SECURITIES AND EXCHANGE COMMISSION
AMENDMENT NO. 1 TO
FORM 10
GENERAL FORM REGISTRATION OF SECURITIES PURSUANT TO
SECTION 12(b) OR (g) OF THE SECURITIES ACT OF 1934
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billserv.com, Inc.
(Exact name of issuer as specified in its charter)
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Nevada
(State or other jurisdiction of incorporation or organization)
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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)
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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)
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I.R.S. Employer Identification Number
98-0190072
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Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock $.001 par value
(Title of Class)
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INFORMATION REQUIRED IN REGISTRATION STATEMENT
ITEM 1. BUSINESS.........................................................1
ITEM 2. SPECIAL RISK FACTORS.............................................9
ITEM 3. FINANCIAL INFORMATION...........................................17
ITEM 4. PROPERTIES AND EQUIPMENT........................................21
ITEM 5. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..21
ITEM 6. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES.........24
ITEM 7. EXECUTIVE COMPENSATION..........................................27
ITEM 8. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................28
ITEM 9. LEGAL PROCEEDINGS...............................................29
ITEM 10. MARKETPRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.................................29
ITEM 11. RECENT SALES OF UNREGISTERED SECURITIES.........................30
ITEM 12. DESCRIPTION OF THE COMPANY'S SECURITIES.........................31
ITEM 13. INDEMNIFICATION OF DIRECTORS AND OFFICERS.......................32
ITEM 14. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA......................33
ITEM 15. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.............................33
ITEM 16. FINANCIAL STATEMENTS AND EXHIBITS...............................33
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CAUTIONARY STATEMENT
All statements, trends, analyses and other information contained in this Form 10
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.
Potential risks and uncertainties include those set forth below in "Item 2.
Special Risk Factors." 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 factors described below.
ITEM 1. BUSINESS
1. GENERAL
billserv.com, Inc. (the "Company") is a service bureau clearinghouse in the
electronic bill presentment and payment ("EBPP") industry. EBPP is the process
of presenting a bill in a secure environment on the Internet and allowing the
customer to pay the bill through the electronic transfer of funds. EBPP is
alternatively referred to as "Internet billing" or "Ebilling."
As a startup enterprise, with 33 employees, the Company has yet to receive any
operating revenues. However, the Company intends to generate four principal
revenue streams: Internet billing services ("eServ"), Internet publishing of
statements ("ePublishing"), customer care services through Internet and
traditional telephony technologies ("eCare"), and professional services
associated with the implementation and maintenance of these Internet
technologies ("eConsulting"). The Company is currently capable of providing
services in each of these areas, although eCare services are available only on a
limited basis. In addition, the Company is developing an Internet portal with
EBPP capabilities.
Through March 31, 1999, the Company has expended $172,000 on research and
development of its products and services. From March 31 through August 31, 1999,
the Company shall have expended an additional $400,000 on further development of
its operating systems. Of the four principal product and service areas, only
eCare is available on a limited basis, as the Company intends to develop, build
and staff a customer care center which integrates Internet and traditional
telephony capabilities. While development costs for this product are extremely
difficult to project, and may change as more definitive plans are developed, the
Company estimates expenditures ranging from $3,000,000 to $4,000,000 for the
development and construction of its first customer care center.
Since March 31, 1999, the Company has entered into strategic service or
marketing agreements with Transpoint Corporation, an EBPP consolidator and
aggregator owned by Microsoft Corporation, First Data Corporation, and Citibank;
CyberCash, Inc., an Internet
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payment technologies leader; and NETDelivery Corporation, an electronic data
management enterprise. These agreements are in addition to the Company's
existing agreement with Checkfree Corporation. Additionally, since March 31, the
Company has secured service agreements to provide its eServ product to Sallie
Mae Corporation, the nation's leading provider of financial services for
post-secondary education; Ultramar Diamond Shamrock Corporation, a major
independent petroleum refining, petroleum product and convenience merchandise
concern; PC Free, Inc., a strategic bundler of computer hardware and software;
and UDP, Inc., which provides billing and messaging services in the
telecommunications industry.
The Company primarily targets small to medium size billers that produce monthly
recurring bills to their customer base. Examples of these billers include
utilities, credit card issuers, security monitoring services, financial
services, cable service providers and communications providers. The Company also
targets traditional print-house service companies that require assistance in
their conversion to Internet billing.
In a typical scenario, the Company will analyze a biller's existing billing
system and enable the biller to transmit its print stream to the Company for
electronic bill processing. The Company will then process the billing
information from the biller's print stream and transmit the data to a selected
consumer "front end," an Internet website destination where the consumer has
chosen to receive bills in an electronic medium. Examples of front ends, also
called aggregators, include QuickenTM, MS-MoneyTM, CheckfreeTM, TranspointTM,
the biller's website, the consumer's bank website, and Internet portals such as
YahooTM, ExciteTM , LycosTM , AOLTM and others. After receiving the bill on its
chosen website, the consumer may review and pay the bill by selecting the
available payment option on the website. Payment is completed through ACH
(Automated Clearing House) transfer of funds as directed by the consumer and
enabled by the consumer's chosen front end.
The Company will charge a volume-sensitive transaction fee for each bill or
statement presented electronically over the Internet. Pricing is also reflective
of the multi-year term commitment selected by the biller. The Company also
charges a set-up fee for implementing Internet billing capabilities for the
biller.
The Company believes a biller can achieve substantial savings by utilizing the
electronic billing services offered by the Company instead of continuing to
publish paper-based bills. These savings are primarily realized in reduced
printing, mailing and handling costs.
The Company believes that consumers will increasingly demand to receive and pay
their bills over the Internet, particularly at a single front end website
individually selected by the consumer. The Company believes it has an advantage
in the EBPP market in that it can assist a biller in presenting a bill to any
consumer at any Internet website chosen by that consumer. In this regard, the
Company functions as a clearinghouse for selected consumer front ends. By
contrast, the Company believes that today a biller is forced to either choose
one particular consumer front end, and therefore one website, or build its own
EBPP capabilities and manage all of the various front end relationships itself,
an undertaking which involves considerable time and costs, and displaces the
biller's resources from its core business functions.
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The Company believes that a biller's statement, as presented on a consumer's
chosen website, provides targeted marketing opportunities for that biller and
third party advertisers. Just as paper-based bills received by consumers often
contain marketing inserts and product offerings, the electronic bill provides
for electronic bill inserts. The Company believes that the biller can achieve
additional revenues by providing consumers with purchasing opportunities on its
bill space.
The Company believes that today it has few competitors in its role as an EPBB
service bureau clearinghouse of small to medium size billers. The Company,
however, expects that competition will increase dramatically in the near future.
The Company expects to have increased competition from front ends, traditional
print and mail companies, and existing and new market entrants.
Electronic presentment of statements, or ePublishing, enables a company to
provide business-to-business distribution of traditional paper-based statements
over the Internet. An example of such statements includes those sent by
investment or fund managers to brokers. The Company believes that statement
producers can achieve substantial time and cost savings by transferring
publishing and distribution functions to an Internet-based service provider.
The Company believes it can also generate revenues from call center operations,
whether those operations are generated from billers' outsourced customer care
functions or from marketing opportunities from electronic bill marketing
inserts. The Company therefore plans to build Internet-enabled customer
interaction centers to capitalize on these marketing opportunities.
The Company offers professional consulting services to assist billers, statement
producers, call center operators and other Internet business participants in
establishing and maintaining their own customized Internet billing, presentment
or communications systems.
In April 1999, the Company announced that it was establishing its own Internet
portal at the website www.bills.com. The operations of the Internet portal have
been organized under "bills.com, Inc.", a Delaware corporation which will
operate as a wholly-owned subsidiary of the Company. The Company expects that
the Internet portal of bills.comTM will be designed and developed during the
second and third quarters of 1999, and will be available for consumer use and
interaction thereafter. Consumers may currently register with bills.comTM by
visiting the website and entering applicable billing information.
The core function of bills.comTM is to operate as an Internet bill presentment
and payment service for consumers. In this regard, bills.comTM will operate a
consumer front end, similar to CheckFreeTM. Unlike other consumer front ends,
however, bills.comTM will offer its services free of charge to consumers. In
addition, bills.comTM will provide other on-line features such as stock quotes,
mortgage quotes, loan applications and approvals, banking, shopping, news,
weather, sports and other features. In this connection, bills.com has recently
entered into an agreement with InfoSpace.com to develop these on-line features.
bills.comTM 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.comTM
website in order to take advantage of the
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potentially large number of consumers who will use the site as an Internet bill
presentment and payment service. The Company's bills.com subsidiary currently
possesses no relationship with other Internet-based enterprises, nor has the
Company sought any such relationships; however, the Company intends to seek
relationships this year with other Internet portals such as YahooTM, LycosTM,
AOLTM, ExciteTM, Amazon.comTM, EbayTM, NetcentivesTM, Shop.comTM, and Net BankTM
,which may result in payments of annual sponsorship fees to bills.comTM in
exchange for providing links to their respective Internet portals.
