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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
GENERAL FORM REGISTRATION OF SECURITIES PURSUANT TO
SECTION 12(b) OR (g) OF THE SECURITIES ACT OF 1934
For the quarter ended JUNE 30, 1999 Commission file No. 30152
billserv.com, Inc.
(Exact name of issuer as specified in its charter)
Nevada 98-0190072
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
Lori Turner Marshall Millard
Vice President and Chief Financial Officer Vice President and General Counsel
14607 San Pedro Ave., Suite 100
San Antonio, Texas 78232
(210) 402-5000
(Address,including zip code, and telephone number, including area
code of issuer's principal executive offices)
Nevada Agency & Trust Company
50 West Liberty Street, Suite 880
Reno, Nevada 89501
(702) 322-0626
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
10,976,428 shares of $.001 per value common stock
outstanding as of June 30, 1999
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<PAGE>
billserv.com, Inc.
FORM 10-Q
For the Quarter Ended June 30, 1999
INDEX
Part I - Financial Information PAGE
-------
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statement of Changes in Shareholder's
Equity (Deficit) 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II - Other Information
Signatures 17
2
<PAGE>
Part I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BILLSERV.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
30-Jun 31-Dec
1999 1998
----------- -----------
<S> <C> <C>
Assets:
Cash and cash equivalents .............................. $ 2,133,453 $ 329,618
Related party accounts receivable ...................... 9,015 24,000
Prepaid expenses ....................................... 60,316 3,213
Other current assets ................................... 329,301 31,149
----------- -----------
Total current assets ................................... 2,532,085 387,980
Property and equipment, net of accumulated
depreciation and amortization of $80,978 and $559 ... 856,142 19,550
Other assets ........................................... 368,678 --
----------- -----------
Total assets ........................................... $ 3,756,905 $ 407,530
=========== ===========
Liabilities & shareholders' equity (deficit):
Current liabilities:
Accounts payable ..................................... $ 106,822 $ 3,779
Accrued expenses ..................................... 117,171 38,127
Current portion of obligations under capital leases .. 267,143 --
Other current liabilities ............................ 7,809 --
Advance from shareholders ............................ -- 500,000
Accounts payable, related party ...................... -- 150,000
----------- -----------
Total current liabilities .............................. 498,945 691,906
Obligations under capital leases, less current portion 337,244 --
Shareholders' equity (deficit):
Common stock, $.001 par value, 200,000,000 shares
authorized; 10,976,428 issued and outstanding
at June 30, 1999, 10,030,000 issued and outstanding
at December 31, 1998 .............................. 10,976 10,030
Paid-in capital ...................................... 5,655,637 --
Deficit accumulated during the development stage ..... (2,745,897) (294,406)
----------- -----------
Total shareholders' equity (deficit) ................... 2,920,716 (284,376)
----------- -----------
Total liabilities and shareholders' equity (deficit) ... $ 3,756,905 $ 407,530
=========== ===========
</TABLE>
See notes to financial statements
3
<PAGE>
BILLSERV.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 30,
1998
THREE MONTHS SIX MONTHS (INCEPTION)
ENDED JUNE 30, ENDED JUNE 30, TO JUNE 30,
1999 1999 1999
------------------ ------------------ ----------------
<S> <C> <C> <C>
Revenues .................................. $ -- $ -- $ --
Operating Expenses
Research and development ................ 167,351 339,542 339,542
Selling expenses ........................ 454,765 741,937 830,235
General and administrative .............. 962,418 1,293,925 1,494,838
Depreciation & Amortization ............. 68,570 81,264 81,823
------------ ------------ ------------
Total operating expenses .................. 1,653,104 2,456,668 2,746,438
------------ ------------ ------------
Operating loss ............................ (1,653,104) (2,456,668) (2,746,438)
Other income (expense):
Interest income ......................... 9,427 12,131 12,131
Interest expense ........................ (8,154) (8,154) (8,154)
Other income (expense) .................. 1,200 1,200 1,200
------------ ------------ ------------
Total other income (expense) .............. 2,473 5,177 5,177
------------ ------------ ------------
