UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
|_| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended
or
|X| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from October 1, 2000 to December 31, 2000
Commission File Number 0-28536
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BILLING CONCEPTS CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2781950
(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
7411 JOHN SMITH DRIVE, SUITE 200
SAN ANTONIO, TEXAS 78229
(Address of principal executive offices) (Zip code)
(210) 949-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. |X| Yes |_| No
Indicated below is the number of shares outstanding of the registrant's
only class of common stock at February 1, 2001:
NUMBER OF SHARES
TITLE OF CLASS OUTSTANDING
-------------- ----------------
Common Stock, $.01 par value 35,652,560
BILLING CONCEPTS CORP. AND SUBSIDIARIES
INDEX
PAGE
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PART I FINANCIAL INFORMATION
Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - December 31, 2000 and September 30, 2000... 3
Condensed Consolidated Statements of Operations - For the Quarters Ended
December 31, 2000 and 1999..................................................... 4
Condensed Consolidated Statements of Cash Flows - For the Quarters Ended
December 31, 2000 and 1999..................................................... 5
Notes to Interim Condensed Consolidated Financial Statements....................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................... 11
Item 3. Quantitative and Qualitative Disclosure about Market Risk.......................... 13
PART II OTHER INFORMATION
Item 1. Legal Proceedings.................................................................. 14
Item 6. Exhibits and Reports on Form 8-K................................................... 14
SIGNATURE.................................................................................... 15
2
PART I FINANCIAL INFORMATION
ITEM 1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BILLING CONCEPTS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ASSETS
DECEMBER 31, SEPTEMBER 30,
2000 2000
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Current assets:
Cash and cash equivalents ......................................................... $ 36,478 $ (156)
Accounts receivable, net .......................................................... 3,427 5,013
Prepaids and other ................................................................ 254 224
Net current assets from discontinued operations ................................... -- 1,376
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Total current assets ............................................................ 40,159 6,457
Property and equipment, net ........................................................ 723 620
Other assets, net .................................................................. 6,775 6,784
Investments in equity affiliates ................................................... 33,519 37,832
Net non-current assets from discontinued operations ................................ -- 45,410
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Total assets .................................................................... $ 81,176 $ 97,103
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ........................................................... $ 95 $ 74
Accrued liabilities .............................................................. 1,564 609
Accrued income taxes ............................................................. 2,525 2,806
Net current liabilities from discontinued operations ............................. 3,521 --
------------- -------------
Total current liabilities ....................................................... 7,705 3,489
Other liabilities .................................................................. 741 569
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Total liabilities ............................................................... 8,446 4,058
Commitments and contingencies (see Note 6)
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized; no shares issued or
outstanding at December 31 or September 30 ....................................... -- --
Common stock, $0.01 par value, 75,000,000 shares authorized; 42,506,960 shares
issued and 35,652,560 shares outstanding at December 31; 41,732,632 shares issued
and 41,227,832 shares outstanding at September 30 ................................ 425 417
Additional paid-in capital ......................................................... 90,403 88,819
Retained earnings .................................................................. 706 5,792
Deferred compensation .............................................................. (49) (82)
Treasury stock, at cost, 6,854,400 shares at December 31; 504,800 shares at
September 30 ..................................................................... (18,755) (1,901)
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Total stockholders' equity ...................................................... 72,730 93,045
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Total liabilities and stockholders' equity ................................... $ 81,176 $ 97,103
============= =============
The accompanying notes are an integral part
of these condensed consolidated financial statements.