2. INDUSTRY OVERVIEW
Internet usage has increased dramatically in the last decade. As a result, many
new personal and commercial applications have been developed for Internet users
and increasingly consumers are conducting business through Internet
applications. The Company believes that Internet billing will be one of the next
significant applications of the Internet. Companies such as Checkfree and
Transpoint have been established in order to develop Internet billing into a
commercially viable alternative to paper-based billing and payment systems.
Research indicates that there are approximately 110 million households in the
United States with each receiving an average of twelve (12) bills per month.
Assuming an average charge of $0.40 for each EBPP transaction, the Company
estimates annual industry revenue potential of $6.4 billion. If 33% of
households pay their bills online, the market potential is $2.1 billion per
year. The Company believes that if small businesses are included in the
calculation, the market size doubles to over $4 billion per year.1
According to the Bank Administration Institute, five industries utilities,
communications, credit cards, insurance, and lending institutions are
responsible for over one-half of all consumer bill payments.2 Because of the
large number of recurring bills, these industries are the most likely to be the
first to offer electronic bill presentment.
3. PRODUCTS AND SERVICES
In order to meet real and anticipated market demand, the Company has developed
and is marketing the following products and services:
eServSM (INTERNET BILLING SERVICE BUREAU). eServ creates the option for
companies currently printing and mailing bills to instead publish the bills on
the Internet wherever their consumers may choose to receive, view and pay them.
Currently, there are several Internet locations, or "front ends," from which
consumers may choose to access and pay bills electronically. The principal front
ends are the billers' website, online banking systems, QuickenTM, MSMoneyTM,
TransPoint'sTM website, and CheckFree'sTM website. It is important for a biller
to be able to deliver statements to all of these front ends, because each
consumer will demand to receive electronic bills at their preferred front end.
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1 "Internet Billing: Waiting for the Banks," Salomon Smith Barney, October 15,
1998, p. 20.
2 "Internet Billing: Waiting for the Banks," p. 17.
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Similarly, consumer acceptance will be accelerated if consumers can use any
front end they wish to view and pay their bills.
eServ is the focal point for managing all of the front end relationships. eServ
will allow billers to concentrate resources on their core business and still
exploit the growth of Internet billing. eServ's goal is to offer a familiar
business model to billers who today use traditional print and mail methods, but
allow for one delivery channel to publish bills and one delivery channel to
receive payments and accounts receivable data. With eServ, billserv.com assumes
the responsibility of managing the multiple systems, multiple delivery channels,
and multiple relationships necessary to make Internet billing effective.
eServ is competitively priced because billserv.com pays one-time integration
fees to the front ends for each biller, and volume-based per statement charges,
aggregating the volume of all of its billers. This reduction in cost enables
billserv.com to charge a one-time implementation fee to each biller and a per
statement fee which is less than the rate a biller would pay if supporting an
internal Internet billing system.
ePublishingSM (INTERNET PRESENTMENT OF STATEMENTS). The ePublishing product
enables business-to-business distribution of traditional paper-based statements,
such as those produced by investment or fund managers for their brokers.
The ePublishing solution will allow businesses such as investment fund managers
or current print vendors to transmit already existing print files to the Company
for manipulation and presentment on a website that the brokerage community or
other business can access for viewing. The Company will also implement
substantial data archival systems that will house statement history and allow
for disaster recovery through a sophisticated back-up system.
While the market size for this product is very difficult to estimate, the
Company believes it is substantial. The Company is aware of one large
traditional print and mail operation that produces more than six million
statement pages per month. These paper statements are boxed and mailed to more
than 2,500 brokers. Each broker reviews and files these statements creating
inefficient workflow processes and storage costs. Assuming that most brokers are
already Internet-enabled, making the transition to an electronic retrieval and
storage system will be simple and more cost efficient than the current methods.
eCareSM (CUSTOMER INTERACTION CENTER). eCare is similar in nature to traditional
call centers, but with multiple communication entry points such as telephone,
Internet, interactive voice response, email and fax. The Internet communication
component may support Web chat, IP Telephony (voice over the Internet), Web
Whiteboarding (visual interactive on-screen markings), email and Web Video
conferencing. The call centers will provide revenue opportunities through
traditional outsourced customer care services as well as through fulfillment
services via electronic bill marketing inserts.
eConsultingSM (PROFESSIONAL SERVICES). eConsulting will provide custom build
solutions for companies seeking an in-house EBPP or related system. These
services can range from assisting in the development an Internet billing
strategy to actually building an EBPP system for the biller.
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In this regard, the Company can assist the biller in overcoming the learning
curve associated with EBPP. The market for this product primarily consists of
large first tier or second tier billers.
bills.comTM (INTERNET PORTAL). Bills.com will operate as an Internet portal
offering an electronic bill presentment service for consumers. In this regard,
bills.com will operate a consumer front end, similar to CheckFreeTM. Unlike
other consumer front ends, however, bills.com will offer its services free of
charge to consumers. In addition, bills.com will provide other on-line features
such as stock quotes, mortgage quotes, loan applications and approvals, banking,
shopping, news, weather, sports and other features to consumers who enter the
website.
4. SALES AND MARKETING
A. STRATEGY
The Company foresees two broad-based approaches to its sales and marketing
strategy. The first approach is based on a geographic concentration, whereby the
Company will attempt to secure a critical mass of billing customers in a densely
populated metropolitan area. These billing customers would be local and regional
utilities or other companies from which consumers receive a substantial number
of their total monthly statements. The Company will concurrently approach local
banks and credit unions in order to develop Internet billing relationships.
These financial institutions could also market to their respective customer
bases, thereby driving consumer acceptance and demand for Internet billing
services. The geographic model would be replicated on a national and
international basis. The Company will develop a sales force to meet the demands
presented by the geographic sales model.
The second approach of the Company's sales and marketing strategy will be a
non-geographic expansion model. In this approach, the Company will pursue
vertical markets and traditional print and mail enterprises and encourage
companies in these areas to offer Internet billing services to their print and
mail customers, wherever they may be located.
To supplement its sales efforts, the Company intends to develop a marketing
compact disc which would be presented to targeted executives within prospective
billing customers. The compact disc will contain a clear value proposition
supported by video and demonstration capabilities.
To further its sales and marketing strategies, the Company will attend and make
presentations at industry-specific trade shows and in trade publications. It is
the Company's plan to have a significant presence at each of these trade shows
to ensure direct contact with prospect companies and executives. Trade
publications will be used to promote the brand and services. The Company will
evaluate the effectiveness of this program based upon revenue generation, reader
response cards and in-bound calls for more information.
For the newly-formed bills.com subsidiary, marketing efforts will be directed
toward a nationwide campaign of television commercials, Internet banner
advertisements, news media briefings, and the offering of incentives for new
subscribers.
B. SUPPORT
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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.
The Company is currently capable of providing services in each of its key
product areas, although eCare services are available on a limited basis, due
primarily to the size and configuration of the company's current facilities.
Through March 31, 1999, the Company has expended approximately $172,000 on
research and development of its products and services. To further support its
eCare product sales and service, the Company intends to develop, build and staff
a customer care center which integrates Internet and traditional telephone
capabilities. 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 call center.
5. PLAN OF OPERATION FOR REMAINDER OF FISCAL YEAR
A. GENERAL
The Company's plan of operation for the remainder of the 1999 fiscal year is to:
(1) further develop trading partner relationships with front ends such as
CheckFreeTM, TranspointTM, CyberCashTM, NET DeliveryTM, all of which have
executed agreements with the Company; (2) develop trading partner relationships
with Internet portals such as YahooTM, ExciteTM, LycosTM and AOLTM in order to
gain access to as many Internet users as possible (at present, none of these
enterprises have such a relationship with the Company; the Company expects to
complete direct or indirect agreements with each by the end of 1999); (3)
execute billing agreements with as many billers as possible; (4) design, develop
and market its Internet portal where the consumer can view and pay bills; (5)
build systems which will operate the EBPP and other operations of the Company;
(6) attract and retain highly qualified employees in order to appropriately
staff business operations; and (7) provide the facilities and resources
necessary to achieve the business goals of the Company. The Company may also
pursue a secondary offering or other capital raising effort in order to fund the
operations of an Internet-enabled customer call center, support its sales and
marketing strategies, and for acquisitions or other corporate purposes. The
Company currently employs 33 personnel; and projects that it will have
approximately 60 employees by the end of 1999.
B. YEAR 2000 COMPLIANCE
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.
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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.
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.
