is in
addition to certain other access fees that the customer and merchant are
charged.
The recent growth in volume of credit card processing transactions
serviced by the Company is due to new customers of the Company arranged for by
Messrs. Baetz and Gallant and their affiliates. Much of the anticipated short
term future growth in the business of the Company is expected to be derived from
agreements with BestBank and FiScrip, which were similarly arranged for by
Messrs. Baetz and Gallant or their affiliates. Messrs. Baetz and Gallant operate
businesses in other aspects of the credit card industry. No assurance can be
given that such companies will continue to do business with the Company in the
future or that the basis upon which they do business with the Company will be
profitable to the Company. A loss of involvement in the Company by Messrs.
Baetz and Gallant could have a material adverse effect upon the Company.
On September 11, 1997, the Company entered into a line of credit
agreement (the "Line of Credit") for aggregate maximums of $2,000,000 with
Century. Century is not required to make advances under the Line of Credit. The
Line of Credit is secured by all of the assets of the Company. The annual
percentage rate charged by Century to the Company is 10% per annum. The Company
used this line of credit for cash flow shortages before the October 25, 1997
conversion of the BestBank card portfolio to the Company's processing system. As
of October 31, 1997, the Company had drawn down on the Line of Credit to the
extent of $1,400,000. As of the date of this Report the line of credit balance
was $1,000,000. See "Item 6 - Management's Discussion and Analysis or Plan of
Operation."
The Company maintains offices at 2701 West Oakland Boulevard, Fort
Lauderdale, Florida 33311, where the Company utilizes 2,886 square feet of
office space at an annual cost of $45,881, including sales and use taxes. This
office space is leased from Century which may be deemed to be an affiliate of
Messrs. Baetz and Gallant, for a period of 12 months or November 30, 1998.
Management of the Company believes that the terms of this lease are on terms at
least as good as may be obtained from an unaffiliated third party.
The Company leases 52,248 square feet of office space located at 1157
North 5th, Abilene, Texas 79601, from SSI, formerly an affiliate of the Company,
now unaffiliated with the Company, at an aggregate monthly rental of $33,477.
Most of this leased office space is leased for a period of two years, from
August 1, 1997 to July 31, 1999. A small portion of this office space is only
leased for one year, with the lease on that portion terminating on July 31,
1998. All portions of the leased space are automatically released for a like
period of time if notification of termination is not made by SSI to the Company
and vice versa within 180 days prior to the expiration of the term of the lease.
The lease is subject to adjustment at the time of renewal if there is an
increase in the Consumer Price Index for the year prior to the renewal date.
Furthermore, SSI granted to the Company a right of first refusal to lease any
additional office space that may become available at that address.
As of the date of this Report, the Company continues to provide to
Security State Bank, a former affiliate of the Company, data processing
services. For the year ended December 31, 1997, the services so provided by the
Company amounted to $1,179,237.
<PAGE>
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, have also been issued to Mr. Markow, which are
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 which provides compensation relating to prospective
financing related transactions, in the form of restricted securities, on a
transaction by transaction basis.
<PAGE>
PART IV
Item 13. Exhibits and Reports on Form 8-K.
A. Financial Statements
Consolidated balance sheet of Columbia Capital Corp. and subsidiary as
of December 31, 1997, and the related statements of operations, stockholders'
equity (deficiency) and cash flows for the years ended December 31, 1997 and
1996 and the balance sheet of First Independent Computer, Inc., as of April 30,
1997 on December 31, 1996, and the related statements of operations,
stockholders' equity (deficiency) and cash flows.
B. Reports on Form 8-K
None
C. Other Exhibits
16.1* Letter re Change in Certifying Accountant of David T.Thompson,
P.C. dated December 4, 1997
23.1 Consent of David T. Thompson, P.C., dated May 29, 1998
23.2 Consent Davis Kinard & Co., P.C. dated May 29, 1998
27* Financial Data Schedule
- ----------------------
* Previously filed
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities and Exchange
Act, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
COLUMBIA CAPITAL CORP.
Dated: May 29, 1998 By: /s/ Kenneth A. Klotz
--------------------
Kenneth A. Klotz
President
By: /s/ Charles La Montagne
------------------------
Charles La Montagne
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated below.
COLUMBIA CAPITAL CORP.