3
BILLING CONCEPTS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
QUARTER ENDED
DECEMBER 31,
------------------------
2000 1999
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Operating revenues .......................................................... $ 163 $ 31
Cost of revenues ............................................................ 153 34
---------- ----------
Gross profit (loss) ......................................................... 10 (3)
Selling, general and administrative expenses ................................ 1,882 1,999
Research and development .................................................... -- 1,370
Depreciation and amortization expense ....................................... 444 271
Special charges ............................................................. -- 1,700
---------- ----------
Loss from continuing operations ............................................. (2,316) (5,343)
Other income (expense):
Interest income, net ...................................................... 536 3
Equity in net loss of equity affiliates ................................... (4,220) (1,018)
Consulting income ......................................................... 625 --
Other, net ................................................................ 8 (3)
---------- ----------
Total other expense, net ................................................ (3,051) (1,018)
---------- ----------
Loss from continuing operations before income tax benefit ................... (5,367) (6,361)
Income tax benefit .......................................................... 281 1,258
---------- ----------
Net loss from continuing operations ......................................... (5,086) (5,103)
Discontinued operations:
Net income from discontinued operations, net of income tax expense of $1,197 -- 1,443
---------- ----------
Net loss .................................................................... $ (5,086) $ (3,660)
========== ==========
Basic and Diluted:
Net loss from continuing operations per common share ...................... $ (0.13) $ (0.14)
Net income from discontinued operations per common share .................. -- 0.04
---------- ----------
Net loss per common share ................................................. $ (0.13) $ (0.10)
========== ==========
Weighted average common shares outstanding .................................. 38,737 38,061
========== ==========
The accompanying notes are an integral part
of these condensed consolidated financial statements.
4
BILLING CONCEPTS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
QUARTER ENDED
DECEMBER 31,
------------------------
2000 1999
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Cash flows from operating activities:
Net loss from continuing operations ................................................ $ (5,086) $ (5,103)
Adjustments to reconcile net loss from continuing operations to net cash provided by
(used in)operating activities:
Depreciation and amortization ................................................... 444 271
Equity in net loss of equity affiliates ......................................... 4,220 1,018
Noncash special charges ......................................................... -- 1,700
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable ..................................... 1,586 (527)
Increase in prepaids and other ................................................. (30) (160)
Increase in accounts payable ................................................... 21 416
Increase in accrued liabilities ................................................ 674 208
Increase (decrease) in other liabilities and other noncash items ............... (436) 25
---------- ----------
Net cash provided by (used in) continuing operating activities ....................... 1,393 (2,152)
Net cash provided by discontinued operating activities ............................... -- 5,633
---------- ----------
Net cash provided by operating activities ......................................... 1,393 3,481
Cash flows from investing activities:
Purchases of property and equipment ................................................ (185) --
Proceeds from disposal of operating companies ...................................... 52,500 --
Purchase of FIData, Inc., net of cash acquired ..................................... -- (4,264)
Other investing activities ......................................................... (220) 58
---------- ----------
Net cash provided by (used in) investing activities .................................. 52,095 (4,206)
Cash flows from financing activities:
Proceeds from issuance of common stock ............................................. -- 30
Purchases of treasury stock ........................................................ (16,854) --
---------- ----------
Net cash (used in) provided by financing activities .................................. (16,854) 30
---------- ----------
Net increase (decrease) in cash and cash equivalents ................................. 36,634 (695)
Cash and cash equivalents, beginning of period ....................................... (156) 239
---------- ----------
Cash and cash equivalents, end of period ............................................. $ 36,478 $ (456)
========== ==========
The accompanying notes are an integral part
of these condensed consolidated financial statements.
5
BILLING CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The interim condensed consolidated financial statements included herein
have been prepared by Billing Concepts Corp. ("BCC") and subsidiaries
(collectively referred to as the "Company"), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. 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 rules and regulations. In the opinion of
the Company's management, the accompanying interim condensed consolidated
financial statements reflect all adjustments that are necessary for a fair
presentation of the Company's financial position, results of operations and cash
flows for such periods. All such adjustments are of a normal recurring nature.
It is recommended that these interim condensed consolidated financial statements
be read in conjunction with the consolidated financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
September 30, 2000. Results of operations for interim periods are not
necessarily indicative of results that may be expected for any other interim
periods or the full fiscal year. Certain prior period amounts have been
reclassified for comparative purposes.
On October 23, 2000, the Company completed the sale of the Transaction
Processing and Software divisions to Platinum Equity Holdings ("Platinum") of
Los Angeles, California (the "Transaction"). Total consideration consisted of
$52.5 million in cash and a royalty, assuming achievement of certain revenue
targets associated with the divested divisions, of up to $20 million. At this
time, management cannot assess the probability of the divested divisions
achieving the revenue targets. In addition, the Company will receive payments
totaling $7.5 million for consulting services provided to Platinum over the
twenty-four month period subsequent to the Transaction, which are included in
other income (expense) as consulting income. All financial information presented
has been restated to reflect the Transaction Processing and Software divisions
as discontinued operations in accordance with Accounting Principles Board
Opinion No. 30. Pursuant to the Transaction agreement, the Company will change
its name and Nasdaq National Market symbol prior to May 31, 2001.
