SECURITIES AND EXCHANGE COMMISSION
FORM 10
GENERAL FORM REGISTRATION OF SECURITIES PURSUANT TO
SECTION 12(b) OR (g) OF THE SECURITIES ACT OF 1934
_____________________________________________________________________
billserv.com, Inc.
(Exact name of issuer as specified in its charter)
_____________________________________________________________________
Nevada
(State or other jurisdiction of incorporation or organization)
_____________________________________________________________________
Lori Turner Marshall Millard
Vice President and Chief Financial Officer Vice President and General Counsel
14607 San Pedro Ave., Suite 100
San Antonio, Texas 78233
210.402.5000
(Address, including zip code, and telephone number, including area code
of issuer's principal executive offices)
_____________________________________________________________________
Nevada Agency & Trust Company
50 West Liberty Street, Suite 880
Reno, Nevada 89501
702.322.0626
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
_____________________________________________________________________
I.R.S. Employer Identification Number
98-0190072
_____________________________________________________________________
Securities to be registered pursuant to Section 12(b) of the Act:
Common Stock $.001 par value
(Title of Class)
Securities to be registered pursuant to Section 12(g) of the Act: None
INFORMATION REQUIRED IN REGISTRATION STATEMENT
ITEM 1. BUSINESS................................................. 3
ITEM 2. FINANCIAL INFORMATION.................................... 10
ITEM 3. PROPERTIES AND EQUIPMENT................................. 24
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT............................................. 24
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES.. 26
ITEM 6. EXECUTIVE COMPENSATION................................... 29
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........... 30
ITEM 8. LEGAL PROCEEDINGS........................................ 31
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS................ 31
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.................. 32
ITEM 11. DESCRIPTION OF THE COMPANY'S SECURITIES.................. 33
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS................ 34
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA............... 35
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.................... 35
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS........................ 35
ii
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, the Company has yet to receive any operating revenues.
However, the Company intends to generate four principal revenue streams:
Internet billing services, Internet publishing of statements (also referred to
as "EPublishing"), customer care services through Internet and traditional
telephony technologies, and professional services associated with the
implementation and maintenance of these Internet technologies. In addition, the
Company is developing an Internet portal with EBPP capabilities.
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.
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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.
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.
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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.
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 potentially large number of consumers
who will use the site as an Internet bill presentment and payment service. The
Company also will seek relationships 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 CheckfreeTM and
TranspointTM 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.
5
The Company estimates that the percentage of consumer acceptance of electronic
billing will be five percent (5%) in 1999. Industry research projects that
consumers will view and pay more than 1 billion bills on the Internet by the
year 2001. Conservative projections have the consumer acceptance rate growing to
thirty-five percent (35%) by the year 2007.
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. 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 is developing
and will market the following products and services:
ESERV(SM) (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.
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
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and a per statement fee which is less than the rate a biller would pay if
supporting an internal Internet billing system.
EPUBLISHING(SM) (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.
ECARE(SM) (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.
ECONSULTING(SM) (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. 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.COM(TM) (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
7
quotes, mortgage quotes, loan applications and approvals, banking, shopping,
news, weather, sports and other features to consumers who enter the website.
D. SALES AND MARKETING
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 CD 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, aggressive 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. The bills.com subsidiary will expend a significant percentage of
its capital resources in executing an aggressive market strategy.
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E. PLAN OF OPERATION FOR REMAINDER OF FISCAL YEAR
The Company's plan of operation for the remainder of the 1999 fiscal year is to:
(1) develop trading partner relationships with front ends such as CheckFreeTM,
TranspointTM, CybercashTM, Net DeliveryTM, and Internet portals such as YahooTM,
ExciteTM, LycosTM and AOLTM in order to gain access to as many Internet users as
possible; (2) execute billing agreements with as many billers as possible; (3)
design, develop and market its Internet portal where the consumer can view and
pay bills; (4) build systems which will operate the EBPP and other operations of
the Company; (5) attract and retain highly qualified employees in order to
appropriately staff business operations; and (6) 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 and for
acquisitions or other corporate purposes. The Company currently projects that it
will have approximately 60 employees by the end of 1999.