Loss before income taxes .................. (1,650,631) (2,451,491) (2,741,261)
Income Taxes .............................. -- -- --
------------ ------------ ------------
Net loss .................................. $ (1,650,631) $ (2,451,491) $ (2,741,261)
============ ============ ============
Net loss per common share - basic ......... $ (0.16) $ (0.24) $ (0.27)
============ ============ ============
Weighted average common shares
outstanding - basic ..................... 10,227,606 10,129,349 10,083,673
============ ============ ============
</TABLE>
See notes to financial statements
4
<PAGE>
BILLSERV.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE TOTAL
COMMON STOCK PAID-IN DEVELOPMENT SHAREHOLDERS'
SHARES AMOUNT CAPITAL STAGE EQUITY
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance July 30, 1998 (date of inception) ............ 1,000 $ -- $ -- $ -- $ --
Acquisition of shares and reverse merger,
December 9, 1998 ................................... 10,029,000 10,030 (4,636) 5,394
Net loss from inception (July 30, 1998 to
December 31, 1998) ................................. (289,770) (289,770)
------------------------------------------------------------------------
Balance at December 31, 1998 ......................... 10,030,000 10,030 -- (294,406) (284,376)
Shares issued under Reg S, June 11, 1999 ............. 946,428 946 5,299,054 5,300,000
Issuance of Common Stock Warrants .................... 356,583 356,583
Net loss for the six-months ending June 30, 1999 ..... (2,451,491) (2,451,491)
------------------------------------------------------------------------
Balance at June 30, 1999 ............................. 10,976,428 $ 10,976 $ 5,655,637 $(2,745,897) $ 2,920,716
========================================================================
</TABLE>
See notes to financial statements
5
<PAGE>
BILLSERV.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 30,
1998
SIX MONTHS (INCEPTION)
ENDED JUNE 30, TO JUNE 30,
1999 1999
----------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ....................................................... $(2,451,491) $(2,741,261)
Adjustments to reconcile net loss to net
cash used in operating activities-
Issuance of common stock warrants .............................. 356,583 356,583
Depreciation and amortization .................................. 81,264 81,823
Changes in current assets and current liabilities-
(Increase) decrease in related party receivables ............... 14,985 (9,015)
(Increase) decrease in prepaid expenses and other current assets (355,245) (389,607)
Increase (decrease) in accounts payable and accrued liabilities 182,087 223,993
Increase (decrease) in accounts payable related party .......... (150,000) --
Increase (decrease) in other current liabilities ............... 7,809 7,809
----------- -----------
Net cash used by operating activities .......................... (2,314,008) (2,469,675)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ............................. (410,811) (430,920)
Proceeds from sale of property and equipment ................... 116,320 116,320
Purchase of long term investments .............................. (256,535) (256,535)
Purchase of intangible assets .................................. (75,000) (75,000)
Deposits - long term ........................................... (37,143) (37,143)
Proceeds of acquisition/merger ................................. -- 5,394
----------- -----------
Net cash used in investing activities .......................... (663,169) (677,884)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advance from shareholders ...................................... 1,500,000 2,000,000
Repayment to shareholders ...................................... (2,000,000) (2,000,000)
Issuance of common stock ....................................... 5,300,000 5,300,000
Principal payments and obligations under capital lease ......... (18,988) (18,988)
----------- -----------
Net cash used by financing activities .......................... 4,781,012 5,281,012
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ....................... 1,803,835 2,133,453
CASH AND CASH EQUIVALENTS, beginning of year ............................... 329,618 --
----------- -----------
CASH AND CASH EQUIVALENTS, end of period ................................... $ 2,133,453 $ 2,133,453
=========== ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES
Capital lease obligations of $623,375 were incurred when the
Company entered into leases for office and computer
Equipment .................................................... $ 623,375 $ 623,375
=========== ===========
</TABLE>
See notes to financial statements
6
<PAGE>
billserv.com, Inc.