Dated: May 29, 1998 By: /s/ Kenneth A. Klotz
--------------------
Kenneth A. Klotz
President and Director
Dated: May 29, 1998 By: /s/ Douglas R. Baetz
--------------------
Douglas R. Baetz
Director
Dated: May 29, 1998 By: /s/ Glenn M.Gallant
-------------------
Glenn M. Gallant
Secretary and Chairman
of the Boardof Directors
Dated: May 29, 1998 By: /s/ Charles La Montagne
-----------------------
Charles La Montagne
Chief Financial Officer
and Director
Dated: May 29, 1998 By: /s/ Olan Beard
--------------
Olan Beard
Vice President and
Director
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Columbia Capital Corp.
We have audited the accompanying consolidated balance sheet of Columbia Capital
Corp. (a Delaware corporation) as of December 31, 1997, and the related
consolidated income statements, changes in shareholders' equity, and cash flows
for the year then ended. The consolidated financial statements are the
responsibility of management. Our responsibility is to express an opinion on the
consolidated financial statements based on our audit. The financial statements
of Columbia Capital Corp. as of December 31, 1996, were audited by other
auditors whose report dated February 24, 1997, expressed an unqualified opinion
on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Columbia Capital
Corp. as of December 31, 1997, and results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
DAVIS, KINARD & CO., P.C.
Abilene, Texas
January 21, 1998
(except for Note 13, as to
which the date is March 20, 1998)
<PAGE>
Independent Auditor's Report
Board of Directors
COLUMBIA CAPITAL CORP.
Salt Lake City, Utah
I have audited the accompanying Columbia Capital Corp. statements of operations,
stockholders' equity and cash flows for the year ended December 31, 1996. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audits.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provided a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, Columbia Capital Corp. results of its operations and its cash
flows for the year ended December 31, 1996 in conformity with generally accepted
accounting principles.
DAVID T. THOMSON, P.C.
Salt Lake City, Utah
November 18, 1996
<PAGE>
COLUMBIA CAPITAL CORP.
Consolidated Balance Sheet
December 31, 1997
Assets
Current assets
Cash and cash equivalents $ 17,861
Interest bearing deposits with banks 303,578
Accounts receivable, net 522,538
Prepaid expenses and other assets 349,160
Deferred tax asset 122,209
-----------
Total current assets 1,315,346
Premises and equipment 562,598
Less accumulated depreciation 47,914
Net property and equipment 514,684
Other assets
Deferred tax asset 52,033
Goodwill, net of accumulated amortization of $32,466 941,458
-----------
Total other assets 993,491
Total assets $ 2,823,521
===========
Liabilities and Shareholders' Equity
Liabilities
Accrued expenses and other liabilities $ 311,530
Notes payable - related party 1,300,000
----------
Total current liabilities 1,611,530
Shareholders' equity
Common stock, $.001 par value; 50,000,000 shares
authorized; 12,500,000 issued and outstanding 12,500
Additional paid-in capital 1,681,230
Accumulated deficit (481,739)
----------
Total shareholders' equity 1,211,991
Total liabilities and shareholders' equity $ 2,823,521
==========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
COLUMBIA CAPITAL CORP.
Consolidated Income Statements
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Operating revenue
Pride $ 451,600 $
Credit card 1,856,062
Banking613,049
Mail operations 172,637
Courier 66,730
Total operating revenue 3,160,078 -
Operating Expenses
Salaries and employee benefits 1,448,629
Auto maintenance 18,187
Travel and entertainment 95,998
Equipment lease 709,530
Equipment maintenance 276,348
Facilities rent 217,867
Facilities maintenance 21,072
Depreciation 43,404
Amortization of goodwill 32,655
Amortization of organizational costs - 379
Insurance 26,939
Computer and office supplies 167,912
Postage and delivery fees 25,627
Telephone 125,313
Professional and outside services 126,339 1,438
Taxes 25,197 176
Other operating expenses 106,780 1,365
---------- ----------
Total operating expenses 3,467,797 3,358
---------- ----------
Loss from operations (307,719) (3,358)
Other revenue (expenses)
Other revenue 18,000
Interest (57,019)
Costs related to acquisition (186,921)
Net loss related to discontinued operations (1,432) (3,124)
---------- ----------
Total other revenue (expenses) (227,372) (3,124)
---------- ----------
Loss before federal income tax (535,091) (6,482)
Deferred income tax benefit (110,723) -
---------- ----------
Net loss $ (424,368) $ (6,482)
========== ==========
Loss per share from operations $ (0.02) $ (0.00)
========== ==========
Net loss per share $ (0.03) $ (0.00)
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
COLUMBIA CAPITAL CORP.