F. COMPANY HISTORY
billserv.com is a Nevada corporation with its principal offices currently
located at 14607 San Pedro Ave., Suite 100, San Antonio, Texas 78233. 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
("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. 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 3700
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
9
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. 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.
CALENDAR QUARTER JULY 30 1998
MARCH 31 1999 (INCEPTION) TO
DECEMBER 31 1998
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
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
10
EXPRESSED IN SUCH STATEMENTS. POTENTIAL RISKS AND UNCERTAINTIES INCLUDE, AMONG
OTHERS, THOSE SET FORTH BELOW AS WELL AS IN THE PREVIOUS "BUSINESS" SECTION.
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. EXCEPT AS REQUIRED BY LAW, THE COMPANY UNDERTAKES NO OBLIGATION TO
UPDATE ANY FORWARD-LOOKING STATEMENT, WHETHER AS A RESULT OF NEW INFORMATION,
FUTURE EVENTS, OR OTHERWISE. READERS, HOWEVER, SHOULD CAREFULLY REVIEW THE
FACTORS SET FORTH IN REPORTS OR DOCUMENTS THAT THE COMPANY FILES FROM TIME TO
TIME WITH THE SEC.
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 generate four principal revenue streams:
Internet billing services, Internet publishing of statements (also referred to
as "EPublishing"), 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
11
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.
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 the
Consulting Group, a related party, totaled $100,000. 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.
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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 (defined below at Item 7)
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 May
19, 1999, the Company has opened sales offices in North Carolina, Hollidaysburg,
PA, Phoenix, AZ, Dallas, TX, and San Antonio, TX. 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.
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.
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.
13
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 opened
sales offices in Hollidaysburg, Pennsylvania 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.
The Company is currently in 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. Because
the Company's systems and software are relatively new, management does not
expect Year 2000 issues related to its own internal systems to be significant.
Although the Company believes that its Year 2000 plan will identify all material
Year 2000 issues, there can be no assurance that the Company will be able to
identify, evaluate and resolve all such issues. The Company does not
concurrently expect that costs associated with Year 2000 compliance will have a
material effect on operations or financial position. However, 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 below.
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.
C. SPECIAL RISK FACTORS
Investors should carefully consider the following information which outlines
special market and other risk factors affecting the industry and the Company.
DEPENDENCE ON INTERNET AND INTERNET TECHNOLOGY. 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
14
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 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.
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, electronic payments: (i) cost much less to complete; (ii) give rise to
fewer errors, which are costly to resolve; (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.
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. 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. There can be no assurance that the Company can
successfully identify new service opportunities and develop and bring new and
enhanced services and related products to market in a timely manner, that 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
15
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.
GOVERNMENT REGULATION. 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 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.
ACH ACCESS. The Federal Reserve rules provide that the Federal Reserve's ACH
system is available only through a bank. If the Federal Reserve rules were to
change to further restrict access to the ACH, the Company's business could be
materially adversely affected.
INTENSE COMPETITION. 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
16
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 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.
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's stock has only recently begun
trading on the NASD OTC BB on December 3, 1998, under the symbol BLLS.
Accordingly, the financial information included herein may not necessarily
reflect the results of operations, financial position and cash flows of the
Company in the future.
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
17
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 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
18
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.
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.
The Company is currently in 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. This
determination is or will be on an internally developed Year 2000 plan. This plan
will be implemented in the following four consecutive phases:
1. An inventory and data gathering phase in which products and systems
and the products and systems of critical vendors and suppliers are
catalogued;
2. A testing stage to determine whether or not such catalogued products
and systems are Year 2000 compliant;
3. A replacement phase in which non-compliant products and systems will
be upgraded or replaced; and
4. A monitoring phase in which products and systems will be tested for
Year 2000 compliance on an ongoing basis.
The Company's Year 2000 plan has only been partially implemented. To date, the
Year 2000 plan has resulted in the following:
19
o Products. The Company has developed an internal battery of tests to
ascertain whether or not products are Year 2000 compliant. Based on
these tests, the Company believes its current products are Year 2000
compliant.
o Vendors. The Company is currently in the process of ascertaining
whether or not its vendors and suppliers are Year 2000 compliant.