(a development stage company)
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 1999
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Company's principal activities have been research and development, raising
capital, and organizational activities. Accordingly, it is considered a
development stage company. The Company expects to incur losses during its first
year of operation and may incur losses in subsequent years as development
efforts continue after the commencement of generation of revenues. The Company
plans to meet its capital requirements primarily through issuance of equity
securities, capital lease financing, and in the longer term, revenue from
services.
The Company's statements have been prepared by the Company pursuant to the rules
and regulations of the Securities and Exchange Commission (SEC) and, in the
opinion of management, include all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the results for the interim
periods shown. Certain information and footnote disclosures, normally included
in financial statements prepared in accordance with generally accepted
accounting principles, have been condensed or omitted pursuant to such SEC rules
and regulations. The results for the interim periods are not necessarily
indicative of results for the full year. The financial statements contained
herein should be read in conjunction with the financial statements and notes
thereto included in the Company's Form 10, as amended.
2. STOCK ISSUANCE UNDER REGULATION S
On June 11, 1999, the Company issued 946,428 shares of common stock, in exchange
for $5.3 million in cash. The stock was issued pursuant to exemption under
Regulation S.
3. RELATED PARTY TRANSACTIONS
The Company received advances from a related party toward the placement of the
Company's common stock under Regulation S, completed on June 11, 1999. Prior to
the placement, the Company had been advanced $2 million. The advance was repaid
from the proceeds of the Regulation S offering on June 11, 1999. See Note 2.
7
<PAGE>
billserv.com, Inc.
(a development stage company)
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 1999
3. RELATED PARTY TRANSACTIONS (CONTINUED)
The Company has also entered into an agreement ("Consulting Agreement") to
receive financial consulting, public relations services, advertising services,
and investor relations' services from a group of minority shareholders
("Consulting Group"). The term of the agreement is for one year, from November
1, 1998 to October 31, 1999, and provides for services totaling $1.2 million. At
June 30, 1999, the Company had paid a $1 million liability to the Consulting
Group. The related liability previously reported as Accounts Payable - Related
Party was paid from the proceeds of the Regulation S offering which was
completed on June 11, 1999. The Company has placed $200,000 from the Regulation
S offering in a trust account reserved for future payment of services. This
amount is included within Cash and Cash Equivalents.
4. OBLIGATIONS UNDER CAPITAL LEASES
The Company entered into two capital leases in May and June 1999.
Equipment held under capital leases is stated at the present value of minimum
lease payments at the inception of the related leases. Equipment held under
capital leases and leasehold improvements are amortized on a straight-line basis
over the shorter of the lease term or estimated useful life of the assets.
Amortization of equipment held under capital leases is included with
depreciation expense. Repairs and maintenance costs are charged to expense as
incurred. At June 30, 1999, there was $604,387 of office and computer equipment
held under capital leases.
The following is a schedule, by year, of future minimum lease payments under
capital leases, together with the present value of the minimum lease payments as
of June 30, 1999:
8
<PAGE>
billserv.com, Inc.
(a development stage company)
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 1999
4. OBLIGATIONS UNDER CAPITAL LEASES (CONTINUED)
Year ending December 31,
1999 $ 155,520
2000 342,574
2001 197,974
2002 22,239
----------
Total minimum lease payments $ 718,307
Less: amount representing interest (113,920)
----------
$ 604,387
Less: current portion (267,143)
----------
Obligations under capital leases $ 337,244
==========
5. OPERATING LEASES
The Company leases office space and other equipment under noncancelable
operating leases expiring in 2003. Future minimum lease payments required under
these leases entered into by the Company, by year and in the aggregate, consist
of the following at June 30, 1999:
Year ending December 31,
1999 $ 91,739
2000 185,227
2001 46,785
2002 2,311
2003 2,311
----------
Total minimum lease payments $ 328,373
==========
6. OTHER ASSETS
The Company purchased the domain name bills.com for $75,000 in April 1999. The
Company has utilized the domain name for its own Internet portal at the website
www.bills.com. The domain name is reflected in Other Assets. The Company is
amortizing the amount over a ten year period. Additionally, certificates of
deposit purchased for security of long term capital leases are classified under
Other Assets.
9
<PAGE>
billserv.com, Inc.