In December 2000, the Board of Directors approved a change in the fiscal
year end of the Company from September 30 to December 31, effective with the
calendar year beginning January 1, 2001. The quarter ended December 31, 2000,
represents the three-month transition period between fiscal years 2000 and 2001.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2. EARNINGS PER SHARE
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share," established standards for computing and presenting earnings per
share ("EPS") for entities with publicly held common stock or potential common
stock. SFAS No. 128 requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital structures.
Basic EPS excludes dilution and is computed by dividing net income (loss) by the
weighted average number of shares of common stock outstanding during the period.
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in earnings
of the Company. As the Company had a net loss for the quarters ended December
31, 2000 and 1999, diluted EPS equals basic EPS, as potentially dilutive common
stock equivalents are antidilutive in loss periods. If the Company would have
had net income for the quarters ended December 31, 2000 and 1999, the
denominator (weighted average number of common shares and common share
equivalents outstanding) in the diluted EPS calculation would have been
increased, through application of the treasury stock method, for each class of
options for which the average market price per share of the Company's common
stock exceeded the common stock equivalent's exercise price.
6
BILLING CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the quarter ended December 31, 2000, certain options to purchase
8,122,000 shares of common stock at prices ranging from $2.63 to $29.00 per
share would not have been included in the computation of diluted EPS because the
options' exercise price was greater than the average market price of the common
shares. There were additional options to purchase 832,000 shares of common stock
at prices ranging from $1.98 to $2.56 per share which were excluded as they were
antidilutive for the losses incurred for the quarter ended December 31, 2000.
For the quarter ended December 31, 1999, certain options to purchase
5,454,000 shares of common stock at prices ranging from $5.71 to $29.00 per
share would not have been included in the computation of diluted EPS because the
options' exercise price was greater than the average market price of the common
shares. There were additional options to purchase 2,704,000 shares of common
stock at prices ranging from $1.98 to $5.25 per share which were excluded as
they were antidilutive for the losses incurred for the quarter ended December
31, 1999.
NOTE 3. OTHER ASSETS
Other assets is comprised of the following:
DECEMBER 31, SEPTEMBER 30,
2000 2000
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(In thousands)
Goodwill - FIData, Inc., net of accumulated amortization of $1,717 at
December 31, 2000 and $1,348 at September 30, 2000 ................. $ 5,652 $ 6,016
Executive deferred compensation assets .............................. 670 569
Other non-current assets ............................................ 453 199
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Total other assets ............................................ $ 6,775 $ 6,784
============= =============
NOTE 4. INVESTMENTS IN EQUITY AFFILIATES
Investments in equity affiliates is comprised of the following:
DECEMBER 31, SEPTEMBER 30,
2000 2000
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(In thousands)
Equity investment in Princeton eCom Corporation:
Cash investments .................................... $ 50,919 $ 50,919
In-process research and development costs ........... (4,465) (4,465)
Amortization and equity loss pick-up ................ (15,435) (11,545)
Other ............................................... (342) (244)
------------- -------------
Net equity investment in Princeton eCom Corporation 30,677 34,665
Equity investment in COREINTELLECT, Inc.:
Cash investments .................................... 6,000 6,000
In-process research and development costs ........... (2,500) (2,500)
Amortization and equity loss pick-up ................ (663) (333)
Other ............................................... 5 --
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Net equity investment in COREINTELLECT, Inc. ...... 2,842 3,167
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Total investments in equity affiliates .......... $ 33,519 $ 37,832
============= =============
7
BILLING CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. ACQUISITIONS AND INVESTMENTS
In March 2000, the Company completed the purchase of a voting preferred
stock investment of $6.0 million in privately-held COREINTELLECT, Inc. ("CORE"),
giving the Company an approximate 22% equity ownership stake, assuming
conversion of the voting preferred stock. This investment is accounted for under
the equity method. Based in Dallas, Texas, CORE develops and markets
Internet-based business-to-business products for the acquisition,
classification, retention and dissemination of business-critical knowledge and
information. During 2000, the Company expensed $2.5 million of in-process
research and development costs acquired in connection with this equity
investment.
