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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
to
FORM 10-SB/A
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
Under Section 12(b) or (g) or the
Securities Exchange Act of 1934
Commission file number: 001-13749
Columbia Capital Corp.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 11-3210792
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(State of Incorporation) (I.R.S. Employer Identification No.)
1157 North 5th Street, Abilene, Texas 79601
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(Address of Executive Offices)(Zip Code)
Registrant's Telephone Number (915) 674-3110
with copies to:
Matthias & Berg LLP
Jeffrey P. Berg, Esq.
1990 South Bundy Drive, Suite 790
Los Angeles, California 90025
(310) 820-0083
Securities to be registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which each class is to be
to be so registered registered
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None None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 (US) par value per share
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(Title of Class)
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THIS REGISTRATION STATEMENT ON FORM 10-SB/A (THE "REGISTRATION
STATEMENT") MAY BE DEEMED TO CONTAIN FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING
STATEMENTS IN THIS REGISTRATION STATEMENT 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 Registration Statement on Form
10-SB filed with the Commission on December 30, 1997 and Amendment No. 1 on Form
10-SB/A filed with the Commission on June 16, 1998, as set forth in the pages
attached hereto:
PART I
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
("Columbia"), and the related notes thereto, contained elsewhere in this
Registration Statement. This Registration Statement contains forward-looking
statements, which involve risks and uncertainties. Actual results may differ
significantly from the results discussed in the forward-looking statements.
Columbia operates through its wholly-owned subsidiaries, First
Independent Computers, Inc., a Texas corporation ("FICI") and Fi-Scrip,
Incorporated, a Nevada corporation ("Fi-Scrip"). Unless stated otherwise,
Columbia, FICI and Fi-Scrip shall hereinafter be referred to collectively as the
Company.
The services provided by the Company are: (i) credit and debit card
services; (ii) banking and financial services; (iii) document management and
distribution services; and (iv) processing services for Automatic Teller
Machines ("ATM's") transactions, debit terminal transactions and Electronic
Benefits Transfer systems ("EBT") transactions. 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
placing the transaction on the customer's statement. The Company concentrates on
a niche market consisting of small to medium-sized businesses 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.
According to The Nilson Report of April, 1999, as the world is rapidly
moving toward electronic information processing, annual credit and debit card
purchases in the United States have reached the $1.156 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."
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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 is capable of providing 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 stockholders in an attempt to diversify the potential
acquisitions, which could be made on behalf of Columbia's stockholders. Columbia
subsequently abandoned this business plan. In connection with its organization,
Columbia issued an aggregate of 2,175,000 shares of restricted common stock, par
value $0.001 per share (the "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 stockholder. See
"Item 7-Certain Relationships and Related Transactions."
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 and DPC
changed its name to First Independent Computers, Inc. FICI changed its business
services to those currently offered in or about April, 1994.
On April 28, 1997, Glenn M. Gallant ("Gallant") and Douglas R. Baetz
("Baetz"), the former principal shareholders of the Company, purchased 100% of
the common stock of FICI (the "FICI Common Stock") for $1,600,000 in cash from
the former parent company of Security State Bank ("SSB"), which was and is
unaffiliated with Messrs. Gallant and Baetz. See "Item 4-Security Ownership of
Certain Beneficial Owners and Management" and "Item 7-Certain Relationships and
Related Transactions."
On September 23, 1997, Columbia acquired all of the FICI Common Stock
from Messrs. Gallant and Baetz. 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 to Baytree Associates, Inc. ("Baytree"), which is not an affiliate of
Messrs. Gallant and Baetz, as a fee for services rendered to the Company for
arranging the transactions, which are the subject of the Stock Purchase
Agreement. See "Item 7-Certain Relationships and Related Transactions."
On November 3, 1998, Mr. Gallant resigned as Chairman of the Board and
Secretary of the Company and Mr. Baetz resigned as a director. Messrs. Gallant
and Baetz are involved in litigation, unrelated to the Company, with the Federal
Deposit Insurance Corporation (the "FDIC"). Due to the fact that at the time the
FDIC was the Company's largest customer, Messrs. Gallant and Baetz chose to
resign their positions with the Company, in order to minimize any potential
conflicts of interest or negative effects to the Company arising out of the
litigation. Kenneth Klotz was named Chairman of the Board of Directors and
Charles LaMontagne was named Secretary of the Company. See "Item 2 -
Management's Discussion and Analysis or Plan of Operation - Closure of BestBank
and Related Matters."
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As of January 1, 1999, Messrs. Gallant and Baetz contributed, as
additional paid in capital, all of the common stock of Fi-Scrip, to the Company
for no consideration. Through such action, Fi-Scrip became a wholly-owned
subsidiary of the Company. Messrs. Baetz and Gallant acquired all of shares of
common stock of Fi-Scrip on June 22, 1997 for $475,000, including certain debt
assumption. See "Description of Business - Credit and Debit Card Services -
Operations of Fi-Scrip" and "Item 7-Certain Relationships and Related
Transactions."
Until May 31, 1999, BestBank of Boulder, Colorado ("Best Bank") and its
successor in interest, the FDIC, represented 76% and 68%, respectively, of the
gross revenues of the Company for the year ended December 31, 1998 and for the
five months ended May 31, 1999. On July 23, 1998, the Colorado State Banking
Board ordered the closure of BestBank and the FDIC assumed the role of receiver
of BestBank. The single largest asset of BestBank was the portfolio of credit
card accounts receivable serviced by the Company (the "Portfolio"), pursuant to
a master agreement (the "Master Agreement") entered into as of October 1, 1997
between the Company and BestBank. No other customers accounted for 10% or more
of the Company's total revenues during 1998 and for the first five months of
1999. As of the date of this Registration Statement the Company provides no
services pursuant to the Master Agreement.
Management of the Company hopes the Company will be able to replace the
loss of revenue from loss of the Master Agreement and is currently working to
negotiate new business relationships to offset such loss. As of the date of this
Registration Statement, the Company has only been able to add three (3) credit
card or other accounts to the portfolio of accounts being serviced by the
Company. This has resulted in a reduction of monthly revenue since December 31,
1998 of $900,000 per month. Additionally, the Company anticipates that its
relationship with CNG will provide additional revenue both in the near and long
term and that CNG will support the Company in its additional capital needs, if
necessary. However, no assurance to this effect can be given. See "Description
of Business-Sales and Marketing" and "Item 2-Management's Discussion and
Analysis of Financial Condition or Plan of Operation."
On September and October, 1999, pursuant to the terms of an Agreement
for Purchase of Stock (the "CLCK/CNG Stock Purchase Agreement"), by and between
the Company and CNG Financial Corporation, an Ohio corporation ("CNG"), CNG
purchased 24,000,000 shares of Common Stock for a purchase price of $3,000,000.
CNG provides consumer financial services. CNG is currently the Company's
principal shareholder and is unaffiliated with Messrs. Baetz and Gallant. CNG is
entitled to and has designated four (4) members to the Board of Directors of the
Company. See "Item 5-Directors, Executive Officers, Promoters and Control
Persons."
Pursuant to the CLCK/CNG Stock Purchase Agreement, CNG was granted a
Non-Qualified Stock Option (the "CNG Stock Option") to purchase an additional
10,000,000 shares of Common Stock for the exercise price of $2,000,000. CNG has
agreed to exercise the CNG Stock Option at any time that the Company indicates a
need for these funds for operations. However, no assurance can be given that CNG
will exercise the CNG Stock Options when called upon to do so.
In connection with the CLCK/CNG Stock Purchase Agreement, the Company
entered into a stock purchase agreement (the "CLCK/Century Stock Purchase
Agreement"), dated as of September 16, 1999, with Century Financial Group, Inc.
("Century"), an affiliate of Messrs. Gallant and Baetz, who are the former
principal shareholders of the Company. Under the terms and conditions of the
CLCK/Century Stock Purchase Agreement, Century purchased 1,736,512 shares of
Common Stock of the Company in consideration of the cancellation of an
obligation of $434,128 due and payable by the Company to Century.
Further, the Company has agreed to issue to Century an additional
1,736,512 shares of Common Stock for no further consideration, and CNG has
agreed to sell an additional 1,000,000 shares of the Company's Common Stock
which CNG holds, to Century for the purchase price of $10.00, in the event that
the following contingencies (collectively, the "Century Contingencies") are
satisfied: (i) that Century shall procure or broker, without compensation,
executed processing contracts (the "Processing Contracts") between the Company
and one or more customers; (ii) that each of the Processing Contracts shall have
a term length of not less than five (5) years; and (iii) that the Processing
Contracts shall collectively generate not less than $150,000 of processing
revenues for the Company during the month of March, 2000. As of the date of this
Registration Statement, Century has not fulfilled any of the Century
Contingencies.
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HARDWARE AND SOFTWARE UPGRADING
Since the practical beginning of electronic data management in the
1960's, FICI has been actively involved in the development of the data
processing industry and in the testing and research of software products in
connection with such industry. 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 further anticipated
increase in volume of credit card processing transactions in the future.
However, no assurance to this effect can be given. See "Description of
Business-Sales and Marketing."
The Company has taken steps 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 again in March, 1998, which 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 certificates of deposit, $200,000 of which was drawn
from the line of credit (the "Line of Credit") supplied to the Company by
Century. The Line of Credit has been repaid in full and is no longer in effect.
The Company has subsequently held numerous discussions with IBM in regard to its
continued upgrade path for its mainframe hardware and software. These
discussions have included various upgrade alternatives and the time, effort and
financial needs required to implement these upgrades under several different
scenarios of anticipated growth. Through IBM, the Company's advantages are the
assurance of a continuous upgrade path for its mainframe hardware and software
along with a working knowledge of the capability of system components and being
able to accurately predict implementation time and costs. The Company also has
numerous licensed software programs, from unaffiliated third parties, including
the credit card system (Vision Plus) from PaySys International Inc. ("PaySys"),
and the banking software system (Dimension) from the Kirchman Corporation
("Kirchman"). See "Management's Discussion and Analysis or Plan of Operation -
Year 2000 Dilemma and Compliance" and "Item 7-Certain Relationships and Related
Transactions."
CREDIT AND DEBIT CARD SERVICES
The Company provides a full range of card processing services for 9
customers, which consist of 7 banks, 1 retailer and 1 financial service
organizations that do not operate their own in-house programs and systems.
PaySys has licensed the Company to use its software known as VisionPLUS, 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, the Company provides custom programming services on
the licensed application software for processing requirements that are unique to
a customer's business. The Company enters into multi-year agreements with most
of its customers and 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 Company also provides application processing,
customer service support, remittance processing, card embossing and production,
charge back processing, billing and statement preparation, mail processing,
detailed reporting, account collections on behalf of its customers and merchant
services.
As part of the credit card servicing referenced in the prior paragraph,
the Company has entered into agreements with 3 customers to replace some of the
revenue lost by the closure of BestBank and the termination of the Master
Agreement by the FDIC. These agreements are discussed more fully hereinbelow:
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ANTICIPATED AGREEMENT WITH CNG FINANCIAL CORPORATION. As of the date of
this Registration Statement, the Company has negotiated but not entered into an
agreement with CNG to perform data processing and other services in connection
with CNG's various business activities. CNG is the Company's principal
shareholder. The agreement, if executed, is anticipated to have an initial term
of five (5) years and will automatically renew for an additional three (3) year
term, unless written notice is given by either party no less than one hundred
eighty (180) days prior to expiration of a given term. CNG operates various
programs through its various business activities including credit card and debit
card programs and a payday loan program through its Check 'n Go stores. Lastly,
the Company has begun to provide services to the portions of CNG's business
operations, which relate to collections and the Company is to provide software
development services for the automation of the various CNG operations. The
Company anticipates beginning to generate revenues from the its relationship
with CNG in February, 2000. The Company estimates that the value of services to
be provided to CNG in 2000 by the Company should be approximately $1,280,000.
However, no assurance to that effect can be given.
AGREEMENT WITH PLATINUM-ICS, INC. On June 8, 1998, the Company entered
into an agreement with Platinum-ICS, Inc. ("Platinum") to perform data
processing and other services in connection with Platinum's credit card
portfolio. Platinum is the managing entity coordinating a group of experts for
processing, collecting, servicing and financing patient-pay accounts receivables
for the provider's participants. Platinum issues cards to the recipients of
medical care, who utilize the card to consolidate medical bills. The agreement
has an initial term of three (3) years and will automatically renew for an
additional three (3) year term, unless written notice is given by either party
no less than one hundred eighty (180) days prior to expiration of a given term.
The Company's processing charges range from $1.50 to $2.00 per account per
month, depending on the services provided. On December 16, 1998, the Company
completed the conversion of approximately 6,000 accounts for the Presbyterian
Hospital at Greenville, Texas ("Greenville Hospital") and added approximately
5,900 additional accounts throughout the nine months ended September 30, 1999.
The Company, which processed the Greenville Hospital accounts on a test basis,
discontinued processing the accounts as of September 30, 1999. The Greenville
Hospital accounts generated approximately $173,000 in revenue for the nine
months ended September 30, 1999 representing approximately 3.65% of total
operating revenue for the period.
On February 17, 1999, after review of Greenville Hospital's conversion
and preliminary results of activity, the Texas Hospital Association, which
represents approximately 410 hospitals, or approximately 83% of the hospitals,
in the State of Texas, formally endorsed the Platinum program. With
approximately 500 hospitals representing as many as 5,000,000 accounts in the
State of Texas alone, the Company's exclusive processing agreement with Platinum
could prove, over a short period of time, to be an abundant source of new
business for the Company. Upon the endorsement of Platinum's program by the
Texas Hospital Association, several major hospitals, which represent an average
of approximately 50,000 accounts each, have expressed interest in and a desire
to convert to the Platinum processing platform. As of the date of this
Registration Statement, the Company is working with these various hospitals to
secure processing contracts. However, there can be no assurance that the Company
will be successful in its attempt to secure additional contracts.
AGREEMENT WITH GREATER NEVADA CREDIT UNION. On November 1, 1998, the
Company entered into an agreement with Greater Nevada Credit Union ("GNCU") to
perform data processing and other services in connection with GNCU's credit card
portfolio. The agreement has an initial term of five (5) years and will
automatically renew for additional three (3) year terms, unless written notice
is given by either party no less than one hundred eighty (180) days prior to
expiration of a given term. On October 30, 1998, the Company successfully
converted GNCU's current portfolio, consisting of over 8,600 credit card
accounts. The Company anticipates benefiting from the future growth of the
portfolio over the life of the agreement. However, no assurance to this effect
can be given.
AGREEMENT WITH TRANSPORTATION ALLIANCE BANK. In June, 1999, the Company
entered into an agreement with Transportation Alliance Bank ("TAB") to set up
and perform data processing and other services in connection with a credit card
program. The agreement has an initial term of three (3) years and will
automatically renew for additional three (3) year term, unless written notice is
given by either party no less than one hundred eighty (180) days prior to
expiration of a given term. As of the date of this Registration Statement, the
Company is processing approximately 1,000 accounts for TAB. TAB is focusing on
the petroleum industry, and has developed a cautious, but aggressive growth
strategy to release several major credit card promotions during the 2000, with
the intention of growing the current portfolio to between 50,000 and 75,000
accounts within the next 12 months. However, no assurance to this effect can be
given.
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OPERATIONS OF FI-SCRIP. As of January 1, 1999, Messrs. Gallant and
Baetz, the then principal stockholders of the Company contributed all of the
common stock of Fi-Scrip to the Company for no consideration, for which Messrs.
Gallant and Baetz paid $475,000, including the assumption of certain debt.
Through such action, Fi-Scrip became a wholly-owned subsidiary of the Company.
Prior to such transaction, the Company had entered into an agreement with
Fi-Scrip, which was then an affiliate of Messrs. Gallant and Baetz, to provide
certain services to the Company. Fi-Scrip markets processing services for ATM
transactions, debit terminal transactions and EBT transactions. Fi-Scrip and its
co-venturer, Norstar, Inc., of Orlando, Florida, an entity in which Fi-Scrip has
a 25% ownership interest, contract with independent sales organizations for
deployment of terminals and services. See "Item 7-Certain Relationships and
Related Transactions."
Fi-Scrip designs programs and tests the software that is reloaded into
ATM's and debit card point-of-sale ("POS") machines. Fi-Scrip 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 or whether the federal government will establish this
process. Fi-Scrip expects that there will be substantial competition in the
provision of the service offered by Fi-Scrip. No assurance can be given that
Fi-Scrip 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 Fi-Scrip are
estimated to produce a gross transaction fee of between $0.06 to $0.09 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. Fi-Scrip is newly in
operation in connection with the EBT business, and had gross revenue of $510,979
for the nine months ended September 30, 1999.
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 all
EBT transactions food stamps, aid to families with dependent children and
welfare payments on a nationwide basis in 1999 is estimated by Fi-Scrip to be
$60 billion, with an average transaction size of approximately $23.00, or
approximately 450 million transactions per year. Fi-Scrip'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 Fi-Scrip will
service such a volume of transactions.
The Social Security System is scheduled to distribute benefits using
EBT beginning on December 31, 1999 and expects to have completed implementation
of the distribution system 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.
Fi-Scrip has been certified by Citibank and Lockheed Martin as an EBT
third party processor, according to federally established guidelines in
twenty-five states. Fi-Scrip'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 Fi-Scrip, for EBT transaction processing. However, no assurance
to this effect can be given.
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's data processing center is
staffed 24 hours a day, 7 days a week, and processes and balances all incoming
and outgoing file transmissions, provides automated clearing house ("ACH")
transmissions, daily updates, reports, generates statements, maintains system
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backup and provides customer support. Other processor services include the
issuance of user documentation explaining the features and functionality of the
processing system (cardholder 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 in which the Company operates. This plan 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, to create a solid
foundation for the growth of the Company and to maintain its goal of being a
total solutions provider. See "Management's Discussion and Analysis or Plan of
Operation - Year 2000 Dilemma and Compliance" and "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, and 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 transfer 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 charge backs. In conjunction with
the charge back processing procedures, service representatives perform other
fraud and risk management functions in an effort to assist the Company's
customers 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, computer output to laser disk ("COLD") and on-line.
In addition, customized and ad hoc reporting services are available to the
customer.
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 cardholders. The Company's affiliation with other
marketing organizations allows 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.
BACKROOM SERVICES. The Company utilizes Search and Scoreware software
licensed from Fair Isaac, 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.
The Company offers its customers full service support, both automated
and by service representatives. 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
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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 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 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 analysis purposes.
CREDIT CARD PRODUCTION. The Company has built and owns a 3,400 square
foot credit card embossing center at which the Company produces credit cards for
its customers. 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 meets 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. See "Item 3-Properties."
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's backroom services for banks and financial institutions generated
approximately 5% and 20% of its gross billings for the years ended December 31,
1998 and 1997, respectively and approximately 1% of its gross billings for the
nine months ended September 30, 1999. The Company believes that it still has the
opportunity to 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, proceed with the customer's
use of the system and end with other services offered by the Company. 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. 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 Company provides proof and data entry services for all cash and
transit items for the customer. Checks, debit advices and credit advices are
micro-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.
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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.
The Company does not currently provide any banking and financial
services to any of their customers at this time.
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 statements for the customer, while reducing the amount of paper
reports with its online tools for reports, and the use of digital document
technology, such as COLD. The Company processed an average of approximately
822,000 pieces of mail per month during the year ended December 31, 1998 and an
average of approximately 110,000 pieces of mail per month during the nine months
ended September 30, 1999. The Company's credit card processing center has a
current capacity of processing 1,000,000 pieces of mail per month. The loss of
revenue from servicing the Portfolio has reduced the number of pieces of mail
produced during 1999. The Company hopes to 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 a hard copy. This on-line service of reports
is an efficient and time saving solution to the customer for the viewing and
retrieval of data.
Besides the advantage of processing efficiencies over traditional
analog file storage, the use of COLD storage and retrieval methodologies have
applications for customer service operations. Through the Company, the clients'
customer service representatives are able not only to inspect customer
statements by line item data, but 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 number of
customers of the Company which utilize 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 focuses 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 and not assume the significant overhead associated
with such business, particularly in connection with Y2K compliance. During the
1980's, the trend for community banks was to bring their processing in-house.
Faced with the Y2K 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 "Management's Discussion and Analysis or Plan of Operation - Year
2000 Dilemma and Compliance."
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 economies 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.
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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 Company has contracted with its card
processing software supplier, PaySys, to market the processing services of the
Company. PaySys' credit card management software-solutions are used by more
banks, finance companies, processors and retail establishments throughout the
world than any other system. In addition, the Company is currently utilizing the
marketing personnel of its primary shareholder, CNG, to develop and promote the
Company's services. Management of the Company expects the relationship with
PaySys and CNG to result in new and additional business for the Company.
However, no assurance to this effect can be given.
The Company has been required to expand its marketing program on a more
expedited basis because of the need to develop new sources of revenues following
the termination of the Master Agreement in March, 1999. Management has been
seeking additional new sources of business from banks and other financial
institutions to replace the revenues lost from the processing of the Portfolio.
No assurance can be given that these efforts will prove successful in generating
new sources of revenues. The failure of the Company to obtain new sources of
revenues in the near future could have a material adverse effect on the
operations and financial condition of the Company. See "Item 2-Management's
Discussion and Analysis of Financial Condition or Plan of Operation."
In addition, there has been a trend over the last several years for
banks and other financial institutions to consolidate, thereby causing shrinkage
in the number of possible customers for the Company's services, although the
Company is partially protected from this trend by having relatively long-term
agreements with its customers. The effects of this trend in consolidation could
have a material adverse effect upon the Company's future business prospects. One
such consolidation is the purchase of SSB, causing an anticipated decline in
revenue from that account to the Company. However, the effects of this trend, in
the opinion of management, are off-set by the fact that there are many 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 revenues lost or that 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-Competition," "Item
2-Management's Discussion and Analysis or Plan of Operation" and "Item 7-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 expertise in Y2K
compliance issues, those banking and financial institutions looking for
solutions will begin to look to outsourcing as efficient alternative to these
issues. However, there can be no assurances to this effect. 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.
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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 providing 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 consist principally 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 reduced
costs to its customers. However, no assurance to this effect can be given.
Most of the Company's competitors focus 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."
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 are
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 OCC 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 September, 1999, the Company contracted with KPMG LLP to perform
an independent third party audit. The audit was conducted in accordance with the
Statement on Auditing Standards No. 70 ("SAS 70"), "Reports on the Processing of
Transactions by Service Organizations" of the American Institute of Certified
Public Accounts ("AICPA"). In a report dated October 1, 1999, KPMG LLP expressed
an unqualified opinion on the Company's SAS 70 audit. The SAS 70 audit was
conducted to determine whether all areas of the Company's processing procedures,
application software and internal controls were operating in compliance with
prescribed independent auditing standards. Management of the Company believes
that the Company continues to meet all required standards and materially
complies with all applicable regulations. However, no assurance to this effect
can be given.
EMPLOYEES
As of December 31, 1999, the Company had sixty-five (65) full-time
employees, including three (3) corporate executives, fifty-two (52) operations
persons, ten (10) administrative personnel and two (2) 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.
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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.
RISK FACTORS
THIS REGISTRATION STATEMENT MAY BE DEEMED TO CONTAIN FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF THE REFORM ACT. FORWARD-LOOKING STATEMENTS IN
THIS REGISTRATION STATEMENT 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
COMMISSION, PRIOR TO PURCHASING OR SELLING SHARES OF THE COMMON STOCK:
FINANCIAL RISKS
LOSS OF MAJORITY OF THE COMPANY'S REVENUE GENERATING CUSTOMER. On July
23, 1998, the Colorado State Banking Board ordered the closure of BestBank and
the FDIC assumed the role of receiver of BestBank. The single largest asset of
BestBank consisted of the Portfolio serviced by the Company. As of the date of
this Registration Statement, the Company is no longer servicing any of the
accounts in the Portfolio. The effect of these events was to eliminate
approximately 83% of the Company's monthly revenues, as measured during 1998,
which has had a material adverse effect on the Company's results of operations
for the nine months ended September 30, 1999 and possibly thereafter. As of the
date of this Registration Statement, the Company has only been able to add 6,000
accounts to the accounts being serviced by the Company. This has resulted in a
reduction of monthly revenue since December 31, 1998 of $900,000 per month. No
assurance can be given that the Company will be able to attract sufficient new
business or to obtain adequate new financing. If the Company does not generate
adequate revenue producing business or proceeds from financing, the Company will
have to curtail its operations significantly, which will have a material adverse
effect on the Company's financial condition. See "Item 2-Management's Discussion
and Analysis of Financial Condition or Plan of Operation" and "Financial
Statements."
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 2 - Management's Discussion and Analysis
or Plan of Operation."
RELIANCE ON CUSTOMERS. BestBank represented approximately 83% and 30%
of the Company's revenue for the Company's fiscal years ended December 31, 1998
and 1997 and 65% for the nine months ended September 30, 1999. Much of the
anticipated short term future growth in the business of the Company, in order to
replace the loss of the Best Bank Portfolio, is expected to be derived from the
agreement with Platinum and the anticipated agreement with CNG, the Company's
primary shareholder. 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. See "Description
of Business-Credit and Debit Card Services," "Item 2-Management's Discussions
and Analysis or Plan of Operation" and "Item 7-Certain Relationships and Related
Transactions."