The Company is also reviewing assembly and test equipment for Year 2000
compliance, which is expected to be completed by mid-1999.
o IT Systems. The Company has conducted a preliminary survey of its IT
hardware and software and anticipates that any hardware and software
that is not Year 2000 compliant will be upgraded or replaced prior to
2000.
o Non-IT Systems and Infrastructure. Machinery and equipment used in
operations have been inventoried and are currently being assessed for
Year 2000 compliance.
Although the Company believes that its Year 2000 plan will identify all material
Year 2000 issues, there can be no assurance that the Company will be able to
identify, evaluate and resolve all such issues.
The Company does not currently expect that costs associated with Year 2000
compliance will have a material effect on operations or financial position.
However, 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.
The Company believes that the risks of noncompliance could delay purchases or
replacement of products and services. Failure of third party products, such as a
breakdown in telephone, electric service or other utilities, e-mail, voicemail
or the World Wide Web could cause a disruption in service to customers.
Disruptions in the services provided by banks, telephone companies and the U.S.
Postal Service could have a pervasive negative impact on the Company's business
as a whole. Although the Company's products are undergoing Year 2000-specific
testing procedures, the Company's products may not contain all of the date codes
necessary to operate in the year 2000. Any failure of such products to perform
could result in the delay or cancellation of product orders and the diversion of
managerial and technical resources from product development and other business
activities to attend to Y2K issues. These risks could have a material adverse
effect on the Company's business, operating results and financial condition.
Until the completion of the Year 2000 compliance evaluation of the Company's
suppliers, and the completion of internal IT and non-IT systems reviews, the
Company believes that it is not practical to develop comprehensive contingency
plans. Even if such plans are completed and implemented
20
in a timely manner, they may be insufficient to address any third party failures
and there can be no assurance that undetected internal and external Year 2000
issues will not materially impact the Company's business, financial condition,
results of operations and cash flows. See "Management's Discussion and Analysis
of Financial Condition and Results of Operation".
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; VOLATILITY OF STOCK PRICE. Prior to December 3, 1998,
there was no public market for the Company's common stock. Although the Company
is listed on the NASD OTC Bulletin Board, there can be no assurance that an
active or liquid trading market in the Company's common stock will continue. 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 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.
21
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.
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 issuances of equity securities, the incurrence of debt and contingent
liabilities, and amortization expenses related to goodwill and other intangible
assets, any of which could materially adversely affect the Company's business,
operating results, and
22
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.
DIVIDEND POLICY. 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
23
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 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. The Company does not intend to update these
forward-looking statements.
ITEM 3. 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 opened sales
offices in Hollidaysburg, Pennsylvania 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 4. 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:
24
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 6. 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.
25
3. CHANGE IN CONTROL
There are no arrangements known to the Company the operation of which may
result in a change of control of the Company.
ITEM 5. 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.
26
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 consulting business. In the past five
years, Mr. Long has held positions at U.S. Long Distance, Inc., 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.
LOUIS A. HOCH, DIRECTOR, PRESIDENT AND CHIEF OPERATING OFFICER
Mr. Hoch joined the Company as President and Chief Executive Officer in November
1998. Mr. Hoch's background has been primarily in the telecommunications
industry in which he has over 10 years of experience. In the past five years, he
has held positions with Andersen Consulting, Billing Concepts, Inc., and U.S.
Long Distance, Inc.. He possesses in-depth knowledge in the billing and customer
care processes of regional bell operating companies, interexchange carriers,
competitive local exchange carriers and Internet service providers. He has
successfully built large billing systems that were proven flexible enough to
sustain exponential growth in record volumes. He played a significant part in
growing a billing company from inception to becoming the market leader. He has
built multiple call centers that integrated the latest in technology and
processes. His leadership in the call center industry has been recognized by the
largest worldwide consulting firm, which classified his processes and technology
architecture to be one of their guidelines for best practices in call center
development. 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
27
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 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 (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.
28
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.
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 6. 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.
29
(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 7. 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 Messrs. James R. King, Jr.; Robert D. Smith and
Richard M. Jeffs (the "Consulting Group"), all of 1090 W. Pender Street, Suite
420, Vancouver BC V632N7, under which that Group provided or will
30
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 is $1.2 million. A portion of the consideration
paid or to be paid is in consideration of the Consulting Group's efforts in
arranging the Regulation S equity financing described above.