6. COMPANY HISTORY
billserv.com is a Nevada corporation with its principal offices currently
located at 14607 San Pedro Ave., Suite 100, San Antonio, Texas 78232. Additional
information about the Company may be obtained at the Company's Internet address,
http://www.billserv.com. The Company offices may be contacted by telephone at
210-402-5000. The Company was incorporated in June 1998 as a mineral development
company, under the name Goldking Resources, Inc. The principal asset of the
company was a mineral claim located in British Columbia, Canada. After the
Company further analyzed the cost involved in developing the mineral claim, it
determined that the Company would have greater value as a corporate vehicle for
other operations. Accordingly, the Company obtained NASD OTC Bulletin Board
("OTC BB") trading status, and acquired and merged with billserv.com, Inc., a
company incorporated in Texas in July 1998 ("billserv-Texas"), with business
plans to operate in the Internet billing industry, but having no substantial
assets, revenues or operations. billserv-Texas was owned in its entirety by the
current management directors of the Company. On December 3, 1998, Goldking
Resources, Inc.
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changed its name to billserv.com, Inc. and began trading under the symbol BLLS.
By virtue of this reverse merger, the former Goldking Resources, Inc. was able
to position itself into an emerging high-growth market, and billserv-Texas was
able to merge with and into a company already trading on the NASD OTC BB.
Concurrent with the merger with billserv-Texas, the Company secured equity
financing of $5.3 million to fund its initial startup, development and investor
relations efforts. The Company currently has 10,976,428 shares of common stock
issued and outstanding. Four million of these shares are restricted stock owned
by the directors and certain key employees of the Company. The remaining
6,976,428 shares are owned by approximately 3,700 shareholders, none of whom the
Company believes holds more than five per cent (5%) ownership of the Company.
(See Item 4 Security Ownership of Certain Beneficial Owners and Management.). In
March 1999, bills.com, Inc. was incorporated in Delaware, as a wholly-owned
subsidiary of the Company.
This report contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Special
Risk Factors" described in Item 2 below.
ITEM 2. SPECIAL RISK FACTORS
Investors should carefully consider the following information which outlines
special market and other risk factors affecting the industry and the Company.
LACK OF OPERATING HISTORY; LIMITED RELEVANCE OF HISTORICAL FINANCIAL
INFORMATION. The Company was organized in 1998 and has only recently begun
operations as a public company. The Company has not been profitable; nor has the
Company generated any significant revenue. Through March 31, 1999, the Company's
accumulated deficit was $1,090,630. The Company's stock only recently began
trading on the NASD OTC BB on December 3, 1998, under the symbol BLLS.
Accordingly, all information included herein may not necessarily reflect the
results of operations, financial position and cash flows of the Company in the
future.
UNCERTAIN RELIABILITY, GROWTH AND CONSUMER ACCEPTANCE OF THE INTERNET, INTERNET
TECHNOLOGY, AND ELECTRONIC COMMERCE. The electronic commerce market is a
relatively new and growing service industry. If the electronic commerce market
fails to grow or grows slower than anticipated, or if the Company, despite an
investment of significant resources, is unable to adapt to meet changing
customer requirements or technological changes in this emerging market, or if
the Company's services and related products do not maintain a proportionate
degree of acceptance in this growing market, the Company's business, operating
results, and financial condition could be materially adversely affected.
Additionally, the security and privacy concerns of existing and potential
customers may inhibit the growth of the electronic commerce market in general,
and the Company's customer base and revenues in particular. Similar to the
emergence of the credit card and automatic teller machine ("ATM") industries,
the Company and other organizations serving the electronic commerce market must
educate users that electronic transactions use encryption technology and other
electronic security measures that make electronic transactions more secure than
paper-based transactions. While the Company believes that it is utilizing proven
applications designed for premium data security and integrity to process
electronic transactions, there can be no assurance that the Company's use of
such applications
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will be sufficient to address the changing market conditions or the security and
privacy concerns of existing and potential customers. Adverse publicity raising
concerns about the safety or privacy of electronic transactions, or widely
reported breaches of the Company's or another providers' security, have the
potential to undermine consumer confidence in the technology and thereby have a
materially adverse effect on the Company's business. In addition, there can be
no guarantee that the Internet will continue to grow in acceptance or maintain
its reliability, or that new technologies might supplant the Internet in part or
in whole.
UNCERTAIN GROWTH OF PROPORTION OF ELECTRONIC REMITTANCES. The Company's future
financial performance will be materially affected by the percentage of bill
payments which can be cleared electronically. As compared with making payment by
paper check or by draft, the Company believes that electronic payments: (i) cost
much less to complete; (ii) give rise to fewer errors, which are costly to
resolve; and (iii) generate far fewer customer inquiries and therefore consume
fewer customer care resources. Accordingly, the Company's inability to continue
to decrease the percentage of remittances effected by paper documents will
result in flat or decreased margins, and a reversal of the current trend toward
a smaller proportion of paper-based payments would have a material adverse
effect upon the Company's business, operating results, and financial condition.
RISK OF INABILITY TO ADAPT TO RAPID TECHNOLOGICAL CHANGE; RISK OF DELAYS. The
Company's success is highly dependent on its ability to develop new and enhanced
services, and related products that meet changing customer requirements. At
present, the Company's four principal products, eServ, eCare, ePublishing and
eConsulting are available, although eCare services remain available only on
limited basis. Nonetheless, the market for the Company's services is
characterized by rapidly changing technology, evolving industry standards,
emerging competition and frequent new and enhanced software, service and related
product introductions. In addition, the software market is subject to rapid and
substantial technological change. The Company, to remain successful, must be
responsive to new developments in hardware and semiconductor technology,
operating systems, programming technology, and computer capabilities. In many
instances, the new and enhanced services, products, and technologies are in the
emerging stages of development and marketing, and are subject to the risks
inherent in the development and marketing of new software, services, and
products. The Company may not successfully identify new service opportunities,
and develop and bring new and enhanced services and related products to market
in a timely manner; there can be no assurance that any such services, products
or technologies will develop or will be commercially successful, that the
Company will benefit from such developments or that services, products, or
technologies developed by others will not render the Company's services, and
related products noncompetitive or obsolete. If the Company is unable, for
technological or other reasons, to develop and introduce new services and
products in a timely manner in response to changing market conditions or
customer requirements, or if new or enhanced software, services, and related
products do not achieve a significant degree of market acceptance, the Company's
business, operating results, and financial condition would be materially
adversely affected.
CHANGES IN REGULATION OF ELECTRONIC COMMERCE AND RELATED FINANCIAL SERVICES.
Management believes that the Company is not required to be licensed by the
Office of the Comptroller of the Currency, the Federal Reserve Board, or other
federal or state agencies that regulate or monitor banks or other types of
providers of electronic commerce services. There can
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be no assurance that a federal or state agency will not attempt to regulate
providers of electronic commerce services, such as the Company, which could
impede the Company's ability to do business in the regulator's jurisdiction. The
Company is subject to various laws and regulations relating to commercial
transactions generally, such as the Uniform Commercial Code, and may also be
subject to the electronic funds transfer rules embodied in Regulation E,
promulgated by the Federal Reserve Board. Given the expansion of the electronic
commerce market, it is possible that the Federal Reserve might revise Regulation
E or adopt new rules for electronic funds transfer affecting users other than
consumers. Because of growth in the electronic commerce market, Congress has
held hearings on whether to regulate providers of services and transactions in
the electronic commerce market, and it is possible that Congress or individual
states could enact laws regulating the electronic commerce market. If enacted,
such laws, rules and regulations could be imposed on the Company's business and
industry and could have a material adverse effect on the Company's business,
operating results, and financial condition.
UNCERTAINTY OF ACH ACCESS. The ACH Network is a nationwide batch-oriented
electronic funds transfer system which provides for the interbank clearing of
electronic payments for participating financial institutions. The Federal
Reserve rules provide that the ACH system is available only through a bank. To
access the Network customers of the Company will authorize the Company to
originate an ACH entry. As the originator, the Company forwards transaction data
to the Originating Depository Financial Institution ("ODFI"), which is a
participating financial institution that must abide by the provisions of the ACH
Operating Rules and Guidelines. The OFDI sorts and transmits the file to an ACH
Operator. The Arizona Clearing House Association, Federal Reserve, New York
Automated Clearing House, and Visa USA act as ACH Operators, central clearing
facilities through which financial institutions transmit or receive ACH entries.
The ACH Operator then distributes the ACH file to the Receiving Depository
Financial Institution, the bank of the customer, which makes the funds available
to the customer. If the Federal Reserve rules were to change to further restrict
or modify access to the ACH, the Company's business could be materially
adversely affected.
INTENSE COMPETITION IN ELECTRONIC COMMERCE AND RELATED FINANCIAL SERVICES.
Portions of the electronic commerce market are becoming increasingly
competitive. The Company expects to face significant competition in all of its
customer markets. Although few companies have focused their efforts as service
bureau consolidators in the EBPP industry, the Company expects that new service
bureau companies will emerge and compete for the small to medium size biller
business. The Company further believes that software providers, consumer front
ends, banks and Internet portals will provide increasingly competitive billing
solutions for small to medium size billers. In addition, a number of banks have
developed, and others in the future may develop, home banking services in-house.