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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 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 purchase of SSB by American State Bank ("ASB"), causing a
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 offset 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, or that if the Company is successful in replacing such
customers, that such replacement customers will result in enough revenue to
offset lost revenue and profits. See "Description of Business-Sales and
Marketing," "Description of Business-Competition," "Item 2-Management's
Discussion and Analysis of Financial Condition or Plan of Operation" and "Item
3-Properties."
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 are 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."
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."
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. 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 7-Certain Relationships and Related
Transactions."
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CONTROL BY PRINCIPAL STOCKHOLDERS. The Company's principal
stockholders, directors and executive officers and their affiliates control the
voting power of approximately 70% 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 4-Security Ownership of Certain Beneficial Owners and
Management."
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 Price of and Dividends on the Registrant's Common Equity and
Other 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
Over-The-Counter Electronic Bulletin Board ("OTCB") maintained by the National
Association of Securities Dealers, Inc. ("NASD"), 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 Securities Exchange Act
of 1934, as amended (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. Because the Company's securities are subject to the "penny stock
rules," investors will find it more difficult to dispose of the securities of
the Company. Further, for companies whose securities are traded in the OTCB, it
is more difficult: (i) to obtain accurate quotations, (ii) to obtain coverage
for significant new events because major wire services, such as the Dow Jones
News Services, generally do not publish press releases about such companies, and
(iii) for companies whose shares are traded in OTCB to obtain needed capital.
See "Item 1-Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters."
LACK OF DIVIDENDS ON COMMON STOCK. The Company has paid no dividends on
its Common Stock, as of the date of this Registration Statement, 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 1-Market Price of and Dividends on the
Registrant's Common Equity and Other Shareholder Matters."
FUTURE ISSUANCES OF PREFERRED STOCK. The Company's Certificate of
Incorporation authorizes the issuance of 5,000,000 shares of preferred stock,
par value $0.001 per share (the "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. "Item 1-Market Price of and Dividends on the Registrant's Common
Equity and Other Shareholder Matters."
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SHARES ELIGIBLE FOR FUTURE SALE; ISSUANCE OF ADDITIONAL SHARES. In
general, under Rule 144, as currently in effect, a person (or persons whose
shares are aggregated) who has beneficially owned restricted securities shares
for a least one year, including persons who may be deemed "affiliates" of the
Company, as that term is defined under the Securities Act of 1933, as amended
(the "Securities Act"), would be entitled to sell within any three month period
a number of shares that does not exceed the greater of 1% of the then
outstanding shares or the average weekly trading volume of shares during the
four calendar weeks preceding such sale. Sales under Rule 144 are also subject
to certain manner-of-sale provisions, notice requirements and the availability
of current public information about the Company. A person who has not been an
affiliate of the Company at any time during the three months preceding a sale,
and who has beneficially owned his shares for at least one year, would be
entitled to sell such shares without regard to any volume limitations under Rule
144.
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 38,511,512 shares of Common Stock issued and
outstanding, of which approximately 12,488,715 shares are free trading shares or
are eligible to have the restrictive legend removed pursuant to Rule 144(k)
promulgated under the Securities Act. In addition, approximately 10,631,250
shares of the Company's restricted Common Stock are eligible for resale pursuant
to Rule 144, all of which may be deemed to be held by affiliates of the Company.
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 Certificate 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
1-Market Price of and Dividends on the Registrant's Common Equity and Other
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 1-Market Price of and Dividends on the Registrant's Common Equity and
Other 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 2-Executive Compensation - Indemnification of Officers and
Directors."
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THIS REGISTRATION STATEMENT, 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 REGISTRATION STATEMENT, WHICH
READERS OF THIS REGISTRATION STATEMENT SHOULD CONSIDER CAREFULLY.
OVERVIEW OF PRESENTATION. As of May 1, 1997, Messrs. Gallant and Baetz
acquired 100% of the issued and outstanding FICI Common Stock for $1,600,000 in
cash from certain unaffiliated parties. As of September 23, 1997, the Company
entered into a Stock Purchase Agreement with Messrs. Gallant and Baetz, pursuant
to which the Company issued an aggregate of 10,631,250 shares of the Company's
Common Stock in exchange for 100% of the issued and outstanding shares of FICI
Common Stock. The Company also issued 618,750 shares of Common Stock to a third
party, which is not an affiliate of Messrs. Gallant and Baetz, for services
rendered to the Company for arranging the transactions, which are the subject of
the Stock Purchase Agreement. In connection with the closing of the Stock
Purchase Agreement, FICI became the sole operating subsidiary of the Company.
See "Item 3-Legal Proceedings."
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In connection with the transactions relating to the Stock Purchase
Agreement and the acquisition of the FICI Common Stock by Messrs. Gallant and
Baetz, 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.
FICI's assets and liabilities were restated at their estimated fair
market value as of May 1, 1997 on the balance sheets of the Company at December
31, 1998 and December 31, 1997, in the Company's consolidated financial
statements for the years ended December 31, 1998 and 1997, included elsewhere
herein, at May 1, 1997, utilizing "pushdown accounting." The fair market value
of the restated assets was $1,200,746, and the fair value of the restated
liabilities was $574,670 at May 1, 1997. The purchase price (equity) of
$1,600,000 plus the restated liabilities of $574,670 totaled $2,174,670, as of
the date of purchase. The difference between the revalued liabilities and equity
of $2,174,670 and the restated assets of $1,200,746 resulted in the recording of
$973,924 as goodwill. 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 approximately $4,058 per
month, with $36,522 of amortization expense included in the period ended
September 30, 1999 and $48,696 of amortization expense included in the period
ending December 31, 1998 and $32,655 (from May 1, 1997 to December 31, 1997) of
amortization expense included in the results of operations for the year ended
December 31, 1997.
The Company has included in this Registration Statement the unaudited
consolidated financial statements of the Company for the nine months ended
September 30, 1999 and 1998 and the audited consolidated financial statements of
the Company for the years ended December 31, 1998 and 1997, which include the
audited consolidated balance sheets of the Company as of December 31, 1998 and
December 31, 1997, and the related consolidated income statements and statements
of changes in stockholders' equity and cash flows for the years ended December
31, 1998 and 1997. The consolidated financial statements of the Company for the
period ended September 30, 1999 reflect the results of operations and cash flows
of Fi-Scrip, Inc., which the Company acquired in January, 1999. The consolidated
income statements and statements of cash flows of the Company for the years
ended December 31, 1998 and 1997, which form a part of the Company's
consolidated financial statements for such periods, reflect the results of
operations and cash flows of the parent holding company for the four months
ended April 30, 1997, and the consolidated results of operations and cash flows
of the parent holding company and FICI for the year ended December 31, 1998 and
the eight (8) months ended December 31, 1997.
For purposes of the following discussion and analysis, the results of
operations for the years ended December 31, 1998 and December 31, 1997,
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. This
method of presentation was set forth herein to permit useful comparison between
the aggregated twelve month periods ended December 31, 1998 and December 31,
1997 with respect to FICI, the Company's sole operating subsidiary. Comparisons
between the consolidated operations of the parent holding company and FICI for
the year ended December 31, 1998 and the eight month period ended December 31,
1997 and the operations of the parent holding company during the four (4) months
ended April 30, 1997 are not meaningful because the parent holding company had
insignificant operations during such earlier period.
RECENT CHANGES IN THE BUSINESS OF THE COMPANY; CLOSURE OF BESTBANK AND
RELATED MATTERS. On July 23, 1998, the Colorado State Banking Board ordered the
closure of BestBank and the FDIC assumed the role of receiver of BestBank. The
single largest asset of BestBank was the portfolio of credit card accounts
receivable serviced by the Company (the "Portfolio"). As of December 31, 1998,
the number of active credit card accounts serviced by the Company was 661,795,
of which 622,837 were serviced by the Company pursuant to a master agreement
(the "Master Agreement") entered into as of October 1, 1997 with BestBank. For
the year ended December 31, 1998, revenue from the Portfolio accounted for
approximately 83% of the Company's total revenues. For the nine months ended
September 30, 1999, revenue from the Portfolio accounted for approximately 65%
of the Company's total revenues. No other customers accounted for 10% or more of
the Company's total revenues. As of the date of this Amended Registration
Statement the Company provides no services pursuant to the Master Agreement.
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On November 3, 1998, the FDIC announced a sealed-bid auction for the
sale of the Portfolio. On December 24, 1998, RRI Credit Corporation ("RRICC"),
which is not affiliated with the Company, was awarded the contract to purchase
the Portfolio from the FDIC. The purchase and sale agreement between RRICC and
the FDIC, dated December 24, 1998 ("Purchase and Sale Agreement"), called for a
$1,000,000 nonrefundable deposit to be paid by RRICC and a closing date of
January 29, 1999.
Following the closure of BestBank, the Company continued to process the
Portfolio under the terms of the Master Agreement. The Company entered into an
initial processing agreement with RRICC, on December 14, 1998, and as amended on
January 15, 1999 ("RRICC Processing Agreement"), which was conditional on
closing of the Purchase and Sale Agreement. In consideration for entering into
the RRICC Processing Agreement, the Company lent RRICC $1,000,000 at 10%
interest, which enabled RRICC to make a non-refundable deposit under the
Purchase and Sale Agreement. The loan is non-recourse to RRICC, unless the
deposit is returned by the FDIC. There is no current expectation on the part of
the Company that the deposit will be returned. The Board of Directors of the
Company determined that it was in the best interests of the Company to lend this
money to RRICC in order to assist RRICC in being awarded the bid, thereby
enabling the Company to continue to be able to receive revenue from processing
the Portfolio under the RRICC Processing Agreement that otherwise could have
been lost if the FDIC sold the Portfolio to another bidder or simply liquidated
the Portfolio.
Due to circumstances discussed below, RRICC was unable to meet certain
conditions to close the Purchase and Sale Agreement by January 29, 1999. As of
that date, RRICC and FDIC agreed to extend the closing date for the Purchase and
Sale Agreement to February 22, 1999, and the Company became a party to the
Purchase and Sale Agreement. The Company agreed, as a condition to the extension
of the closing date, that during the extension period, the Company would
continue to process the Portfolio under the Master Agreement and would forego
receipt of fees and reimbursement of expenses in anticipation that the Purchase
and Sale Agreement would close by February 22, 1999, at which time the Company
would be entitled to recoup such fees and expenses, which totaled approximately
$550,000. The Board of Directors of the Company determined it would be in the
best interests of the Company to continue to process the Portfolio and to forego
receipt of fees for the limited period of time of the extension rather than the
FDIC selling the Portfolio to another bidder or liquidating the Portfolio.
Since RRICC intended to operate the Portfolio as an ongoing business,
all parties understood that RRICC would be required to enter into a sponsorship
agreement with a bank licensed to do business with VISA. Prior to the execution
of the January 29, 1999 extension agreement, facts had come into the possession
of the Company that there may have been hindrance by certain regulators with
efforts to negotiate a sponsorship agreement between RRICC and such a bank. This
hindrance had the effect of preventing RRICC from being in a position to close
the Purchase and Sale Agreement in a timely manner and, in fact, was one of the
reasons that RRICC requested the extension in the first place. When these facts
were brought to the attention of the FDIC, the FDIC stated that it had
investigated the allegations and could find no facts to support the allegations.
Notwithstanding the FDIC's denials, the parties proceeded to execute the January
29, 1999 extension agreement, based on the intention of RRICC and the Company to
use the time to identify a new bank and to negotiate a sponsorship agreement.
Between January 29, 1999 and February 22, 1999, the Company learned of
further efforts by certain regulators to hinder the ability of RRICC to obtain a
sponsoring bank. This additional hindrance, in the opinion of management of the
Company, resulted in the prevention of RRICC from being able to close on the
Purchase and Sale Agreement. On February 22, 1999, RRICC notified the Company
and the FDIC that, because of such hindrance, the extension period had been an
insufficient amount of time in which to find a sponsoring bank. RRICC and the
FDIC discussed a further extension of the closing date. On February 26, 1999,
the FDIC notified the Company that negotiations with RRICC had failed and that
procedures to liquidate the Portfolio, which had already begun, would continue.
In addition, the FDIC announced that it was terminating the Master Agreement, as
of March 4, 1999.
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The effect of these events was to eliminate approximately 83% of the
Company's monthly revenues from processing, as measured during 1998, which has
had a material adverse effect on the Company's 1999 results of operations. The
inability of RRICC to close the Purchase and Sale Agreement resulted in the loss
of the $1,000,000 non-refundable deposit and the nonrepayment of the Company's
loan to RRICC. This loss resulted in the Company's charging-off of the note
receivable from RRICC in the Company's 1998 fourth quarter and year end results
of operations.
RESULTS OF OPERATIONS FOR THE NINE (9) MONTHS ENDED SEPTEMBER 30, 1999
AND 1998. Total operating revenues for the nine (9) months ended September 30,
1999 decreased approximately 50% to $4,738,557 from $9,515,833 for the nine (9)
months ended September 30, 1998. Total operating revenues principally include:
(i) credit card processing revenues, (ii) banking and financial service revenues
and (iii) debit card and EBT processing revenue. Total operating revenues during
the nine (9) months ended September 30, 1999 included $510,979 in net operating
revenue of Fi-Scrip, after inter company elimination. All of the outstanding
common stock of Fi-Scrip was contributed to the Company from its principal
shareholders, as of January 1, 1999, for no consideration. See "Operations of
Fi-Scrip."
Credit card processing revenues during the nine (9) months ended
September 30, 1999 decreased 51% to $3,797,474 from $7,740,448 during the nine
(9) months ended September 30, 1998. This decrease primarily relates to the loss
of revenues associated with the Master Agreement. The Master Agreement with Best
Bank represented 73% of the credit card revenues for the nine (9) months ended
September 30, 1999.
Banking and financial service and courier revenues during the nine (9)
months ended September 30, 1999 decreased to $73,842 and $950 from $616,018 and
$51,235, respectively. These sources of revenue have steadily declined since the
acquisition of Security State Bank ("SSB") by American State Bank ("ASB"), as of
August 1, 1998. ASB has been in the process of converting SSB's portfolio to an
in-house processing system. The Company generated revenues of approximately
$75,000 per month from this account during the previous three (3) years. The
Company entered into a contract to continue the credit card processing services
for ASB through August 1, 2000, which currently generates approximately $20,000
per month. The Company generated revenues of approximately $128,286 during the
nine (9) months ended September 30, 1999. Management believes that anticipated
increases from the Company's credit card operations and future bank processing
opportunities will replace this reduced source of revenues. However, no
assurance to this effect can be given.
The Company has been focusing on the development of its credit card
processing services and thus did not make significant marketing efforts to
develop the banking and financial services business segment. However, the
Company's future business development plans include an effort to expand this
line of business by targeting banks and financial institutions based on the
increased capacity of the Company's equipment and hardware in connection with
the upgraded lease with IBM and the installation of the Kirchman Dimension 3000
banking software. No assurances can be given that such efforts will result in
increased revenues to the Company. See "Year 2000 Compliance Issues."
Revenues from Pride Refining, Inc. ("Pride") decreased to $157,000 for
the nine (9) months ended September 30, 1999 from $263,000 for the nine (9)
months ended September 30, 1998. This revenue decrease was due to a decision of
the management of Pride to take its computer processing activities in-house.
This removal of processing from the Company to Pride is being converted in
stages and should be completed by the last quarter of 1999. The loss of the
Pride revenue is not anticipated to have a material adverse effect on total
revenue for fiscal year 1999. However, no assurance to this effect can be given.
Total operating expenses during the nine (9) months ended September 30,
1999 increased 1% to $6,865,888 from $6,766,057 during the nine (9) months ended
September 30, 1998. Total operating expenses principally include: (i) cost of
salaries and employee benefits, (ii) equipment and software expenses, (iii) cost
of office supplies and services, (iv) rental and facilities maintenance
expenses, (v) depreciation and amortization expenses, (vi) professional and
outside services, and (vii) other operating expenses, as follows:
Cost of salaries and employee benefits during the nine (9) months ended
September 30, 1999 increased 8% to $2,482,695 from $2,307,886 during the nine
(9) months ended September 30, 1998. This increase primarily resulted from an
increase in the average number of full time employees, which peaked during the
latter part of 1998 and first half of 1999, for the nine (9) months ended
September 30, 1999, as compared to the nine (9) months ended September 30, 1998.
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Equipment and software lease expenses during the nine (9) months ended
September 30, 1999 increased 53% to $2,016,083 from $1,318,048 during the nine
(9) months ended September 30, 1998. This increase primarily related to new
software leases and a high speed laser printer lease.
Cost of computer and office supplies during the nine (9) months ended
September 30, 1999 decreased 58% to $192,416 from $459,708 during the nine (9)
months ended September 30, 1998. This decrease is the result of a decline in the
supplies used in connection with the BestBank portfolio contract, which was
terminated May 17, 1999.
Facilities rent and repair and maintenance expenses during the nine (9)
months ended September 30, 1999 decreased 16% to $646,159 from $772,116 during
the nine (9) months ended September 30, 1998. This decrease related to the
termination of the Company's office lease in Florida in December, 1998.
In addition, depreciation and amortization expenses during the nine (9)
months ended September 30, 1999 increased 98% to $318,777 from $161,207 during
the nine (9) months ended September 30, 1998. The increase related to the
acquisition and upgrade of the Company's computer and software equipment
throughout 1998.
Telephone expenses during the nine (9) months ended September 30, 1999
decreased 71% to $192,334 from $669,037 primarily related to the termination of
the BestBank Portfolio and the resulting decline in customer service calls
handled by the Company.
Professional and outside services expenses during the nine (9) months
ended September 30, 1999 increased 3% to $575,871 from $557,989 during the nine
(9) months ended September 30, 1998. The increase related primarily to increased
legal fees pertaining to the termination of the Master Agreement, the
unsuccessful attempt to acquire the BestBank Portfolio and the transaction with
CNG.
Other operating expenses during the nine (9) months ended September 30,
1999 decreased 20% to $301,208 from $374,983 during the nine (9) months ended
September 30, 1998. The decrease is primarily related to a decline in bad debt
expense, offset by $131,912 in marketing expense recorded in the nine (9) months
ended September 30, 1999. Additionally, other operating expenses included
$169,296 relating to Fi-Scrip's operations for the nine (9) months ended
September 30, 1999 versus none for the nine (9) months ended September 30, 1998.
Other revenues and expenses resulted in total other income of $215,446
during the nine (9) months ended September 30, 1999, as compared to total other
expenses of $61,403 during the nine (9) months ended September 30, 1998. This
decrease in expenses and resulting income between the respective periods
resulted from interest income of $63,347 from certain certificates of deposit
during the nine (9) months ended September 30, 1999, as compared to $34,607
during the nine (9) months ended September 30, 1998, offset by a decrease of
interest expense of $72,826 during the nine (9) months ended September 30, 1999
from $96,010 during the nine (9) months ended September 30, 1998, primarily
relating to the line of credit (the "Line of Credit") provided by Century. The
income was the result of collections made on bad debt written off in the prior
year of $224,925. See "Closure of BestBank and Related Matters."
As a result of the foregoing, the Company generated a net loss of
$1,263,953 during the nine (9) months ended September 30, 1999, as compared to a
net profit of $1,773,184 during the nine (9) months ended September 30, 1998.
The Company generated a loss from operations of $2,127,331 during the nine (9)
months ended September 30, 1999, as compared to income from operations of
$2,749,776 during the nine (9) months ended September 30, 1998. This decrease in
income from operations primarily resulted from decreased revenue related to the
BestBank Portfolio. The Company's proposed business plan contemplates the future
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."
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RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998 AND
DECEMBER 31, 1997. Total operating revenues for the year ended December 31, 1998
increased approximately 186% to $12,967,805 from $4,538,839 for the year ended
December 31, 1997. Total operating revenues principally include: (i) credit card
processing revenues, and (ii) banking and financial service revenues.
Credit card processing revenues during the year ended December 31, 1998
increased 331% to $10,747,212 from $2,495,762 during the year ended December 31,
1997. This increase primarily relates to the revenues associated with the Master
Agreement. The Master Agreement with Best Bank represented 83% of the credit
card revenues for the year ended December 31, 1998.
Banking and financial service revenues during the year ended December
31, 1998 decreased to $680,091 from $929,164. This decrease primarily related to
the decrease in revenues from the Company's processing arrangements with SSB
during the second half of 1998. As of August 1, 1998, ASB acquired SSB and
converted its portfolio to an in-house processing system. The Company generated
revenues of approximately $75,000 per month from this account during the
previous three (3) years. The Company entered into a contract to continue the
item and backroom processing services for ASB through February 29, 1999. The
Company generated revenues of approximately $104,000 from August, 1998 through
December 31, 1998. One time deconversion charges of approximately $25,000 were
included in the August, 1998 revenues. Management believes that anticipated
increases from the Company's credit card operations and future bank processing
opportunities will replace this reduced source of revenues and that the loss of
the SSB account is not anticipated to have a material adverse effect on total
revenue for fiscal 1999. However, no assurance to this effect can be given. The
Company intends to expand this line of business by targeting banks and financial
institutions based on the increased capacity of the Company's equipment and
hardware in connection with the upgraded lease with IBM and the installation of
the Kirchman Dimension 3000 banking software. No assurances can be given that
such efforts will result in increased revenues to the Company. See "Management's
Discussion and Analysis or Plan of Operation - Year 2000 Dilemma and
Compliance."
Revenues from Pride Refining, Inc. ("Pride") decreased to $347,000 for
the year ended December 31, 1998 from $715,500 for the year ended December 31,
1997. This revenue decrease was due to a decision of the management of Pride to
take its computer processing activities in-house. This removal of processing
from the Company to Pride is being converted in stages and should be completed
by the summer of 1999. Due to the increase in revenues from the Company's credit
card operations and bank processing, the loss of the Pride revenue did not have
a material adverse effect on total revenue for fiscal year 1998.
Total operating expenses during the year ended December 31, 1998
increased 97% to $9,760,857 from $4,950,018 during the year ended December 31,
1997. Total operating expenses principally include: (i) cost of salaries and
employee benefits, (ii) equipment expenses, (iii) cost of office supplies and
services, (iv) rental and facilities maintenance expenses, and (v) depreciation
and amortization expenses, as follows:
Cost of salaries and employee benefits during the year ended December
31, 1998 increased 59% to $3,229,550 from $2,027,449 during the year ended
December 31, 1997. This increase primarily resulted from an increase of
approximately 19 full time employees at December 31, 1998 from 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, 1998 increased 66% to $2,438,112 from $1,470,993 during the year ended
December 31, 1997. This increase primarily related to the negotiation of an
equipment lease with IBM to upgrade the Company's computer hardware and the
lease of Data Card 9000 credit card production equipment during the last quarter
of the year ended December 31, 1997.
Cost of office supplies and services, including professional and
outside services, during the year ended December 31, 1998 increased 300% to
$2,353,177 from $588,197 during the year ended December 31, 1997. This increase
related to the expanded volume of services provided by the Company as a result
of the Master Agreement.
Facilities rent expense during the year ended December 31, 1998
increased 64% to $436,493 from $266,267 during the year ended December 31, 1997.
This increase related to the negotiation of a new office lease agreement in
August, 1997, which increased the Company's office space from 22,000 square feet
to 52,000 square feet.
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In addition, depreciation and amortization expenses during the year
ended December 31, 1998 increased 4% to $212,542 from $205,049 during the year
ended December 31, 1997. The increase related to the revaluation of the
Company's assets to fair market value on May 1, 1997 in connection with the
completion of the transactions relating to the Stock Purchase Agreement.
Other revenues and expenses resulted in total other expenses of $69,645
during the year ended December 31, 1998, as compared to total other expenses of
$250,203 during the year ended December 31, 1997. This decrease in expenses
between the respective periods resulted from $186,921 of costs related to the
acquisition of FICI by the Company in the third quarter of 1997, which were not
recurring during the twelve (12) months ended December 31, 1998, and interest
income of $49,056 from certain certificates of deposit during the year ended
December 31, 1998, as compared to $9,640 during the year ended December 31,
1997, offset by a net increase of interest expense of $45,779 during the year
ended December 31, 1998 from the year ended December 31, 1997, primarily
relating to the Line of Credit provided by Century, an affiliate of Messrs.
Gallant and Baetz. See "Description of Business-Recent Changes in the Business
of the Company; Closure of BestBank and Related Matters."
Further, certain miscellaneous expenses, including insurance, postage
and delivery fees, and franchise use and sales taxes, during the year ended
December 31, 1998, increased 192% to $902,738 from $309,268 during the year
ended December 31, 1997. These increases resulted primarily from the expanded
volume of services provided by the Company as a result of the Master Agreement.