(a development stage company)
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 1999
7. STOCK WARRANT AGREEMENTS
On May 7, 1999, the Company contracted to issue a warrant for the purchase of up
to 500,000 shares of common stock to Southwest Business Corporation (SWBC), of
San Antonio, Texas. Subject to specific performance criteria in sales and
marketing of the Company's products, SWBC may earn the right to purchase shares
of common stock, at 110% of the closing bid price as of May 7, 1999 ($7.15),
over a three year term. If SWBC meets the contract requirements, the warrant
will be issued in accordance with exemption under Section 4(2) of the Securities
Act of 1933, as amended, because the transaction is by an issuer not involving a
public offering. No warrants had been issued as of June 30, 1999.
On May 18, 1999, the Company contracted with Pennsylvania Merchant Group ("PMG")
to provide strategic and financial advisory services. In exchange for these
advisory services, the Company issued to PMG a warrant to purchase 111,085
shares of common stock of the Company at an exercise price of $6.75 per share
(which represents the average closing price of the Company's stock over the
twenty (20) day period preceding May 18, 1999). The warrant is exercisable for
five (5) years. This warrant was issued in accordance with exemption under
Section 4(2) of the Securities Act of 1933, as amended, because the transaction
is by an issuer not involving a public offering. Using the fair value based
method of accounting, the company recorded $356,583 of expense and a
corresponding credit to paid-in-capital related to the issuance of this warrant.
This expense is included in the general and administrative line item in the
Statements of Operations.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS BASED ON CURRENT EXPECTATION,
ESTIMATES AND PROJECTIONS ABOUT THE COMPANY'S INDUSTRY, MANAGEMENT'S BELIEFS AND
CERTAIN ASSUMPTIONS MADE BY MANAGEMENT. ALL STATEMENTS, TRENDS, ANALYSES AND
OTHER INFORMATION CONTAINED IN THIS REPORT RELATIVE TO TRENDS IN NET SALES,
GROSS MARGIN, ANTICIPATED EXPENSE LEVELS AND LIQUIDITY AND CAPITAL RESOURCES, AS
WELL AS OTHER STATEMENTS, INCLUDING, BUT NOT LIMITED TO, WORDS SUCH AS
"ANTICIPATE," "BELIEVE," "PLAN," "INTEND," "EXPECT," AND OTHER SIMILAR
EXPRESSIONS CONSTITUTE FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING
STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE SUBJECT TO CERTAIN
RISKS AND UNCERTAINTIES THAT ARE DIFFICULT TO PREDICT. ACCORDINGLY, ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED OR EXPRESSED IN SUCH
STATEMENTS. POTENTIAL RISKS AND UNCERTAINTIES INCLUDE, AMONG OTHERS, THOSE SET
FORTH BELOW. PARTICULAR ATTENTION SHOULD BE PAID TO THE CAUTIONARY STATEMENTS
INVOLVING THE COMPANY'S LIMITED OPERATING HISTORY, THE UNPREDICTABILITY OF ITS
FUTURE REVENUES, THE UNPREDICTABLE AND EVOLVING NATURE OF ITS BUSINESS MODEL,
THE INTENSELY COMPETITIVE ONLINE COMMERCE INDUSTRY AND THE RISKS ASSOCIATED WITH
CAPACITY CONSTRAINTS, SYSTEMS DEVELOPMENT, MANAGEMENT OF GROWTH AND BUSINESS
EXPANSION, AS WELL AS OTHER RISK FACTORS.
GENERAL
billserv.com, Inc., Inc. is a service bureau consolidator in the electronic bill
presentment and payment ("EBPP") industry. As a development stage enterprise,
the Company has yet to receive operating revenues. However, the Company intends
to generate four principal revenue streams: Internet billing services, Internet
publishing of statements, customer care services through Internet and
traditional telephony technologies, and professional services associated with
the implementation and maintenance of these Internet technologies. The Company
has a limited operating history on which to base an evaluation of its businesses
and prospects. The Company's prospects must be considered in light of the risks,
expenses, and difficulties frequently encountered by companies in their early
stage of development, particularly companies in new and rapidly evolving markets
such as electronic commerce. Such risks for the Company include, but are not
limited to, an evolving and unpredictable business model and the management of
growth. To address these risks, the Company must, among other things, maintain
and increase its customer base, implement and successfully execute its business
and marketing strategy, continue to develop and upgrade its technology and
transaction-processing systems, provide superior customer service, respond to
competitive developments, improve its Web site, and attract, retain and motivate
qualified personnel. There can be no assurance that the Company will be
successful in addressing such risks, and the failure to do so could have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations.