In March 2000, the Company increased its ownership percentage in Princeton
eCom Corporation ("Princeton") with an additional $33.5 million equity
investment, which consists of $27.0 million of convertible preferred stock and
$6.5 million of common stock. The Company expensed $2.5 million of in-process
research and development in connection with this additional equity investment.
In June 2000, under the terms of a Convertible Promissory Note, the Company
advanced $5.0 million to Princeton. During the quarter ended September 30, 2000,
the Convertible Promissory Note was converted into shares of Princeton's
preferred stock, which are convertible into 1,111,111 shares of Princeton's
common stock. The Company's ownership percentage in Princeton at December 31,
2000, was approximately 42.4%.
In November 1999, the Company completed the acquisition of FIData, Inc.
("FIData"), an Austin, Texas-based company that provides Internet-based
automated loan approval products to the financial services industries. The total
consideration for the acquisition of FIData was approximately $4.2 million in
cash and debt assumption and 1,100,000 shares of the Company's common stock.
This acquisition has been accounted for as a purchase. Accordingly, the results
of operations for FIData have been included in the Company's consolidated
financial statements, and the shares related to the acquisition have been
included in the weighted average shares outstanding for purposes of calculating
net loss per common share since the date of acquisition. Approximately $7.4
million was recorded as goodwill and other intangibles and is being amortized on
a straight-line basis over five years. The remaining balance of $1.7 million was
expensed as acquired in-process research and development during the quarter
ended December 31, 2000 (see Note 9).
In connection with the acquisition of FIData and the investments in
Princeton and CORE, the Company acquired certain intangible assets, including
goodwill and in-process research and development. In connection with these
allocations, the Company expensed $1.7 million of the purchase price for FIData
and $2.5 million of each of its equity investments in Princeton and CORE as
in-process research and development. In performing these allocations, the
Company considered the respective company's research and development projects
in-process at the date of acquisition, among other factors such as the stage of
development of the technology at the time of investment, the importance of each
project to the overall development plan, alternative future use of the
technology and the projected incremental cash flows from the projects when
completed and any associated risks.
The in-process research and development purchased from FIData focused on
next generation Internet-based automated loan approval products and banking
systems and solutions. The in-process research and development purchased from
Princeton focused on next generation Internet-based bill publishing and payment
systems and solutions. The in-process research and development purchased from
CORE focused on next generation Internet-based acquisition, classification,
retention and dissemination of business-critical knowledge and information. Due
to their specialized nature, the in-process research and development projects
had no alternative future use, either for re-deployment elsewhere in the
business or in liquidation, in the event the projects failed.
The Income Approach was the primary technique utilized in valuing the
purchased research and development. The valuation technique employed in the
appraisals was designed to properly reflect all intellectual property rights in
the intangible assets, including core technology. The value of the developed
technology was derived from direct sales of existing products, including their
contribution to in-process research and development. In this way, value was
properly attributed to the engineering know-how embedded in the existing product
that will be used in developmental products. The appraisals also considered the
fact that the existing know-how diminishes in value over time as new
technologies are
8
BILLING CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
developed and changes in market conditions render current products and
methodologies obsolete. The assumptions underlying the cash flow projections
used were derived primarily from investment banking reports, historical results,
company records and discussions with management.
Revenue estimates for each in-process project were developed by management
and based on an assessment of the industry. Cost of goods sold for each project
is expected to be in line with historical industry accepted pricing. Due to the
technological and economic risks associated with the developmental projects,
discount rates of 35%, 25% and 40% were used to discount cash flows from the
in-process projects for FIData, Princeton and CORE, respectively. The Company
believes that the foregoing assumptions used in the forecasts were reasonable at
the time of the acquisition. No assurance can be given, however, that the
underlying assumptions used to estimate sales, development costs or
profitability, or the events associated with such projects, will transpire as
estimated. For these reasons, actual results may vary from projected results.
The most significant and uncertain assumptions relating to the in-process
projects relate to the projected timing of completion and revenues attributable
to each project.