As a result of the foregoing, the Company generated net income of
$2,024,675 during the year ended December 31, 1998, as compared to a net loss of
$507,720 during the year ended December 31, 1997. The Company generated income
from operations of $3,206,948 during the year ended December 31, 1998, as
compared to a loss from operations of $479,626 during the year ended December
31, 1997. This increase in income from operations primarily resulted from
increased revenue related to the conversion of the BestBank credit card
portfolio in October, 1997 pursuant to the Processing Agreement, which has been
terminated by the FDIC, as of March 4, 1999, in connection with the closure of
BestBank. Due to economies of scale related to the increased number of accounts
processed, expenses increased at a much lower percentage than revenues. Also,
the Company's proposed business plan contemplates the growth of revenues in
connection with the Company's expansion strategy. There can be no assurance that
the Company's expansion strategy will result in continued growth of demand for
the Company's services or increased revenues or profitability or that the
termination of the Processing Agreement will not have a material adverse effect
on the financial condition of the Company. See "Liquidity and Capital
Resources."
LIQUIDITY AND CAPITAL RESOURCES. At September 30, 1999, the ratio of
current assets to current liabilities were 2 to 1 as compared to 1.47 to 1 at
December 31, 1998. At December 31, 1998, the ratio of current assets to current
liabilities was 1.47 to 1 as compared to 0.82 to 1 at December 31, 1997.
The Company's cash flow needs for the nine (9) months ended September
30, 1999 were provided from operations and from the purchase of $500,000 of the
Company's Common Stock on September 16, 1999 by CNG. At September 30, 1999,
$20,000 in unallocated reserves were carried by the Company for bad debts. At
September 30, 1999, prepaid expenses and other assets were $549,423 and are
anticipated to be expensed as used in the future. Net property and equipment was
$1,330,193 at September 30, 1999. There were no major capital additions during
the nine (9) months ended September 30, 1999. On April 2, 1998, the Company
obtained an interim construction loan from ASB in the principal amount of
$160,000 related to the purchase and construction of a credit card production
facility. On August 1, 1998, the interim loan was converted to a note payable on
August 1, 2001. The note is secured by the production facility building, and
bears interest at the prime rate plus 1%. As of September 30, 1999, the
principal outstanding balance on the note was $141,787.
The Company's cash flow needs for the year ended December 31, 1998 were
primarily provided from operations. The Company's cash flow needs for the year
ended December 31, 1997 were primarily provided from operations and the Line of
Credit. At December 31, 1998, a $270,000 unallocated reserve for bad debts was
carried by the Company. At December 31, 1998, prepaid expenses were $582,633 and
are anticipated to be expensed as used in the future. Net property and equipment
was $1,502,945 at December 31, 1998. On April 2, 1998, the Company obtained an
interim construction loan from ASB in the principal amount of $160,000 related
to the purchase and construction of a credit card production facility. On August
1, 1998, the interim loan was converted to a note payable on August 1, 2001. The
note is secured by the production facility building, and bears interest at the
22
<PAGE>
prime rate plus 1%. As of December 31, 1998, the principal outstanding balance
on the note was $154,577. Major capital additions during the year ended December
31, 1998 included personal computer system and network upgrades of approximately
$207,000, software upgrades of approximately $350,000, and building expenses of
approximately $183,000 relating to the construction of the production facility.
As of March 17, 1999, the FDIC announced that it was terminating the
Master Agreement with BestBank. The effect of these events was be to eliminate
approximately 83% of the Company's monthly revenues from processing, as measured
during 1998, which has had a material adverse effect on the Company's results of
operations during the quarter and nine months ending September 30, 1999 and is
anticipated to have a material adverse effect on the Company's results of
operations for the year ending December 31, 1999.
Management of the Company hopes the Company will be able to replace the
loss of revenue from the Master Agreement and is currently working to negotiate
new business to offset such loss. Management is continuing to strategically
reduce operating costs in an effort to streamline the Company's operations while
maintaining the integrity of systems and the overall ability of the Company to
move swiftly and effectively to implement new business.
On September 16, 1999, FICI effectively terminated an eight hundred
thousand dollars ($800,000) unsecured operating line of credit through Century.
FICI agreed to offset $576,352 in accounts receivable from Century to FICI
against the $827,921 balance of the line of credit, which included $27,921 in
accrued interest payable, and through the Company, issued 1,006,276 shares of
Common Stock in consideration of the cancellation of the remaining $251,569
balance of the line of credit. The line of credit carried an annual percentage
rate of ten percent (10%). Under the terms of the line of credit, FICI paid
interest on a monthly basis with the unpaid principal due at maturity, September
15, 1999. The outstanding balance on the line of credit as of December 31, 1998
was $700,000.
On September 16, 1999, Fi-Scrip effectively terminated an operating
line of credit through Century. The Company agreed to issue 730,236 shares of
Common Stock in consideration of the cancellation of the $182,559 balance of the
line of credit, including $6,604 in accrued interest payable. The line of
credit, dated May 1, 1998, with Century provided Fi-Scrip with a maximum
operating line of credit of two hundred and fifty thousand dollars ($250,000).
The note carried an annual percentage rate of ten percent (10%). Under the terms
of the note, Fi-Scrip paid interest on a monthly basis with the unpaid principal
due on demand.
Cash and cash equivalents were $975,566 as of September 30, 1999, as
compared to $268,400 as of December 31, 1998. This increase was primarily
attributable to the acquisition of Fi-Scrip on January 1, 1999. Cash and cash
equivalents were $268,400, as of December 31, 1998, as compared to $17,861 as of
December 31, 1997. This increase was primarily attributable to positive cash
flow during the year ended December 31, 1998.
As of September 30, 1999 and December 31, 1998, the Company's long-term
borrowings were $129,625 and $143,182, respectively. Long-term borrowings, at
September 30, 1999, consisted of the note payable of $141,787 to ASB, less the
current portion of the note payable. As of December 31, 1998 and December 31,
1997, the Company's long-term borrowings were $143,182 and none, respectively.
Long-term borrowings at December 31, 1998 consisted of the note payable of
$154,577 to American State Bank, less the current portion of the note payable.
As of September 30, 1999, the Company had short-term borrowings in the
aggregate amount of $12,162, as compared to $700,000 at December 31, 1998. This
decrease was attributable to the negotiated termination of the lines of credit
between FICI, Fi-Scrip and Century. As of December 31, 1998, the Company had
short-term borrowings in the aggregate amount of $711,395, as compared to
$1,300,000 at December 31, 1997, consisting principally of obligations to
Century under the Line of Credit. The decrease in short-term borrowings
primarily was attributable to payments on the Line of Credit throughout the year
ended December 31, 1998 generated through positive cash flow from operations.
See "Overview of Presentation"
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 $401,000.
23
<PAGE>
The certificates of deposit are for one-year terms and are
automatically renewable for an additional year. The certificates of deposit bear
varying rates of interest based on the date of the establishment of the
certificates of deposit.
Net cash provided by operating activities was $253,616 and $1,755,265
for the nine (9) months ended September 30, 1999 and 1998, respectively. Net
cash provided by operations during the nine (9) months ended September 30, 1999
primarily consisted of an increase in accruals and accounts payable and
depreciation and amortization, offset by net operating losses and increases in
accounts receivable. Net cash provided by operations during the nine (9) months
ended September 30, 1998 primarily consisted of net income from operations and
increases in accruals and accounts payable and deferred income taxes, and
depreciation and amortization, offset by increases in accounts receivable and
prepaid expenses and other assets.
Net cash provided by (used in) operating activities was $1,784,437 and
($557,265) for the years ended December 31, 1998 and 1997, respectively. Net
cash provided by operations during the year ended December 31, 1998 primarily
consisted of net income from operations, increases in accruals and accounts
payable and deferred income taxes, decreases in accounts receivable, and
depreciation and amortization, offset by increases in deposits and prepaid
expenses. Net cash used by operations during the year ended December 31, 1997
primarily consisted of depreciation and amortization and decreases in accounts
receivable, offset by net losses from operations, decreases in accruals and
accounts payable, increases in deposits and prepaid expenses, and deferred tax
benefits.
Net cash provided by (used in) investing activities was $391,166 and
($1,187,859) for the nine (9) month periods ended September 30, 1999 and 1998,
respectively. In the nine (9) months ended September 30, 1999, the Company
utilized $22,593 to purchase certain fixed assets offset by $413,759 cash
acquired in the acquisition of Fi-Scrip. In the nine (9) months ended September
30, 1998, the Company utilized $887,859 to purchase certain fixed assets and
$300,000 to invest in certain interest bearing deposits.
Net cash (used in) investing activities was ($1,398,225) and ($561,897)
for the years ended December 31, 1998 and 1997, respectively. In the year ended
December 31, 1998, the Company utilized $1,200,803 to purchase certain fixed
assets, including the upgrade of the IBM equipment lease and personal computer
and network systems upgrades and a credit card production facility, and utilized
$197,422 to invest in the Certificates of Deposit which are pledged to finance
the lease agreements on the Company's mainframe computer system. In the year
ended December 31, 1997, the Company utilized $392,623 to purchase certain fixed
assets, including office furniture, credit card computer equipment and computer
software and $203,578 to invest in certain interest bearing deposits. The
Company also acquired $34,000 of cash in connection with the acquisition of
FICI.
Net cash provided by financing activities was $62,384 for the nine (9)
month period ending September 30, 1999. In the nine (9) months ending September
30, 1999, the Company made payments of $888,744 on the Line of Credit offset by
$951,128 in proceeds from the issuance of 5,746,512 shares of Common Stock
primarily related to the CNG/CLCK Stock Purchase Agreement and the cancellation
of the two (2) lines of credit with Century. Net cash used in financing
activities was $114,874 for the nine (9) month period ending September 30, 1998.
In the nine (9) months ended September 30, 1998, the Company made $441,624 in
payments on the Line of Credit, offset by proceeds related to stock options
exercised of $326,750.
Net cash provided by (used in) financing activities was ($135,673) and
$931,443 for the years ended December 31, 1998 and 1997, respectively. In the
year ended December 31, 1998, the Company made payments of $600,000 on the Line
of Credit, which was offset by the receipt of $309,750 from the issuance of
Common Stock upon the exercise of stock options and the receipt of proceeds of
$154,577, net of payments, pursuant to a construction loan from American State
Bank to finance the construction of a credit card production facility. In the
year ended December 31, 1997, the Company received proceeds of $963,000 from the
Line of Credit, net of payments, which was utilized to finance the Company's
business operations, and which was offset by a decrease of $31,557 in the
Company's bank overdraft position.
24
<PAGE>
In September and October, 1999, CNG purchased 24,000,000 shares of
Common Stock for an aggregate purchase price of $3,000,000. CNG has agreed to
exercise the CNG Stock Option to purchase an additional 10,000,000 shares of
Common Stock for an aggregate exercise price of $2,000,000 at any time that the
Company indicates a need for these funds for operations. However, no assurance
can be given that CNG will exercise the CNG Stock Options when called upon to do
so.
Management believes that the proceeds from the CLCK/CNG Stock Purchase
Agreement, the exercise of the CNG Stock Options and revenues from existing and
anticipated processing contracts (including the anticipated agreement with CNG),
will provide operating capital to allow the Company to maintain operations
through October of 2000, which management hopes will be a sufficient amount of
time to allow the Company to rebuild its revenue base and finance operations
from cash flow. However, there can be no assurances to this effect. The Company
utilized a portion of the proceeds to pay unpaid debts accrued during the
current and prior quarter, when the Company was not producing adequate cash flow
to meet its operating needs. In the event CNG does not exercise the CNG Stock
Options, the cash on hand will last only through March, 2000, and the Company
will have to seek additional sources of debt or equity financing. No assurance
can be given that such funding will be available.
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 utilize 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.
YEAR 2000 DILEMMA AND COMPLIANCE
One of the major challenges facing the consumer financial data
processing services industry is the problem of Year 2000 ("Y2K") compliance. The
Y2K 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 January 1, 2000. The Y2K dilemma affects virtually
all companies and organizations, including the Company.
The Company has actively addressed the Y2K dilemma. The Company has had
in place a project plan (the "Y2K Plan") and project team for the last few years
reviewing all hardware and software, as necessary. The Company anticipates its
total investment in Y2K compliance will reach approximately $454,000. The
Company has made a significant portion of the investment needed to address the
Y2K dilemma. As of the date of this Registration Statement, the cost to: (i)
acquire, install and implement these new software systems have been an aggregate
of approximately $340,000; and (ii) acquire new hardware has been approximately
$8,000. The Company instituted policies and procedures that require all new
hardware and software acquired or licensed by the Company to be Y2K compliant.
As of the date of this Registration Statement, the Company has completed testing
and believes that all of its primary operating hardware and mission critical
systems to be Y2K compliant. It is management's opinion that any remaining Y2K
issues are not significant and should be able to be funded through normal
operating revenue and income. The Company estimates that until the Company has
completed implementation of the Y2K Plan, the Company anticipates expending an
additional $107,000, which is estimated to include $22,000 in software, $4,000
in new hardware and $81,000 on other aspects of the implementation of the Y2K
Plan. The anticipated source of funds for such expenditures is expected to be
working capital generated from operations of the Company. However, no assurance
can be given that the goals for the Y2K Plan can be achieved, and if achieved,
that the amount necessary to achieve such goals will be limited to the amounts
set forth above or that the amounts will be generated from operations.
To address the Y2K problem, the Company has installed newly acquired
banking software systems, licensed from Kirchman, an unaffiliated third party,
that management believes has provided a solution to the Company's Y2K compliance
issues. The Company's new banking software is certified by Kirchman as "fully
Y2K compliant." These software upgrades are system and application functional
upgrades. However, no assurance can be given that all Y2K issues have been
solved by the acquisition of this software.
25
<PAGE>
The Company has worked to develop extensive contingency plans to manage
the Company's ongoing operations, if any systems do not function correctly on or
after January 1, 2000. The Company has a contract with IBM for a "Hot Site" at
IBM's Business Recovery Center ("BRC") in Boulder, Colorado for disaster
recovery and off-site testing. The BRC maintains facilities, hardware and
software, that is identical to the Company's current hardware and software
configuration. The Company's disaster recovery specialists perform disaster
recovery tests at these facilities every year. In addition to the Company's
normal disaster recovery tests, the Company used the facilities both in Dallas,
Texas and Boulder, Colorado, in November, 1998, for a combined Y2K and disaster
recovery test. This allowed the Company to successfully test all core business
systems in a true production environment. The Company again used the IBM
Business Recovery Center in Dallas, Texas and Boulder, Colorado, on April 6,
1999 for additional testing of its credit card system. These facilities serve as
a contingency backup facility in several of the Company's Y2K disaster
scenarios, including disrupted utilities and telecommunications services in the
Abilene, Texas area. Other contingency plans include agreements with several
suppliers for materials and support, ranging from computers and other hardware
to software support to power generators.
Management believes that the Company's practice of equipment and
software upgrades provides existing and potential customers with a commercially
attractive means of addressing their Y2K compliance problems through outsourcing
these services to the Company. The Company's new banking software is certified
and fully Y2K compliant and, therefore, a solution for banks facing this
processing crisis. However, no assurance to this effect can be given. The
Company has also set up a guest machine, or guest operating system, on its
mainframe computer, using "date rolling software." The guest operating system
utilizes its own dedicated hardware and files, without having any impact on the
true production environment. The guest operating system processes the same
operations as the true production system, only at an advanced date. By utilizing
the guest system, the Company is able to identify potential "day-date" related
system failures far enough in advance to address and correct any date related
problems on the true production system.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") recently issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which is currently required to
be adopted as of December 31, 2000. SFAS No. 133 establishes standards for
reporting financial and descriptive information regarding derivatives and
hedging activity. Since the Company does not have any derivative instruments,
this standard will have no impact on the Company's financial position or results
of operations.
ITEM 3. DESCRIPTION OF PROPERTY
On August 24, 1999, the Company entered into a new lease for its,
36,182 square feet, office space from American State Bank, at an annual cost of
approximately $23,514. All portions of the leased space are automatically
renewable for a like period of time, if notification of termination is not made
by the landlord 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.
On April 2, 1998, the Company acquired, from an unaffiliated third
party, real property consisting of land and a 3,400 square foot building,
located at 325 Hickory Street, Abilene, Texas 79601. This property was acquired
by the Company to act as a credit card embossing center as required by VISA and
MasterCard. The Company paid $68,000 to acquire the property and is in the
process of making approximately $140,000 of improvements to the building.
26
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of January 1, 2000, the Company had issued and outstanding
38,511,512 shares of Common Stock. The following table reflects, as of January
1, 2000 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:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES # PERCENT
- ------------------------------------ ------------------ -------
<S> <C> <C>
CNG Financial Corporation
4824 Socialville-Fosters Rd.
Mason, Ohio 45040 34,000,000(1) 88.28
Jared Davis
4824 Socialville-Fosters Rd.
Mason, Ohio 45040 34,000,000(1) 88.28
A. David Davis
4824 Socialville-Fosters Rd.
Mason, Ohio 45040 34,000,000(1) 88.28
Allen Davis
4824 Socialville-Fosters Rd.
Mason, Ohio 45040 34,000,000(1) 88.28
Roland Koch
4824 Socialville-Fosters Rd.
Mason, Ohio 45040 34,041,667(1)(2) 88.28
Glenn M. Gallant
3020 N.W. 33rd Avenue
Fort Lauderdale, Florida 33311 7,085,470(3) 18.40
Douglas R. Baetz
3020 N.W. 33rd Avenue
Fort Lauderdale, Florida 33311 7,085,470(3) 18.40
Kenneth A. Klotz
1157 North 5th Street
Abilene, Texas 79601 204,949(4)(5) *
Charles LaMontagne
1157 North 5th Street
Abilene, Texas 79601 206,365(4)(5) *
Olan Beard
1157 North 5th Street
Abilene, Texas 79601 202,000(4)(5) *
Robert M. Feldman
2720 Sonata Drive
Columbus, Ohio 43209 119,000(4)(5) *
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT
- ------------------------------------ ----------------- -------
<S> <C> <C>
Donald L. Thone
202 Hickory Creek Lane
Little Rock, Arkansas 72212 100,000(4)(5) *
John Courter
4824 Socialville-Fosters Rd.
Mason, Ohio 45040 8,334(6) *
All directors and officers as a group
(9 persons) 34,582,315 88.50
</TABLE>
- --------------------
# 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.
* Represents less than 1% of the issued and outstanding shares of the
Company.
(1) In September and October, 1999, pursuant to the terms of the
CLCK/CNG Stock Purchase Agreement, CNG purchased 24,000,000 shares of Common
Stock of the Company for a purchase price of $3,000,000. Pursuant to the
CLCK/CNG Stock Purchase Agreement, CNG was granted the CNG Stock Options to
purchase an additional 10,000,000 shares of Common Stock for the purchase price
of $2,000,000, which Stock Options must be exercised by CNG on or before
September 16, 2000. All such options are vested. The CNG Stock Options are
exercisable in whole, and not in part. CNG has orally agreed to exercise the CNG
Stock Options at any time that the Company indicates a need for these funds for
operations. However, no assurance can be given that CNG will exercise the CNG
Stock Options when called upon to do so. Messrs. Jared Davis, A. David Davis and
Allen Davis beneficially own the issued and outstanding common stock of CNG and
the CNG Stock Options, and are officers and directors of CNG. Roland Koch is an
officer of CNG.
(2) Includes options to acquire 125,000 shares of Common Stock at an
exercise price of $0.40 per share, of which 41,667 are vested.
(3) Includes 1,736,512 shares owned by Century, which is an affiliate
of both Messrs. Baetz and Gallant, and options to acquire 33,333 shares of
Common Stock at an exercise price of $0.62 per share.
(4) Includes options to acquire 50,000 shares of Common Stock at an
exercise price of $0.48 per share.
(5) Includes options, granted August 6, 1999, to acquire 150,000 shares
of Common Stock at an exercise price of $0.23 per share, of which 150,000 are
vested.
(6) Includes options to purchase up to 25,000 shares of Common Stock at
an exercise price of $0.40 per share, of which 8,334 are vested.
28
<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
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.
Other then Allen Davis, who is the father of both Jared Davis and A David Davis,
all of whom are directors of the Company, 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
---- -------- ---
Kenneth A. Klotz President and Chairman of the Board 54
of Directors and a Director
Charles LaMontagne Chief Financial Officer, Executive
Vice President, Secretary and Director 46
Olan Beard Executive Vice President, Chief
Operating Officer and Director 45
Robert M. Feldman Director 67
Donald L. Thone Director 52
Jared Davis Director 31
A. David Davis Director 34
Allen Davis Director 57
Roland Koch Director 52
John Courter Vice-President Marketing 53
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. On November 3, 1998, Mr. Klotz became the Chairman of
the Board of Directors. 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 nineteen years.
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 now serves as the
Company's Executive Vice President. On March 10, 1998, Mr. LaMontagne was
appointed Chief Financial Officer of the Company. On November 3, 1998, Mr.
LaMontagne became the Company's Secretary. Prior to joining FICI, Mr. La
Montagne 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 now serves as the
Company's Executive Vice President and Chief Operations Officer. 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.
29
<PAGE>
ROBERT FELDMAN joined the Board of Directors of the Company on June 4,
1998. Mr. Feldman has been the President, Chief Executive Officer and Chairman
of the Board of Directors of Health & Leisure, Inc., a public company, from 1993
to the present. Mr. Feldman acts as a consultant in the health care industry.
Mr. Feldman holds a Bachelors of Science Degree from Ohio State University in
Pharmacy.
DONALD L. THONE joined the Board of Directors on June 4, 1998. Mr.
Thone was the President and Chief Executive Officer of Synagro Technologies,
Inc. ("Synagro") from January, 1994 until February, 1998, and Chairman of
Synagro from February, 1998 through August, 1998. Mr. Thone is currently a
consultant to Synagro. Mr. Thone has managed numerous companies in the
environmental industry. Mr. Thone holds a Bachelors of Science Degree from
Arkansas Tech. University and a MED degree from Northeastern State.
JARED A. DAVIS joined the Company as a director on November 16, 1999.
Mr. Davis is President of CNG. Mr. Davis founded Check 'n Go in 1994 and
continues to direct all market research, product development, new market
expansion, and site development for that company, which is a wholly-owned
subsidiary of CNG. Mr. Davis started his career at Provident Bank. While at
Provident Bank, Mr. Davis worked in the Collections and Repossessions Division.
He left Provident Bank as a teller in 1993 to manage a privately owned savings
and loan portfolio, during which time he began exploring the concept of opening
up a deferred deposit business. Mr. Davis received his B.S. in Economics from
the University of Cincinnati in 1992.
A. DAVID DAVIS joined the Company as a director on November 16, 1999.
Mr. Davis in the Executive Vice President of CNG and oversees store operations,
human resources, the legal operations of CNG and the Arrow Media Group, a
wholly-owned subsidiary of CNG. Mr. Davis was Vice President of Provident Bank
for three years, where he was instrumental in developing the bank's proprietary
family of mutual funds and earned his Series 7 General Securities License, as
well as his Series 24 Principal's License, from the NASD. During that time, Mr.
Davis also served as Vice President and Sales Manager of Provident Securities
and Investment Company, a full service broker dealer. Mr. Davis currently serves
as President and Board Member of the Kentucky Deferred Deposit Association and
as a Board Member of the Wisconsin Deferred Deposit Association, the Indiana
Deferred Deposit Association, and the Ohio Check Cashiers Association. He
received his B.B.A. in Finance from the University of Cincinnati in 1987.
ALLEN DAVIS joined the Company as a director on November 16, 1999. Mr.
Davis has been actively involved in CNG, since his retirement on May 1, 1998, as
President and CEO of Provident Financial Group, Inc., a financial services
institution headquartered in Cincinnati, Ohio. He held that position for
fourteen years.
ROLAND KOCH joined the Company as a director on November 16, 1999. Mr.
Koch is CNG's Senior Vice President responsible for the Information Systems
Department of CNG. Mr. Koch is additionally responsible for Check `n Go's
alternative distribution strategy in host retailers, electronic card products,
rewards programs and information based marketing strategies. Prior to joining
CNG, he spent eleven years at Provident Financial Group as Senior Vice
President, Chief Information Officer and Chief Operations Officer responsible
for implementing several operational systems and automation systems for Year
2000 Readiness, disaster recovery and back up; and business consolidation. He
also worked for ADP for thirteen years as Vice President in customer service,
sales, product development, and marketing management. Mr. Koch graduated from
the Ohio State University in 1969 with a Bachelor of Arts degree in the
Humanities.
JOHN COURTER joined the Company as Vice President of Marketing on
November 18, 1999. Mr. Courter is CNG's Vice-President for Special Projects
since January, 1999. Mr. Courter has been responsible for developing and
implementing Check 'n Go's alternative distribution channel and strategy. Mr.
Courter's career spans 29 years in executive and marketing positions with
Bristol Myers Squibb, Corning Inc., Convergy, The Andrews Jergens Company and
the Merit Value Services Group division of Provident Bank. Mr. Courter is a
graduate of the University of Cincinnati in with a Bachelor of Business
Administration in Marketing. Mr. Courter is on the board if the Arthritis
Foundation and a past Vice President of the Board of Directors of the Ronald
McDonald House of Greater Cincinnati.
30
<PAGE>
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.
See "Item 5 - Indemnification of Directors and Officers."