11
<PAGE>
Since inception, the Company has incurred losses and as of June 30, 1999 had an
accumulated deficit of $ 2,745,897. The Company believes that its success will
depend in large part on its ability to (a) secure additional financing to meet
capital and operating requirements, (b) capture a significant portion of the
medium to large size market of billers as its customer base, (c) drive the
consumer adoption rate of EBPP, and (d) meet changing customer requirements and
technological changes in an emerging market. Accordingly the Company intends to
invest heavily in its product development, technology, and operating
infrastructure development as well as marketing and promotion. Because the
Company's services will require a significant amount of investment in
infrastructure and a substantial level of fixed operating expenses, achieving
profitability depends on the Company's ability to generate a high volume of
revenues. As a result of the Company's limited operating history and the
emerging nature of the markets in which it competes, the Company is unable to
accurately forecast its revenues. The Company's current and future expense
levels are based largely on its investment plans and estimates of future
revenues and are to a large extent fixed. Sales and operating results will
depend on the volume of transactions completed and related services rendered.
The timing of such services and transactions and the Company's ability to
fulfill biller demands are difficult to forecast. The Company may be unable to
adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. Accordingly, any significant shortfall in revenues in relation to the
Company's planned expenditures could have an adverse effect on the Company's
business, prospects, financial condition and results of operations. Further, the
Company may from time to time make certain pricing, service, marketing or
acquisition decisions that could have a material adverse effect on its business,
prospects, financial conditions and results of operations.
RESULTS OF OPERATIONS - QUARTER ENDED JUNE 30, 1999
The Company's activities for the quarter ending June 30, 1999 resulted in a net
loss of $1,650,631. The Company generated no revenues during the period.
Selling expenses consisted primarily of payroll and related expenses for
personnel engaged in marketing and selling activities, as well as advertising
services purchased from the Consulting Group which totaled $150,000. The Company
expanded its sales and marketing staff subsequent to June 30, 1999 and intends
to continue such expansion. The Company has opened sales offices in Arizona,
California, Massachusetts, New Jersey, North Carolina, Pennsylvania, and Texas.
The Company plans to increase its marketing and sales capacities through various
marketing and sales activities, including, advertising in trade publications,
promotional activities, and aggressive trade show attendance. Therefore the
Company expects marketing and sales expense to increase substantially.
Research and development expenses totaled $167,351 for the quarter ended June
30, 1999. The Company devoted these resources to development of its technology
infrastructure and operating systems.
12
<PAGE>
General and administrative expenses consisted primarily of payroll and related
expenses for executive, accounting, legal and administrative personnel, as well
as professional and consulting fees and other general corporate expenses. For
the June 30, 1999 quarter, financial and investor relations services provided
under the Consulting Agreement totaled $300,000. The Company expects general and
administrative expenses to increase as the Company expands its staff and incurs
additional costs related to the growth of its business.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1999
The Company's activities for the six months ending June 30, 1999 resulted in a
net loss of $2,451,491. The Company generated no revenues during the period.
Selling expenses consisted primarily of payroll and related expenses for
personnel engaged in marketing and selling activities, as well as advertising
services purchased from the Consulting Group which totaled $300,000. The Company
expanded its sales and marketing staff subsequent to June 30, 1999 and intends
to continue such expansion. The Company has opened sales offices in Arizona,
California, Massachusetts, New Jersey, North Carolina, Pennsylvania, and Texas.
The Company plans to increase its marketing and sales capacities through various
marketing and sales activities, including, advertising in trade publications,
promotional activities, and aggressive trade show attendance. Therefore the
Company expects marketing and sales expense to increase substantially.