Consolidated Statements of Changes in Shareholders' Equity
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit Total
----------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
BALANCES - December 31, 1995 2,500,000 $ 2,500 $ 66,230 $ (50,889) $ 17,841
Net loss - - - (6,482) (6,482)
----------- --------- ----------- --------- ----------
BALANCES - 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)
----------- --------- ----------- --------- ----------
BALANCES - December 31, 1997 12,500,000 $ 12,500 $ 1,681,230 $ (481,739) $ 1,211,991
=========== ========= ========== ========= ==========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
COLUMBIA CAPITAL CORP.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (424,368) $ (6,482)
Adjustments to reconcile net income to
net cash provided by operations
Depreciation and amortization 76,059 379
Deferred income taxes (110,723)
Decrease in accounts receivable 54,010
Increase in deposits and prepaid expenses (181,901)
Increase in accruals and accounts payable 62,685
Other expenses - 551
------------ ------------
Total adjustments (99,870) 930
------------ ------------
Net cash used in operating activities (524,238) (5,552)
Cash flows from investing activities
Purchase of fixed assets (263,963)
Cash acquired in acquisition 34,304
Investment in interest bearing deposit (201,000)
------------ ------------
Net cash used in investing activities (430,659) -
Cash flows from financing activities
Proceeds from line of credit, net of payments 963,000
------------ ------------
Net cash provided by financing activities 963,000 -
------------ ------------
Net increase in cash and cash equivalents 8,103 (5,552)
Cash and cash equivalents at beginning of period 9,758 15,310
------------ ------------
Cash and cash equivalents at December 31, 1997 and 1996 $ 17,861 $ 9,758
============ ============
Supplemental disclosure of cash flow information:
Interest paid $ 57,019
Non cash investing and financing transactions:
Equity increase resulting from acquisition
Assets acquired $ 2,201,382
Liabilities assumed 601,382
-----------
Net assets $ 1,600,000
===========
Stock issued in exchange for services $ 25,000
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<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.
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 December 31, 1997.
Revenue Recognition
The Company recognizes revenue when services have been provided to
the customer.
<PAGE>
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:
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
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.
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.
There was no effect on loss per share from the implementation of SFAS
128 for the current period and the effect of this accounting change
on previously reported EPS data is not significant. The computation
of loss per share of common stock is based on the weighted average
number of shares outstanding in 1997 and 1996 of 12,500,000, adjusted
retroactively to reflect the one for two reverse split effective
September 1, 1997. No potential common shares existed at December 31,
1997 or 1996; therefore, basic loss per common share equals loss per
common share assuming dilution.
<PAGE>
NOTE 1: Summary of Significant Accounting Policies - continued
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.
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.
Accounting Standards Not Yet 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 plans to adopt
SFAS 130 on January 1, 1998.
<PAGE>
NOTE 1: Summary of Significant Accounting Policies - continued
Accounting Standards Not Yet Adopted - continued
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
plans to adopt SFAS 131 on January 1, 1998.
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. 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:
February 28,
1997
--------------
Assets
Cash $ 1,109
Organization costs, net 252
Total Assets $ 1,361
==============
<PAGE>
NOTE 3: Disposition of Former Subsidiaries Central Capital Corp. and Hudson
Resources, Inc. - cont.
February 28,
1997
--------------
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)
==============
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 December 31, 1997, there were no preferred
shares issued or outstanding.
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 $32,466 (from May 1, 1997 to December 31, 1997) of
amortization expense included in the year ending December 31, 1997
results of operation.
<PAGE>
NOTE 5: Acquisition of First Independent Computers, Inc. - continued
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.
The following unaudited pro-forma consolidated results of operations
assume that the above acquisitions occurred on January 1, 1997 and
reflect the historical operations of the acquired business adjusted
for amortization of goodwill.
Net revenues $ 3,178,078
Net loss ( 397,212)
Net loss per share (.03)
The pro-forma results of operations are not necessarily indicative of
the actual results of operations that would have occurred had the
acquisition actually occurred on January 1, 1997, or of results which
may occur in the future.