ITEM 2. EXECUTIVE COMPENSATION
EMPLOYMENT AGREEMENTS. On November 5, 1998, the Company entered into
written five (5) year employment agreements with Messrs. Klotz, LaMontagne and
Beard, the Company's executive officers. These agreements provide for annual
compensation of $108,000, $81,250 and $81,250, respectively, plus other
benefits. These executive officers will also be entitled to participate in stock
option and bonus plans which have been adopted by the Company for the Company's
officers, directors, employees and consultants. In the event of their
involuntary termination, other than for cause or certain other circumstances,
each of such persons will be entitled to receive the unpaid base salary, which
would otherwise be payable to such persons during the remainder of the term of
the employment agreement, in semi-monthly installments during the remainder of
such term. See "Stock Option Plan-Non-Qualified Stock Options."
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
$100,000, for the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
AWARDS PAYOUTS
- ----------------------------------------------------------------------------------------------------------------------
RESTRICTED SECURITIES
NAME AND OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
PRINCIPAL COMPENSATION AWARDS(S) OPTIONS/SAR PAYOUTS COMPENSATION
POSITION YEAR SALARY BONUS ($) ($) (#) ($) ($)
- --------------- ------- ----------- ---------- --------------- ------------ --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kenneth A.
Klotz (1) 1999 $108,000 -0- -0- -0- 150,000 - -
1998 $ 89,941 -0- $2,400 -0- 50,000 - -
</TABLE>
- ------------------------
(1) Mr. Klotz was appointed as the Company's Chief Executive Officer on
September 23, 1997.
31
<PAGE>
OPTIONS/SAR GRANTS TABLE DURING LAST FISCAL YEAR. The following table
sets forth certain information concerning grants of stock options to certain of
the Named Executives, for the fiscal year ended December 31, 1999:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATE OF
STOCK PRICE APPRECIATION
INDIVIDUALS GRANTS FOR OPTION TERM (1)
- ------------------------------------------------------------------------------------------------------------
(C)
(A) (B) % OF (D) (E) (F) (G)
NUMBER OF TOTAL
SECURITIES OPTIONS/
UNDERLYING SARS
OPTIONS/ GRANTED TO EXERCISE
SARS EMPLOYEES OR BASE
GRANTED IN FISCAL PRICE EXPIRATION
NAME (#) YEAR ($/SHARE) (1) DATE (1) 5% ($) 10%($)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth A. Klotz (2) 150,000 27% $0.23 8/06/04 $43,513 $63,942
</TABLE>
- --------------------
(1) This chart assumes a market price of $0.4075. For the Common Stock,
the average of the bid and asked prices for the Company's Common Stock in the
over-the-counter market, as of December 31, 1999, as the assumed market price
for the Common Stock with respect to determining the "potential realizable
value" of the shares of Common Stock underlying the options described in the
chart, as reduced by any lesser exercise price for such options. Each of the
options reflected in the chart was granted at exercise prices, which the Company
believes to have been determined based on 85% of the fair market value of the
Common Stock as of the date of grant. Further, the chart assumes the annual
compounding of such assumed market price over the relevant periods, without
giving effect to commissions or other costs or expenses relating to potential
sales of such securities. The Company's Common Stock has a limited trading
history. These values are not intended to forecast the possible future
appreciation, if any, price or value of the Common Stock. See "Item 1-Market
Price of and Dividends on the Registrant's Common Equity and Other Shareholder
Matters" and "Executive Compensation-Stock Option Plan."
[THIS NEEDS TO BE COMPLETED]
(2) Mr. Klotz was granted an option to purchase up to 150,000 shares of
Common Stock at an exercise price of $0.23 per share, or approximately 85% of
the fair market value of the Common Stock, as of such date.
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 submitted to the
Stockholders for approval at the Company's annual meeting of stockholders held
in July, 1998, where it was approved. The Company has reserved for issuance
thereunder an aggregate of 1,250,000 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.
32
<PAGE>
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 granted options to purchase up to 1,116,666 shares of
Common Stock under the Stock Option Plan at exercise prices between $0.21 and
$0.62 per share.
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.
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.
33
<PAGE>
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 Registration Statement, no ISO's have been
granted under the Stock Option Plan.
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 Registration Statement, the Company has granted
NSO's to officers, directors and former directors to purchase up to 1,116,666
shares of Common Stock under the Stock Option Plan at exercise prices between
$0.23 and $0.62 per share. All such options are fully vested.
PER SHARE
EXERCISE
GRANTEE POSITION: OPTIONS PRICE ($)
-----------------------------------------------------------------------
Douglas R. Baetz former director 33,333 0.62
Glenn Gallant former director 33,333 0.62
Kenneth A. Klotz director 50,000 0.48
Kenneth A. Klotz director 150,000 0.23
Olan Beard director 50,000 0.48
Olan Beard director 150,000 0.23
Charles LaMontagne director 50,000 0.48
Charles La Montagne director 150,000 0.23
Donald L. Thone director 50,000 0.48
Donald L. Thone director 50,000 0.23
Robert M. Feldman director 50,000 0.48
Robert M. Feldman director 50,000 0.23
Roland Koch director 125,000 0.40
John Courter director 25,000 0.40
Matthias & Berg LLP legal counsel 100,000 0.48
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
therefore, 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 Registration Statement, no SAR's have been
granted.
34
<PAGE>
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.
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. On March 20, 1998, the Company entered into a consulting
agreement with Worldwide Corporate Finance ("Worldwide"). Worldwide, through its
individual affiliate, Michael Markow provided 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. A dispute arose between the Company and
Worldwide and the parties agreed to terminate the consulting agreement. As
compensation for services, the Company granted to Mr. Markow options to purchase
up to 700,000 shares of Common Stock, at varying prices between $0.95 and $1.70,
which are the subject of a currently effective registration statement. Worldwide
elected, in part, to make payment 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. The consulting services provided by
Worldwide resulted in 235,000 shares being exercised for services rendered and
40,000 shares being exercised for cash. Upon termination of the consulting
agreement, the balance of the options were canceled and the Company paid
Worldwide the sum of $15,000.
On July 1,1998, the Company issued to Matthias & Berg LLP, counsel to
the Company, ten (10) year options to purchase up to 100,000 shares of the
Company's Common Stock at an exercise price of $2.28 per share, which were
repriced to $0.48 per share as of December 24,1998.
COMPENSATION OF DIRECTORS
The Company does not currently compensate directors for services
rendered as directors.
TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS
The Company and its subsidiaries have 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.
35
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors has a standing compensation committee consisting
or Allen Lee Davis or other board committee performing equivalent functions.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the last two years Messrs. Gallant and Baetz, have had existing
business relationships and affiliations involving entities with which the
Company is doing business. These business entities include Fi-Scrip, Century,
Berwyn Holdings, Inc. ("Berwyn") and Access Communications Corp. ("Access"). 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. Gallant and Baetz purchased Fi-Scrip, which
produces the software and firmware that drives ATMs and a wide-array of credit
card and debit card point-of-sale swipe machines. Fi-Scrip has entered into and
agreement with the Company to provide services in connection with a certain
agreement that Fi-Scrip 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. During the year ended December 31, 1998, the Company billed
approximately $168,000 for services rendered to Fi-Scrip, of which $149,000
remained as accounts receivable at December 31, 1998. As of January 1, 1999,
Messrs. Baetz and Gallant contributed, as additional paid in capital, all of the
common stock of Fi-Scrip to the Company for no consideration.
On September 11, 1997, the Company entered into the Line of Credit with
Century. The Line of Credit provided 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. 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. On October 31, 1998, the
Company renewed the Line of Credit, and reduced the aggregate maximum amount of
available credit to $700,000. As of December 31, 1999, the principal outstanding
obligation to Century on the Line of Credit had been paid-off completely. See
"Item 2 - Management's Discussion and Analysis or Plan of Operation."
On September 16, 1999 FICI effectively terminated an eight hundred
thousand dollar ($800,000) unsecured operating line of credit through Century
Financial Group, Inc., a company owned by the Company's then primary
shareholders. FICI through negotiations with Century Financial Group, Inc., was
able to offset $576,352 in accounts receivable from Century to FICI against the
$827,921 balance of the line of credit, which included $27,921 in accrued
interest payable, and through its parent Columbia Capital Corp. issued
$1,006,276 shares of Columbia Capital Corp. Common Stock in consideration of the
remaining $251,569 balance of the line of credit. The line of credit carried an
annual percentage rate of ten percent (10%). Under the terms of the line of
credit, FICI paid interest on a monthly basis with the unpaid principal due at
maturity, September 15, 1999. The understanding balance on the line of credit as
of December 31, 1998 and 1997 was $700,000 and $1,300,000, respectively.
On September 16, 1999, Fi-Scrip effectively terminated an operating
line of credit through Century Financial Group, Inc., a company owned by the
Company's then primary shareholders. Fi-Scrip through negotiations with Century
Financial Group, inc. was able to, through its parent company Columbia Capital
Corp., issue 730,236 shares of Columbia Capital Corp. Common Stock in
consideration of the $182,559 balance of the line of credit of two hundred and
fifty thousand dollars ($250,000). The note carried an annual percentage rate of
ten percent (10%). Under the terms of the note, Fi-Scrip paid interest on a
monthly basis with the unpaid principal due on demand.
36
<PAGE>
On December 1, 1997, FICI entered into a lease agreement with The
Century Group, Inc. ("Century Group"), owned by the Company's former principal
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 $31,746, plus applicable sales and use
taxes. The Company also agreed to pay Century Group, as additional rent for its
share of the operating expenses associated with the premises. On December 1,
1998 the lease for the office space located at 2701 West Oakland Park Boulevard,
Ft. Lauderdale, Florida expired and the Company did not renew the lease.
During the year ended December 31, 1999, the Company billed Century for
services rendered in the amount of approximately $457,113. The $475,113 was
netted against the notes payable to Century by the FICI and Fi-Scrip in
connection with the CLCK/Century Stock Purchase Agreement dated as of September
16, 1999. See "Recent Sales of Unregistered Securities."
During the year ended December 31, 1998, the Company generated
approximately $1,650 in net revenues from Berwyn an affiliate of Messrs. Gallant
and Baetz.
On May 1, 1998, the Company entered into a three-year agreement with
Access, a company whose common stock is owned by Messrs. Gallant and Baetz.
Access is a reseller of long distance telephone and other telecommunications
services and products. Access believes that it is able to offer its customers
better rates on long distance then they can obtain from major facilities-based
carriers in exchange for volume purchase commitments. However, no assurance to
this effect can be given. The agreement designates Access as the carrier of
choice and call for Access to charge the Company $0.0525 per minute for all long
distance calls. During the year ended December 31, 1998, the Company was billed
approximately $73,000 for services rendered by Access. For the nine months ended
September 30, 1999, the Company was billed approximately $30,000 for services
rendered by Access. In a letter dated June 6, 1999, the Company effectively
terminated the agreement with Access and currently uses MCI Worldcom as the
Company's long distance and telecommunications service provider.
In September and October, 1999 CNG purchased 24,000,000 shares of
Common Stock for an aggregate purchase price of $3,000,000. Pursuant to the
CLCK/CNG Stock Purchase Agreement, CNG was granted the CNG Stock Options to
purchase an additional 10,000,000 shares of Common Stock for the purchase price
of $2,000,000, which Stock Options must be exercised by CNG on or before
September 16, 2000. All such options are vested. The Stock Options are
exercisable in whole, and not in part. CNG has orally agreed to exercise the CNG
Stock Options at any time that the Company indicates a need for these funds for
operations. However, no assurance can be given that CNG will exercise the CNG
Stock Options when called upon to do so.
In connection with the CNG transaction, the Company issued to Century,
an affiliate of Messrs. Gallant and Baetz, 1,736,512 shares of Common Stock in
consideration of the cancellation of the obligation of $434,128 due and payable
by the Company to Century.
As of the date of this Registration Statement, the Company negotiated
but has not entered into an agreement with CNG to perform data processing and
other services in connection with CNG's various business activities. CNG is the
Company's principal shareholder. The agreement, if executed, is anticipated to
have an initial term of five (5) years and will automatically renew for an
additional three (3) year term, unless written notice is given by either party
no less than one hundred eighty (180) days prior to expiration of a given term.
CNG operates various programs through its various business activities including
credit card and debit card programs, a payday loan program through its Check 'n
Go stores. Lastly, the Company has begun to provide services to the portions of
CNG's business operations, which relate to collections and the Company is to
provide software development services for the automation of the various CNG
operations. The Company anticipates beginning to generate revenues from the
relationship with CNG in February, 2000. The Company estimates that the value of
services to be provided to CNG by the Company should be approximately $1,280,000
in 2000. However, no assurance to that effect can be given.
ITEM 8. DESCRIPTION OF SECURITIES
37
<PAGE>
COMMON STOCK
The Company is authorized to issue 50,000,000 shares of $0.001 par
value Common Stock. There are 38,511,512 shares of Common Stock issued and
outstanding, as of the date of this Registration Statement. Subject to those
preferential rights, as may be determined by the Board of Directors of the
Company in the future in connection with the issuance of a series of Preferred
Stock, holders of Common Stock are entitled to cast one vote for each share held
of record, to receive such dividends as may be declared by the Board of
Directors out of legally available funds and to share ratably in any
distribution of the Company's assets after payment of all debts and other
liabilities, upon liquidation, dissolution or winding up. Stockholders do not
have preemptive rights or other rights to subscribe for additional shares, and
the Common Stock is not subject to redemption. The outstanding shares are
validly issued, fully paid and nonassessable.
Under Delaware law, each holder of a share of Common Stock is entitled
to one vote per share for each matter submitted to the vote of the stockholders,
and cumulative voting is allowed for the election of directors, if provided for
in the Certificate of Incorporation. The Company's Certificate of Incorporation
does not provide for cumulative voting.
PREFERRED STOCK
The Company's articles of incorporation authorize the issuance of up to
5,000,000 shares of $0.001 par value preferred stock. There are no shares of
Preferred stock issued. The Company's board of directors has the power, without
further action by the holders of common stock, to designate the relative rights
and preferences of the preferred stock, and to issue the preferred stock in such
one or more series as designated by the board of directors. The designation of
rights and preferences could include preferences as to liquidation, redemption
and conversion rights, voting rights, dividends or other preferences, any of
which may be dilutive of the interest of the holders of the common stock or the
preferred stock of any other series. The issuance of preferred stock may have
the effect of delaying or preventing a change in control of the Company without
further shareholder action and may adversely affect the rights and powers,
including voting rights, of the holders of common stock. In certain
circumstances, the issuance of preferred stock could depress the market price of
the common stock. The board of directors effects a designation of each series of
preferred stock by filing with the Delaware Secretary of State a certificate of
designation defining the rights and preferences of each such series.
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 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 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.
38
<PAGE>
The holders of shares of Common Stock are entitled to receive ratably
such dividends as may be declared by the Board of Directors out of funds legally
available therefore and, in the event of the liquidation or dissolution of the
Company, are entitled to share ratably in all assets remaining after payment of
liabilities. Holders of Common Stock have no preemptive rights and have no
rights to convert their Common Stock into any other securities of the Company.
No dividend has been declared or paid by the Company since its inception.
CLASSIFIED BOARD AND RESTRICTIVE REMOVAL PROVISION
The Certificate of Incorporation provides that at the first annual
meeting of the Company's stockholders after the authorized number of directors
is seven (7) or more, that Board of Directors shall be divided into three
classes, Class I, Class II and Class III. The Company's Board of Directors
currently consists of nine (9) members. As a result, in the event that the
Company has seven (7) or more members of the Board of Directors at its next
annual meeting of shareholders, the Company's Board of Directors will be divided
into three (3) classes with staggered terms. The initial Class I directors will
serve for a term of one year, the Class II directors for a term of two years,
and the Class III directors for a term of three years. Thereafter, all directors
shall serve for three year terms. The effect of these provisions is that not
more than one-third of the Company's directors will be elected at any single
annual meeting. As a result, a person seeking control of the Company may not
necessarily be able to acquire a controlling block of stock and effect an entire
change in management at a single annual meeting.
In addition, the Certificate of Incorporation provides that directors
of the Company may be removed for cause or without cause and only by the
affirmative vote of least 80% of the voting power of all outstanding shares of
the Company's voting stock, thus forcing a third party seeking to gain control
of the Board of Directors to await the expiration of the respective terms of
incumbent directors, unless there was sufficient voting strength to remove a
particular director or directors. The Certificate of Incorporation further
provides, however, that if a majority of the directors approves the removal of a
director for cause or without cause, then the only stockholder vote required
would be that of a majority of the voting power of all outstanding shares of
voting stock.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
COMMON STOCK
As of December 31, 1999, the authorized capital stock of the Company
consisted of 50,000,000 shares of Common Stock, and 5,000,000 shares of
Preferred Stock. As of the date of this Registration Statement, there were
issued and outstanding 38,511,512 shares of Common Stock and no shares of
Preferred Stock.
The Company's Common Stock is listed for trading on the 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 ENDED DECEMBER 31, 1998
1st Quarter 2.00 0.88 2.50 1.13
2nd Quarter 4.25 1.69 4.38 1.88
3rd Quarter 5.25 2.50 5.38 2.63
4th Quarter 2.69 0.56 2.88 0.69
YEAR ENDED DECEMBER 31, 1999
1st Quarter 1.13 0.13 1.22 0.22
2nd Quarter 0.47 0.19 0.59 0.31
3rd Quarter 0.31 0.19 0.44 0.22
4th Quarter 0.88 0.28 1.01 0.35
39
<PAGE>
The closing bid and asked sales prices of the Company's Common Stock,
as traded in the over-the-counter market, on December 30, 1999, was $0.375 and
$0.44, 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.
TRANSFER AGENT
The transfer agent for the Company is Interwest Stock Transfer Co.,
Inc., 1981 East 4800 South, Salt Lake City, Utah 84117.
ANNUAL REPORTS
The Company is currently subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information may be
inspected and copied at the public reference facilities of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549; at its New York
Regional Office, Room 1300, 7 World Trade Center, New York, New York, 10048; and
at its Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and copies of such materials can be obtained from the Public
Reference Section at prescribed rates. In addition, such materials may be
accessed electronically at the Commission's site on the World Wide Web, located
at http://www.sec.gov. The Company intends to furnish its stockholders with
annual reports containing audited financial statements and such other periodic
reports as the Company may determine to be appropriate or as may be required by
law.
DIVIDEND POLICY
The Company has paid no dividends on its Common Stock as of the date of
this Registration Statement 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.
SHARES ELIGIBLE FOR FUTURE SALE
The shares issued to Messrs. Gallant and Baetz and Bay Tree are
"restricted securities" as that term is defined in Rule 144 promulgated under
the Act. In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
shares for a least one year, including persons who may be deemed "affiliates" of
the Company, as that term is defined under the Act, would be entitled to sell
within any three month period a number of shares that does not exceed the
greater of 1% of the then outstanding shares or the average weekly trading
volume of shares during the four calendar weeks preceding such sale. Sales under
Rule 144 are also subject to certain manner-of-sale provisions, notice
requirements and the availability of current public information about the
Company. A person who has not been an affiliate of the Company at any time
during the three months preceding a sale, and who has beneficially owned his
shares for at least one year, would be entitled under Rule 144 to see such
shares without regard to any volume limitations under Rule 144.
Future sales of shares of Common Stock by the Company and its
stockholders could adversely affect the prevailing market price of the Common
Stock. As of December 31, 1999, 12,488,715 shares of Common Stock 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. In addition, approximately shares of the Company's restricted
Common Stock may be sold into the Over-The-Counter market pursuant to Rule 144.
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.
40
<PAGE>
ITEM 2. LEGAL PROCEEDINGS
To the best knowledge of management, there is no material litigation,
pending or threatened, or judgment entered against the Company or any executive
officers or directors of the Company in their capacity as such.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The Company has no disputes or disagreements with its accountants.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
On September 16, 1999, pursuant to the terms of CLCK/CNG Stock Purchase
Agreement, CNG purchased 24,000,000 shares of Common Stock for a purchase price
of $3,000,000. Pursuant to the CLCK/CNG Stock Purchase Agreement, CNG was
granted the CNG Stock Option to purchase an additional 10,000,000 shares of
Common Stock for the purchase price of $2,000,000. CNG has agreed to exercise
the CNG Stock Option at any time that the Company indicates a need for these
funds for operations. However, no assurance can be given that CNG will exercise
the CNG Stock Options when called upon to do so.
In connection with the CLCK/CNG Stock Purchase Agreement, the Company
entered into the CLCK/Century Stock Purchase Agreement, dated as of September
16, 1999, with Century. Under the terms and conditions of the CLCK/Century Stock
Purchase Agreement, Century purchased 1,736,512 shares of Common Stock of the
Company in consideration of the cancellation of the obligation of $434,128 due
and payable by the Company to Century.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
DIRECTORS AND OFFICERS LIABILITY INSURANCE. The Company has obtained
directors' and officers' liability insurance with an aggregate limit of
liability for the policy year, inclusive of costs of defense, in the amount of
$2,000,000. The insurance policy expires on April 8, 2000.
LIMITATIONS ON DIRECTORS' LIABILITIES; INDEMNIFICATION OF OFFICERS AND
DIRECTORS. 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.
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.
In addition, the Company has adopted a form of indemnification
agreement (the "Indemnification Agreement"), which provides the indemnities with
the maximum indemnification allowed under applicable law. The Company has
entered into Indemnification Agreements with each of its directors. Since the
Delaware statute is non-exclusive, it is possible that certain claims beyond the
scope of the statute may be indemnifiable. The Indemnification Agreements
provide a scheme of indemnification, which may be broader than that
specifically, provided by Delaware law. It has not yet been determined, however,
to what extent the indemnification expressly permitted by Delaware law may be
expanded, and therefore the scope of indemnification provided by the
Indemnification Agreements may be subject to future judicial interpretation.
41
<PAGE>
The Indemnification Agreement provides, in pertinent part, that the
Company shall indemnify an indemnitee who is or was a party or becomes a party
or is threatened to be made a party to any threatened, pending or completed
action or proceeding whether civil, criminal, administrative or investigative by
reason of the fact that the indemnitee is or was a director, officer, key
employee or agent of the Company or any subsidiary of the Company. The Company
shall advance all expenses, judgments, fines, penalties and amounts paid in
settlement (including taxes imposed on indemnitee on account of receipt of such
payouts) incurred by the indemnitee in connection with the investigation,
defense, settlement or appeal of any civil or criminal action or proceeding as
described above. The indemnitee shall repay such amounts advanced only if it
shall be ultimately determined that he or she is not entitled to be indemnified
by the Company. The advances paid to the indemnitee by the Company shall be
delivered within 20 days following a written request by the indemnitee. Any
award of indemnification to an indemnitee, if not covered by insurance, would
come directly from the assets of the Company, thereby affecting a stockholder's
investment.
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.
PART F/S
The following financial statements are provided:
Consolidated balance sheet of Columbia Capital Corp. and subsidiary as
of September 30, 1999 (Unaudited), December 31, 1998 and 1997 (Audited), and the
related statements of operations, stockholders' equity (deficiency) and cash
flows for the nine months ended September 30, 1999 and years ended December 31,
1998 and 1997. The consolidated balance sheet and related statements of
operations, stockholders' equity and cash flows for the nine months ended
September 30, 1999 include the operations of Fi-Scrip, Inc. The consolidated
balance sheet and related statements of operations, stockholders' equity and
cash flows for the years ended December 31, 1998 and 1997 do not include the
operations of Fi-Scrip, Inc. for those periods and if included would be
immaterial.
42
<PAGE>
PART III
ITEM 1 INDEX TO EXHIBITS
-----------------
EXHIBIT DESCRIPTION OF DOCUMENT
- ------- -----------------------
2.1 Agreement and Plan of Reorganization (September 23, 1997)
(1)
3.1 Certificate of Incorporation, as amended (1)
3.2 Bylaws (1)
4.1 Specimen Stock Certificate (1)
10.1 Lease Agreement (Fort Lauderdale, Florida) (1)
10.2 Lease Agreement (Abilene, Texas) (1)
10.3 Form of Data Processing Services Agreement (1)
10.4 Line of Credit Agreement (3)
10.5 Stock Option Plan (3)
10.6 Lease of Equipment with IBM dated as of May 29, 1986
10.7 Service Agreement between Access Communications, Inc. and
Berwyn Holdings, Inc. dated February 1, 1998
10.8 Service Agreement between Access Communications, Inc. and
FiScrip, Inc., dated May 1, 1998
10.9 Service Agreement between Access Communications, Inc. and
the Company, dated May 1, 1998
10.10 Line of Credit Agreement between Century Financial Group,
Inc. and the Company, dated October 31, 1998
10.11 Agreement with FiScrip dated March 1, 1998
10.12 Agreement to Acquire shares of FiScrip dated January 1, 1999
10.13 Agreement for the Purchase of Stock, by and between the
Company and CNG Financial Corporation, an Ohio corporation
("CNG"), dated as of September 16, 1999, and Amendment No. 1
thereto, dated as of September 30, 1999 (2)
10.14 Non-Qualified Stock Option Agreement, by and between the
Company and CNG, dated as of September 16, 1999, and
Amendment No.1 thereto, dated as of September 30, 1999 (2)
10.15 Agreement for the Purchase of Stock, by and among Century
Financial Group, Inc., a Florida corporation ("Century") and
CNG, dated as of September 16, 1999. (2)
10.16 Agreement for the Purchase of Stock, by and among Century
and the Company, dated as of September 16, 1999. (2)
16.1 Letter re Change of Certified Public Accountant David T.
Thompson, P.C., dated December 4, 1997 (3)
24.1 Power of Attorney (included on signature page).
27.1 Financial Data Schedule
- ----------------
(1) Filed as part of Amendment No. 1 to Form 10-SB filed with
the Commission as of June 18, 1998.