Research and development expenses totaled $339,542 for the six months ended June
30, 1999. The Company devoted these resources to development of its technology
infrastructure and operating systems.
General and administrative expenses consisted primarily of payroll and related
expenses for executive, accounting, legal and administrative personnel, as well
as professional and consulting fees and other general corporate expenses. For
the Six months ended June 30, 1999, financial and investor relations services
provided under the Consulting Agreement totaled $550,000. The Company expects
general and administrative expenses to increase as the Company expands its staff
and incurs additional costs related to the growth of its business.
LIQUIDITY AND CAPITAL RESOURCES
From inception to date, the Company's operations have been funded from advances
under an equity placement. This placement was concluded and fully funded on June
11, 1999, pursuant to Regulation S. The Company issued 946,428 shares of common
stock in exchange for $5.3 million in cash. Advances outstanding at the time of
the placement totaling $2 million were repaid from the proceeds, as well as
amounts due to a related party for investor and public relations services for $1
million. The Company has placed $200,000 from the Regulation S offering in a
trust account for future payment of services under the consulting Agreement.
This amount is included within cash on the balance sheet.
13
<PAGE>
At June 30, 1999, the Company had positive working capital of $2,033,000. During
the second quarter of 1999 the Company made significant expenditures and
commitments for capital improvements consistent with anticipated growth in
operations, infrastructure and personnel. The Company anticipates it will make
additional investments in and for capital improvements, which will require
additional financing, either through the use of equipment leasing arrangements,
or other equity financing.
The Company purchased the domain name bills.com for $75,000 in April 1999, at
which time it announced the establishment its own Internet portal at the website
www.bills.com. The company is amortizing the amount over a ten year period. The
operations of the Internet portal have been organized under "bills.com, Inc.", a
Delaware corporation which is a wholly-owned subsidiary of the Company. The
portal is currently available for consumer use and interaction. The Company will
continue to develop the website and to enhance its design. bills.com expects to
earn revenues through Internet banner advertising on its website, as well as
through sponsorship agreements with other Internet portals. The Company believes
that companies will purchase space on its bills.com website in order to take
advantage of the potentially large number of consumers who will use the site as
an Internet bill presentment and payment service. The Company currently has
plans to invest only limited funds to support and market the portal; however,
the Company could at any time decide to devote additional financial resources to
the portal.
The Company has engaged Pennsylvania Merchant Group ("PMG"), to provide
strategic and financial advisory services, including analysis of markets,
products, positioning, financial models, organizations and staffing, potential
strategic alliances, capital requirements and funding options. In exchange for
these advisory services, the Company issued a warrant to PMG to purchase 111,085
shares of common stock of the Company at an exercise price of $6.75 per share
(which represents the average closing price of the Company's stock over the
twenty (20) day period preceding May 18, 1999). The warrant is immediately
exercisable and expires in five (5) years. This warrant was issued in accordance
with exemption under Section 4(2) of the Securities Act of 1933, as amended,
because the transaction is by an issuer not involving a public offering. Using
the fair value based method of accounting, the company recorded $356,583 of
expense and a corresponding credit to paid-in-capital related to the issuance of
this warrant. This expense is included in the General and Administrative line
item in the Statement of Operations.
The Company secured long term financing for portions of its computer, software
and telephone systems during the second quarter of 1999. It entered into a three
year capital lease for approximately $136,244 which carries an interest rate of
10.8%. The terms of the lease include a requirement of security totaling 50% of
the total lease for which the company purchased a certificate of deposit for
$75,000. Additionally, the Company entered into a two-year capital lease
totaling $487,131 carrying an interest rate of approximately 17%. The terms of
the lease include a requirement of security in the form of a certificate of
deposit equal to 70% of the total dollars financed, 25% of which shall be
released to the Company on each six month anniversary of the lease inception
date. A total security deposit of $245,496 is included in Other Assets on the
Company's Consolidated Balance Sheet as of June 30, 1999.