NOTE 6: Financial Instruments
The estimated fair values of the Company's financial instruments at
December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
----------- -----------
<S> <C> <C>
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
</TABLE>
<PAGE>
NOTE 6: Financial Instruments - continued
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 benefit, as a
percentage of pretax earnings, differs from the statutory federal
income tax rate at December 31, as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Statutory federal income tax rate 34.00% 34.00%
Reduction in tax rate resulting
from non-deductible expenses (13.31) -
Valuation allowance - (34.00)
---------- ----------
Effective income tax rate 20.69% -
========== ==========
</TABLE>
The tax effects of temporary differences that gave rise to deferred
tax assets as of December 31, 1997:
<TABLE>
<S> <C>
Net operating loss carryforwards $ 122,209
Depreciation and amortization 52,033
-----------
Total deferred tax assets $ 174,242
===========
Activity related to deferred tax assets in the year ended December
31, 1997:
Balance at December 31, 1996 $ 4,501
Valuation allowance (4,501)
-----------
Net deferred tax assets at December 31, 1996 -
Deferred tax asset established on acquisition of Subsidiary 63,519
Deferred income tax benefit 110,723
-----------
Net deferred tax assets at December 31, 1997 $ 174,242
===========
</TABLE>
The Company had available consolidated net operating loss
carryforwards for federal income tax purposes of $359,438 and $30,005
for December 31, 1997 and 1996. A consolidated valuation allowance of
$-0- and $4,501 was established. The change in allowance for each
year was $(4,501) and $504. The consolidated net operating loss
carryforwards at December 31, 1997 will expire as shown below.
Year Amount
-------------- -----------
2008 $ 804
2009 4,297
2010 21,545
2011 3,359
2012 329,433
<PAGE>
NOTE 7: Income Taxes - continued
The Company having realized significant revenue increases and
earnings performance in the last quarter of 1997 continuing into the
first quarter of 1998, has determined that net operating loss
carryforwards will be utilized in the near term; therefore, no
valuation allowance has been provided at December 31, 1997.
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 December 31, 1997 was $1,300,000.
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 $303,578 at December 31, 1997,
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, 2002, are as follows:
1998 $ 1,126,187
1999 1,083,214
2000 881,033
2001 109,965
2002 109,965
-----------
Lease obligations $ 3,310,364
===========
No commitments for leased property extend more that five years.
NOTE 10: Market Risk and Concentrations
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. As a result, substantial operating losses
were recognized in the months July through October. 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.
<PAGE>
NOTE 10: Market Risk and Concentrations - continued
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.
NOTE 11: Related Party Transactions
The Subsidiary continues to provide data processing services to
Security State Bank its former parent company. Additionally, the
Subsidiary continues to lease its office space, 52,248 square feet,
from Security State Bank at an annual cost of approximately $390,000.
Accounts receivable from Security State Bank amounted to $134,403 at
December 31, 1997. 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 $53,561 and $-0- as of December 31, 1997 and
1996, respectively.
NOTE 12: Condensed Financial Information - Parent Company
The following represents consolidated financial information of the
parent company as of December 31, 1997 presented utilizing the equity
method of accounting. Condensed financial information for the Parent
company is not presented for the year ended December 31, 1996 because
there were no significant subsidiary operations during that period.
Condensed Balance Sheet:
Assets
Current assets
Cash and cash equivalents ............................... $ 1,689
Prepaid expenses and other assets ....................... 15,024
Deferred tax asset ...................................... 13,284
----------
Total current assets .................................. 29,997
Investment in subsidiary ................................ 1,379,969
Total assets .................................... $1,409,966
==========
<PAGE>
NOTE 12: Condensed Financial Information - Parent Company - continued
Condensed Balance Sheet:
Liabilities and Shareholders' Equity
Liabilities
Accrued expenses and other liabilities ................ $ 5,000
Due to subsidiary ..................................... 192,975
-----------
Total current liabilities ........................... 197,975
Shareholders' equity
Common stock, $.001 par value; 5,000,000 shares
authorized; 12,500,000 issued and outstanding ....... 12,500
Capital surplus ....................................... 1,681,230
Accumulated deficit ................................... (481,739)
Total shareholders' equity .......................... 1,211,991
Total liabilities and shareholders' equity .... $ 1,409,966
===========
Condensed Income Statement:
Revenues
Undistributed losses of subsidiary .................... $ (220,031)
-----------
Total revenues ...................................... (220,031)
Expenses
Stockholder costs and fees ............................ 581
Professional and outside services ..................... 27,851
Amortization expense .................................. 189
Costs related to acquisition .......................... 186,921
Other operating ....................................... 647
Total expenses ...................................... 216,189
Net loss related to discontinued operations ........... (1,432)
-----------
Loss before federal income tax ........................... (437,652)
Income tax benefit .................................... (13,284)
Net loss ................................................. $ (424,368)
===========
<PAGE>
NOTE 12: Condensed Financial Information - Parent Company -continued
Condensed Statement of Cash Flows:
Cash flows from operating activities
Net loss .................................................... $(424,368)
Adjustments to reconcile net loss to
net cash provided by operations
Undistributed earnings in subsidiary ................ 220,031
Depreciation and amortization ....................... 189
Deferred income taxes ............................... (13,284)
Increase in deposits and prepaid expenses ........... (13,436)
Decrease in accruals and accounts payable ........... 222,799
---------
Total adjustments .............................. 416,299
Net cash used by operating activities .......................... (8,069)
Net decrease in cash and cash equivalents ...................... (8,069)
Cash and cash equivalents at beginning of year ................. 9,758
---------
Cash and cash equivalents at December 31, 1997 ................. $ 1,689
=========
NOTE 13: Subsequent Event
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.