NOTE 6. COMMITMENTS AND CONTINGENCIES
As previously disclosed, the Company has been engaged in discussions with
the staff of the Federal Trade Commission's ("FTC") Bureau of Consumer
Protection regarding a proposed complaint by the FTC alleging potential
liability arising primarily from the alleged cramming of charges for
non-regulated telecommunication services by certain of its customers. Cramming
is the addition of charges to a telephone bill for programs, products or
services the consumer did not knowingly authorize. These allegations relate to
businesses conducted by the subsidiaries sold by the Company on October 23,
2000. Management cannot assess either the likelihood that this matter will have
an adverse financial impact on the Company or the extent of any such impact.
The Company is involved in various other claims, legal actions and
regulatory proceedings arising in the ordinary course of business. The Company
believes it is unlikely that the final outcome of any of the claims, litigation
or proceedings to which the Company is a party will have a material adverse
effect on the Company's financial position or results of operations; however,
due to the inherent uncertainty of litigation, there can be no assurance that
the resolution of any particular claim or proceeding would not have a material
adverse effect on the Company's results of operations for the fiscal period in
which such resolution occurs.
NOTE 7. TREASURY STOCK
In February 2000, the Company's Board of Directors approved the adoption
of a common stock repurchase program. Under the terms of the program, the
Company could purchase up to a total of $10.0 million of Company common stock in
the open market or in privately negotiated transactions. In November and
December 2000, the Board of Directors approved additional common stock
repurchase programs, which allow the Company to cumulatively purchase up to a
total of $25.0 million. As of December 31, 2000, the Company had purchased $18.8
million, or 6.9 million shares, of treasury stock.
9
BILLING CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. RELATED PARTY TRANSACTIONS
From time to time, the Company has made advances to or was owed amounts
from certain officers of the Company. The highest aggregate amount outstanding
of advances to officers was $0 and $252,000, during the quarters ended December
31, 2000 and 1999, respectively. On January 4, 2000, the Company forgave a
certain note receivable from an officer of the Company with a principal balance
and accrued interest totaling approximately $70,000, in lieu of a cash bonus. On
April 4, 2000, the Company forgave a certain note receivable from an officer of
the Company with a principal balance and accrued interest totaling approximately
$133,000, in lieu of a cash bonus.
On April 5, 2000, the Board of Directors of the Company approved a
restricted stock grant to the Chief Executive Officer of the Company. The
restricted stock consists of 400,000 shares of Princeton common stock, which
vests on April 30, 2003. The Company expenses the fair market value of the
restricted stock grant over the three-year period ending April 30, 2003. The
Company recognized $0.2 million during the quarter ended December 31, 2000, as
compensation expense related to the stock grant. The Company estimates it will
recognize $0.6 million as compensation expense related to the stock grant in
2001.
NOTE 9. SPECIAL CHARGES
During the quarter ended December 31, 1999, the Company recognized a $1.7
million special charge related to the in-process research and development costs
acquired in connection with the acquisition of FIData (see Note 5).
NOTE 10. SUBSEQUENT EVENTS
In January 2001, the Company transferred $15.0 million of cash into a
fixed income portfolio. The fixed income portfolio consists of
available-for-sale securities under the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" and, accordingly, unrealized holding gains and losses will be
excluded from earnings and reported in a separate component of stockholders'
equity.
10
ITEM 2.