On May 7, 1999, the Company entered into a certain Business Development
Agreement, and a related Independent Sales Agent Agreement, with Southwest
Business Corporation, of San Antonio, Texas. In exchange for sales and marketing
services and support described in these agreements, and subject to performance
criteria described therein, Southwest Business Corporation may earn the right to
purchase up to 500,000 shares of 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.
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 8. LEGAL PROCEEDINGS
There is no litigation currently pending and the Company is not aware of any
disputes that may lead to litigation.
ITEM 9. 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.
31
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.
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 10. 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 Section 4(2) of the
Securities Act of 1933, as amended, or pursuant to exemption under Rule 504. Of
the total shares issued, 670,500 were issued pursuant to Rule 504 exemption.
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
32
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 Section 4(1) of the
Securities Act of 1933. 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.
On May 7, 1999, the Company contracted to issue a warrant for the purchase
of up to 500,000 shares of common stock to Southwest Business Corporation, of
San Antonio, Texas. Subject to specific performance criteria in sales and
marketing of the Company's products, Southwest Business Corporation 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 Southwest Business Corporation
meets the contract requirements, the warrant will be issued in accordance with
Section 4(2) of the Securities Act of 1933, as amended.
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.
ITEM 11. 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.
33
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 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 12. 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
34
maintains a standard director and officer liability policy, to fund the
Company's obligations as stated herein above.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The financial statements of the Company, itemized in the sub-topic, "Financial
Statements" under Item 15 hereof, are set forth below.
ITEM 14. 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 15. FINANCIAL STATEMENTS AND EXHIBITS
FINANCIAL STATEMENTS
billserv.com, Inc.
(a development stage company)
Financial Statements
PERIOD ENDED DECEMBER 31, 1998
WITH REPORT OF INDEPENDENT AUDITORS
billserv.com, Inc.
(a development stage company)
Financial Statements
Period Ended December 31, 1998
CONTENTS
Report of Independent Auditors ........................................1
Financial Statements
Balance Sheet .........................................................2
Statement of Operations ...............................................3
Statement of Shareholders' Equity (Deficit) ...........................4
Statement of Cash Flows ...............................................5
Notes to Financial Statements .........................................6
Report of Independent Auditors
Board of Directors
billserv.com, Inc.
We have audited the accompanying balance sheet of billserv.com, Inc. (a
development stage company) as of December 31, 1998, and the related statements
of operations, shareholders' equity (deficit), and cash flows for the period
from inception (July 30, 1998) through December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of billserv.com, Inc. at December
31, 1998, and the results of its operations and its cash flows for the period
from inception (July 30, 1998) through December 31, 1998 in conformity with
generally accepted accounting principles.
Ernst & Young LLP
San Antonio, Texas
June 1, 1999
1
billserv.com, Inc.
(a development stage company)
Balance Sheet
December 31, 1998
ASSETS
Current assets:
Cash and cash equivalents .................................... $ 329,618
Related party accounts receivable ............................ 24,000
Prepaid expenses ............................................. 3,213
Other current assets ......................................... 31,149
---------
Total current assets ........................................... 387,980
Property and equipment, net of
accumulated depreciation of $559 ............................. 19,550
---------
Total assets ................................................... $ 407,530
=========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ............................................. $ 3,779
Accounts payable - related party ............................. 150,000
Accrued expenses ............................................. 38,127
Advance from shareholders .................................... 500,000
---------
Total current liabilities ...................................... 691,906
Shareholders' equity (deficit):
Common stock - $.001 par value, 200,000,000 shares
authorized, 10,030,000 shares issued and outstanding
at December 31, 1998 ........................................ 10,030
Additional paid-in capital ................................... --
Deficit accumulated during the development stage ............. (294,406)
---------
Total shareholders' equity (deficit) ........................... (284,376)
---------
Total liabilities and shareholders' equity (deficit) ........... $ 407,530
=========
SEE ACCOMPANYING NOTES.
2
billserv.com, Inc.
(a development stage company)
Statement of Operations
From Inception (July 30, 1998) to December 31, 1998
Revenues .................................................... $ --
Operating expenses:
Selling expenses .......................................... 88,298
General and administrative ................................ 200,913
Depreciation .............................................. 559
------------
Total operating expenses .................................... 289,770
------------
Loss before income taxes .................................... (289,770)
Income taxes ................................................ --
------------
Net loss .................................................... $ (289,770)
============
Net loss per common share - basic ........................... $ (0.03)
============
Weighted average common shares outstanding - basic .......... 10,030,000
============
SEE ACCOMPANYING NOTES.