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.
<PAGE>
NOTE 13: Subsequent Event - continued
Additional compensation, consisting of options to purchase up to
400,000 shares of Common Stock, have also been issued to Mr. Markow,
which are 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 which provides compensation relating to
prospective financing related transactions, in the form of restricted
securities, on a transaction by transaction basis.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
First Independent Computers, Inc.
We have audited the accompanying balance sheets of First Independent Computers,
Inc. (a Texas corporation) as of April 30, 1997 and December 31, 1996, and the
related statements of income, changes in shareholders' equity, and cash flows
for the four months and year then ended. These financial statements are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Independent Computers,
Inc. as of April 30, 1997 and December 31, 1996, and results of its operations
and its cash flows for the periods then ended in conformity with generally
accepted accounting principles.
DAVIS, KINARD & CO., P.C.
January 21, 1998
Abilene, Texas
<PAGE>
FIRST INDEPENDENT COMPUTERS, INC.
Balance Sheets
Four Months Ended April 30, 1997 and
Year Ended December 31, 1996
<TABLE>
<CAPTION>
April 30, December 31,
1997 1996
---------- ----------
Assets
<S> <C> <C>
Current assets
Cash and cash equivalents $ 34,304 $ -
Interest bearing deposits with banks 102,578 100,000
Accounts receivable, net 576,548 715,618
Prepaid expenses and other assets 226,627 187,551
Deferred tax asset 42,939 -
---------- ----------
Total current assets 982,996 1,003,169
Premises and equipment 780,006 960,372
Less accumulated depreciation 492,334 615,168
---------- ----------
Net property and equipment 287,672 345,204
Other assets
Deposits 2,563 2,563
---------- ----------
Total other assets 2,563 2,563
---------- ----------
Total assets $ 1,273,231 $ 1,350,936
========== ==========
Liabilities and Shareholders' Equity
Liabilities
Bank overdraft $ - $ 31,557
Accrued expenses and other liabilities 271,924 440,300
Notes payable 337,000 131,420
---------- ----------
Total current liabilities 608,924 603,277
Shareholders's equity
Common stock , $1 par value; 1,000
shares authorized, issued and outstanding 1,000 1,000
Additional paid-in capital 497,500 497,500
Retained earnings 165,807 249,159
---------- ----------
Total shareholders' equity 664,307 747,659
---------- ----------
Total liabilities and shareholders' equity $ 1,273,231 $ 1,350,936
========== ==========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<PAGE>
FIRST INDEPENDENT COMPUTERS, INC.