The Company believes that banks will also compete for the EBPP business of small
to medium size billers.
The Company expects competition to increase from both established and emerging
companies and that such increased competition will result in reduced transaction
costs which could materially adversely affect the Company's business, operating
results, and financial condition. Moreover, the Company's current and potential
competitors, many of whom have significantly greater financial, technical,
marketing, and other resources than the Company, may respond more quickly than
the Company to new or emerging technologies or could expand to compete directly
against the Company in any or all of its target markets. Accordingly, it is
possible that current or
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potential competitors could rapidly acquire significant market share. There can
be no assurance that the Company will be able to compete against current or
future competitors successfully or that competitive pressures faced by the
Company will not have a material adverse effect on its business, operating
results, and financial condition.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING. The Company currently
plans to meet its capital requirements primarily through issuance of equity
securities, capital lease financing, and in the longer term, revenue from
operations. The Company recently concluded equity financing under Regulation S
for the amount of $5.3 million, in exchange for which the Company issued 946,428
shares of common stock. However, the Company anticipates the need to raise
additional funds through public or private debt or equity financing in order to
take advantage of unanticipated opportunities, including more rapid expansion or
acquisitions of complementary businesses or technologies, or to develop new or
enhanced services and related products, or otherwise respond to unanticipated
competitive pressures. If additional funds are raised through the issuance of
equity securities, the percentage ownership of the then current stockholders of
the Company may be reduced and such equity securities may have rights,
preferences or privileges senior to those of the holders of the Company's common
stock. There can be no assurance that additional financing will be available on
terms favorable to the Company, or at all. If adequate funds are not available
or are not available on acceptable terms, the Company may not be able to take
advantage of unanticipated opportunities, develop new or enhanced services and
related products or otherwise respond to unanticipated competitive pressures and
the Company's business, operating results, and financial condition could be
materially adversely affected.
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a significant
degree upon the continued contributions of its key management, marketing,
service and related product development and operational personnel, including its
Chairman, and Chief Executive Officer, Michael R. Long; its President and Chief
Operating Officer, Louis A. Hoch; its Senior Vice President of Business
Development, David S. Jones; its Chief Financial Officer, Lori K. Turner; its
General Counsel, Marshall N. Millard; and its Vice President of Business
Development, Randy Kauftheil. The Company's operations could be affected
adversely if, for any reason, any of these officers ceased to be active in the
Company's management. The Company maintains proprietary nondisclosure and
non-compete agreements with all of its key employees. The Company intends to
secure key person life insurance policies on Mr. Long. The success of the
Company depends to a large extent upon its ability to retain and continue to
attract highly skilled personnel. Competition for employees in the electronic
commerce industry is intense, and there can be no assurance that the Company
will be able to attract and retain enough qualified employees. If the business
of the Company grows, it may become increasingly difficult to hire, train and
assimilate the new employees needed. The Company's inability to retain and
attract key employees could have a material adverse effect on the Company's
business, operating results, and financial condition.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS. The Company's quarterly results of
operations may fluctuate significantly as a result of a number of factors,
including changes in the Company's pricing policies or those of its competitors,
relative rates of acquisition of new customers, delays in the introduction of
new or enhanced services, software, and related products by the Company or by
its competitors or market acceptance of such services and products, other
changes in
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operating expenses, personnel changes, and general economic conditions. These
factors will impact the Company's operating results. Fluctuations in operating
results could result in volatility in the price of the Company's common stock.
RISK OF PRODUCT DEFECTS. The software products utilized by the Company could
contain errors or "bugs" that could adversely affect the performance of services
or damage a user's data. In addition, as the Company increases its share of the
electronic commerce services market, software reliability and security demands
will increase. The Company attempts to limit its potential liability for
warranty claims through limitation-of-liability provisions in its customer
agreements. There can be no assurance that the measures taken by the Company
will prove effective in limiting the Company's exposure to warranty claims.
Despite the existence of various security precautions, the Company's computer
infrastructure may be also vulnerable to viruses or similar disruptive problems
caused by its customers or third parties gaining access to the Company's
processing system.
EROSION OF REVENUE FROM SERVICES. The profitability of the Company's business
depends, to a substantial degree, upon billers electing to continue to
periodically renew contracts. In the event that a substantial number of these
customers were to decline to renew these contracts for any reason, the Company's
revenues and profits would be adversely affected. Sales of the Company's
services are dependent upon customer demand for the services, which is affected
by pricing decisions, the competition of similar products and services, and
reputation of the products and services for performance. Most of the Company's
services are likely to be sold within the utilities and financial services
industries, and poor performance by the Company in performing its services has
the potential to undermine the Company's reputation and affect future sales of
other services. A substantial decrease in revenue from services would have a
material adverse effect upon the Company's business, operating results, and
financial condition.
RISK OF LOSS FROM RETURNED TRANSACTIONS, MERCHANT FRAUD OR ERRONEOUS
TRANSMISSIONS. The Company relies upon the Federal Reserve's ACH for electronic
fund transfers and conventional paper check and draft clearing systems for
settlement of payments by check or drafts. In its use of these established
payment clearance systems, the Company generally bears the same credit risks
normally assumed by other users of these systems arising from returned
transactions caused by insufficient funds, stop payment orders, closed accounts,
frozen accounts, unauthorized use, disputes, theft, or fraud. In addition, the
Company also assumes the risk of merchant fraud and transmission errors when it
is unable to have erroneously transmitted funds returned by an unintended
recipient. Merchant fraud includes such actions as inputting false sales
transactions or false credits.
RISK OF SYSTEM FAILURE. The Company's operations are dependent on its ability to
protect its computer equipment against damage from fire, earthquake, power loss,
telecommunications failure or similar event. Any damage or failure that causes
interruptions in the Company's operations could have a material adverse effect
on the Company's business, operating results, and financial condition. The
Company's property and business interruption insurance may not be adequate to
compensate the Company for all losses that may occur.
RISK OF YEAR 2000 OPERATIONAL DEFECTS. The Company has completed the process of
determining whether or not its products, its internal systems, computers and
software, and the
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products and systems of its critical vendors and suppliers are Year 2000
compliant. Based upon the Company's review, and because the Company's systems
and software are relatively new, management believes that the Company's internal
systems and those of its critical vendors and suppliers, are Year 2000
compliant. Accordingly, the Company does not currently expect that costs
associated with Year 2000 compliance will have a material effect on operations
or 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.
LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY; RISK OF THIRD PARTY INFRINGEMENT
CLAIMS. The Company regards some of its services as proprietary and relies
primarily on a combination of trademark and trade secret laws, employee and
third party non-disclosure agreements, and other intellectual property
protection methods to protect its services. Existing intellectual property laws
afford only limited protection, and it may be possible for unauthorized third
parties to copy the Company's services and related products or to reverse
engineer or obtain and use information that the Company regards as proprietary.
There can be no assurance that the Company's competitors will not independently
develop services and related products that are substantially equivalent or
superior to those of the Company.
LIMITED PRIOR MARKET; LIMITED LIQUIDITY OF STOCK; VOLATILITY OF STOCK PRICE.
Prior to December 3, 1998, there was no public market for the Company's common
stock, and no public market may be developed or sustained for such stock. The
Company is listed on the NASD OTC BB, and there can be no assurance that an
active or liquid trading market in the Company's common stock will develop or be
sustained. Moreover, the Company's stock may qualify as a "penny stock" under
the Penny Stock Suitability Reform Act of 1990. The liquidity of penny stock is
affected by specific disclosure procedures to be followed by all broker-dealers,
including but not limited to, determining the suitability of the stock for a
particular customer, and obtaining a written agreement from the customer to
purchase the stock. Furthermore, the market price of the Company's common stock
is subject to significant fluctuations in response to variations in quarterly
operating results, the failure of the Company to achieve operating results
consistent with securities analysts' projections of the Company's performance,
and other factors. The stock market has experienced extreme price and volume
fluctuations and volatility that has particularly affected the market prices of
many technology, emerging growth, and developmental stage companies. Such
fluctuations and volatility have often been unrelated or disproportionate to the
operating performance of such companies. Factors such as announcements of the
introduction of new or enhanced services or related products by the Company or
its competitors, announcements of joint development efforts or corporate
partnerships in the electronic commerce market, market conditions in the
technology, banking, telecommunications and other emerging growth sectors, and
rumors relating to the Company or its competitors may have a significant impact
on the market price of the Company's common stock.
CONTROL BY PRINCIPAL STOCKHOLDERS. Currently, the directors and executive
officers of the Company and their affiliates collectively owned approximately
40% of the outstanding shares of the Company's common stock. As a result, these
stockholders are able to exercise significant influence over matters requiring
stockholder approval, including the election of directors and
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approval of significant corporate transactions. Such concentration of ownership
may have the effect of delaying or preventing a change in control of the
Company.
SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON MARKET PRICE.
Currently, the Company has 10,976,428 shares of the Company's common stock
outstanding. Four million shares are restricted pursuant to Rule 144; 946,428
are restricted under Regulation S; but 6,030,000 are not. Sales of substantial
amounts of these shares in the public market or the prospect of such sales could
adversely affect the market price of the Company's Common Stock.
ANTI-TAKEOVER PROVISIONS; CERTAIN PROVISIONS OF NEVADA LAW; CERTIFICATE OF
INCORPORATION, BY-LAWS, AND STOCKHOLDER RIGHTS PLAN. Certain provisions of
Nevada law, the Company's Certificate of Incorporation, Bylaws, and a proposed
stockholder rights plan could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from attempting to
acquire, control of the Company. In 1999, the Company intends to seek
shareholder approval of amendments to its Certificate of Incorporation, to
provide for the Board of Directors to be divided into three classes of directors
serving staggered three-year terms. Such classification of the Board of
Directors would expand the time required to change the composition of a majority
of directors and may tend to discourage a proxy contest or other takeover bid
for the Company. The Company also intends to seek shareholder approval to allow
issuance of rights to acquire common stock under certain conditions, without any
further vote or action by the stockholders. The issuance of common stock under a
stockholder rights plan could decrease the amount of earnings and assets
available for distribution to the holders of the Company's common stock or could
adversely affect the rights and powers, including voting rights, of the holders
of the Company's common stock. In certain circumstances, such issuance could
have the effect of decreasing the market price of the Company's common stock.
DIFFICULTY IN MANAGEMENT OF GROWTH. The Company may experience a period of rapid
growth which could place a significant strain on its resources. The Company's
ability to manage growth successfully will require the Company to continue to
improve its operational, management and financial systems and controls as well
as to expand its work force. A significant increase in the Company's customer
base would necessitate the hiring of a significant number of additional customer
care and technical support personnel as well as computer software developers and
technicians, qualified candidates for which, at the present time, are in short
supply. In addition, the expansion and adaptation of the Company's computer and
administrative infrastructure will require substantial operational, management,
and financial resources. Although the Company believes that its current
infrastructure is adequate to meet the needs of its customers in the foreseeable
future, there can be no assurance that the Company will be able to expand and
adapt its infrastructure to meet additional demand on a timely basis, at a
commercially reasonable cost, or at all. If the Company's management is unable
to manage growth effectively, hire needed personnel, expand and adapt its
computer infrastructure or improve its operational, management, and financial
systems and controls, the Company's business, operating results, and financial
condition could be materially adversely affected.
ACQUISITION-RELATED RISKS. In the future, the Company may pursue additional
acquisitions of complementary service or product lines, technologies, or
businesses. Future acquisitions by the Company could result in potentially
dilutive issuance of equity securities, the incurrence of debt and contingent
liabilities, and amortization expenses related to goodwill and other intangible
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assets, any of which could materially adversely affect the Company's business,
operating results, and financial condition. In addition, acquisitions involve
numerous risks, including difficulties in the assimilation of the operations,
technologies, services, and products of the acquired companies, the diversion of
management's attention from other business concerns, risks of entering markets
in which the Company has no or limited direct prior experience, and the
potential loss of key employees of the acquired company. From time to time, the
Company evaluates potential acquisitions of businesses, services, products, or
technologies. The Company has no present commitments or agreements with respect
to any material acquisition of other businesses, services, products, or
technologies. In the event that such an acquisition were to occur, however,
there can be no assurance that the Company's business, operating results, and
financial condition would not be materially adversely affected.
UNLIKELY PAYMENT OF DIVIDENDS. The Company has paid no cash dividends and has no
present plan to pay cash dividends, intending instead to reinvest its earnings,
if any. However, payment of future cash dividends will be determined from time
to time by its board of directors, based upon its future earnings, financial
condition, capital requirements and other factors. The Company is not presently
subject to any restriction on its present or future ability to pay such
dividends.
DEPENDENCE UPON CONTRACTS WITH BILLERS. The Company's business is dependent upon
performing under the terms of agreements with billers. Although the Company is
unaware of any circumstance which would prevent the enforcement of these
agreements, there can be no assurance that the Company might not be able to
fully perform under these agreements or that other factors may prevent billers
from processing billing information through the Company.
DEPENDENCE UPON CONTRACTS WITH TRADING PARTNERS. The Company's business is
dependent upon executing and maintaining agreements with front ends such as
CheckfreeTM, TranspointTM, and IntuitTM to provide dependable financial services
for customers of billers. Such financial services include ACH processing through
the customer's bank and delivery of good funds to the Company for remittance to
the billers. There can be no assurance that any of the front ends will be able
to perform under these agreements in the future.
ANTICIPATED BILLING SYSTEM EXPENDITURES. To facilitate and support the growth
anticipated in its business, the Company plans to make significant expenditures
in its operations over the next one to three years. These expenditures are
expected to be made in the areas of software development, licensing, hardware,
and related staffing. The Company believes that it will be able to fund these
expenditures with internally generated funds and financing, but there can be no
assurance that such funds will be generated or spent in these projects.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE. This registration statement
contains certain forward-looking statements and information relating to the
Company that are based on the beliefs of the Company's management as well as
assumptions made by and assumptions made by and information currently available
to the Company's management. When used in this document, the words "anticipate,"
"believe," "estimate," "expect," and "intend" and similar expressions, as they
relate to the Company or its management, are intended to identify
forward-looking statements. Such statements reflect the current views of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions, including the risk
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factors described in this registration statement. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated, expected or intended.
ITEM 3. FINANCIAL INFORMATION
A. SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data of billserv.com,
Inc. as of and for the calendar quarter ended March 31, 1999, and as of and for
the period from inception (July 30, 1998) through December 31, 1998. The
information contained in the following table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical financial statements and related notes included
elsewhere herein.
<TABLE>
<CAPTION>
CALENDAR QUARTER JULY 30 1998
MARCH 31 1999 (INCEPTION) TO
DECEMBER 31 1998
<S> <C> <C>
Revenues $ - $ -
Net loss (800,860) (289,770)
Net loss per common share - basic and diluted (0.08) (0.03)
Total assets 676,890 407,530
</TABLE>
B. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report on Form 10 and the documents incorporated herein by reference
contain 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. (See "Item 2.
Special Risk Factors" above.) 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. is a service bureau consolidator in the EBPP industry. As a
startup enterprise, the Company has yet to receive any operating revenues.
However, the Company intends to
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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.
Since inception, the Company has incurred losses and as of March 31, 1999 had an
accumulated deficit of $1,090,630. 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 major 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 a biller's 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--FROM INCEPTION TO DECEMBER 31, 1998
The Company's activities for the five month period from inception to December
31, 1998 resulted in net operating losses of $289,770. The Company generated no
revenues during the period. Operating expenses were generally not incurred until
November 1998.
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Selling expenses consisted primarily of payroll and related expenses for
personnel engaged in marketing and selling activities, as well as advertising
services under a consulting agreement with the Consulting Group described below
at Item 7. The Company expanded its sales and marketing staff subsequent to
December 31, 1998 and intends to continue such expansion. It also will increase
marketing and sales capabilities 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.
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. In
1998, financial and investor relation services provided to the Company by
Messrs. James R. King; Robert D. Smith and Richard M. Jeffs, all of Vancouver,
BC (the "Consulting Group"), a related party, totaled $100,000 (see also Item 8.
below for a discussion of the Company's relationship with Consulting Group). The
Company expanded its general and administrative staff subsequent to December 31,
1998 and intends to continue such expansion. Therefore, the Company expects
general and administrative expenses to increase substantially as it incurs
additional costs related to the growth of its business.
RESULTS OF OPERATIONS--QUARTER ENDED MARCH 31, 1999
The Company's activities for the quarter ending March 31, 1999 resulted in a net
operating loss of $800,860. 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 Company's Consulting Group which totaled $150,000.
The Company expanded its sales and marketing staff subsequent to March 31, 1999
and intends to continue such expansion. As of July 1, 1999, the Company has
leased sales offices in North Carolina, Hollidaysburg, Pennsylvania, Phoenix,
Arizona, Dallas, Texas and San Antonio, 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 $172,000 for the quarter ended March
31, 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 March 31, 1999 quarter, financial and investor relations services provided
under the Consulting Agreement totaled $250,000. The Company expanded its
general and administrative staff subsequent to March 31, 1999 and intends to
continue such expansion. Therefore, the Company expects general and
administrative expenses to increase substantially as it incurs additional costs
related to the growth of its business.
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LIQUIDITY AND CAPITAL RESOURCES
From inception to date, the Company's operations have been funded from advances
under an equity placement with a third party. This placement was concluded and
fully funded on June 11, 1999, pursuant to Regulation S. The total proceeds of
the placement were $5.3 million. The Company issued 946,428 shares of common
stock in exchange for this funding.