(2) Filed as part of Form 8-K as filed with the Commission on
October 1, 1999.
(3) Filed first as part of the Annual Report on Form 10-KSB for
the year ended December 31, 1997, as amended.
43
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
COLUMBIA CAPITAL CORP.
Dated: February __, 2000 By: /S/ Kenneth A. Klotz
-----------------------------
Kenneth A. Klotz, President
Pursuant to the requirements of the Securities Exchange Act, this
Registration Statement has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Kenneth A. Klotz as his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
and supplements to this Registration Statement, and to file the same with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
NAME TITLE DATE
---- ----- ----
/s/ Olan Beard Executive Vice President,
- ----------------------- Chief Operating Officer and
Olan Beard Director February __, 2000
/s/ Kenneth A. Klotz President, Chairman of the
- ----------------------- Board of Directors and Director February __, 2000
Kenneth A. Klotz
/s/ Charles LaMontagne Chief Financial Officer,
- ----------------------- Executive Vice President,
Charles LaMontagne Secretary and Director February __, 2000
/s/ Robert M. Feldman Director February __, 2000
- -----------------------
Robert M. Feldman
/s/ Donald L. Thone Director February __, 2000
- -----------------------
Donald L. Thone
/s/ Jared Davis Director February __, 2000
- -----------------------
Jared Davis
/s/ A. David Davis Director February __, 2000
- -----------------------
A. David Davis
/s/ Allen Davis Director February __, 2000
- -----------------------
Allen Davis
/s/ Roland Koch Director February __, 2000
- -----------------------
Roland Koch
44
<PAGE>
COLUMBIA CAPITAL CORP.
-----------------------
Consolidated Financial
Statements
-----------------------
September 30, 1999 and
1998 - (Unaudited)
December 31, 1998 and
1997 - (Audited)
<PAGE>
<TABLE>
COLUMBIA CAPITAL CORP.
Consolidated Balance Sheet
Nine Months Ended September 30, 1999 (Unaudited) and
Year Ended December 31, 1998 (Audited)
<CAPTION>
September 30, December 31,
ASSETS 1999 1998
(Unaudited) (Audited)
----------------- -----------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 975,566 $ 268,400
Interest bearing deposits with banks 501,000 501,000
Accounts receivable, net 148,765 447,844
Prepaid expenses 434,423 582,633
Federal income tax receivable 512,205 81,602
Stock purchase contract receivable 2,500,000 -
Other assets 115,000 -
----------------- -----------------
Total current assets 5,186,959 1,881,479
Premises and equipment 1,884,261 1,763,326
Less accumulated depreciation 554,068 260,381
----------------- -----------------
Net property and equipment 1,330,193 1,502,945
Other assets
Deferred tax asset 101,162 34,113
Goodwill, net of accumulated amortization of $117,684 and $81,162 856,240 892,762
----------------- -----------------
Total other assets 957,402 926,875
----------------- -----------------
Total assets $ 7,474,554 $ 4,311,299
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable $ 2,116,280 $ 298,840
Accrued expenses and other liabilities 510,365 265,521
Current portion of note payable - American State Bank 12,162 11,395
Notes payable - related party - 700,000
Accrued interest payable 573 5,945
----------------- -----------------
Total current liabilities 2,639,380 1,281,701
Long term portion of note payable - American State Bank 129,625 143,182
----------------- -----------------
Total liabilities 2,769,005 1,424,883
SHAREHOLDER'S EQUITY
Common stock , $.001 par value; 50,000,000 shares
authorized; 38,511,512 issued and outstanding 38,512 12,765
Additional paid-in capital 5,595,646 1,990,715
Retained earnings (928,609) 882,936
----------------- -----------------
Total shareholders' equity 4,705,549 2,886,416
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,474,554 $ 4,311,299
================= =================
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements
<PAGE>
<TABLE>
COLUMBIA CAPITAL CORP.
Consolidated Income Statements - Unaudited
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
----------------------------------- -----------------------------------
1999 1998 1999 1998
--------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
REVENUE
Pride $ 11,000 $ 84,000 $ 157,000 $ 263,000
Credit card 281,142 3,041,514 3,797,474 7,740,448
Banking - 150,629 73,842 616,018
Mail operations 18,759 383,841 192,279 826,255
Courier - 8,850 950 51,235
Fi-Scrip 154,288 - 510,979 -
Other 4,379 9,561 6,033 18,877
--------------- ---------------- ---------------- ----------------
Total operating revenue 469,568 3,678,395 4,738,557 9,515,833
EXPENSES
Salaries and employee benefits 767,403 856,382 2,482,695 2,307,886
Equipment and software lease 540,356 489,729 2,016,083 1,318,048
Facilities rent 79,877 113,311 281,059 333,474
Repair and maintenance 111,261 163,785 365,100 438,642
Depreciation 92,973 53,884 282,255 124,685
Amortization of goodwill 12,174 12,174 36,522 36,522
Computer and office supplies 27,694 166,944 192,416 459,708
Telephone 43,590 228,732 192,334 669,037
Professional and outside services 121,942 290,599 575,871 557,989
Taxes 19,869 15,485 73,415 52,427
Travel and entertainment 25,368 40,953 66,930 92,656
Other operating (277,905) 163,406 301,208 374,983
--------------- ---------------- ---------------- ----------------
Total operating expenses 1,564,602 2,595,384 6,865,888 6,766,057
--------------- ---------------- ---------------- ----------------
INCOME (LOSS) FROM OPERATIONS (1,095,034) 1,083,011 (2,127,331) 2,749,776
Recovery of bad debt 224,925 0 224,925 0
Interest income 39,287 13,916 63,347 34,607
Interest expense (23,504) (28,320) (72,826) (96,010)
--------------- ---------------- ---------------- ----------------
Other Total other expense 240,708 (14,404) 215,446 (61,403)
--------------- ---------------- ---------------- ----------------
INCOME (LOSS) BEFORE TAX (854,326) 1,068,607 (1,911,885) 2,688,373
Income tax expense (benefit) (290,413) 364,469 (647,932) 915,189
--------------- ---------------- ---------------- ----------------
NET INCOME (LOSS) $ (563,913) $ 704,138 $ (1,263,953) $ 1,773,184
=============== ================ ================ ================
Basic earnings (loss) per share $ -0.03 $ 0.06 $ -0.09 $ 0.14
=============== ================ ================ ================
Diluted earnings (loss) per share $ -0.03 $ 0.05 $ -0.09 $ 0.14
=============== ================ ================ ================
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements
<PAGE>
<TABLE>
COLUMBIA CAPITAL CORP.
Consolidated Statements of Changes in Shareholders' Equity
Nine Months Ended September 30, 1999 (Unaudited) and
Year Ended December 31, 1998 (Audited)
<CAPTION>
Common Stock Accumulated
------------------------------- Paid-In (Deficit)
Shares Amount Capital Earnings Total
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1997 12,500,000 $ 12,500 $ 1,681,230 $ (481,739) $ 1,211,991
Issuance of common stock 265,000 265 281,485 281,750
Stock options 28,000 28,000
Net loss - - 1,364,675 1,364,675
-------------- -------------- -------------- -------------- --------------
BALANCE - DECEMBER 31, 1998 12,765,000 12,765 1,990,715 882,936 2,886,416
Issuance of common stock 5,746,512 5,747 945,381 951,128
Stock subscription 20,000,000 20,000 2,480,000 2,500,000
Acquisition of Fi-Scrip 179,550 (547,592) (368,042)
Net income - - - (1,263,953) (1,263,953)
-------------- -------------- -------------- -------------- --------------
BALANCE - SEPTEMBER 30, 1999 38,511,512 $ 38,512 $ 5,595,646 $ (928,609) $ 4,705,549
============== ============== ============== =============== ==============
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements
<PAGE>
<TABLE>
COLUMBIA CAPITAL CORP.
Consolidated Statement of Cash Flows - Unaudited
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------------ -------------------------------
1999 1998 1999 1998
-------------- ------------ -------------- --------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (563,913) $ 704,138 $ (1,263,953) $ 1,773,184
Adjustments to reconcile net income to
net cash provided by operations
Depreciation and amortization 117,321 66,058 318,777 161,208
Deferred income taxes (74,580) (921) (67,049) 144,636
(Increase) decrease in
Accounts receivable (126,092) 83,023 (122,370) (236,727)
Deposits, prepaid expenses and other assets 24,063 340,522 73,080 (469,238)
Increase in accruals and accounts payable 502,293 (357,820) 1,315,131 382,202
-------------- ------------ -------------- --------------
Net cash (used in) provided by operating activities (120,908) 835,000 253,616 1,755,265
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (9,844) (443,339) (22,593) (887,859)
Proceeds from the sale of fixed assets -
Investment in subsidiary - - 413,759 -
Investment in interest bearing deposit - - - (300,000)
-------------- ------------ -------------- --------------
Net cash used in investing activities (9,844) (443,339) 391,166 (1,187,859)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit, net of payments (1,121,524) (151,624) (888,744) (441,624)
Issuance of common stock 914,128 113,000 951,128 326,750
-------------- ------------ -------------- --------------
Net cash (used in) provided by financing activities (207,396) (38,624) 62,384 (114,874)
-------------- ------------ -------------- --------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (338,148) 353,037 707,166 452,532
Cash and cash equivalents at beginning of period 1,313,714 117,356 268,400 17,861
-------------- ------------ -------------- --------------
CASH AND CASH EQUIVALENTS END OF PERIOD, $ 975,566 $ 470,393 $ 975,566 $ 470,393
============== ============ ============== ==============
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION:
Interest paid $ 23,504 $ 28,320 $ 72,826 $ 96,010
Taxes paid - 324,000 - 760,000
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements
<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
subsidiaries, First Independent Computers, Inc. ("FICI") and
Fi-Scrip, Incorporated ("Fi-Scrip"). Intercompany accounts and
transactions have been eliminated.
ORGANIZATION AND NATURE OF OPERATIONS
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).
FICI was incorporated on October 21, 1983, pursuant to the provisions
of the Texas Business Corporation Act. FICI'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.
Fi-Scrip, a Nevada corporation, engages in the financial services
business by marketing computer processing services for Automated
Teller Machines ("ATM's") transactions, debit terminal transactions
and Electronic Benefits Transfer system ("EBT") transactions.
Fi-Scrip and its co- venturer, Norstar, Inc., of Orlando, Florida, an
entity in which Fi-Scrip has a 25% ownership interest, contract with
merchants and independent service organizations for deployment of
terminals and services.
MANAGEMENT REPRESENTATION
Management believes the financial statements include all adjustments
necessary in order to present a fair presentation and ensure that the
financial statements are not misleading.
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 and $270,000 at September 30, 1999
and December 31, 1998. The balance of the allowance for uncollectible
accounts was $20,000 at December 31, 1997.
<PAGE>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
REVENUE RECOGNITION
The Company recognizes revenue when services have been provided to
the customer.
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 Statement of
Financial Accounting Standards ("SFAS") No. 121, under which the
Company reviews its long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of the
asset may not be recovered. No provision for impairment has been
recognized with respect to the Company's long lived assets.
PREPAID ASSETS
The Company has expenditures which benefit future periods which are
recorded as prepaid assets or deferred costs and are amortized on a
straight-line basis over the estimated or known period of benefit.
Such prepaid assets and deferred costs include prepaid insurance,
maintenance contracts, certain software licenses and supplies used in
the normal operation of business.
FEDERAL INCOME TAXES
Deferred tax assets and liabilities are recognized for deductible and
taxable temporary differences respectively. Temporary differences are
the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets may be reduced
by a valuation allowance when and if, in the opinion of management,
the tax asset will, in part or in all, not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.
<PAGE>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
PER SHARE DATA
In February 1997, Statement of Financial Accounting Standards No.
128, "Earnings Per Share" (SFAS 128) was issued. Under SFAS 128, net
earnings per share ("EPS") are computed by dividing net earnings by
the weighted average number of shares of common stock outstanding
during the period. SFAS 128 replaces fully diluted EPS, which the
Company was not previously required to report, with EPS, assuming
dilution. The Company adopted SFAS 128 effective December 31, 1998.
The effect of this accounting change on previously reported EPS data
is not significant. The computation of basic earnings (loss) per
share of common stock is based on the weighted average number of
shares outstanding for the nine months ended September 30, 1999 and
1998 of 14,189,094 and 12,574,586 respectively, adjusted
retroactively to reflect the one for two reverse split effective
September 1, 1997. The computation of diluted earnings (loss) per
share of common stock is based on the weighted average number of
shares and equivalent shares outstanding for the nine months ended
September 30, 1999 and 1998 of 14,573,039 and 12,676,864,
respectively. No potential common shares existed at December 31,
1998; therefore, basic loss per share equals diluted loss per share
at that date. The computation of basic earnings (loss) per share of
common stock for the years ended December 31, 1998 and 1997 is based
on the weighted average number of shares outstanding in 1998 and 1997
of 12,666,712 and 12,500,000 respectively, adjusted retroactively to
reflect the one for two reverse split effective September 1, 1997.
The computation of diluted earnings (loss) per share of common stock
is based on the weighted average number of shares and equivalent
shares outstanding in 1998 and 1997 of 12,954,020 and 12,500,000,
respectively. No potential common shares existed at December 31,
1997; therefore, basic loss per share equals diluted loss per share
at that date.
PREFERRED STOCK
The Company, under its articles of incorporation, has the authority
to issue up to five million (5,000,000) shares of preferred stock
with a par value of $.001 each, totaling five thousand dollars
($5,000). The Board of Directors is authorized to provide for the
issuance of the shares of preferred stock in series by filing a
certificate pursuant to the applicable law of the State of Delaware,
to establish the number of shares to be included in each such series,
and to fix the designations, powers, preferences, rights and
limitations of the shares of each series. At September 30, 1999 and
December 31, 1998 and 1997, there were no preferred shares issued or
outstanding.
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.
<PAGE>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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.
NEW ACCOUNTING STANDARDS ADOPTED
In June 1997, Statements of Financial Accounting Standards (SFAS) No.
130, "Reporting of Comprehensive Income," was issued. This statement
requires that comprehensive income be reported in the basic financial
statements. Comprehensive income refers to the change in equity
during a period from transactions and events other than investments
by and distributions to owners. This statement applies to fiscal
years beginning after December 15, 1997. The Company adopted SFAS 130
on January 1, 1998.
In June 1997, Statements of Financial Accounting Standards (SFAS) No.
131, "Disclosures about Segments of an Enterprise and Related
Information," was issued. This Statement requires that a public
business enterprise report financial and descriptive information
about its reportable operating segments. Financial information should
include a measure of segment profit or loss, certain specific revenue
and expense items, and segment assets. Descriptive information should
include detail on how segments were determined, products and services
provided by each, and any differences in the measurements used in
reporting segment information vs. those used in the general-purpose
financial statements. This statement is effective for financial
statements for periods beginning after December 15, 1997. The Company
adopted SFAS 131 on January 1, 1998. The implementation of this
standard did not have any impact on the financial position or
disclosures of the Company or results of its operations.
RECENT ACCOUNTING STANDARDS
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities" was issued. This statement establishes
accounting and reporting standards for derivative instruments
embedded in other contracts and for hedging activities. The statement
is effective for fiscal quarters or fiscal years beginning after June
15, 1999. The Company does not expect the adoption of the statement
to have a significant impact on the financial statements.
The American Institute of Certified Public Accountants (AICPA)
recently issued Statement of Position (SOP) No. 98-1, "Accounting for
the Cost of Computer Software Developed or Obtained for Internal
Use," which provides guidance concerning recognition and measurement
of costs associated with developing or acquiring software for
internal use. In 1998, the AICPA also issued SOP No. 98-5 "Reporting
on Costs of Start-Up Activities," which provides guidance concerning
start-up activities and organization costs. Both pronouncements are
effective for fiscal years beginning after December 15, 1998. The
Company does not expect the adoption of the statement to have a
significant impact on the financial statements.
<PAGE>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
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 at their book value of $1,361. As a
result of this sale the Company recognized no gain or loss. Details
of the net assets and operations for the subsidiaries are presented
below.
<TABLE>
<CAPTION>
Former Subsidiaries Assets and Liabilities:
February 28,
ASSETS 1997
----------------
<S> <C>
Cash $ 1,109
Organization costs, net 252
----------------
Total Assets $ 1,361
================
LIABILITIES AND SHAREHOLDERS' EQUITY
Common stock $ 5,000
Contributed capital 23,609
Retained earnings (27,248)
----------------
Total Liabilities and Shareholder's Equity $ 1,361
================
Former Subsidiaries Operations:
Legal and professional expense $ 1,400
Amortization expense 32
----------------
Net loss $ (1,432)
================
</TABLE>
NOTE 4: 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. 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 fair market value of the restated assets was
$1,200,746 and the fair value of the restated liabilities was
$574,670 at May 1, 1997. The purchase price (equity) of $1,600,000
plus the restated liabilities of $574,670 totaled $2,174,670 less the
restated assets of $1,200,746 resulted in the recording of $973,924
as goodwill to be amortized over an estimated benefit period of
twenty (20) years.
<PAGE>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: ACQUISITION OF FIRST INDEPENDENT COMPUTERS, INC. - CONTINUED
Goodwill amortization expense amounts to $4,058 monthly, with $48,696
of amortization expense included in the year ended December 31, 1998
and $32,466 (from May 1, 1997 to December 31, 1997) of amortization
expense included in the year ended December 31, 1997 results of
operation.
Effective as of September 23, 1997, Columbia Capital Corp. acquired
all of the common stock (the FICI Common Stock) of the Company's
operating subsidiary, First Independent Computers, Inc. 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
acquirer of the Company. Further, in connection with the transactions
relating to the Stock Purchase Agreement and the acquisition of the
FICI Common Stock by Messrs. Baetz and Gallant, such persons obtained
a controlling interest in FICI and, thereafter, the Company.
Therefore, these transactions were 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.
NOTE 5: ACQUISITION OF FI-SCRIP
As of January 1, 1999, the primary shareholders of the Company
contributed all of the common stock of Fi-Scrip to the Company for no
consideration. The contribution of capital was not significant to the
financial position of the Company. Fi-Scrip became a wholly-owned
subsidiary of the Company effective January 1, 1999. The operations
of Fi-Scrip are not expected to have a material impact on the
Company.
<PAGE>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6: CANCELLATION OF CONTRACT AND MANAGEMENT'S PLANS
On March 4, 1999, the Company received notice that the BestBank
credit card portfolio held by the FDIC, in which the Company derived
approximately 84% of its total operating revenue from processing, as
measured in 1998, was being terminated and the Company's processing
services on the portfolio were also being terminated. The loss of
this customer is likely to have a material adverse effect on the
Company's operations in 1999.
The ability of the Company to continue as a going concern is
dependent on its ability to adjust its operations through the
implementation of a restructuring plan. The Company is currently
developing a plan to reduce expenses and secure replacement
processing contracts, as follows:
o The Company has implemented a plan for the reduction of fixed
operating costs, including restructuring and/or renegotiating
certain operating lease agreements. This reduction in fixed
operating costs will be implemented in phases as dictated by
the economics of the Company's future operations.
o The Company is currently working with approximately fourteen
different entities, all unaffiliated with the Company, to
secure processing contracts each representing as little as
$30,000 and as much as $2,000,000 in additional processing
revenue per year. Letters of intent and contracts, have been
secured for replacement processing with revenue estimated to
be approximately $2,500,000 in the year ended December 31,
1999. Additionally, revenue from processing of the Best Bank
portfolio managed by the FDIC, although terminated by the FDIC
effective May 17, 1999, amounted to $2,626,568 for the nine
months ended September 30, 1999.
o The Company has developed and integrated a marketing plan for
attracting new business, which includes the signing of a
contract with one of its major software suppliers, creating an
alliance between the two entities for the referral of new
business. Additionally, the Company plans to market its Year
2000 preparedness, in anticipation that as the new millennium
draws closer, the Company's successful Year 2000 preparation
will enable it to attract new business.
o At September 30, 1999, the Company had cash balances in excess
of $975,566, which the Company believes will be sufficient to
maintain operations in the near term.
NOTE 7: FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
The estimated fair values of the Company's financial instruments at
September 30, 1999 were as follows:
Carrying Fair
Amount Value
------------ ------------
<S> <C> <C>
Financial assets:
Cash and interest bearing deposits with banks $ 1,476,566 $ 1,476,566
Accounts receivable 148,765 148,765
Prepaid expenses including deferred tax assets 1,047,790 1,047,790
Stock purchase contract receivable 2,500,000 2,500,000
Financial liabilities:
Notes payable $ 141,787 $ 141,787
Accrued interest payable 573 573
</TABLE>
<PAGE>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7: FINANCIAL INSTRUMENTS - CONTINUED
The estimated fair values of the Company's financial instruments at
December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
------------ ------------
<S> <C> <C>
Financial assets:
Cash and interest bearing deposits with banks $ 769,400 $ 769,400
Accounts receivable 447,844 447,844
Financial liabilities:
Notes payable $ 854,577 $ 854,577
Accrued interest payable 5,945 5,945
The estimated fair values of the Company's financial instruments at
December 31, 1997 were as follows:
Carrying Fair
Amount Value
------------ ------------
Financial assets:
Cash and interest bearing deposits with banks $ 321,439 $ 321,439
Accounts receivable 522,538 522,538
Financial liabilities:
Notes payable $ 1,300,000 $ 1,300,000
Accrued interest payable 11,589 11,589
</TABLE>
The method(s) and assumptions used to estimate the fair value of
financial instruments are disclosed in Note 1, "Fair Values of
Financial Instruments".
NOTE 8: EXTRAORDINARY ITEM
The Company derives a substantial portion of its revenue by
processing certain credit card accounts for the Federal Deposit
Insurance Corporation (FDIC), as Receiver for BestBank of Boulder,
Colorado. On December 24, 1998, RRI Credit Corporation (RRICC), was
awarded the contract to purchase the accounts from the FDIC. The
purchase and sale agreement between RRICC and the FDIC called for a
$1,000,000 non-refundable deposit to be paid by RRICC. On December
14, 1998, the Company entered into an initial processing services
agreement with RRICC for the processing of the accounts should
RRICC's bid be accepted. In consideration for the initial processing
agreement, the Company agreed to and did lend RRICC, on a non-
recourse basis unless returned by the FDIC, the principal sum of
$1,000,000, which in turn was paid to the FDIC by RRICC as a
non-refundable deposit. Due to certain circumstances, RRICC was
unable to close the purchase with the FDIC; therefore, the Company
has charged-off the $1,000,000 loan to RRICC at December 31, 1998.
<PAGE>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9: INCOME TAXES
The Company files a consolidated federal income tax return; however,
federal income taxes are allocated between the Company and its
subsidiaries based on statutory rates. The consolidated income tax
expense, as a percentage of pretax earnings, differs from the
statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
----------------------- ------------------------
1999 1998 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Statutory federal income tax rate (34.00)% 34.00% 34.00% (34.00)%
Nondeductible expenses 1.91 1.35 2.28 6.10
Other (1.80) (1.31) (.13) 7.21
---------- ---------- ---------- ----------
Effective income tax rate (33.89)% 34.04% 36.15% (20.69)%
========== ========== ========== ==========
Income tax expense (benefit) is comprised of the following:
Nine Months Ended Year Ended
September 30, December 31,
----------------------- ------------------------
1999 1998 1998 1997
---------- ---------- ---------- ----------
Current income tax expense (benefit) $(580,883) $ 770,553 $ 632,499 $(110,723)
Deferred income tax expense (benefit) (67,049) 144,636 140,129 -
---------- ---------- ---------- ----------
$(647,932) $ 915,189 $ 772,628 $(110,723)
========== ========== ========== ==========
</TABLE>
The tax effects of temporary differences that gave rise to deferred
tax assets (liabilities) as of September 30, 1999, December 31, 1998
and 1997, respectively:
<TABLE>
<CAPTION>
September 30,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Depreciation and amortization $ (19,690) $ (41,219) $ 52,033
Net operating loss carryforward 74,580 - 122,209
Other 46,272 75,332 -
------------ ------------ ------------
Net deferred tax assets $ 101,162 $ 34,113 $ 174,242
============ ============ ============
</TABLE>
At December 31, 1997, the Company had a net operating loss
carryforward available for federal income tax purposes which was
fully utilized in the year ended December 31, 1998. At September 30,
1999, the Company had a net operating loss carryforward available for
federal tax income tax purposes amounting to $219,000, which expires
in the year 2014. The Company has determined that it is more likely
than not that the carryforward will be utilized prior to its
expiration, therefore no valuation allowance has been provided for
the related deferred tax asset generated by the carryforward.