3
billserv.com, Inc.
(a development stage company)
Statement of Shareholders' Equity (Deficit)
DEFICIT
ACCUMULATED TOTAL
ADDITIONAL DURING THE SHAREHOLDERS'
COMMON STOCK PAID-IN DEVELOPMENT EQUITY
SHARES AMOUNT CAPITAL STAGE (DEFICIT)
----------------------------------------------------------------------------------
Balance at inception .................. 1,000 $ -- $ -- $ -- $ --
Acquisition of shares and reverse
merger on December 9, 1998 ......... 10,029,000 10,030 -- (4,636) 5,394
Net loss for the period ............... -- -- -- (289,770) (289,770)
----------------------------------------------------------------------------------
Balance at December 31, 1998 .......... 10,030,000 $ 10,030 $ -- $ (294,406) $ (284,376)
==================================================================================
SEE ACCOMPANYING NOTES.
4
billserv.com, Inc.
(a development stage company)
Statement of Cash Flows
From Inception (July 30, 1998) to December 31, 1998
OPERATING ACTIVITIES
Net loss ........................................................ $(289,770)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation ................................................. 559
Changes in operating assets and liabilities:
Increase in related party receivables ...................... (24,000)
Increase in prepaid expenses and other current assets ...... (34,362)
Increase in accounts payable and accrued liabilities ....... 191,906
---------
Net cash used in operating activities ........................... (155,667)
INVESTING ACTIVITIES
Purchase of equipment ........................................... (20,109)
Proceeds of acquisition/merger .................................. 5,394
---------
Net cash used in investing activity ............................. (14,715)
FINANCING ACTIVITY
Advance from shareholders ....................................... 500,000
---------
Net cash provided by financing activity ......................... 500,000
---------
Increase in cash ................................................ 329,618
Cash and cash equivalents at beginning of period ................ --
---------
Cash and cash equivalents at end of period ...................... $ 329,618
=========
SEE ACCOMPANYING NOTES.
5
billserv.com, Inc.
(a development stage company)
Notes to Financial Statements
December 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
billserv.com, Inc. (the Company) was incorporated on July 30, 1998 under the
laws of the state of Texas for the purpose of providing billing services over
the Internet. The Company, having no substantial assets, was acquired by and
merged with and into Goldking Resources, Inc. (Goldking). A shareholder of
Goldking transferred 4,000,000 shares of stock to the principals and certain key
employees of the Company in exchange for all 1,000 shares of the Company's
stock.
The shares of Goldking, a Nevada corporation formed to develop mineral rights,
are traded on the National Association of Securities Dealers Over-the-Counter
Bulletin Board (NASD OTC BB). On December 3, 1998, Goldking Resources, Inc.
changed its name to billserv.com, Inc. and began trading under the symbol BLLS.
The acquisition has been accounted for as a "reverse acquisition" under the
purchase method. The paid-in capital of the Company has been credited for
$5,394, the fair value of the tangible net assets of Goldking. The results of
operations of Goldking have been included in the Company's financial statements
from December 9, 1998.
Comprehensive loss is the same as net loss for the period ended December 31,
1998.
BASIS OF PRESENTATION
The Company's principal activities have been research and development, raising
capital, and organizational activities. Accordingly, it is considered a
development stage company. The Company expects to incur losses during its first
year of operations and may incur losses in subsequent years as development
efforts continue after the commencement of generation of revenues. The Company
plans to meet its capital requirements primarily through funding under a
financing agreement and issuance of equity securities, capital lease financing,
and in the longer term, revenue from services.
6
billserv.com, Inc.
(a development stage company)
Notes to Financial Statements (continued)
December 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
REVENUE RECOGNITION
Revenue consists of implementation fees, transaction fees, and professional and
consulting fees. Recognition of implementation fee revenue is recognized when
customer setup is complete. Transaction fees are recognized as revenue upon
completion of transactions. Professional and consulting fees are recognized when
services are rendered.