As of March 31, 1999, the Company's working capital was a deficit of
approximately negative $1,330,000. As of that date, the Company's principal
commitments consisted of an advance under the Regulation S equity financing
described above, and an account payable to the Consulting Group. Subsequent to
that date, 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.
As of March 31, 1999, the Company's headquarters were housed in approximately
3,000 square feet of temporary office space. Subsequent to the quarter end, the
Company entered into a two-year lease for its headquarters in San Antonio
beginning in May 1999 for 8,000 square feet. The Company anticipates acquiring
additional adjacent leased space to meet the requirements of its expanding
clerical, administrative and sales activities. Additionally, the Company leased
sales offices in Hollidaysburg, Pennsylvania, North Carolina, Dallas, Texas, and
Phoenix, Arizona subsequent to March 31, 1999, 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.
From March 31 through August 31, 1999, the Company shall have expended an
additional $400,000 on further development of its operating systems. To further
support its eCare product sales and service, the Company intends to develop,
build and staff a customer care center which integrates Internet and traditional
telephone capabilities. 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 call 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.
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. Based
upon the Company's review, and because the Company's systems and software are
relatively new, management believes that the Company's
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<PAGE>
internal systems, and those of its critical vendors and suppliers, are Year 2000
compliant. Accordingly, the Company does not currently expect that costs
associated with Year 2000 compliance will have a material effect on operations
or 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. See "Special Risk Factors" discussion above.
ITEM 4. PROPERTIES AND EQUIPMENT
As of March 31, 1999 the Company headquarters were housed in approximately 3,000
square feet of temporary office space. Subsequent to the quarter end, the
Company entered into a two-year lease for its headquarters in San Antonio, Texas
beginning in May 1999 for 8,000 square feet. The Company anticipates acquiring
additional adjacent leased space to meet the needs of its expanding clerical,
administrative and sales activity. Additionally, the Company leased sales
offices in Hollidaysburg, Pennsylvania, North Carolina, Dallas, Texas and
Phoenix, Arizona subsequent to March 31, 1999, 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 twelve months.
ITEM 5. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
1. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The Company has no non-management, beneficial owners of more than 5
percent of the outstanding amount of its common stock.
2. SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information with respect to the share
ownership of the Company's common stock by its officers and directors, both
individually and as a group, and by the record and/or beneficial owners of more
than 5 percent of the outstanding amount of such stock:
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SHARES OWNED BENEFICIALLY AND OF RECORD
PERCENT OF CLASS
AMOUNT & NATURE
TITLE OF OF BENEFICIAL PERCENT OF OWNERSHIP
CLASS NAME AND ADDRESS OWNERSHIP AS OF JUNE 11, 1999(1)
- --------------------------------------------------------------------------------
Common Michael R. Long (2)
Stock 15546 Clover Ridge
San Antonio, TX 78248 1,183,333 10.8%
Common Louis A. Hoch (3)
Stock 15138 Grayoak Forest
San Antonio, TX 78248 1,183,334 10.8%
Common David S. Jones (4)
Stock 11530 Vance Jackson
San Antonio, TX 78230 1,183,333 10.8%
Common Lori Turner
Stock 11205 Woodridge Forest
San Antonio TX 78249 100,000 0.9%
Common Marshall Millard
Stock 18123 Summer Knoll
San Antonio, TX 78258 150,000 1.3%
Common All directors, officers
Stock and employees as a group (5)
(7 persons) 4,000,000 36.4%
(1) All ownership is stated as of June 11, 1999. In 1999, the Company has
awarded, subject to shareholder approval, options to purchase 754,000
shares of common stock to various executive officers, directors and
employees, including those listed above. See Item 7. Executive
Compensation below.
(2) Michael R. Long is the Chairman of the Board of Directors and Chief
Executive Officer of the Company.
(3) Louis A. Hoch, is the Chief Operating Officer, President and a director
of the Company.
(4) David S. Jones is the Senior Vice President and a director of the
Company.
(5) All stock held by officers and/or directors is restricted per Rule 144.
3. CHANGE IN CONTROL
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There are no arrangements known to the Company the operation of which may
result in a change of control of the Company.
ITEM 6. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The following sets forth the directors and executive officers and key
employees of the Company as of May 31, 1999, their respective ages, the year in
which each was first elected or appointed a director, and any other office in
the Company held by each director.
1. DIRECTORS AND EXECUTIVE OFFICERS
Directors and executive officers of the Company are as follows:
NAME OF DIRECTOR/ AGE POSITION HELD POSITION HELD
OFFICER SINCE
- --------------------------------------------------------------------------------
Michael R. Long 54 Director, Chairman and C.E.O. November, 1998
Louis A. Hoch 33 Director, President and C.O.O. November, 1998
David S. Jones 25 Director and Sr. Vice President November, 1998
Lori A. Turner 41 Treasurer, Vice President and C.F.O. December, 1998
Marshall Millard 37 Secretary, Vice President and November, 1998
General Counsel
E. Scott Crist 35 Director January, 1999
Roger R. Hemminghaus 61 Director April, 1999
2. FAMILY RELATIONSHIPS
No family relationship exists between or among any of the directors, executive
officers, and significant employees, as defined below, of the Company or any
person contemplated to become such.
3. BUSINESS EXPERIENCE
MICHAEL R. LONG, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Mr. Long became Chairman and Chief Executive Officer of the Company as of
November 1998. Mr. Long has over 29 years of senior executive management and
systems development experience in six publicly traded companies, as well as
successfully operating his own systems
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consulting business. In the past five years, Mr. Long has held positions at U.S.
Long Distance Corp., as Vice President of Management Information Systems from
December 1993 to August 1996; Billing Concepts, Inc., as Vice President of
Information Technologies from August 1996 to June 1997, and Andersen Consulting
as Business Development Director, Financial Services, from October 1997 to
November 1998. Anderson Consulting is a worldwide consulting firm and affiliate
of Arthur Andersen accounting firm. Billing Concepts, Inc. is a leading operator
of comprehensive billing systems that collect long distance charges from
telephone users on behalf of more than 1,300 telephone companies.
LOUIS A. HOCH, DIRECTOR, PRESIDENT AND CHIEF OPERATING OFFICER
Mr. Hoch joined the Company as President and Chief Operating Officer in November
1998. Mr. Hoch's background has been primarily in the telecommunications
industry in which he has over 10 years of experience. Most recently, from April
to November 1998, Mr. Hoch was the Subject Matter Expert for Call Centers in
Telecom, at Andersen Consulting. His leadership in the call center industry was
acknowledged by Andersen Consulting when it classified his processes and
technology architecture to be one of their guidelines for best practices in call
center development. While employed at Billing Concepts, Inc. from June 1991 to
April 1998, Mr. Hoch successfully built large billing systems that were proven
flexible enough to sustain exponential growth in record volumes, and call
centers that integrated the latest in technology and processes. During his
tenure at Billing Concepts, Mr. Hoch held successive positions; as a Tech
Support Representative, Program Analyst, Program Manager, MIS Manager, and
finally, Director of Information Technology. Mr. Hoch holds a B.B.A. in Computer
Information Systems and an M.B.A. in International Business Management, both
from Our Lady of the Lake University. He is certified as a Computer Professional
(CCP) by the Institute for Certification of Computing Professionals (ICCP).
DAVID S. JONES, DIRECTOR AND SENIOR VICE-PRESIDENT
Mr. Jones joined the Company in November 1998. He has been active in the
Internet billing industry almost since its inception. While employed at Billing
Concepts, Inc., from 1997-98, Mr. Jones was responsible for defining strategic
direction involving Internet technology. Mr. Jones has played an essential role
in the development of the necessary relationships needed to be effective in the
Internet billing marketplace, and has been directly involved in the marketing of
the Company's products. Mr. Jones continues to manage the ongoing development of
systems for the Company. From 1996 to 1997, Mr. Jones owned and operated his own
business which provided ongoing service and support to automated teller
facilities for various financial institutions. From 1993 to 1996, Mr. Jones was
general manager of a specialty beverage operation in San Antonio. He has
completed business finance and general business studies at Millikin University
and the University of Texas at Austin.
LORI A. TURNER, TREASURER, VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
Lori A. Turner, C.P.A., joined the Company as Chief Financial Officer in
December 1998. Prior to joining the Company, Ms. Turner served as Treasurer and
Chief Financial Officer at Docucon, Inc. She held various positions at Docucon,
including Controller, Vice-President, Finance, and Assistant Secretary from 1990
until her departure in 1999. From 1984 through 1989, Ms. Turner
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held various financial positions at Fuddruckers, Inc., a fast-food restaurant
chain. Prior to joining Fuddruckers, she worked as a consultant for Fuddruckers
and other firms. Ms. Turner holds a M.B.A. from the University of Texas at San
Antonio.