Income tax expense (benefit) is allocated between operations and the
extraordinary item for the year ended December 31, 1998, as follows:
Income tax expense:
Operations $ 1,112,628
Extraordinary item (340,000)
------------
Total $ 772,628
============
<PAGE>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10: NOTES PAYABLE
FICI, on September 16, 1999 effectively terminated an eight hundred
thousand dollars ($800,000) unsecured operating line of credit
through Century Financial Group, Inc., a company owned by the
Company's then primary shareholders. FICI through negotiations with
Century Financial Group, Inc., was able to offset $576,352 in
accounts receivable from Century to FICI against the $827,921 balance
of the line of credit, which included $27,921 in accrued interest
payable, and through its parent company Columbia Capital Corp. issued
1,006,276 shares of Columbia Capital Corp. Common Stock in
consideration of the remaining $251,569 balance of the line of
credit. The line of credit carried an annual percentage rate of ten
percent (10%). Under the terms of the line of credit, FICI paid
interest on a monthly basis with the unpaid principal due at
maturity, September 15, 1999. The outstanding balance on the line of
credit as of December 31, 1998 and 1997 was $700,000 and $1,300,000,
respectively.
Fi-Scrip, on September 16, 1999 effectively terminated an operating
line of credit through Century Financial Group, Inc., a company owned
by the Company's then primary shareholders. Fi-Scrip through
negotiations with Century Financial Group, Inc., was able to, through
its parent company Columbia Capital Corp., issue 730,236 shares if
Columbia Capital Corp. Common Stock in consideration of the $182,559
balance of the line of credit, including $6,604 in accrued interest
payable. The line of credit, dated May 1, 1998, with the same Century
Financial Group, Inc. provided Fi-Scrip with a maximum operating line
of credit of two hundred and fifty thousand dollars ($250,000). The
note carried an annual percentage rate of ten percent (10%). Under
the terms of the note, Fi-Scrip paid interest on a monthly basis with
the unpaid principal due on demand.
FICI has a real estate lien note through American State Bank formerly
Security State Bank. The real estate note, dated August 1, 1998, in
the amount of one hundred sixty thousand dollars ($160,000) carries
an annual interest rate of Wall Street prime plus one percent (1%),
with a maturity date of August 1, 2001. The note is secured by a Deed
of Trust to a building in which the note proceeds were used to
purchase and renovate. The outstanding balance on the note as of
September 30, 1999 and December 31, 1998 was $141,787 and $154,577,
respectively.
NOTE 11: 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 $401,000 at September 30, 1999
were pledged as collateral against Bank One letters of credit in
favor of IBM. Under terms of an operating lease with Timmermen
Leasing, a certificate of deposit with a carrying value of $100,000
at September 30, 1999, was pledged as collateral. The future minimum
payments for leased property under these noncancellable lease
agreements for each of the next five years(No commitments for leased
property extend more than five years) ending December 31, 2004 are as
follows:
1999 $ 384,163
2000 1,162,482
2001 816,750
2002 264,877
2003 84,350
2004 75,186
-------------
Lease obligations $ 2,787,808
=============
<PAGE>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11: LEASE OBLIGATIONS - CONTINUED
On August 24, 1999 the Company entered into a new lease for its
office space, 36,182 square feet, from American State Bank at an
annual cost of approximately $23,514. The former lease made on August
1, 1997, which included 52,248 square foot at a rate of $400,000 per
year, was for a term of two years expiring July 31, 1999 with a 180
day termination clause. The Company had given timely notification of
termination of the lease pending re-negotiation of lease terms.
NOTE 12: MARKET RISK AND CONCENTRATIONS
For the year ending December 31, 1998, revenue from the BestBank
portfolio accounted for approximately 83% of the Company's total
revenues. No other customers accounted for 10% or more of the
Company's total revenues.
For the year ended 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.
For the nine months ended September 30, 1999, revenue from the Best
Bank portfolio accounted for approximately $3,064,150 or 65% of the
Company's total revenues and revenue from Fi-Scrip accounted for
approximately $510,979 or 11% of the Company's total revenues. No
other customers accounted for 10% or more of the Company's total
revenues. Since the Best Bank failure in July 1998 the Company
continued its role as processor for the Portfolio accounts through
May 17, 1999, in which it was receiving payment from the Federal
Deposit Insurance Corporation ("the FDIC") for its processing costs.
As of September 30, 1999, the Company had no outstanding balance in
accounts receivable from the FDIC relating to the Portfolio.
NOTE 13: RELATED PARTY TRANSACTIONS
FICI's former 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 $57,671 and $0 as of
September 30, 1999.
Fi-Scrip's former 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 $12,389 and $0 as of
September 30, 1999.
On December 1, 1997, FICI 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
$31,746, plus applicable sales and use taxes. The Company also agreed
to pay the Landlord, as additional rent for its share of the
operating expenses associated with the premises. On December 1, 1998
the lease for office space located at 2701 West Oakland Park
Boulevard, Ft. Lauderdale, Florida expired and the Company did not
renew the lease.
<PAGE>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14: STOCK OPTION PLAN
The Company has adopted a stock plan to provide for the granting of
options to senior management of the Company. As of September 30,
1999, the Company has allocated 1,250,000 shares of stock for
issuance under the plan. On July 1, 1998 and August 6, 1999 the
Company granted 350,000 and 550,000 options, respectively. The
options expire five years from the date of issuance. On December 24,
1998, the Company amended the exercise price of the options
previously granted on July 1, 1998.
The following table shows the vesting schedule and the exercise
price, as amended, for each of the five current and two former
directors awarded options on July 1, 1998.
<TABLE>
<CAPTION>
Options vested
-------------------------------- Total Options
Exercise July 1, October 1, January 1, Vested and
Director Price 1998 1998 1999 Outstanding
------------------------------------------- -------------------------------- -------------
<S> <C> <C> <C> <C> <C>
Glenn M. Gallant $ .62 16,666 16,667 - 33,333
Douglas R. Baetz $ .62 16,666 16,667 - 33,333
Kenneth A. Klotz $ .48 16,666 16,667 16,667 50,000
Charles LaMontagne $ .48 16,666 16,667 16,667 50,000
Olan Beard $ .48 16,666 16,667 16,667 50,000
Donald Thone $ .48 16,666 16,667 16,667 50,000
Robert Feldman $ .48 16,666 16,667 16,667 50,000
-------------
316,666
=============
</TABLE>
The following table shows the vesting schedule and the exercise price
for each of the five directors awarded options on August 6, 1999.
<TABLE>
<CAPTION>
Options vesting Total Options
--------------------------------- Vested at
Exercise August 6, August 6, August 6, September 30,
Director Price 1999 2000 2001 1999
------------------------------------------- --------------------------------- --------------
<S> <C> <C> <C> <C> <C>
Kenneth A. Klotz $ .23 50,000 50,000 50,000 50,000
Charles LaMontagne $ .23 50,000 50,000 50,000 50,000
Olan Beard $ .23 50,000 50,000 50,000 50,000
Donald Thone $ .23 50,000 - - 50,000
Robert Feldman $ .23 50,000 - - 50,000
--------------
250,000
==============
</TABLE>
Messrs. Baetz and Gallant, having greater than 10% of the outstanding
shares of the Company at July 1, 1998, were granted options with an
exercise price set at 110% of the fair market value of the Company's
common stock at the date of the grant. The remaining five directors
were granted options with an exercise price set at 85% of the fair
market value of the Company's common stock at the date of the grant.
As of September 30, 1999 no options under the plan had been
exercised.
The Company accounts for the options in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," under which compensation cost is recognized for the
difference in the option's exercise price and the fair market value
of the stock as of the date of each grant over the vesting period.
The effect of further compensation cost for the plan, had it been
included in the income statement as provided for in SFAS No. 123,
"Accounting for Stock-Based Compensation," would have resulted in an
insignificant reduction to the Company's net earnings and earnings
per share on a pro forma basis, based on estimates using an accepted
options pricing model.
<PAGE>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15: CONDENSED FINANCIAL INFORMATION - PARENT COMPANY
The following represents consolidated financial information of the
parent company as of September 30, 1999 and December 31, 1998
utilizing the equity method of accounting.
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEET:
ASSETS September 30, December 31,
1999 1998
-------------- --------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 846 $ 1,061
Prepaid expenses and other assets 183,317 106,000
Federal income tax receivable 545,779 582,609
Stock purchase contract receivable 2,500,000 -
-------------- --------------
Total current assets 3,229,942 689,670
Investment in subsidiaries 2,568,509 3,853,166
-------------- --------------
TOTAL ASSETS $ 5,798,451 $ 4,542,836
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accrued expenses and other liabilities $ 235,183 69,445
Due to subsidiaries 857,720 1,586,975
-------------- --------------
Total current liabilities 1,092,902 1,656,420
SHAREHOLDERS' EQUITY
Common stock 38,512 12,765
Capital surplus 5,595,646 1,990,715
Retained earnings (928,609) 882,936
-------------- --------------
Total shareholders' equity 4,705,549 2,886,416
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,798,451 $ 4,542,836
============== ==============
</TABLE>
<TABLE>
<CAPTION>
CONDENSED INCOME STATEMENT:
September 30, December 31,
1999 1998
-------------- --------------
<S> <C> <C>
REVENUES
Undistributed (loss) earnings of subsidiaries $ (962,514) $ 2,473,197
-------------- --------------
Total revenues (962,514) 2,473,197
EXPENSES
Stockholder costs and fees 5,058 8,830
Professional and outside services 341,310 485,615
Marketing 101,655 171,833
Other operating 5,859 1,569
-------------- --------------
Total operating expenses 453,882 667,347
Compensation to directors 10,000 10,000
-------------- --------------
Total other expense 10,000 10,000
-------------- --------------
</TABLE>
<PAGE>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15: CONDENSED FINANCIAL INFORMATION - PARENT COMPANY - CONTINUED
<TABLE>
<CAPTION>
<S> <C> <C>
(LOSS) INCOME BEFORE FEDERAL INCOME TAX (1,426,396) 1,795,350
Income tax benefit (162,443) (229,325)
-------------- --------------
INCOME BEFORE EXTRAORDINARY LOSS (1,263,953) 2,024,675
Extraordinary loss - 660,000
-------------- --------------
Net (loss) income $ (1,263,953) $ 1,364,675
============== ==============
CONDENSED STATEMENT OF CASH FLOWS:
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ (1,263,953) $ 1,364,675
Adjustments to reconcile net income (loss) to
net cash provided by operations
Undistributed earnings in subsidiaries 1,284,657 (2,473,197)
Increase in receivables 36,830 (582,609)
Increase in prepaid expenses and other assets (77,317) (90,976)
(Decrease) increase in accruals and accounts payable (563,518) 1,471,729
-------------- --------------
Net cash used by operating activities (583,301) (310,378)
CASH FLOWS FROM FINANCING ACTIVITIES
Shareholder contribution (368,042) -
Issuance of common stock 951,128 309,750
-------------- --------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (215) (628)
Cash and cash equivalents at beginning of year 1,061 1,689
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 846 $ 1,061
============== ==============
</TABLE>
The following represents financial information of the parent company
for the year ended December 31, 1997, utilizing the equity method of
accounting:
CONDENSED BALANCE SHEET:
December 31,
ASSETS 1997
----------------
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>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15: CONDENSED FINANCIAL INFORMATION - PARENT COMPANY - CONTINUED
LIABILITIES AND SHAREHOLDERS' EQUITY
1997
--------------
LIABILITIES
Accrued expenses and other liabilities $ 5,000
Due to subsidiary 192,975
--------------
Total current liabilities 197,975
SHAREHOLDERS' EQUITY
Common stock 12,500
Capital surplus 1,681,230
Retained earnings (deficit) (481,739)
--------------
Total shareholders' equity 1,211,991
--------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,409,966
==============
CONDENSED INCOME STATEMENT:
REVENUES
Undistributed income (loss) of subsidiary $ (220,031)
--------------
Total operating 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 operating expenses 216,189
Net loss related to discontinued operations (1,432)
--------------
INCOME (LOSS) BEFORE FEDERAL INCOME TAX (437,652)
Income tax benefit (13,284)
--------------
NET INCOME (LOSS) $ (424,368)
==============
CONDENSED STATEMENT OF CASH FLOWS:
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (424,368)
Adjustments to reconcile net income (loss) to
net cash provided by operations
Undistributed (income) loss of subsidiary 220,031
Depreciation and amortization 189
Increase in prepaid expenses and other assets (13,436)
Increase in accruals and accounts payable 209,515
--------------
Net cash used by operating activities (8,069)
<PAGE>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15: CONDENSED FINANCIAL INFORMATION - PARENT COMPANY - CONTINUED
1997
--------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (8,069)
Cash and cash equivalents at beginning of year 9,758
--------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,689
==============
NOTE 16: CONSULTING AGREEMENTS
On March 20, 1998, the Company entered into a consulting agreement
with Worldwide Corporate Finance (Worldwide). Worldwide, through its
individual affiliate, Michael Markow, provided 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. As compensation for services, the
Company granted to Mr. Markow options to purchase up to 700,000
shares of Common Stock, at varying prices between $0.95 and $1.70,
which are the subject of a currently effective registration
statement. The fair value of the options granted approximated the
value of the services provided by Mr. Markow and has been recognized
as a component of consulting fees in the consolidated income
statement.
In February 1999, the Company's management and Mr. Markow reached an
agreement to terminate the existing consulting agreement between the
Company and Worldwide. In settlement the Company agreed to allow Mr.
Markow to exercise 10,000 additional options to purchase an equal
number of shares of the Company's Common Stock at $1.70 per share
resulting in a transaction valued at $17,000. Additionally the
Company agreed to pay Mr. Markow $15,000 in cash and terminate the
remaining unexercised balance of options initially granted to Mr.
Markow and Worldwide under the consulting agreement. The Company does
not expect to enter into any additional consulting agreements with
Mr. Markow or Worldwide in the future. Mr. Markow and Worldwide had
exercised a total of 275,000 options valued at $298,750 under the
former consulting agreement. As of the date of this report there are
no remaining options outstanding related to the former consulting
agreement with Mr. Markow and Worldwide.
The fair value of the options granted approximate the value of the
services provided by Mr. Markow and has been recognized as a
component of consulting fees in the income statement over the term of
the agreement.
On July 1, 1998, Columbia Capital Corp. entered into a consulting
agreement with Matthias and Berg, LLP ("the Firm"). The Firm, through
its partner, Jeffrey Berg, provides the Company with consulting and
litigation services, including long term business, managerial and
financial litigation support; investigating and analysis in corporate
reorganizations and legal expertise on merger and acquisition
opportunities. As compensation for services, the Company granted to
the Firm options to purchase up to 100,000 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 100,000 shares of Common Stock at an exercise price of
$0.48 per share, exercisable from July 1, 1998. The fair value of
consulting and litigation services provided by the Firm is being
recognized as the services are provided. As of September 30, 1999 no
options have been exercised under the agreement.
<PAGE>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17: YEAR 2000
The Year 2000 issue is a programming issue that may affect many
electronic processing systems. Until recently, in order to minimize
the length of data fields, most date-sensitive programs eliminated
the first two digits of the year. This issue could affect information
technology ("IT") systems and date-sensitive embedded technology that
controls certain systems (such as telecommunications systems,
security systems, etc.) leaving them unable to properly recognize or
distinguish dates in the twentieth and twenty-first centuries and
thereafter. For example, date-sensitive calculations may treat "00"
as the year 1900 rather than the year 2000. This treatment could
result in significant miscalculations when processing critical
date-sensitive information relating to dates after December 31, 1999.
Year 2000 Compliance requires that neither performance nor
functionality be affected by dates prior to, during, and after the
year 2000. Specifically, every system must perform as follows:
1. Correctly handle date information before, during, and
after January 1, 2000 when accepting date input,
providing date output, and performing calculations on
dates or portions of dates
2. Function according to the documentation before, during,
and after January 1, 2000 without changes in operation
3. Where appropriate, respond to two digit date input in a
way that resolves the ambiguity as to century in a
disclosed, defined, and predetermined manner
4. Recognize Year 2000 as a leap year (based on the
quad-centennial rule)
These criteria were derived from the requirements established by the
British Standards Institute in DISC PD2000-1 A DEFINITION OF YEAR
2000 CONFORMITY REQUIREMENTS.
Over the past few years, the Company has attempted to actively
address the Y2K dilemma. The Company has had in place a project plan
(the "Y2K Plan") and project team reviewing all hardware and
software, as necessary. The Company anticipates its total investment
in Y2K compliance will reach approximately $454,000. The Company has
already made a significant portion of the investment needed to
address the Y2K dilemma. As of the date of this Report, the cost to:
(i) acquire, install and implement these new software systems has
been an aggregate of approximately $340,000; and (ii) acquire new
hardware has been approximately $8,000. The Company has also
instituted policies and procedures that require all new hardware and
software acquired or licensed by the Company to be Y2K compliant. As
of the date of this Report, the Company has completed testing and
believes that all of its primary operating hardware and mission
critical systems to be Y2K compliant. It is management's opinion that
any remaining Y2K issues are not significant and should be able to be
funded through normal operating revenue and income. The Company
estimates that until the Company has completed implementation of the
Y2K Plan, the Company anticipates expending an additional $107,000,
which is estimated to include $22,000 in software, $4,000 in new
hardware and $81,000 on other aspects of the implementation of the
Y2K Plan. The anticipated source of funds for such expenditures is
expected to be working capital generated from operations of the
Company. However, no assurance can be given that the goals for the
Y2K Plan can be achieved, and if achieved, that the amount necessary
to achieve such goals will be limited to the amounts set forth above
or that the amounts will be generated from operations.
<PAGE>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17: YEAR 2000 - CONTINUED
The Company has worked to develop extensive contingency plans to
manage the Company's ongoing operations, if any systems do not
function correctly on or after January 1, 2000. The Company has a
contract with IBM for a "Hot Site" at IBM's Business Recovery Center
("BRC") in Boulder, Colorado for disaster recovery and off-site
testing. The BRC maintains facilities, hardware and software, that is
identical to the Company's current hardware and software
configuration. The Company's disaster recovery specialists perform
disaster recovery tests at these facilities every year. In addition
to the Company's normal disaster recovery tests, the Company used the
facilities both in Dallas, Texas and Boulder, Colorado, in November,
1998, for a combined Y2K and disaster recovery test. This allowed the
Company to successfully test all core business systems in a true
production environment. The Company has tentatively scheduled
additional test time at the IBM
Business Recovery Center in Dallas, Texas in April, 1999 for
additional testing of its credit card system. These facilities serve
as a contingency backup facility in several of the Company's Y2K
disaster scenarios, including disrupted utilities and
telecommunications services in the Abilene, Texas area. Other
contingency plans include agreements with several suppliers for
materials and support, ranging from computers and other hardware to
software support to power generators.
Every mission-critical IT system processed by the Company has been
fully tested and certified by its developer to meet the above
criteria. In addition, the testing process for most of the IT systems
has been certified by an independent third party such as the
Information Technology Association of America (ITAA). As part of our
Year 2000 effort, we have reviewed the scope and methodology of the
testing performed by each developer to ensure that it was inclusive
of all the processes we perform with that product. Although we are
confident each IT system is year 2000 compliant, we are currently
testing all systems to ensure that they will continue to coexist and
function properly in our environment. We are also testing with our
customers and other entities to ensure that every ancillary system
that we are using is also Year 2000 compliant.
Other IT systems are licensed from third parties. These third parties
have either assured the Company that their system is Year 2000
compliant or identified necessary system upgrades to make their
system Year 2000 compliant. The Company has implemented the necessary
systems upgrades and completed Year 2000 compliance testing of these
other IT systems as of September 30, 1999.
The Year 2000 issue may also affect the Company's date-sensitive
embedded technology, which controls systems such as the
telecommunications systems, security systems, etc. The Company does
not believe that the cost to modify or replace such technology to
make it Year 2000 compliant will be material. But, if such
modifications or replacements, if required, are not made, the Year
2000 issue could have a material adverse effect on the operations,
financial condition and results of operations of the Company.
Ultimately, the potential impact of the Year 2000 issue will depend
not only on the corrective measures the Company undertakes, but also
on the way in which the Year 2000 issue is addressed by governmental
agencies, businesses and other entities that provide data to, or
receive data from, the Company or any of the Company's subsidiaries,
or whose financial condition or operations are important to the
Company or any of the Company's subsidiaries, such as significant
suppliers and customers. The Company is initiating communications
with significant customers and vendors to evaluate the risk of their
failure to be Year 2000 compliant and to determine the extent to
which the Company may be vulnerable to such failure. There can be no
assurance that the systems of these third parties will be Year 2000
compliant by December 31, 1999 or that the failure of these third
parties to be Year 2000 compliant will not have a material adverse
effect on the operations, financial condition and results of
operation of the Company.
<PAGE>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17: YEAR 2000 - CONTINUED
The cost of IT and embedded technology systems testing and upgrades
is not expected to be material to the Company consolidated operating
results. The Company estimates incurring costs for Year 2000
compliance testing and its communications program, which will be
recorded as a non-operating expense. The Company will capitalize and
amortize the cost of system upgrades over future periods. The Company
intends to fund these costs with cash from operations.
There can be no absolute assurance that these IT systems will be Year
2000 compliant by December 31, 1999. If any of these IT systems are
not Year 2000 compliant by December 31, 1999, then the Year 2000
issue could have a material adverse effect on the operations,
financial condition and results of operations of the Company.
NOTE 18: STOCK PURCHASE AGREEMENT
The Company entered into the following transactions, as of September
16, 1999, which, if completed in accordance with the terms and
conditions of such agreements, will result in a change in control of
the Company's principal stockholders.
On September 16, 1999, pursuant to the terms of an Agreement for
Purchase of Stock, dated as of September 16, 1999, and as amended as
of September 30, 1999 (the "CLCK/CNG Stock Purchase Agreement"), by
and between the Company and CNG Financial Corporation, an Ohio
corporation ( "CNG"), CNG purchased 4,000,000 shares of Common Stock
of the Company (the "Common Stock") for a purchase price of $500,000.
CNG is a holding company of subsidiaries which provide consumer
financial services. CNG is based in Mason, Ohio.
The CLCK/CNG Stock Purchase Agreement also provides that CNG shall be
mandatorily obligated to purchase an additional 20,000,000 shares of
Common Stock (the "Second Installment") for a purchase price of
$2,500,000 (the "Second Installment Payment"), on or before October
22, 1999, unless CNG's credit facility lenders (the "Credit Facility
Lenders"), the lead bank of which is PNC Bank, N.A., which provide a
working capital line of credit to CNG, fail to approve of or consent
to the Second Installment Payment, then CNG shall not be mandatorily
obligated to purchase the Second Installment. In the event that CNG
purchases the Second Installment, CNG will be entitled to designate a
majority of the members of the Board of Directors of the Company. The
Company has been advised by CNG that the source of payment for the
purchase of the 4,000,000 shares was, and the anticipated source of
funds for the Second Installment Payment will be, if at all, from the
working capital line of credit provided by CNG's Credit Facility
Lenders.
The CLCK/CNG Stock Purchase Agreement also provides that CNG shall be
granted a Non- Qualified Stock Option (the "Stock Option") to
purchase an additional 10,000,000 shares of Common Stock for the
purchase price of $2,000,000 (the "Third Installment Payment"), which
Stock Option must be exercised by CNG on or before September 16,
2000. The Stock Option shall be exercisable in whole, and not in
part, in the event that CNG shall pay the Second Installment Payment.
In the event that CNG shall not pay the Second Installment Payment,
the Stock Option shall be immediately cancelled and the Company will
have the right to repurchase all or none of the 4,000,000 shares from
CNG for a repurchase price of $500,000, through and including the
period ending September 16, 2001.
<PAGE>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18: STOCK PURCHASE AGREEMENT - CONTINUED
Management of the Company believes that, if CNG pays the Second
Installment Payment, the $2,500,000 to be paid will provide
sufficient working capital for continued operations of the Company
through the end of March 2000, assuming that no additional sources of
revenues are generated by the Company and that current levels of
revenues are maintained through March, 2000. There can be no
assurances that CNG will pay the Second Installment Payment in
accordance with the terms and conditions of the CLCK/CNG Stock
Purchase Agreement.
In the event that CNG does not pay the Second Installment Payment,
the Company will continue to need external sources of financing or
additional sources of revenues to maintain continued operations. Even
in the event that CNG pays the Second Installment Payment, the
Company will continue to need external sources of financing or
additional sources of revenue beyond March, 2000 to maintain
continued operations. If the Company does not generate adequate
revenue producing business or proceeds from a financing, the Company
will have to curtail its operations significantly, which will have a
material adverse effect on the Company's financial condition and its
ability to secure new processing contracts.