Income Statements
Four Months Ended April 30, 1997 and
Year Ended December 31, 1996
<TABLE>
<CAPTION>
April 30, December 31,
1997 1996
-------------- ------------
<S> <C> <C>
Operating revenue
Pride $ 263,900 $ 804,000
Credit card 639,700 1,955,911
Banking 316,115 927,747
Mail operations 96,670 292,074
Courier 31,900 86,050
-------------- ------------
Total operating revenue 1,348,285 4,065,782
Operating Expenses
Salaries and employee benefits 578,820 1,644,534
Auto maintenance 8,060 25,171
Equipment lease 288,683 855,156
Equipment maintenance 148,209 473,066
Facilities rent 48,400 138,200
Facilities maintenance 904 1,243
Depreciation 161,645 108,905
Amortization of non-compete agreement - 2,542
Travel and entertainment 22,589 46,580
Insurance 12,209 37,550
Computer and office supplies 92,971 279,157
Postage and delivery fees 20,687 28,473
Telephone 45,240 143,986
Professional and outside services 30,422 79,866
Taxes 12,515 30,683
Other operating expenses 10,867 25,902
-------------- ------------
Total operating expenses 1,482,221 3,921,014
-------------- ------------
Loss from operations (133,936) 144,768
Other revenue (expenses)
Other revenue 13,908 62,804
Interest (6,263) (15,684)
Nonrecurring - 23,971
-------------- ------------
Total other revenue (expenses) 7,645 71,091
-------------- ------------
Income (loss) before federal income tax (126,291) 215,859
Income tax expense (benefit) (42,939) 64,060
-------------- ------------
Net income (loss) $ (83,352) $ 151,799
============== ============
Net income (loss) per share from operations $ (133.94) $ 144.77
============== ============
Net income (loss) per share $ (83.35) $ 151.80
============== ============
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<PAGE>
FIRST INDEPENDENT COMPUTERS, INC.
Statements of Changes in Shareholders' Equity
Four Months Ended April 30, 1997 and
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained
Stock Capital Earnings Total
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
BALANCES - December 31, 1995 $ 1,000 $ 497,500 $ 97,360 $ 595,860
Net income - - 151,799 151,799
------------- ------------- ------------- -------------
BALANCES - December 31, 1996 1,000 497,500 249,159 747,659
Net loss - - (83,352) (83,352)
------------- ------------- ------------- -------------
BALANCES - April 30, 1997 $ 1,000 $ 497,500 $ 165,807 $ 664,307
============= ============= ============= =============
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<PAGE>
FIRST INDEPENDENT COMPUTERS, INC.
Statements of Cash Flows
Four Months Ended April 30, 1997 and
Year Ended December 31, 1996
<TABLE>
<CAPTION>
April 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ (83,352) $ 151,799
Adjustments to reconcile net income to
net cash provided by operations
Depreciation and amortization 161,645 111,447
(Increase) decrease in
Accounts receivable 139,070 (126,783)
Deposits and prepaid expenses (39,076) (29,362)
Deferred tax asset (42,939) -
Increase (decrease) in
Accruals and accounts payable (168,375) (23,771)
------------ ------------
Net cash provided (used) by operating activities (33,027) 83,330
Cash flows from investing activities
Purchase of fixed assets (104,114) (239,335)
Investment in interest bearing deposit (2,578) -
------------ ------------
Net cash used by investing activities (106,692) (239,335)
Cash flows from financing activities
Proceeds from line of credit, net of payments 205,580 87,681
Change in bank overdraft (31,557) 31,557
------------ ------------
Net cash provided by financing activities 174,023 119,238
------------ ------------
Net increase (decrease) in cash and cash equivalents 34,304 (36,767)
Cash and cash equivalents at beginning of period - 36,767
------------ ------------
Cash and cash equivalents at end of period $ 34,304 $ -
============ ============
OTHER DISCLOSURES
Interest paid $ 6,263 $ 15,684
Taxes paid 12,515 30,683
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<PAGE>
FIRST INDEPENDENT COMPUTERS, INC.
Notes to Financial Statements
NOTE 1: Summary of Significant Accounting Policies
Organization
First Independent Computers, Inc. (The Company) was incorporated on
October 21, 1983, pursuant to the provisions of the Texas Business
Corporation Act. The Corporation was authorized to issue 1,000 shares
of no par value, Common Stock.
First Independent Computers Inc.'s business activity includes the
processing of credit card purchases for numerous businesses in
various industries throughout the United States and data processing
for various banks.
The shareholders of First Independent Computers, Inc. entered into
an agreement with Security Shares, Inc. to exchange First Independent
Computers, Inc. shares for common shares of Security Shares, Inc.
The exchange was effective with the close of business on May 31,1994.
The exchange is for all of the issued and outstanding shares of
First Independent Computers, Inc.
Security Shares, Inc. entered into a purchase/sale agreement with
Glenn M. Gallant and Douglas R. Baetz for the purchase of all of
First Independent Computers, Inc.'s issued and outstanding stock
currently owned by Security Shares, Inc. The sale was to be effective
with the close of business on April 30, 1997.
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.
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 April 30, 1997.
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.
Revenue Recognition
The Company recognizes revenue when services have been provided to
the customer.