FEDERAL INCOME TAXES
The Company follows SFAS No. 109, "Accounting for Income Taxes." This statement
establishes financial accounting and reporting standards for deferred income tax
assets and liabilities that arise as a result of differences between the
reported amounts of assets and liabilities for financial reporting and income
tax purposes.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at original cost. Depreciation is provided
using the straight-line method over the estimated useful lives of the related
assets. The Company's computer systems are currently depreciated over a period
of three years.
7
billserv.com, Inc.
(a development stage company)
Notes to Financial Statements (continued)
December 31, 1998
1. SIGNFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER COMMON SHARE
Basic net loss per common share is computed by dividing the net loss by the
weighted average number of common shares outstanding during the period. Diluted
net loss per common share is not presented as the assumed exercise of stock
options is antidilutive due to the Company's net loss.
2. ADVANCE FROM SHAREHOLDERS
The Company has received advances from a related party on a contemplated private
placement of the Company's common stock. As of December 31, 1998, $500,000 had
been advanced to the Company. An additional $1,500,000 was advanced in the
period from January 1999 through May 1999. The equity securities will be issued
under a Regulation S exemption. It is anticipated that net proceeds to the
Company under this offering will be approximately $5.3 million. Of the proceeds,
$1.2 million will be reserved for payments under the Company's Consulting
Agreement. See Note 3.
3. CONSULTING AGREEMENT
The Company has entered into a Consulting Agreement with a consulting group,
consisting of minority shareholders, which will provide financial consulting,
public relations services, advertising services, and investor relations
services. The term of the agreement is for one year, from November 1, 1998 to
October 31, 1999, and provides for services totaling $1.2 million. At December
31, 1998, the Company had received $150,000 in services from the consulting
group. The related liability has been recorded as Accounts Payable - Related
Party and will be paid from the proceeds of the Regulation S offering. See Note
2.
4. INCOME TAXES
At December 31, 1998, the Company had a net operating loss carryforward for
federal income tax purposes of approximately $290,000 which expires in the tax
year 2019. The Company recorded a deferred tax asset and a corresponding
valuation allowance of approximately $98,000 at December 31, 1998. There were no
material temporary differences between the financial statement and tax basis of
assets and liabilities.
8
billserv.com, Inc.
(a development stage company)
Notes to Financial Statements (continued)
December 31, 1998
4. INCOME TAXES (CONTINUED)
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense at December 31, 1998 is:
Tax at U.S. federal statutory rates $(98,000)
Valuation allowance 98,000
-------------
Income tax expense $ -
=============
5. SUBSEQUENT EVENT
In January 1999, the Company's Board of Directors ratified, subject to
shareholder approval, the adoption of three stock option plans and reserved
4,500,000 shares of its common stock for issuance to certain employees,
consultants and directors. Under this plan, incentive and nonqualified options
may be granted. Options granted under this plan are 33 1/3% vested after one
year and vest thereafter at a rate of approximately 2.78% per month. In the
event of a stock dividend, stock split or reverse stock split, reclassification,
or recapitalization, the aggregate number and/or class of shares subject to the
plan and exercise price prior to such occurrence are appropriately adjusted. The
Company intends to submit these plans for shareholder approval in late 1999.
6. YEAR 2000 ISSUE (UNAUDITED)
Although the Company is not aware of any material operational issue or costs
associated with preparing its internal systems for the year 2000, there can be
no assurance that the Company will not experience serious unanticipated negative
consequences and/or material costs caused by undetected errors or defects in the
technology used in its internal systems, which include third-party software and
hardware technology.
9
billserv.com, Inc.
(a development stage company)
Financial Statements
(Unaudited)
PERIOD ENDED MARCH 31, 1999
billserv.com, Inc.
(a development stage company)
Financial Statements
(Unaudited)
Period Ended March 31, 1999
CONTENTS
Financial Statements
Balance Sheets ........................................................1
Statements of Operations ..............................................2
Statement of Shareholders' Equity (Deficit) ...........................3
Statements of Cash Flows ..............................................4
Notes to Financial Statements .........................................5
billserv.com, Inc.