In connection with the CLCK/CNG Stock Purchase Agreement, the Company
entered into a stock purchase agreement (the "CLCK/Century Stock
Purchase Agreement), dated as of September 16, 1999, with Century
Financial Group, Inc., a Florida corporation ("Century"). Century is
an affiliate of two (2) of the Company's principal stockholders,
Douglas R. Baetz and Glenn M. Gallant. Century and Messrs. Baetz and
Gallant are not affiliates of CNG. Under the terms and conditions of
the CLCK/Century Stock Purchase Agreement, Century purchased
1,736,512 shares of Common Stock of the Company in consideration of
the cancellation of the obligation of $434,128 due and payable by the
Company to Century.
Further, the Company has agreed to issue to Century an additional
1,736,512 shares of Common Stock for no further consideration, in the
event that the following contingencies (collectively, the "Century
Contingencies") are satisfied: (i) that Century shall procure or
broker, without compensation, executed processing contracts (the
"Processing Contracts") between the Company and one or more
customers; (ii) that each of the Processing Contracts shall have a
term length of not less than five (5) years; (iii) that the
Processing Contracts shall collectively generate not less than
$150,000 of processing revenues for the Company during the month of
March, 2000; and (iv) that CNG shall pay the Second Installment
Payment to the Company in accordance with the terms and conditions of
the CLCK/CNG Stock Purchase Agreement.
Further, in connection with the CLCK/CNG Stock Purchase Agreement,
CNG has agreed to sell an additional 1,000,000 shares of Common Stock
to Century for the purchase price of $10; PROVIDED, HOWEVER, that the
Century Agreement shall be null and void, and CNG shall have no
obligation whatsoever to sell any shares of Common Stock to Century,
in the event that the Century Contingencies are not satisfied.
<PAGE>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18: STOCK PURCHASE AGREEMENT - CONTINUED
In the event that CNG pays the Second Installment Payment, CNG will
own, exclusive of any options to purchase additional shares of Common
Stock, 24,000,000 shares of Common Stock, or approximately 62.3% of
the assumed then issued and outstanding 38,511,512 shares of Common
Stock. In such event, CNG will control in excess of a majority of the
issued and outstanding voting securities of the Company, and will be
able to elect all of the directors of the Company and effectively
control the Company's affairs.
For purposes of calculating the percentage of beneficial ownership of
a stockholder in the following paragraphs, pursuant to the rules of
the Securities and Exchange 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.
Immediately prior the closing of the transactions contemplated by the
CLCK/CNG Stock Purchase Agreement, Messrs. Baetz and Gallant
beneficially owned, in the aggregate, 10,697,916 shares of Common
Stock (including options to purchase 66,666 shares), or approximately
83.3% of the issued and outstanding shares of Common Stock
(12,841,666 shares issued and outstanding for purposes of calculating
the percentage of beneficial ownership). Immediately following the
issuance of the 4,000,000 shares to CNG and the 1,736,512 shares to
Century, Messrs. Baetz and Gallant collectively beneficially owned
12,434,428 shares of Common Stock, or approximately 66.9% of the
issued and outstanding shares of Common Stock (18,578,178 shares
issued and outstanding for purposes of calculating the percentage of
beneficial ownership) and CNG beneficially owned 4,000,000 shares of
Common Stock, or approximately 21.6% of the 18,511,512 issued and
outstanding shares of Common Stock (excluding the 20,000,000 shares
relating to the Second Installment and the 10,000,000 shares relating
to the Stock Option).
In the event that CNG purchases the Second Installment of 20,000,000
shares and becomes entitled to exercise the Stock Option with respect
to the additional 10,000,000 shares, CNG will beneficially own
34,000,000 shares of Common Stock, or 70.01% of the then issued and
outstanding Common Stock (48,511,512 shares issued and outstanding
for purposes of calculating the percentage of beneficial ownership).
In the further event that the Century Contingencies are satisfied,
and the Company issues an additional 1,736,512 shares to Century and
Century purchases the 1,000,000 shares from CNG, CNG will
beneficially own 33,000,000 shares of Common Stock (including options
to purchase 10,000,000 shares), or approximately 65.7% of the then
issued and outstanding Common Stock (50,248,024 shares issued and
outstanding for purposes of calculating the percentage of beneficial
ownership), and Messrs. Baetz and Gallant will collectively
beneficially own 15,170,940 shares (including options to purchase
66,666 shares), or approximately 37.6% of the then issued and
outstanding Common Stock (40,314,690 shares issued and outstanding
for purposes of calculating the percentage of beneficial ownership).
<PAGE>
COLUMBIA CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19: BAYTREE SETTLEMENT
On June 30, 1998, Columbia Capital Corp., FICI, Douglas R. Baetz and
Glenn M. Gallant filed a complaint (the "Complaint") in the United
States District Court for the Southern District of Florida (Case No.
98-6701) against Baytree., Michael Gardner ("Gardner"), certain
former officers and directors of the Company, and certain other
parties. The complaint alleges claims against the named defendants,
including fraud, securities fraud and breach of fiduciary duty, in
connection with the transactions related to the Stock Purchase
Agreement, entered into as of September 23, 1997, among Columbia
Capital Corp., FICI, and Messrs. Gallant and Baetz. The complaint
seeks relief against the named defendants, including monetary damages
relating to improper sales of shares of Common Stock into the public
market by the named defendants and the cancellation of the shares of
Common Stock issued by the Company to Baytree for services rendered
for arranging the transactions which are the subject of the Stock
Purchase Agreement.
On September 16, 1999, Baytree and Gardner filed an answer to the
Complaint, denying the claims and asserting counterclaims against the
Company and affiliates.
On September 29, 1999, Columbia Capital Corp., FICI, Douglas R.
Baetz, Glenn M. Gallant, Baytree and Gardner entered into a
settlement agreement. Under the terms of the settlement agreement
each party has agreed to drop the complaints against each of the
other parties. Additionally, under terms of the settlement agreement
Baytree/Gardner agreed to sell their holdings of 400,000 restricted
shares of Columbia Capital Corp. Common Stock to an unaffiliated
third party. The Company views the settlement as favorable to the
interests of the Company and other shareholders.
NOTE 20: SUBSEQUENT EVENT
On October 21, 1999, CNG purchased an additional 20,000,000 shares of
Common Stock of the Company (the "Common Stock") for a purchase price
of $2,500,000 (the "Second Installment"). To date, CNG has purchased
a total 24,000,000 shares or 62.3% of the 38,511,512 shares currently
issued and outstanding.
As a result of the completion of the Second Installment, CNG has
purchased a controlling stock ownership interest in the Company, and
according to the terms of the CLCK/CNG Stock Purchase Agreement, CNG
is entitled to designate a majority of the members of the Board of
Directors of the Company. As of the date of this report there have
been no additional members added to the Board of Directors of the
Company on CNG's behalf.
In addition, in accordance with the CLCK/CNG Stock Purchase
Agreement, CNG has been granted a Non-Qualified Stock Option (the
"Stock Option") to purchase an additional 10,000,000 shares of Common
Stock for the purchase price of $2,000,000, which must be exercised
in whole, and not in part, by CNG on or before September 16, 2000.
SERVICE AGREEMENT
-----------------
This agreement made this lst day of February, 1998, by and between
ACCESS COMMUNICATIONS, CORP. ("ACC") a corporation of the State of Delaware, and
BERWYN HOLDINGS, INC., a corporation of the State of Delaware ("end-user").
WHEREAS, ACC through and with affiliated companies, provides domestic
and international telecommunication services to preferred clientele, among which
services covered by this Service Agreement is the opportunity for end-user to
avail itself of long distance service as provided by ACC;
WHEREAS, end-user desires to designate ACC as its carrier of choice to
provide telecommunications services;
WHEREAS, Access desires to act as the carrier of choice for this
purpose;
NOW, THEREFORE, in consideration of the promises set forth herein and
good and valuable consideration, receipt of which is hereby acknowledged, it is
mutually agreed as follows:
1. DUTIES OF ACC
ACC shall provide end-user a state-of-the-art network capable of providing toll
quality connections for long distance service and shall provide end-user with
reasonable detailed reports and monthly billing statements.
2. DUTIES OF END-USER
End-user shall make timely payments pursuant to the terms set forth in the
monthly billing statement. If end-user fails to make such payment within sixty
(60) days of the invoice date, ACC has the right to cancel service to end-user.
3. RATES AND CHARGES
End-user shall be charged the following rate for Domestic Interstate calls for
Inbound and Outbound calls:
Dedicated Service: 0525 per minute
Switched Service: NA per minute
Business Lines: $20.00 per business line.
Intrastate calls vary by state, 24 hours a day, seven days a week.
4. TERM OF SERVICE AGREEMENT
This Service Agreement shall remain in effect for three (3) years from the date
first written above, unless it is earlier terminated by written notice to ACC.
<PAGE>
5. FORCE MAJEURE
Any failure or delay in the performance by either party of its obligations
hereunder shall not be a breach of this Agreement if such failure or delay
results from any act of God, governmental action (whether in its sovereign or
contractual capacity), or any other circumstance beyond the control of the
party, including but not limited to unforeseeable weather conditions, hurricane,
earthquake, snowstorm, fire, flood, war, civil disorder, epidemics, quarantines,
or embargoes.
6. NOTICES
Any notices required by this Service Agreement shall be made in writing and
mailed by registered or certified mail, return receipt requested, or faxed and
addressed to:
If to End-user:
Berwyn Holdings, Inc.
10 Corporate Circle
Suite 200
New Castle, DE 19720
Tel: (302) 429-2510
Fax: (302) 326-6718
Attention: Harold Hendrickson
President
If to Access Communications, Corp.:
2701 West Oakland Park Blvd.
Suite 225
Fort Lauderdale, FL 33311
Tel: (954) 453-6533
Fax: (954) 453-3391
Attention: Robert Allison
Vice President of Sales
Either party, by notice to the other, may designate another address or addressee
to which notice must be sent.
7. ASSIGNMENT
End-user shall not and is expressly prohibited from assigning or transferring
this agreement or the rights and obligations hereunder without the prior written
consent of Access.
8. GOVERNING LAW, JURISDICTION AND ATTORNEYS' FEES
This Agreement shall be governed by and construed in accordance with the laws of
the State of Florida. For any and all actions under this Agreement, the venue
shall be in Broward County, Florida. Any and all disputes arising under or in
connection with this Agreement shall be settled by binding arbitration wider the
jurisdiction of the American Arbitration Association. If either party employs
attorneys to enforce any rights arising out of or relating to this Agreement,
the prevailing party shall be entitled to recover its reasonable attorneys'
fees, costs and other expenses.
<PAGE>
9. ENTIRE AGREEMENT
Upon execution by the parties, this Agreement along with any exhibits, shall
constitute the entire Agreement between the parties with respect to the subject
matter hereof and shall merge all prior and contemporaneous communications. The
Agreement can only be amended or modified by a written agreement duly signed by
the parties.
10. SEVERABILITY
If any provision of this Agreement shall be held by a court of competent
jurisdiction to be illegal, invalid or unenforceable, the remaining provisions
shall remain in full force and effect.
11. NO WAIVER
No waiver of any breach of any provision of this Agreement shall constitute a
waiver of any prior, concurrent or subsequent breach of the same or any other
provisions hereof, and no waiver shall be effective unless made in writing and
signed by an authorized representative of the waiving party.
12. SECTION HEADINGS
The section headings used in this Agreement and any attached exhibits are
intended for convenience only and shall not be deemed to supersede or modify any
provisions.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first written above.
Berwyn Holdings, Inc. Access Communications, Corp.
By: /s/ Harold Hendrickson By: /s/ Robert J. Allison
---------------------- ------------------------
Harold Hendrickson Robert J. Allison
(title) President Vice President of Sales
SERVICE AGREEMENT
-----------------
This agreement made this 1st day of May, 1998, by and between ACCESS
COMMUNICATIONS, CORP. ("ACC") a corporation of the State of Delaware, and
FI-SCRIP, INC., a corporation of the State of Nevada ("end-user").
WHEREAS, ACC through and with affiliated companies, provides domestic and
international telecommunication services to preferred clientele, among which
services covered by this Service Agreement is the opportunity for end-user to
avail itself of long distance service as provided by ACC;
WHEREAS, end-user desires to designate ACC as its carrier of choice to
provide telecommunications services;
WHEREAS, Access desires to act as the carrier of choice for this purpose;
NOW, THEREFORE, in consideration of the promises set forth herein and good
and valuable consideration, receipt of which is hereby acknowledged, it is
mutually agreed as follows:
1. DUTIES OF ACC
ACC shall provide end-user a state-of-the-art network capable of providing
toll quality connections for long distance service and shall provide
end-user with reasonable detailed reports and monthly billing statements.
2. DUTIES OF END-USER
End-user shall make timely payments pursuant to the terms set forth in the
monthly billing statement. If end-user fails to make such payment within
sixty (60) days of the invoice date, ACC has the right to cancel service to
end-user.
3. RATES AND CHARGES
End-user shall be charged the following rate for Domestic Interstate calls
for Inbound and Outbound calls:
Dedicated Service: .0525 per minute
Switched Service: .09 per minute
Business Lines: NA per business line.
Intrastate calls vary by state, 24 hours a day, seven days a week.
4. TERM OF SERVICE AGREEMENT
This Service Agreement shall remain in effect for three (3) years from the
date first written above, unless it is earlier terminated by written notice
to ACC.
<PAGE>
5. FORCE. MAJEURE
Any failure or delay in the performance by either party of its obligations
hereunder shall not be a breach of this Agreement if such failure or delay
results from any act of God, governmental action (whether in its sovereign
or contractual capacity), or any other circumstance beyond the control of
the party, including but not limited to unforeseeable weather conditions,
hurricane, earthquake, snowstorm, fire, flood, war, civil disorder,
epidemics, quarantines, or embargoes.
6. NOTICES
Any notices required by this Service Agreement shall be made in writing and
mailed by registered or certified mail, return receipt requested, or faxed
and addressed to:
If to End-user:
Fi-Scrip, Inc.
2450 Peralta Blvd.
Suite 123
Fremont, CA 94536
Tel: (510) 795-2277
Fax:( )
Attention: Ronald I. Rowe
President
If to Access Communications, Corp.:
2701 West Oakland Park Blvd.
Suite 225
Fort Lauderdale, FL 33311
Tel: (954) 453-6533
Fax: (954) 453-3391
Attention: Robert Allison
Vice President of Sales
Either party, by notice to the other, may designate another address or
addressee to which notice must be sent.
7. ASSIGNMENT
End-user shall not and is expressly prohibited from assigning or
transferring this agreement or the rights and obligations hereunder without
the prior written consent of Access.
8. GOVERNING LAW, JURISDICTION AND ATTORNEYS' FEES
This Agreement shall be governed by and construed in accordance with the
laws of the State of Florida. For any and all actions under this Agreement,
the venue shall be in Broward County, Florida. Any and all disputes arising
under or in connection with this Agreement shall be settled by binding
arbitration under the jurisdiction of the American Arbitration Association.
If either party employs attorneys to enforce any rights arising, out of or
relating to this Agreement, the prevailing party shall be entitled to
recover its reasonable attorneys' fees, costs and other expenses.
<PAGE>
9. ENTIRE AGREEMENT
Upon execution by the parties, this Agreement along with any exhibits,
shall constitute the entire Agreement between the parties with respect to
the subject matter hereof and shall merge all prior and contemporaneous
communications. The Agreement can only be amended or modified by a written
agreement duly signed by the parties.
10. SEVERABILITY
If any provision of this Agreement shall be held by a court of competent
jurisdiction to be illegal, invalid or unenforceable, the remaining
provisions shall remain in full force and effect.
11. NO WAIVER
No waiver of any breach of any provision of this Agreement shall constitute
a waiver of any prior, concurrent or subsequent breach of the same or any
other provisions hereof, and no waiver shall be effective unless made in
writing and signed by an authorized representative of the waiving party.
12. SECTION HEADINGS
The section headings used in this Agreement and any attached exhibits are
intended for convenience only and shall not be deemed to supersede or
modify any provisions.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first written above.
Fi-Scrip, Inc Access Communications, Corp,
By: /s/ Ronald I. Rowe By: /s/ Robert J. Allison
------------------- -----------------------
Ronald I. Rowe Robert J. Allison
President Vice President of Sales
SERVICE AGREEMENT
-----------------
This agreement made this 1st day of May, 1998, by and between ACCESS
COMMUNICATIONS, CORP. ("ACC") a corporation of the State of Delaware, and FIRST
INDEPENDENT COMPUTERS, INC., a corporation of the State of Texas ("end-user").
WHEREAS, ACC through and with, affiliated companies, provides domestic and
international telecommunication services to preferred clientele, among which
services covered by this Service Agreement is the opportunity for end-user to
avail itself of long distance service as provided by ACC;
WHEREAS, end-user desires to designate ACC as its carrier of choice to
provide telecommunications services;
WHEREAS, Access desires to act as the carrier of choice for this purpose;
NOW, THEREFORE, in consideration of the promises set forth herein and good
and valuable consideration, receipt of which is hereby acknowledged, it is
mutually agreed as follows:
1. DUTIES OF ACC
ACC shall provide end-user a state-of-the-art network capable of providing
toll quality connections for long distance service and shall provide
end-user with reasonable detailed reports and monthly billing statements.
2. DUTIES OF END-USER
End-user shall make timely payments pursuant to the terms set forth in the
monthly billing statement. If end-user fails to make such payment within
sixty (60) days of the invoice date, ACC has the right to cancel service to
end-user.
3. RATES AND CHARGES
End-user shall be charged the following rate for Domestic Interstate calls
for Inbound and Outbound calls:
Dedicated Service: .0525 per minute
Switched Service: .09 per minute
Business Lines: N A per business line.
Intrastate calls vary by state, 24 hours a day, seven days a week.
4. TERM OF SERVICE AGREEMENT
This Service Agreement shall remain in effect for three (3) years from the
date first written above, unless it is earlier terminated by written notice
to ACC.
<PAGE>
5. FORCE MAJEURE
Any failure or delay in the performance by either party of its obligations
hereunder shall not be a breach of this Agreement if such failure or delay
results from any act of God, governmental action (whether in its sovereign
or contractual capacity), or any other circumstance beyond the control of
the party, including but not limited to unforeseeable weather conditions,
hurricane, earthquake, snowstorm, fire, flood, war, civil disorder,
epidemics, quarantines, or embargoes.
6. NOTICES
Any notices required by this Service Agreement shall be made in writing and
mailed by registered or certified mail, return receipt requested, or faxed
and addressed to:
If to End-user:
First Independent Computers, Inc.
402 Cypress, Suite 200
Abilene, TX 79601
Tel: (915) 674-3 100 Fax:
Attention: Ken Klotz, President
If to Access Communications, Corp.:
2701 West Oakland Park Blvd
Suite 225
Fort Lauderdale, FL 33311
Tel: (954) 453-6533
Fax: (954) 453-3391
Attention: Robert Allison
Vice President of Sales
Either party, by notice to the other, may designate another address or
addressee to which notice must be sent.
7. ASSIGNMENT
End-user shall not and is expressly prohibited from assigning, or
transferring this agreement or the rights and obligations hereunder without
the prior written consent of Access.
8. GOVERNING LAW, JURISDICTION AND ATTORNEYS' FEES
This Agreement shall be governed by and construed in accordance with the
laws of the State of Florida. For any and all actions under this Agreement,
the venue shall be in Broward County, Florida. Any and all disputes arising
under or in connection with this Agreement shall be settled by binding
arbitration under the jurisdiction of the American Arbitration Association.
If either party employs attorneys to enforce any rights arising out of or
relating to this Agreement, the prevailing party shall be entitled to
recover its reasonable attorneys' fees, costs and other expenses.
9. ENTIRE AGREEMENT
Upon execution by the parties, this Agreement along with any exhibits,
shall constitute the entire Agreement between the parties with respect to
the subject matter hereof and shall merge all prior and contemporaneous
communications. The Agreement can only be amended or modified by a written
agreement duly signed by the parties.
10. SEVERABILITY
If any provision of this Agreement shall be held by a court of competent
jurisdiction to be illegal, invalid or unenforceable, the remaining
provisions shall remain in full force and effect.
11. NO WAIVER
No waiver of any breach of any provision of this Agreement shall constitute
a waiver of any prior, concurrent or subsequent breach of the same or any
other provisions hereof, and no waiver shall be effective unless made in
writing and signed by an authorized representative of the waiving party.
12. SECTION HEADINGS
The section headings used in this Agreement and any attached exhibits are
intended for convenience only and shall not be deemed to supersede or
modify any provisions.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first written above.
First Independent Computers, Inc. Access Communications, Corp.
By: /s/ Kenneth A. Klotz By: /s/ Robert J. Allison
-------------------- -----------------------
Kenneth A. Klotz Robert J. Allison
Title: President Title: Vice President of Sales
LINE OF CREDIT AGREEMENT BETWEEN CENTURY FINANCIAL GROUP, INC. AND FIRST
INDEPENDENT COMPUTERS, INC.
In consideration of the agreement of Century Financial Group, Inc., a
Delaware Corporation ('CFG'), to grant to First Independent Computers, Inc., a
Texas Corporation ('FICI'), a line of credit ('Line of Credit'); in
consideration of the advances of principal CFG may make to FICI thereunder
('Advances'); and in consideration of FICI's agreement to repay the Advances
pursuant to the terms set forth below, the parties agree as follows:
1 LINE OF CREDIT. The maximum amount of the Line of Credit from CFG to
FICI will be a total of Seven Hundred Thousand Dollars ($700,000.00), and at no
time will CFG be required to make an Advance to FICI if, as a result, the
aggregate outstanding principal amount of the Advances would exceed that amount.
Subject to the foregoing, FICI may obtain an Advance from time to time as
provided in Section 2 below.
2. ADVANCES. Advances will be made either through disbursements by CFG
to FICl, by check or wire transfer, or through disbursement by CFG directly to
FICI's vendor(s), upon that party's instructions. If for any reason whatsoever,
CFG makes an Advance to FICI, which, in total, exceeds the maximum amount of the
line of Credit, FICI will repay the excess based upon the repayment schedule set
forth in Section 8 below, together with interest at the daily Periodic Rate
applicable to the line of Credit from time to time.
3. SECURITY STATEMENTS. The parties hereby agree that the line of
Credit shall be unsecured.
At Monthly Intervals ('Billing Cycle') as determined by CFG, CFG will
send FICI a statement ('Billing Statement') which will show Advances made to
FICI, the FINANCE CHARGE then accrued and unpaid, and other charges, payments
and credits to the Account. The Billing Statement will also show the credit
available under the line of Credit as of its closing date. CFG need not send
FICI a Billing Statement for any Billing Cycle in which no FINANCE CHARGE is
imposed or if FICI's Account has a debit or credit balance of one dollar or
less.
4. FINANCE CHARGE. FICI agrees to pay CFG for each Billing Cycle as of
the closing date shown on a Billing Statement a FINANCE CHARGE on the Daily
Periodic Rate (as described in Section 5). The total FINANCE CHARGE for each
Billing Cycle will be equal to the sum total of the FINANCE CHARGES for each day
during the Billing Cycle. CFG will compute the FINANCE CHARGE for each day
during the Billing Cycle by multiplying the Daily Periodic Rate times the Daily
Balance (including current transactions) of the Account at the end of each day
during the Billing Cycle. CFG will compute the 'Daily Balance' by taking the
balance of the Account (not including any FINANCE CHARGE accrued during that
same Billing Cycle) at the beginning of each day during the. Biliing Cycle,
adding any new Advances or charges, and subtracting any payments or credits.
This will give the Daily Balance. FICI understands that under this method of
calculating the Daily Balance, the FINANCE CHARGE will begin to accrue on each
Advance or charge on the day it is made. There will be no Billing Cycle in which
an Advance may be paid without accruing a FINANCE CHARGE.
5. ANNUAL PERCENTAGE RATE AND DAILY PERIODIC RATE. The ANNUAL
PERCENTAGE RATE and the DAILY PERIODIC RATE for the line of Credit will be a
fixed interest rate. The Daily Periodic Rate for the Account is .0002739%, which
corresponds to an ANNUAL PERCENTAGE RATE of ten percent (10.00%).
6. EXCESS FINANCE CHARGE. If for any reason whatsoever, the FINANCE
CHARGE applicable to the line of Credit for any Billing Cycle exceeds any
maximum interest rate then allowed by law, CFG will not charge FICI, and FICI
will not pay the excess. However, CFG may add the excess to the FINANCE CHARGE
due from FICI in any subsequent Billing Cycle(s), and FICI will pay CFG the
excess, to the extent that as a result of doing so the FINANCE CHARGE for such
Billing Cycle(s) would not exceed any maximum interest rate then allowed by law.
FICI understands that the excess may be spread by CFG over any number of Billing
Cycles.
7. DRAW PERIOD. FICI can obtain Advances for one year (the 'Draw
Period'). The Draw Period may be extended from year to year, upon the request of
FICI, but at the sole discretion of CFG.
8. MINIMUM PERIODIC PAYMENTS FICI will pay CFG for each Billing Cycle a
minimum payment. The minimum payment will consist of an amount equal to any
accrued and unpaid FINANCE CHARGE as applicable, as of the closing date of each
Billing Cycle. In addition to the foregoing, FICI will, on the anniversary date
of the line of Credit, repay the entire amount outstanding, including principal,
unpaid interest and any other unpaid charges, unless the line of Credit is
extended for an additional year by the parties per Section 7, above. Upon the
termination of the final term, FICI will repay the entire amount outstanding,
including all outstanding principal, unpaid interest and any other unpaid
charges.