MARSHALL MILLARD, SECRETARY, VICE PRESIDENT AND GENERAL COUNSEL
Mr. Millard also joined the Company in December 1998. He possesses over 10 years
experience in providing legal counsel to publicly-traded and privately-held
companies. Mr. Millard has extensive experience in negotiating and preparing
strategic alliances, mergers and acquisitions, financing agreements and other
business contracts. Mr. Millard also has a strong background in litigation and
appeals. He is licensed to practice law in the Supreme Court and all lower
courts in the State of Texas, the Western District of Texas and the Fifth
Circuit Court of Appeals. He earned a Juris Doctor degree from St. Mary's
University School of Law, in 1988, where he served as a Senior Associate Editor
for the ST. MARY'S LAW JOURNAL. Mr. Millard has held corporate counsel positions
at Southwestern Bell Telephone, a subsidiary of SBC Communications, 1993; U.S.
Long Distance Corp. (now owned by Qwest Communications International),
1993-1996; and Billing Concepts, 1996-1998.
E. SCOTT CRIST, DIRECTOR
Mr. Crist became a director of the Company in January 1999. He is the President
and Chief Executive Officer of Telscape International, Inc., one of the world's
fastest growing multinational carriers of voice, video and data services. Prior
to joining Telscape, Mr. Crist was a founder of Orion Communications, Inc., a
long distance company, where he served as President. He also previously served a
President and Chief Executive Officer of Matrix Telecom, a long distance company
which ranked number 7 on the Inc. Magazine list of the 500 fastest growing
companies in 1995. Mr. Crist also founded D.S. Communications, a domestic long
distance company, where he served as President and Chief Executive Officer. Mr.
Crist holds a M.B.A. from the J.L. Kellogg School at Northwestern University,
and a B.S., magna cum laude, in Electrical Engineering, with a
Telecommunications Design emphasis, from North Carolina State University.
ROGER R. HEMMINGHAUS, DIRECTOR
Mr. Hemminghaus became a director of the Company in April 1999. He currently
serves as Chairman of the Board of Directors of Ultramar Diamond Shamrock Corp.,
having retired in January 1999 as Chief Executive Officer of the same company.
He also serves as a director for Luby's Cafeterias, Inc.; New Centuries
Energies; and The Nature Conservancy of Texas. From 1996 to January 1999, Mr.
Hemminghaus served as Chairman and Chief Executive Officer of Ultramar Diamond
Shamrock Corp, following the merger of Ultramar Corporation and Diamond
Shamrock, Inc. Prior to this merger, Mr. Hemminghaus served as Chairman, Chief
Executive and President of Diamond Shamrock, Inc., where he had been employed
since 1984. Mr. Hemminghaus also serves on the National Executive Board of the
Boy Scouts of America, and various non-profit boards in Texas. He is a graduate
of Auburn University, where he received a B.S. in Chemical Engineering.
4. INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS.
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None of the directors or executive officers of the Company have been
involved in any legal proceedings during the past five (5) years that are
material to an evaluation of their ability or integrity as a director or
executive officer of the Company.
ITEM 7. EXECUTIVE COMPENSATION
1. EXECUTIVE OFFICER COMPENSATION
No executive officer of the Company received or accrued cash compensation
in excess of $20,000 during fiscal year ended 1998. The following tables sets
forth all compensation paid by the Company during the fiscal year ending
December 31, 1998 to all executive officers of the Company:
NAME OF PRINCIPAL RESTRICTED
POSITION YEAR SALARY (1) STOCK AWARDS (2)
- --------------------------------------------------------------------------------
Michael R. Long 1998 $ 14,835 1,183,333
Chairman and C.E.O.
Louis A. Hoch 1998 $ 11,868 1,183,334
President and C.O.O.
David S. Jones 1998 $ 14,840 1,183,333
Sr. Vice President
Marshall Millard 1998 $ 7,318 150,000
Secretary, Vice President
and General Counsel
Lori A. Turner 1998 $ NA 100,000
Treasurer, Vice President
and C.F.O.
26
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(1) Each of the named executives have entered into an employment agreement
with the Company. These agreements have a three (3) year term and provide for an
annual salary, bonuses at the discretion of the Board of Directors, and health
benefits. The figures reflected are stated for December 1998. In 1999, each of
the named officers are to receive 1999 salary compensation as follows: Mr. Long,
$150,000; Mr. Hoch, $140,000; Mr. Jones, $120,000; Ms. Turner, $100,000; and Mr.
Millard, $100,000.
(2) This table reflects common stock ownership granted in connection with
the executive's employment arrangement with the Company. In 1999, subject to
shareholder approval, the officers named have been awarded the following number
of options to purchase shares of common stock of the Company: Mr. Long, 100,000;
Mr. Hoch, 100,000; Mr. Jones, 100,000; Ms. Turner, 40,000; and Mr. Millard,
40,000. The option price in each case is $2.81 per share.
2. COMPENSATION OF DIRECTORS
In 1998, the directors of the Company were not compensated for their services in
that capacity. In 1999, the Company intends to seek shareholder approval of a
director's compensation plan, which would provide for certain stock options and
$1,000 per meeting, plus out-of-pocket expenses.
Subject to stockholder approval of the director's compensation plan, the Company
has awarded options to purchase common stock of the Company to Messrs. Crist and
Hemminghaus. Mr. Crist holds 40,000 options with an exercise price of $2.81 per
share; Mr. Hemminghaus holds 80,000 options with an exercise price of $5.81 per
share. The options vest over a three year period.
ITEM 8. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
1. TRANSACTIONS WITH MANAGEMENT AND OTHERS; CERTAIN BUSINESS
RELATIONSHIPS; PROMOTERS
Concurrent with and in connection with the Regulation S equity financing
described herein above, the Company has entered into a consulting agreement,
effective November 1, 1998, with the Consulting Group, located at 1090 W. Pender
Street, Suite 420, Vancouver BC V632N7, under which that Group provided or will
provide financing, investor relations, public relations and advertising services
for the Company for a period of one year. The total consideration paid and to be
paid to the Consulting Group for all services to the Company is $1.2 million;
the Company has not allocated this amount between and among the various services
of the Consulting Group.
On May 7, 1999, the Company entered into a certain Business Development
Agreement, and a related Independent Sales Agent Agreement, with Southwest
Business Corporation ("SBC"), of San Antonio, Texas. In exchange for sales and
marketing services and support described in these agreements, which generally
includes identification, introduction, sales to, and support of prospective
customers, and subject to performance criteria described therein (volume-based
customer billings thresholds), SBC may earn the right to purchase up to 500,000
shares of
27
<PAGE>
common stock of the Company. The warrant is for a term of three years after the
Company's common stock is offered for sale on a recognized stock market, which
the Company construes to include the NASDAQ National or SmallCap Markets; the
exercise price is 110% of the per share price of the common stock at May 7,
1999, which was $6.50. See also Exhibit 13 of this Form 10. There is no
relationship or affiliation between SBC and the Consulting Group.
On May 18,1999, the Company contracted with Pennsylvania Merchant Group ("PMG"),
of West Conshohocken, Pennsylvania, 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 agreed to issue to PMG a warrant to purchase 99,206 shares of common
stock of the Company at an exercise price of $7.56 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.
2. INDEBTEDNESS OF MANAGEMENT
No member of management of the Company is or has been indebted to the Company in
an amount in excess of $60,000.00. No director or executive officer is
personally liable for repayment of amounts advanced any financing received by
the Company.
ITEM 9. LEGAL PROCEEDINGS
There is no litigation currently pending and the Company is not aware of any
disputes that may lead to litigation.
ITEM 10. MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
1. MARKET INFORMATION
The Company's common stock is traded on the NASD OTC Bulletin Board. The
following table sets forth the range of high and low bid quotations as reported
during the most recent fiscal year. Bid quotations represent prices between
dealers, do not include retail markup, mark down or other fees or commissions,
and do not necessarily represent actual transactions.
Calendar Quarter Bid Prices
Ended Low High
- ------------------------------------------------------------------------------
December 31, 1998(1) 2 3/8 3 3/8
March 31, 1999 2 3/4 8 5/8
(1) No previous periods are reported as the Company was initially listed in the
fourth quarter 1998.
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The Company has 10,976,428 shares of common stock outstanding; of this amount,
6,030,000 of such shares are nonrestricted; 4,000,000 of such shares are
restricted pursuant to Rule 144; and 946,428 shares are restricted pursuant to
Regulation S. As of June 4, 1999, the number of holders of record of the common
stock, $.001 par value, of the Company was 3,696.
2. DIVIDEND POLICY
The Company has paid no cash or stock dividends and has no present plan to pay
any such dividends, intending instead to reinvest its earnings, if any. However,
payment of future dividends will be determined from time to time by its board of
directors, based upon its future earnings, financial condition, capital
requirements and other factors. The Company is not presently subject to any
restriction on its present or future ability to pay such dividends.