(a development stage company)
Balance Sheets
MARCH 31 DECEMBER 31
1999 1998
----------------------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 353,392 $329,618
Related party accounts receivable - 24,000
Prepaid expenses 9,215 3,213
Other current assets 69,403 31,149
----------------------------
Total current assets 432,010 387,980
Property and equipment, net of
accumulated depreciation of $13,253 and
$559 229,880 19,550
Other assets 15,000 -
----------------------------
Total assets $ 676,890 $407,530
============================
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable $ 154,369 $ 3,779
Accounts payable - related party 550,000 150,000
Accrued expenses 57,757 38,127
Advance from shareholders 1,000,000 500,000
----------------------------
Total current liabilities 1,762,126 691,906
Shareholders' equity (deficit):
Common stock - $.001 par value,
200,000,000 shares authorized,
10,030,000 shares issued
and outstanding at March 31, 1999 and
December 31, 1998 10,030 10,030
Additional paid-in capital - -
Deficit accumulated during the
development stage (1,095,266) (294,406)
----------------------------
Total shareholders' equity (deficit) (1,085,236) (284,376)
----------------------------
Total liabilities and shareholders'
equity (deficit) $ 676,890 $407,530
============================
SEE ACCOMPANYING NOTES.
1
billserv.com, Inc.
(a development stage company)
Statements of Operations
(Unaudited)
JULY 30,
1998
PERIOD ENDED (INCEPTION)
MARCH 31 TO MARCH 31
1999 1999
-------------------------------
Revenues $ -- $ --
Operating expenses:
Research and development 172,191 172,191
Selling expenses 287,172 375,470
General and administrative 331,507 532,420
Depreciation 12,694 13,253
-------------------------------
Total operating expenses 803,564 1,093,334
-------------------------------
Operating loss (803,564) (1,093,334)
Other income (expense):
Interest income 2,704 2,704
-------------------------------
Loss before income taxes (800,860) (1,090,630)
Income taxes -- --
-------------------------------
Net loss $ (800,860) $ (1,090,630)
===============================
Net loss per common share - basic $ (0.08) $ (0.11)
===============================
Weighted average common shares outstanding -
basic 10,030,000 10,030,000
-------------------------------
SEE ACCOMPANYING NOTES.
2
billserv.com, Inc.
(a development stage company)
Statement of Shareholders' Equity (Deficit)
(Unaudited)
DEFICIT
ACCUMULATED TOTAL
ADDITIONAL DURING THE SHAREHOLDERS'
COMMON STOCK PAID-IN DEVELOPMENT EQUITY
SHARES AMOUNT CAPITAL STAGE (DEFICIT)
------------------------------------------------------------------
Balance at inception 1,000 $ - $ - $ - $ -
Acquisition of shares and reverse
merger on December 9, 1998 10,029,000 10,030 - (4,636) 5,394
Net loss from inception to December
31, 1998 - - - (289,770) (289,770)
------------------------------------------------------------------
Balance at December 31, 1998 10,030,000 10,030 - (294,406) (284,376)
Net loss for period ending March 31,
1999 - - - (800,860) (800,860)
------------------------------------------------------------------
Balance at March 31, 1999 10,030,000 $10,030 $ - $(1,095,266) $(1,085,236)
==================================================================
SEE ACCOMPANYING NOTES.
3
billserv.com, Inc.
(a development stage company)
Statements of Cash Flows
(Unaudited)
JULY 30, 1998
PERIOD ENDED (INCEPTION)
MARCH 31 TO MARCH 31
1999 1999
-----------------------------
OPERATING ACTIVITIES
Net loss $ (800,860) $(1,090,630)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 12,694 13,253
Changes in operating assets and
liabilities:
Decrease in related party receivables 24,000 -
Increase in prepaid expenses and other
current assets (44,256) (78,618)
Increase in accounts payable and
accrued liabilities 570,220 762,126
Other (15,000) (15,000)
-----------------------------
Net cash used in operating activities (253,202) (408,869)
INVESTING ACTIVITIES
Purchase of property and equipment (223,024) (243,133)
Proceeds of acquisition/merger - 5,394
-----------------------------
Net cash used in investing activities (223,024) (237,739)
-----------------------------
FINANCING ACTIVITY
Advance from shareholders 500,000 1,000,000
-----------------------------
Net cash provided by financing activity 500,000 1,000,000
-----------------------------
Increase in cash 23,774 353,392
Cash and cash equivalents at beginning of
period 329,618 -
-----------------------------
Cash and cash equivalents at end of period $ 353,392 $ 353,392
=============================
SEE ACCOMPANYING NOTES.