<PAGE>
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:
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
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.
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.
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 that
90 days and have no significant change in credit risk, fair values
are based on carrying values.
Long term debt. The Company's long term debt 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 long term debt approximates the carrying
amount.
Per Share Data
The computation of loss per share of common stock is based on the
weighted average number of shares outstanding in 1997 and 1996 of
12,500,000, adjusted retroactively to reflect the one for two reverse
stock split which occurred on September 1, 1997.
<PAGE>
NOTE 1: Summary of Significant Accounting Policies - continued
Accounting Standards Not Yet 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. This statement, if applied
to the December 31, 1997 financial statements, would not affect the
consolidated comprehensive net income. The Company plans to adopt
SFAS 130 on January 1, 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 about the way that the operating segments were
determined, the products and services provided by the operating
segments, differences between the measurements used in reporting
segment information and those used in the enterprise's
general-purpose financial statements, and changes in the measurement
of segment amounts from period to period. This statement is effective
for financial statements for periods beginning after December 15,
1997. The Company plans to adopt SFAS 131 on January 1, 1998.
NOTE 2: 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 $102,578 at April 30, 1997, 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, 2001, are as follows:
Remaining 1997 $ 377,460
1998 566,190
1999 270,690
2000 147,242
2001 -
----------
Lease Obligation $ 1,361,582
==========
No commitments for leased property extend more that five years.
<PAGE>
NOTE 3: Notes Payable
Notes payable consisted of the following at April 30, 1997, December
31, 1996:
<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
The company purchased software under a capital lease and recorded the
liability as a note payable dated 12/13/91 to IBM in the original
amount of $157,783.52 at 16.29%, principal and interest due in 60
monthly installments
starting 2/01/92. $ - $ 1,420
A revolving line of credit dated 5/24/96 to The Peoples State Bank,
commitment of $250,000 at 9.25%, due on demand with final maturity at
5/24/97. The note is secured
by accounts receivable. 70,000 130,000
A note payable dated 3/31/97 to The Peoples State Bank
in the original amount of $267,000 at 8.5%, principal and
interest due on demand with final maturity at 6/30/97. The
note is guaranteed by Security State Bank. 267,000 -
--------- ----------
Total notes payable $ 337,000 $ 131,420
========= ==========
All notes payable balances were paid as of May 31, 1997.
</TABLE>
NOTE 4: Related Party Transactions
During the period January 1 through December 31, 1996, the Company
recorded revenues of $1,245,119 billed to Security State Bank
(balance due at December 31, 1996 of $128,629), a related party.
During the period January 1 through April 30, 1997, the Company
recorded revenues of $405,619 billed to Security State Bank (balance
due at April 30, 1997 of $104,296), a related party.
In addition, the Company leases its office space from Security State
Bank. Facilities Rent expense was $11,517 per month ($138,200 for the
period of January 1 to December 31, 1996), and $12,100 per month
($48,400 for the period of January 1 to April 30, 1997).
NOTE 5: Income Taxes
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets (liabilities) as of
April 30, 1997 and December 31, 1996 are as follows:
1997 1996
--------- ---------
Depreciation and amortization $ (9,287)$ (821)
Net operating loss carryforward 53,047 -
--------- ---------
$ 43,760 $ (821)
========= =========
<PAGE>
NOTE 5: Income Taxes - continued
Federal income taxes are based on statutory rates. The income tax
benefit/liability, as a percentage of pretax earnings, differs from
the statutory federal income tax rate at April 30 and December 31, as
follows:
1997 1996
---------- ---------
Statutory federal income tax rate 34.00% 34.00%
Reduction in tax rate resulting
from non-deductible expenses - ( 4.32)
---------- ---------
Effective income tax rate 34.00% 29.68%
========== =========
The Company had available as of April 30, 1997, a net operating loss
carryforward for federal income tax purposes of $83,352. The net
operating loss carryforward will expire as shown below.