14
<PAGE>
The Company's headquarters are located in San Antonio, Texas. The Company
entered into a two-year lease for its headquarters beginning in May 1999 for
8,000 square feet which was modified to include an additional 3000 square feet
beginning in August 1999. The Company anticipates acquiring additional adjacent
leased space to meet the requirements of its expanding clerical, administrative
and sales activities. Additionally, the Company leases sales offices in
Hollidaysburg, Pennsylvania; Dallas, Texas; and Phoenix, Arizona and plans to
open additional sales offices throughout the United States. The Company also
anticipates increasing its lease commitments with the establishment of a call
center within the next 12 months.
The Company intends to develop, build and staff a customer care center which
integrates Internet and traditional telephone capabilities to further support
its eCare product sales and service. While development costs for this center are
difficult to project, and may change as more extensive plans are developed later
this year, the Company estimates expenditures ranging from $3,000,000 to
$4,000,000 for the development and construction of its customer care center. The
Company plans to meet its capital requirements primarily through use of cash on
hand, additional issuance of equity securities, capital lease financing, and in
the longer term, revenue from services.
The Company's sales and marketing efforts, their associated costs and precise
timing are under development, and thus extremely difficult to project. Until
sufficient funds are available, the Company will be unable to pursue fully its
sales and marketing strategies. In order to fund these efforts, the cost of
which will likely exceed the amount of $3,000,000 over the next twelve (12)
month period, the Company currently plans to issue additional equity securities,
undertake capital lease financing arrangements, and in the longer term expend
revenue from operations.
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field and cannot distinguish 21st
century dates from 20th century dates. These date code fields will need to
distinguish 21st century dates from 20th century dates to avoid system failures
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities. As a result, many companies' software and
computer systems may need to be upgraded or replaced in order to comply with
such "Year 2000" requirements.
As of July 15, 1999, the Company has completed the process of determining
whether or not its products, its internal systems, computers and software, and
the products and systems of its critical vendors and suppliers are Year 2000
compliant. The cost associated with this review has been minimal, primarily
because the Company has utilized internal personnel to complete the review, and
because the Company's systems are relatively new. To date, this evaluation
process has resulted in the following:
IT Systems. The Company has conducted a preliminary survey of its IT
hardware and software and believes that all such hardware and
software is Year 2000 compliant.
15
<PAGE>
Non-IT Systems and Infrastructure. Machinery and equipment used in
operations has been inventoried and assessed for Year 2000
compliance. The Company believes all such items are Year 2000
compliant.
Vendors. The Company has completed the process of ascertaining
whether or not its vendors and suppliers are Year 2000 compliant.
Again, the Company believes that all of its critical vendors are
Year 2000 compliant.
Given these results of its Year 2000 review, in a reasonable worst case
scenario, the Company might experience some disruptions in certain of its
peripheral operating systems or with certain non-critical vendors. The Company
believes that sufficient redundancy exists in its systems and vendor
relationships to minimize any substantial detrimental effects on the Company's
operations and financial position.
Although the Company believes that its Year 2000 review has identified all
material Year 2000 issues, there can be no absolute assurance that the Company
identified and resolved all such issues. If the Company discovers Year 2000
problems in the future, it may not be able to develop, implement, or test
remediation or contingency plans in a timely or cost-effective manner.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amended report to be signed on its behalf by the
undersigned thereunto duly authorized.
billserv.com
BY /s/ LOUIS HOCH
President
BY /s/ LORI TURNER
Chief Financial Officer
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM BILLSERV FORM 10-Q FOR THE QUARTER ENDED 03/31/99 AND 6/30/99 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,133,453
<SECURITIES> 0
<RECEIVABLES> 9,015
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,532,085
<PP&E> 937,120
<DEPRECIATION> 80,978
<TOTAL-ASSETS> 3,756,905
<CURRENT-LIABILITIES> 498,945
<BONDS> 337,244
0
0
<COMMON> 10,976
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,756,905
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 2,456,668
<OTHER-EXPENSES> (1,200)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3,977)
<INCOME-PRETAX> (1,650,631)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,650,631)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,650,631)
<EPS-BASIC> (.24)
<EPS-DILUTED> 0
</TABLE>