4
billserv.com, Inc.
(a development stage company)
Notes to Financial Statements
(Unaudited)
March 31, 1999
1. BASIS OF PRESENTATION
The Company's principal activities have been research and development, raising
capital, and organizational activities. Accordingly, it is considered a
development stage company. The Company expects to incur losses during its first
year of operations and may incur losses in subsequent years as development
efforts continue after the commencement of generation of revenues. The Company
plans to meet its capital requirements primarily through funding under a
financing agreement and issuance of equity securities, capital lease financing,
and in the longer term, revenue from services.
The financial statements have been prepared by billserv.com (Company) pursuant
to the rules and regulations of the Securities and Exchange Commission (SEC)
and, in the opinion of management, include all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the results for the
interim periods shown. Certain information and footnote disclosures, normally
included in financial statements prepared in accordance with generally accepted
accounting principles, have been condensed or omitted pursuant to such SEC rules
and regulations. The results for the interim periods are not necessarily
indicative of results for the full year. The financial statements contained
herein should be read in conjunction with the financial statements and notes
thereto included in the Company's 1998 financial statements.
2. ADVANCE FROM SHAREHOLDERS
The Company has received advances from a related party on a contemplated private
placement of the Company's common stock. As of March 31, 1999, $1,000,000 had
been advanced to the Company. An additional $1,000,000 was advanced in the
period from April 1999 through May 1999. The equity securities will be issued
under a Regulation S exemption. It is anticipated that net proceeds to the
Company under this offering will be approximately $5.3 million. Of the proceeds,
$1.2 million will be reserved for payments under the Company's Consulting
Agreement. See Note 3.
3. CONSULTING AGREEMENT
The Company has entered into a Consulting Agreement with a consulting group,
consisting of minority shareholders, which will provide financial consulting,
public relations services, advertising services, and investor relations
services. The term of the agreement is for one year, from November 1, 1998 to
October 31, 1999, and provides for
5
billserv.com, Inc.
(a development stage company)
Notes to Financial Statements (continued)
(Unaudited)
March 31, 1999
services totaling $1.2 million. At March 31, 1999, the Company had received
$550,000 in services from the consulting group. The related liability has been
recorded as Accounts Payable - Related Party and will be paid from the proceeds
of the Regulation S offering. See Note 2.
4. YEAR 2000 ISSUE
Although the Company is not aware of any material operational issue or costs
associated with preparing its internal systems for the year 2000, there can be
no assurance that the Company will not experience serious unanticipated negative
consequences and/or material costs caused by undetected errors or defects in the
technology used in its internal systems, which include third-party software and
hardware technology.
6
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."
35
EXHIBITS
1. Financial Statements (see above).
2. Articles of Incorporation of Goldking Resources, Inc., a Nevada
corporation, filed with the Secretary of State of Nevada on June 4,
1998.
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.").
4. Bylaws of the Company, formerly known as Goldking Resources, Inc.,
adopted June 4, 1998.
5. Specimen of common stock certificate, of billserv.com, Inc., par
value $0.001
6. Employment Agreement, dated November 28, 1998, by and between
billserv.com, Inc. and Michael Long.
7. Employment Agreement, dated November 28, 1998, by and between
billserv.com, Inc. and Louis Hoch.
8. Employment Agreement, dated November 28, 1998, by and between
billserv.com, Inc. and David Jones.
9. Employment Agreement, dated November 28, 1998, by and between
billserv.com, Inc. and Lori Turner.
10. Employment Agreement, dated November 28, 1998, by and between
billserv.com, Inc. and Marshall Millard.
11. Employment Agreement, dated November 28, 1998, by and between
billserv.com, Inc. and Randy Kauftheil.
12. Consulting Agreement, dated November 1, 1998, by and between
billserv.com, Inc. and Richard N. Jeffs, James R. King, and Robert
B. Smith.
13. Business Development Agreement, dated May 7, 1999, by and between
billserv.com, Inc. and Southwest Business Corporation.
36
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.
billserv.com, Inc.
A Nevada corporation
By:_________________________
Name:_______________________
President
By:_________________________
Name:_______________________
Secretary
37