9. CREDITING OF PAYMENTS. CFG will apply each payment from FICI first
to any costs, expenses and indemnities due to it; then to any FINANCE CHARGE;
and then, to the outstanding principal amount of the Advances.
<PAGE>
10. MANNER OF MAKING PAYMENTS. FICI will make all payments to CFG under
this Agreement at P.O. Box 100, Eutawville, SC 29048 or at such other place as
CFG may notify FICI in writing. Except for payments due on demand or on
termination as provided in this Agreement, FICI will make all payments by the
payment due date stated in each Billing Statement.
11. LATE CHARGE. If FICI fails to pay the minimum payment as provided
in Section 8 above, within ten (10) days of the date when it is due, FICI will
pay CFG a late charge (one time only for each such amount) equal to the greater
of five dollars ($5.00) or five percent (5%) of the portion of the minimum
payment due which FICI does not pay (with a maximum of $1 00.00).
12. PREPAYMENT OR ADVANCES. FICI may prepay the principal amount of the
Advances at any time without penalty, subject to prior payment to CFG of all
FINANCE CHARGES due, fees, costs, indemnities and other non-principal amounts
then due to CFG.
13. EVENTS OF DEFAULT. Each of the following shall constitute an 'Event
of Default' for the purposes of this Agreement;
(a) If FICI fails to make any payment under this Agreement when due
(whether at stated maturity or upon acceleration or termination of this
Agreement).
(b) If FICI fails for any reason whatsoever, whether within or beyond
its control, to comply with any other obligation under this Agreement.
(c) If any Warranty or representational statement made or furnished by
FICI to CFG in connection with this Agreement proves to have been false or
misleading when made or furnished in any material respect.
(d) If a judgment or tax lien should be filed against FICI or any of
its property, or an attachment or garnishment shall be issued against any of its
property rights.
(e) If FICI should be unable to pay its debts as they come due, become
insolvent, make an assignment for the benefit of any of its creditors or file a
petition in any bankruptcy or similar proceeding, or if any such petition shall
he filed or proceeding commenced against it, or if any trustee or receiver shall
be named for FICI or any of its property.
If an Event of Default shall have occurred and be continuing, CFG need
not make any further Advances to FICI. In addition, CFG may also, in its sole
discretion, by a writing sent to FICI at its address for notices under this
Agreement, demand immediate repayment from FICI of the outstanding principal
amount of the Advances, together with any accrued and unpaid FINANCE CHARGES,
and other amounts owed to CFG under this Agreement. FICI waives all other
protest, demand, presentment or notice whatsoever. CFG may also take such action
as it may deem appropriate to exercise any other rights available to it tinder
this Agreement or at law, all of which are cumulative. If CFG should engage an
attorney to represent it in collecting any amounts due from FICI, FICI will pay
CFG, upon demand, the expenses and reasonable fees of the attorney, together
with any other costs CFG may incur in collecting any amounts due from FICI. Any
amount which is due to CFG under this paragraph (including without limitation
any principal or FINANCE CHARGE), and which FICI does not pay CFG on demand will
bear interest, from the date of demand until FICI makes payment in full at the
highest rate then permitted by applicable law, but if no such rate shall then
exist, at the highest rate currently permitted by applicable law, or If no such
rate currently exists, at the per annum rate of eighteen (18.0%) percent.
14. NOTICE; CHANGE OF ADDRESS. FICI will send any notices to CFG under
this Agreement, to the address set forth above, unless CFG notifies FICI
otherwise in writing. In the absence of written notice from FICI notifying CFG
that it has changed its address, CFG may send all the Billing Statements and
notices to FICI under this Agreement to 1157 N. 5th, Abilene, TX 79601
15. ASSIGNABILITY. FICI understands that it cannot assign to anyone its
rights under this Agreement, nor delegate any of its obligations, without CFG's
prior written consent, which CFG may grant or withhold in its sole
<PAGE>
discretion. If FICI tries to do so without CFG's prior written consent, the
assignment or delegation will not be enforceable against CFG, and FICI will have
committed an Event of Default. CFG may assign any of its rights and delegate any
of its obligations under this Agreement without consent and without prior notice
to FICI. In Connection and with any such assignment or delegation, CFG may
provide to the other party or parties involved any information it may have
regarding FICI or the Line of Credit.
16. WAIVER. CFG may accept late payments or partial payments, even
though marked 'payment in full,' without waiving any of its rights under this
Agreement. No failure or delay by CFG in the exercise of any right shall operate
as a waiver. No change or modification to the terms of this Agreement shall bind
the parties absent CFG's written consent.
17. APPLICABLE LAW. This Agreement is governed by Florida law, except
that federal law shall apply to the extent it permits the parties to charge a
higher interest rate. Each provision of this Agreement shall be interpreted so
as to be effective and valid under Florida law, but if any provision is, or
becomes, prohibited under Florida law, that provision shall be valid or
enforceable to the fullest extent permitted by law, and the invalidity shall not
affect the remaining provisions of this Agreement,
18. OTHER TAXES. If any taxes other than federal or Florida income or
franchise taxes based on CFG's net income should at any time apply to payments
from FICI to CFG in respect to the line of Credit or this Agreement (including
taxes such as the Florida documentary excise tax), FICI will be responsible for
the same and will reimburse CFG immediately upon demand for any amounts
(including any penalty or interest) CFG pays in connection therewith, together
with interest on such amounts until paid to CFG in full at the interest rate
applicable to the line of Credit from time to time. CFG may instead, in its sole
discretion, treat any such amount due by FICI under this paragraph as an Advance
to FICI under the line of Credit.
19. MISCELLANEOUS. This Agreement shall bind FICI and its assigns,
successors, and heirs. Time is of the essence to the provisions of this
Agreement. FICI agrees that CFG may bring any litigation arising in connection
with this Agreement before any federal or state court in Broward County,
Florida, without prejudice to its right to bring such litigation before any
other competent court wherever located.
20. DELAY OF ENFORCEMENT. CFG can delay enforcing any of its rights
under this Agreement without losing them. For example: CFG can extend the time
for making some payments without extending others. CFG shall be required to give
FICI 12-days written notice before it enforces any right.
21. FINANCIAL DISCLOSURE. CFG may request that FICI complete and
deliver to CFG no later than each anniversary date of this Line of Credit an
updated annual financial information disclosure form provided by CFG. Upon
request from time to time, FICI further agrees to update the information it has
given CFG in connection with FICI's application for the line of Credit and
provide such additional information regarding its financial condition and
business as CFG may request.
22. RIGHT OF SET-OFF. FICI hereby authorizes CFG, to the fullest extent
permitted by law, to set-off and apply any and all sums (general or special,
time or demand, provisional or final) at any time held, and other indebtedness
at any time owing, by CFG to or for FICI's credit or account against any and all
Advances, together with a FINANCE CHARGE due and other amounts owing to CFG
under this Agreement. This right of set-off is in addition to any other right or
remedies which CFG may have.
23. COPY RECEIVED. By signing below, the parties agree to the terms of
this Agreement and acknowledge receipt of a fully completed copy of this
Agreement.
THE UNDERSIGNED, each with the authority to act on behalf of their
respective corporations, hereby execute this Agreement this 31st day of October,
1998.
CENTURY FINANCIAL GROUP, INC.
By:
Douglas R. Baetz, President
FIRST INDEPENDENT COMPUTERS, INC.
By:
Kenneth A. Klotz, President
First Independent Computers Inc.
Data Processing Service Agreement
THIS AGREEMENT is made and entered into between FIRST INDEPENDENT
COMPUTERS, INC., a Texas corporation ("FICI"), 1157 N 5th, Abilene, Texas 79601,
and FiScrip, Inc. (Customer) 2450 Peralta Blvd., Suite 123, Fremont, CA.
Customer desires to engage FICI to perform data processing and other
services to Customer consisting of the applications set forth in Schedule "A"
(attached hereto and made a part hereof for all purposes).
FICI and Customer therefore agree as follows:
I. Services.
1. 1. PROCESSING SYSTEM. FICI agrees to perform for Customer, and
Customer engages FICI to perform, data processing and other services in order to
provide to Customer the applications and services specified in Schedule "A". By
an amendment to Schedule "A", Customer and FICI may agree that FICI will perform
additional services. Customer will process with FICI (throughout the original
and any renewal term of this Agreement) all accounts associated with the
services provided to Customer under this Agreement.
1.2. Forms. Customer will provide special forms used for services under
this agreement.
1.3. REPORTS. FICI will provide Customer with daily reports (or other
periodic reports) reflecting services provided to Customer.
1.4. DELIVERY AND PROCESSING. Customer will, at its own risk and
expense, be responsible for transmitting to and from Customer, and the data
center designated by FICI (the "Data Center") all data and information necessary
for FICI to perform the services required by this Agreement and all reports
provided by FICI. FICI shall have daily reports available for pickup by Customer
at (or available for transmission to Customer from) the Data Center by 8:00 a.m.
of that business day. If items to be processed by FICI are not furnished in a
timely manner, FICI may reasonably reschedule services relying thereon.
1.5. EQUIPMENT . Customer will provide, install and maintain in good
operating condition all necessary communication terminals, control units,
communication lines to the Data Center, telephones, and any other equipment and
features required to implement the terms of this Agreement. All equipment and
features shall be acceptable to FICI in its sole discretion. Customer will
furnish and install any and all spare parts required for such equipment and
features.
1.6 FINANCIAL STATEMENTS: AUDITS. Upon Customer's request, FICI will
provide to Customer copies of the most recent audited financial statements of
First Independent Computers, Inc., the most recent unaudited financial
statements of FICI and the most recent independent audit of FICI's data
processing functions.
1.7. NOTIFICATION OF SYSTEM CHANGES. All changes to the Support System
materially affecting Customer's procedures or reporting will be preceded by
release bulletins to Customer within a reasonable time prior to installation.
<PAGE>
1.8. OPERATING INSTRUCTIONS. FICI may from time-to-time provide
Customer with instructions governing the operation of the Processing System (the
"Operating Instructions"). Customer will comply with all such Operating
Instructions as may be in effect from time to time.
1.9. BACKUP FACILITIES. FICI will provide backup facilities and
procedures for provision of the Support System in the event primary facilities
are not functional.
2. Charges for Services.
2.1. PRICING. Customer will pay FICI for the data processing and other
services set forth in Schedule "A" in accordance with the pricing schedule
attached hereto as Schedule "B". In the event Customer engages FICI to provide
additional applications by an amendment to Schedule "A", Customer will pay FICI
for the additional services in accordance with an amendment to Schedule "B" to
be attached thereto.
2.2. PAYMENT . FICI will bill Customer on a monthly basis for previous
month services by the tenth (10th) calendar day of each month in which services
are being rendered. Customer shall pay FICI the stated charges, fees, and any
applicable taxes by the 20th of each month. Any amounts that remain unpaid and
undrafted for thirty (30) days after the date of invoice because of inability to
draft shall bear interest at the rate of one and one-half (1 1/2) percent per
month from the date of the invoice but not to exceed the highest applicable
lawful rate.
3. Conversion. N/A
4. Term.
4.1. ORIGINAL TERM AND RENEWAL. The original term of this Agreement
shall begin with the effective date hereof and shall continue for a period of
five (5) years after the Effective Date and it shall automatically renew for a
three (3) year period at the end of the original term of this Agreement and at
the end of each renewal term until terminated by either party giving written
notice of termination to the other party at least one-hundred eighty (180) days
before the end of the original or any renewal
5. Proprietary Rights and Confidentiality.
5.1. PROPRIETARY RIGHTS. Customer acknowledges that the Processing
System consists of computer programs, procedures, forms, information and other
materials which constitute trade secrets and property of great value owned by
FICI or its affiliates, having been acquired through the expenditure of a great
amount of time, effort and money. Customer further acknowledges that any
disclosure to others of any of such trade secrets will result in substantial
monetary loss and irreparable damage to FICI. Customer will treat all such
programs, procedures, forms, information and materials confidentially and
safeguard them by using the same procedures used by Customer for data Customer
regards as confidential. Customer will not disclose to any person, directly or
indirectly, except as required in the proper performance of this Agreement, any
information regarding the Processing System or the terms of this Agreement. All
specifications, tapes, programs, enhancements and other materials developed in
connection with this Agreement shall be and remain at all times during and after
the term of this Agreement the exclusive property of FICI. The provisions of
this Section 5 shall survive any termination of this Agreement.
<PAGE>
5.2. CONFIDENTIALITY OF DATA. All data relating to Customer's business
provided to FICI by Customer pursuant to this Agreement will be treated
confidentially and safeguarded by FICI using the same care and discretion that
it uses with data which FICI regards as confidential, except where and to the
extent that disclosure is authorized by Customer, compelled by governmental
regulation or legal process, or is in the form of statistical data not specific
to particular customers of Customer.
6. Correction of Data; Limitation of Liability.
6.1. CORRECTION OF DATA. In the event FICI employees cause errors in
Customer's data to occur and Customer requests correction of such data within
ninety-five (95) days from the date of the error, FICI will correct such data as
necessary at FICI's expense. The expense to FICI of correcting such data shall
be the only responsibility of FICI and shall constitute Customer's sole and
exclusive remedy with respect to such errors.
6.2 LIMITATION OF LIABILITY. In no event will FICI be liable for
special, indirect, incidental or consequential damages of Customer or any third
party. Except for losses covered by FICI's errors and omissions coverage
described in Section 6.3., FICI's total liability for direct damages alleged by
Customer or any other party in any action, regardless of its nature, arising out
of or in connection with this Agreement shall not exceed the amount of the first
month's charges paid by Customer to FICI under this Agreement. Customer will
release, indemnify and hold FICI harmless from and against any claim for damages
in excess of such amount.
6.3. ERRORS AND OMISSIONS COVERAGE. During the term of this Agreement,
FICI will maintain errors and omissions coverage with respect to its employees
of up to one million dollars ($1,000,000) per occurrence.
6.4. FORCE MAJEURE. FICI shall not be liable for damages arising from
or delays in processing or other non-performance caused by such events as
accidents, fires, telecommunications failures, equipment failures, failures or
fluctuations in electrical power, heat, light or air conditioning, labor
disputes, strikes, riots, war, governmental regulations, third party
non-performance, acts of God or other causes over which FICI has no control.
7. Termination.
7.1. TERMINATION FOR CAUSE. Customer or FICI may terminate this
Agreement upon the material breach of this Agreement by the other party under
this Agreement and failure of such party to cure such breach within ninety (90)
days after receipt of written notice specifying in detail the breach claimed. If
such breach is not cured within such ninety (90) day period, and the terminating
party intends to terminate, the terminating party must immediately give thirty
(30) days written notice of termination.
7.2. TERMINATION FOR NON-PAYMENT. If Customer fails to pay in full any
invoice within thirty (30) days from the date of invoice, FICI may notify
Customer that such invoice is past due and provide a 30-day period for payment
of the past due amount plus any interest accrued thereon. If Customer fails to
pay the full amount of such invoice plus interest within such 30-day period,
FICI may terminate this Agreement and all services hereunder at any time upon
written notice to Customer.
7.3. TERMINATION UPON INSOLVENCY. In the event Customer is declared
insolvent and is liquidated by any state or federal regulatory agency, FICI
shall be entitled to liquidated damages pursuant to Section 7.6. Notwithstanding
the foregoing, in the event Customer is declared insolvent but is not
liquidated, or is placed in receivership or conservatorship, or other similar
actions are taken, the use of the Processing System thereafter by any new owner,
receiver, conservator, manager or other agent or representative shall be deemed
acceptance and assumption of this Agreement on the full terms and conditions
contained herein, including but not limited to Section 7.6.
<PAGE>
7.4. FILES AND OTHER MATERIALS. Upon proper termination of this
Agreement in accordance with all applicable provisions (at the conclusion of the
required written notice period), all data files created by FICI and related to
Customer will be furnished to Customer by FICI in FICI's standard form at the
cost set forth in Schedule "B". Should Customer terminate this Agreement prior
to the end of the original term or any renewal term, Customer will pay for all
costs of communications equipment that has been installed in Customer as of the
time of such termination, such payment to include all of FICI's costs in
accordance with the applicable equipment service agreement. FICI agrees to use
reasonable efforts to relocate the communications equipment. Upon any
termination of this Agreement, Customer will return to FICI all operations
materials and materials relating to or consulting part of the Support System,
and Customer will purchase from FICI all Customer custom forms held or on order
by FICI.
7.5. PAYMENT DUE UPON TERMINATION. Upon any termination of this
Agreement, all amounts owing from Customer to FICI, together with any and all
interest accrued and unpaid thereon, shall be due and payable at the time of
termination.
7.6. LIQUIDATED DAMAGES. Upon any termination of this Agreement after
the Effective Date but prior to the end of the original term or any renewal
term, other than upon termination due to material breach by FICI hereunder,
Customer shall pay to FICI as liquidated damages an amount equal to the product
of eighty percent (80%) of Customer's average total monthly billings under this
Agreement for the most recent six (6) months (or lesser number of months if less
than six (6) months have lapsed since the effective date) multiplied by the
number of months remaining in the term of the Agreement. The parties hereto
acknowledge and agree that (a) FICI has incurred and will incur substantial
expenses in connection with the commencement and continuation of providing
services hereunder, (b) FICI has substantial fixed expenses in providing these
services which cannot be reduced by termination of such services, (c) in the
event of any such termination, the damages that would be incurred by FICI
because of such termination would be uncertain and difficult and impracticable
to calculate and (d) the amount determined pursuant to this Section 7.6.
represents a reasonable method of estimating the actual damages that would be
incurred by FICI in the event of such a termination.
8. General.
8.1. GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of Texas. This Agreement has been accepted in and
shall be performable in Abilene, Taylor County, Texas. All times referred to
herein shall be Abilene, Texas time.
8.2. ENTIRE AGREEMENT; RIGHT TO PERFORM. This Agreement represents the
entire understanding between Customer and FICI with respect to the matters
contained herein and, except as otherwise provided herein, may be amended only
by an instrument in writing signed by the parties hereto. Customer warrants that
it will be free, as of the date of commencement of the services to be provided
hereunder, of any contractual obligation or legal impediment that would prevent
Customer from performing its obligations under this Agreement, and that FICI's
offer to provide such services in no way caused or induced Customer to breach
any contractual obligations.
8.3. SEVERABILITY. In the event that any of the provisions of this
Agreement are held to be unenforceable or invalid by any court of competent
jurisdiction, the validity and enforceability of the remaining provisions will
not be affected, and in lieu of such invalid or unenforceable provision there
shall be added automatically, as part of this Agreement, a provision as similar
in terms as may be valid and enforceable.
<PAGE>
8.4. RELATIONSHIP OF PARTIES. FICI, in providing services to Customer
hereunder, is acting only as an independent contractor. Except as otherwise
provided herein: (a) FICI does not undertake by this Agreement or otherwise to
perform any obligation of Customer, whether regulatory or contractual, or to
assume any responsibility for Customer's business or operations, and (b) FICI
has the sole right and obligation to supervise, manage, contract, direct,
procure, perform or cause to be performed, all work to be performed by FICI
under this Agreement.
8.5. NO-HIRE PROVISION. During the term of this Agreement and for a
period of twelve (12) months thereafter, neither party will, without the prior
written consent of the other, which consent will not be unreasonably withheld,
offer employment to or employ any person employed there or within the preceding
twelve (12) months by the other party, if the person was involved in providing
or receiving services.
8.6. NOTICES. Any notice required or permitted hereunder shall be in
writing and shall be given by personal service or certified mail, return receipt
requested, postage prepaid, to the addresses of the parties as they appear
above, or as changed through written notice to the other party.
8.7. BINDING EFFECT AND ASSIGNMENT . This Agreement is binding on the
parties hereto and their respective successors and assigns. Customer may not
assign this Agreement (whether such assignment is effected in connection with a
sale of Customer's assets, stock or through merger or otherwise) without the
prior written consent of FICI.
FISCRIP, INC. FIRST INDEPENDENT COMPUTERS, INC.
BY: /S/ RONALD I. ROWE BY: /S/ KENNETH A. KLOTZ
------------------ --------------------
NAME: Ronald I. Rowe NAME: Kenneth A. Klotz
TITLE: President & CEO TITLE: President
DATE: March 1, 1998 DATE: March 1, 1998
January 1, 1999
Board of Directors
Columbia Capital Corp.
1157 North 5th Street
Abilene, Texas 79601
RE: CONTRIBUTION TO CAPITAL OF COLUMBIA CAPITAL CORP. ("CLCK")
Gentlemen:
The undersigned, Douglas R. Baetz and Glenn M. Gallant (the
"Shareholders"), who collectively own approximately 85% of the issued and
outstanding stock of CLCK, hereby offer to make a contribution ("Contribution")
to the capital of CLCK consisting of 950,000 shares of the issued and
outstanding common stock of Fi-Scrip, Incorporated, a Nevada corporation
("Fi-Scrip"), which constitutes 100% of the issued and outstanding shares of
stock of Fi-Scrip ("Fi-Scrip Shares"). No additional shares of CLCK stock are to
be issued to the Shareholders nor will CLCK pay any consideration of any kind.
In connection with the Contribution, the Shareholders hereby represent
the following:
1) The Shareholders are the sole owners of the Fi-Scrip Shares, which
are free and clear of any lien, mortgage, charge, security interest, pledge, or
other encumbrance or adverse claim or interest of any kind. Each of the
Shareholders has the right and power to assign all of his right, title and
interest in and to the Fi-Scrip Shares, and each of the Shareholders further
represents and warrants that the Fi-Scrip Shares constitute all of his right and
interest in Fi-Scrip and each has not made any prior transfer, sale, assignment,
pledge, hypothecation or encumbrance to any other person or entity of any right
or interest in the Fi-Scrip Shares.
<PAGE>
Board of Directors
January 1, 1999
Page 2
2) Each of the Shareholders has duly taken all necessary action to
authorize the execution, delivery and performance of this letter agreement and
any other instruments and agreements contemplated hereby. Such execution,
delivery and performance does not and will not, to the best of each of
Shareholders' knowledge, constitute a default under or a violation of any
agreement, order, award, judgment, decree, statute, law, rule, regulation or any
other instrument to which each of Shareholders is a party or by which each of
Shareholders or the property of each of Shareholders may be bound or may be
subject. This agreement constitutes the legal valid and binding obligations of
each of Shareholders, enforceable against each of Shareholders in accordance
with its terms.
3) Shareholders have furnished CLCK with true and correct copies of the
unaudited balance sheet of Fi-Scrip, as of December 31, 1998, and income
statements for the one month and twelve month periods ended December 31, 1998
("Fi-Scrip Financial Statements"). The Fi-Scrip Financial Statements fairly
present the financial position and the results of operations of Fi-Scrip as of
the date and for the periods stated therein, and have been prepared in
accordance with generally accepted accounting principles consistently applied
with prior periods. To the best of the knowledge of each of Sellers, since
December 31, 1998, Fi-Scrip has not suffered any material adverse change in its
financial condition, assets, liabilities or reserves, and no event has occurred
and no action has been taken by Shareholders or, to the best knowledge of
Shareholders any other person, nor is any such event or action contemplated or,
to the best knowledge of Shareholders threatened, which might reasonably be
expected to have a material adverse effect on Fi-Scrip or its operations or its
financial condition, except that no representation or warranty is made hereunder
as to general economic conditions or matters affecting Fi-Scrip's industry
generally.
4) Shareholders understand that CLCK is assuming no obligation or
liability of Fi-Scrip in connection with this Contribution nor any obligation or
liability of either of the Shareholders in connection with this Contribution.
<PAGE>
Board of Directors
January 1, 1999
Page 3
If the Contribution of Fi-Scrip Shares is acceptable to you on the
terms set forth herein, please sign this agreement where indicated and return it
to the undersigned.
Very truly yours,
("Shareholders")
/s/ Douglas R. Baetz
--------------------
Douglas R. Baetz
/s/ Glenn M. Gallant
--------------------
Glenn M. Gallant
Agreed and accepted as of the date first set forth above:
COLUMBIA CAPITAL CORP.
By: /s/ Kenneth A. Klotz
--------------------
Kenneth A. Klotz
President
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 975,566
<SECURITIES> 0
<RECEIVABLES> 148,765
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,186,959
<PP&E> 1,884,261
<DEPRECIATION> 554,068
<TOTAL-ASSETS> 7,474,554
<CURRENT-LIABILITIES> 2,639,380
<BONDS> 0
0
0
<COMMON> 38,512
<OTHER-SE> 4,667,037
<TOTAL-LIABILITY-AND-EQUITY> 7,474,554
<SALES> 4,738,557
<TOTAL-REVENUES> 4,738,557
<CGS> 0
<TOTAL-COSTS> 6,865,888
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72,826
<INCOME-PRETAX> (1,911,885)
<INCOME-TAX> (647,932)
<INCOME-CONTINUING> (1,263,953)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,263,953)
<EPS-BASIC> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