Year Amount
------- --------------
2012 $ 83,352
Federal income tax expense at April 30 and December 31 is composed of:
1997 1996
----------- ---------
Current expense $ - $ 65,880
Deferred benefit (42,939) (1,820)
----------- ---------
Total income tax expense (benefit) $ (42,939) $ 64 060
=========== =========
NOTE 6: Financial Instruments
The estimated fair values of the Company's financial instruments were
as follows at:
<TABLE>
<CAPTION>
April 30, 1997
---------------------------
Carrying Fair
Amount Value
----------- -----------
<S> <C> <C>
Financial assets:
Cash and interest bearing deposits with banks $ 136,882 $ 136,882
Accounts receivable $ 576,548 $ 576,548
Financial liabilities:
Notes payable $ 337,000 $ 337,000
</TABLE>
<PAGE>
NOTE 6: Financial Instruments - continued
The estimated fair values of the Company's financial
instruments were as follows at:
<TABLE>
<CAPTION>
December 31, 1996
---------------------------
Carrying Fair
Amount Value
----------- -----------
<S> <C> <C>
Financial assets:
Cash and interest bearing deposits with banks $ 100,000 $ 100,000
Accounts receivable $ 715,618 $ 715,618
Financial liabilities:
Notes payable $ 337,000 $ 131,420
The method(s) and assumptions used to estimate the fair value of
financial instruments are disclosed in Note 1 "Fair Values of
Financial Instruments".
</TABLE>
NOTE 7: Concentration Risk
During the period January 1 through December 31, 1996, the Company
recorded revenues of $804,000 billed to Pride Refining, Inc. (balance
due at December 31, 1996 of $61,469), a non-related party, and
$1,396,244 billed to Clark Refining, Inc. (balance due at December
31, 1996 of $98,705), a non-related party.
During the period January 1 through April 30, 1997, the Company
recorded revenues of $263,900 billed to Pride Refining, Inc. (balance
due at April 30, 1997 of $62,310), a non-related party, and $408,831
billed to Clark Refining, Inc. (balance due at April 30, 1997 of
$515), a non-related party.
NOTE 8: Subsequent Events
As of May 1, 1997, 100% of the Company's issued and outstanding stock
was purchased by Glenn M. Gallant and Douglas R. Baetz from Security
Shares, Inc.
On May 5, 1997, the Company's note payable of $267,000 with accrued
interest to date was paid in full.
On May 24, 1997, the Company's outstanding note payable balance of
$30,000 with accrued interest to date was paid in full.
On May 31, 1997, the Company recorded additional paid in capital of
$250,000 resulting from a cash deposit made by Glenn M. Gallant and
Douglas R. Baetz.
At June 30, 1997 the Company's contract, to provide credit card
processing for Clark Refining, Inc., expired. Clark has indicated
that the contract will not be renewed.
<PAGE>
NOTE 8: Subsequent Events - continued
The Company has renewed it's lease agreement with Security State Bank
effective August 1, 1997. The new lease agreement is for a period of
two (2) years consisting of 52,248 square foot of office and parking
space under lease. Total monthly rent, due in advance on the first
day of each month, beginning August 1, 1997, will be $33,447. The
total annual facilities rent expense under the new lease agreement
will be $401,364.
The Subsidiary, has extended to it 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 will pay 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 December 31, 1997 was $1,300,000.
The Company continues to provide data processing services to a
subsidiary of its former parent company, Security State Bank.
Additionally, the Subsidiary continues to lease its office space,
52,248 square feet, from Security State Bank at an annual cost of
approximately $390,000. Accounts receivable from Security State Bank
amounted to $134,403 at December 31, 1997.
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 ("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 $53,561 and $-0- as of
December 31, 1997.
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. As a result, substantial operating losses
were recognized the months July through October.
On October 1, 1997 the Subsidiary entered into a five year contract
to process credit card activity and produce account statements for a
bank. This contract represents more than $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.
<PAGE>
Columbia Capital Corp.
2701 West Oakland Boulevard
Ft. Lauderdale, Florida 33311
I hereby consent to the inclusion by reference of my audit report on the
financial statements of Columbia Capital Corp. as of and for the year ended
December 31, 1996 as included in Amendment #2 to Form 10KSB.
DAVID T. THOMSON, P.C.
Salt Lake City, Utah
May 29, 1998
<PAGE>
Columbia Capital Corp.
2701 West Oakland Boulevard
Ft. Lauderdale, Florida 33311
We hereby consent to inclusion of our audit report on the financial statements
of Columbia Capital Corp. as of and for the year ended December 31, 1997, in
Amendment #2 to Form 10KSB.
Further, we hereby consent to inclusion of our audit report on the financial
statements of First Independent Computers, Inc. as of and for the four months
ended April 30, 1997 and the year ended December 31, 1996, in Amendment #2 to
Form 10KSB.
DAVIS, KINARD & CO., P.C.
Abilene, Texas
May 29, 1998