ITEM 11. RECENT SALES OF UNREGISTERED SECURITIES
There are issued and outstanding 10,976,428 shares of common stock which were
sold as follows:
On or about July 10 and 14, 1998, a total of 10,000,000 shares of common stock
were sold for a total of $10,000 to one individual, then a director and the
President of the Company, and seven (7) corporate shareholders; the individual
acquired 4,000,000 shares at such time; the corporate shareholders acquired
6,000,000 shares. On or about July 15 and 30, and August 19, 1998, thirty-three
(33) individuals acquired 742,500 shares of common stock, for the total purchase
price of $7,425. On or about September 5, 1998, three (3) individual
shareholders paid $13,000 for 130,000 shares. All of the foregoing shares of
common stock were issued in compliance with exemption under Section 4(2) of the
Securities Act of 1933, as amended, because the transactions were by an issuer
not involving a public offering, or pursuant to exemption under Rule 504,
because the total amount of the offering of those shares did not exceed $1
million. Of the total shares issued, 670,500 were issued pursuant to Rule 504
exemption. Form D relating to the Rule 504 offering was filed with the
Securities and Exchange Commission.
On or about October 26, 1998, the current management directors of the Company
acquired the 4,000,000 shares held by the President of the Company, then known
as Goldking Resources, Inc.; these shares were transferred to the current
management directors of the Company, Messrs. Long, Hoch and Jones, and other key
executives of the Company. Neither Messrs. Long, Hoch and Jones nor any other
executive of the Company paid cash consideration for the shares received, but
instead transferred their shares in billserv-Texas to Goldking, which
subsequently caused the merger of billserv-Texas into Goldking. All of these
common shares were transferred in compliance with exemption under Section 4(1)
of the Securities Act of 1933, because the transaction was by a person other
than an issuer, underwriter or dealer. The shares are restricted under Rule 144.
On December 3, 1998, the Company issued 5,359,500 shares of common stock at par
in reliance upon exemption under Rule 504, and received for cancellation
6,202,000 shares, with unanimous shareholder consent. The stock described above
was issued to fifteen (15) individual and institutional investors. The total
purchase price for all shares issued was $5,359.50. Form D relating to this
offering was filed with the Securities and Exchange Commission.
29
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On May 7, 1999, the Company contracted to issue a warrant for the purchase of up
to 500,000 shares of common stock to SBC, of San Antonio, Texas. Subject to
specific performance criteria in sales and marketing of the Company's products,
SBC may earn the right to purchase shares of common stock, at 110% of the
closing bid price as of May 7, 1999 ($6.50), over a three year term. If SBC
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.
On May 18,1999, the Company contracted with Pennsylvania Merchant Group ("PMG"),
of West Conshohocken, Pennsylvania, 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 agreed to issue to PMG a warrant to purchase 99,206 shares of common
stock of the Company at an exercise price of $7.56 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 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.
On June 11, 1999, the Company issued 946,428 shares of common stock to two
corporate investors, in exchange for $5.3 million in cash. The stock was issued
pursuant to exemption under Regulation S. Neither investor is a "U.S.
person" under Regulation S.
ITEM 12. DESCRIPTION OF THE COMPANY'S SECURITIES
1. GENERAL
The Company is authorized to issue 200,000,000 shares of common stock of $.001
par value per share. This is the only class of stock currently authorized for
issuance by the Company. The common stock has no conversion, preemptive or
subscription rights as to any securities of the Company and are not liable to
assessments or further calls. Each share of common stock of the Company, when
fully paid for, will be validly issued and outstanding, is entitled to one vote
on all matters to be voted on by shareholders, is entitled to equal dividends
when and as declared by the board of directors from funds legally available
therefor, and is entitled to a pro rata share of the Company's net assets in the
event of dissolution, liquidation or winding up of the Company.
The holders of shares of common stock are entitled to dividends when and as
declared by the Board of Directors from funds legally available therefore and,
upon liquidation, are entitled to share pro rata in any distribution to common
shareholders. Holders of the common stock have one non-cumulative vote for each
share held. There are no preemptive, conversion or redemption privileges, nor
sinking fund provisions, with respect to the common stock. All of the
outstanding shares of common stock are validly issued, fully paid and
non-assessable. Since the common stock of the Company does not have cumulative
voting rights, the holders of more than 50 percent of the outstanding shares can
elect all of the directors, if they choose to do so, in which event the holders
of the remaining shares cannot elect any directors. Accordingly, if
30
<PAGE>
the present shareholders in the foreseeable future own more than 50 percent of
the outstanding shares, they will be able to elect all of the directors.
2. DIVIDEND POLICY
The payment by the Company of dividends, if any, in the future rests principally
on the discretion of its board of directors, and will depend, among other
things, upon the Company's earnings, its capital requirements, and its financial
condition, as well as other relevant factors. The Company has not paid or
declared any dividends upon its common stock since its inception, and by reason
of its contemplated financial requirements, does not contemplate or anticipate
paying any dividends upon its common stock in the foreseeable future. See
"Special Risk Factors."
3. REPORTS TO SHAREHOLDERS
The Company intends to furnish its shareholders with annual reports of its
operations, containing financial statements. The Company will also file annual
and quarterly reports as required by the Securities Exchange Act of 1934.
4. TRANSFER AGENT
The Company has contracted with NEVADA AGENCY AND TRUST COMPANY, 50 West
Liberty, Suite 880, Reno, Nevada 89501, as its transfer agent.
ITEM 13. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Nevada law sets forth the powers of the Company to indemnify officers,
directors, employees and agents. The Articles of Incorporation for the Company
provide as follows:
"No director or officer shall have any personal liability to the
corporation or its stockholders for damages for breach of fiduciary duty
as a director or officer, except that this Article shall not eliminate or
limit the liability of a director or officer for (i) acts or omissions
that involve intentional misconduct, fraud or a knowing violation of the
law, or (ii) the payment of dividends in violation of Nevada Revised
Statutes."
Except to the extent herein above set forth, there is no charter provision,
bylaw, contract, arrangement or statute pursuant to which any director or
officer of the Company is indemnified in any manner against any liability which
he may incur in his capacity as such. The Company also maintains a standard
director and officer liability policy, to fund the Company's obligations as
stated herein above.
ITEM 14. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The financial statements of the Company, itemized in the sub-topic, "Financial
Statements" under Item 16 hereof, are set forth below.
<PAGE>
ITEM 15. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There exists no disagreement between the Company and its accountants on any
matter of accounting principles or practice or financial statement disclosure.
ITEM 16. FINANCIAL STATEMENTS AND EXHIBITS
FINANCIAL STATEMENTS (PREVIOUSLY FILED)
a. Period from Inception (July 30, 1998) through December 31, 1998
Report of Independent Auditors
Balance Sheet
Statement of Operations
Statement of Shareholders' Equity (Deficit)
Statement of Cash Flows
Notes to Financial Statements
b. Period ended March 31, 1999
Balance Sheets - unaudited
Statements of Operations - unaudited
Statement of Shareholders' Equity (Deficit) - unaudited
Statements of Cash Flows - unaudited
Notes to Financial Statements- unaudited
This report contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Special
Risk Factors."
EXHIBITS
1. Financial Statements (see above) (previously filed).
2. Articles of Incorporation of Goldking Resources, Inc., a Nevada corporation,
filed with the Secretary of State of Nevada on June 4, 1998 (previously
filed).
3. Certificate of Amendment to Articles of Amendment, filed with the Secretary
of State of Nevada on December 3, 1998 (reflecting name change to
"billserv.com, Inc.") (previously filed).
4. Bylaws of the Company, formerly known as Goldking Resources, Inc., adopted
June 4, 1998 (previously filed).
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5. Specimen of common stock certificate, of billserv.com, Inc., par value $0.001
(previously filed).
6. Employment Agreement, dated November 28, 1998, by and between billserv.com,
Inc. and Michael Long (previously filed).
7. Employment Agreement, dated November 28, 1998, by and between billserv.com,
Inc. and Louis Hoch (previously filed).
8. Employment Agreement, dated November 28, 1998, by and between billserv.com,
Inc. and David Jones (previously filed).
9. Employment Agreement, dated November 28, 1998, by and between billserv.com,
Inc. and Lori Turner (previously filed).
10.Employment Agreement, dated November 28, 1998, by and between billserv.com,
Inc. and Marshall Millard (previously filed).
11.Employment Agreement, dated November 28, 1998, by and between billserv.com,
Inc. and Randy Kauftheil (previously filed).
12.Consulting Agreement, dated November 1, 1998, by and between billserv.com,
Inc. and Richard N. Jeffs, James R. King, and Robert B.
Smith (previously filed).
13.Business Development Agreement, dated May 7, 1999, by and between
billserv.com, Inc. and Southwest Business Corporation (previously filed).
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, on this 27th day of
July, 1999.
billserv.com, Inc.
A Nevada corporation
By: Louis A. Hoch
Name: Louis A. Hoch, President
By: Marshall N. Millard
Name: Marshall N. Millard, Secretary
34