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS CERTAIN "FORWARD-LOOKING"
STATEMENTS AS SUCH TERM IS DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995 AND INFORMATION RELATING TO THE COMPANY AND ITS SUBSIDIARIES THAT
ARE BASED ON THE BELIEFS OF THE COMPANY'S MANAGEMENT AS WELL AS ASSUMPTIONS MADE
BY AND INFORMATION CURRENTLY AVAILABLE TO THE COMPANY'S MANAGEMENT. WHEN USED IN
THIS REPORT, THE WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE," "EXPECT" AND
"INTEND" AND WORDS OR PHRASES OF SIMILAR IMPORT, AS THEY RELATE TO THE COMPANY
OR ITS SUBSIDIARIES OR COMPANY MANAGEMENT, ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REFLECT THE CURRENT RISKS,
UNCERTAINTIES AND ASSUMPTIONS RELATED TO CERTAIN FACTORS INCLUDING, WITHOUT
LIMITATIONS, COMPETITIVE FACTORS, GENERAL ECONOMIC CONDITIONS, CUSTOMER
RELATIONS, RELATIONSHIPS WITH VENDORS, THE INTEREST RATE ENVIRONMENT,
GOVERNMENTAL REGULATION AND SUPERVISION, SEASONALITY, DISTRIBUTION NETWORKS,
PRODUCT INTRODUCTIONS AND ACCEPTANCE, TECHNOLOGICAL CHANGE, CHANGES IN INDUSTRY
PRACTICES, ONETIME EVENTS AND OTHER FACTORS DESCRIBED HEREIN AND IN OTHER
FILINGS MADE BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION. BASED
UPON CHANGING CONDITIONS, SHOULD ANY ONE OR MORE OF THESE RISKS OR UNCERTAINTIES
MATERIALIZE, OR SHOULD ANY 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following is a discussion of the consolidated financial condition and
results of operations for Billing Concepts Corp. ("BCC") and subsidiaries
(collectively referred to as the "Company"), as of and for the quarters ended
December 31, 2000 and 1999. It should be read in conjunction with the Unaudited
Interim Condensed Consolidated Financial Statements of the Company, the notes
thereto and other financial information included elsewhere in this report, and
the Company's Annual Report on Form 10-K for the year ended September 30, 2000.
For purposes of the following discussion, references to year periods refer to
the Company's fiscal year ended September 30 and references to quarterly periods
refer to the Company's fiscal quarter ended December 31.
RESULTS OF OPERATIONS
The Company's revenues are derived primarily from its wholly owned
subsidiary FIData, Inc. ("FIData"), acquired in November 1999. FIData provides
Internet-based automated loan approval products to the financial services
industries. The Company has an equity interest in Princeton eCom Corporation
("Princeton"), which offers electronic bill presentment and payment services via
the Internet and telephone. As of December 31, 2000, the Company's ownership
percentage in Princeton was approximately 42.4%. During the second quarter of
2000, the Company purchased a 22% equity interest in COREINTELLECT, Inc.
("CORE"), which provides Internet-based business-to-business products for the
acquisition, classification, retention and dissemination of business-critical
knowledge and information.
On October 23, 2000, the Company completed the sale of the Transaction
Processing and Software divisions to Platinum Equity Holdings ("Platinum") of
Los Angeles, California (the "Transaction"). Total consideration consisted of
$52.5 million in cash and a royalty, assuming achievement of certain revenue
targets associated with the divested divisions, of up to $20 million. At this
time, management cannot assess the probability of the divested divisions
achieving the revenue targets. In addition, the Company will receive payments
totaling $7.5 million for consulting services provided to Platinum over the
twenty-four month period subsequent to the Transaction, which are included in
other income (expense) as consulting income. All financial information presented
has been restated to reflect the Transaction Processing and Software divisions
as discontinued operations in accordance with Accounting Principles Board
Opinion No. 30.
CONTINUING OPERATIONS
Total revenues for the quarter ended December 31, 2000 were $163,000,
compared to $31,000 in the quarter ended December 31, 1999. The increase in
total revenues from the prior year quarter was due to the acquisition of
11
FIData in November 1999 and an increase in the number of customers.
Selling, general and administrative ("SG&A") expenses are comprised of all
selling, marketing and administrative costs incurred in direct support of the
business operations of the Company. SG&A expenses for the quarter ended December
31, 2000 were $1.9 million compared to $2.0 million in the quarter ended
December 31, 1999. SG&A expenses as a percentage of revenues decreased from the
prior year periods primarily due to a reduction in expenditures and an increase
in revenues.
Research and development ("R&D") expenses are comprised of the salaries
and benefits of the employees involved in development and related expenses. R&D
expenses were $0 million and $1.4 million in the quarters ended December 31,
2000 and 1999, respectively. The R&D expenses incurred during the quarter ended
December 31, 1999, were related to the development of a financial services
website, which was suspended during the third quarter of fiscal year 2000.
Depreciation and amortization expenses are incurred with respect to
certain assets, including computer hardware, software, office equipment,
furniture, leasehold improvements, goodwill and other intangibles. Depreciation
and amortization expenses were $0.4 million in the quarter ended December 31,
2000 compared to $0.3 million in the quarter ended December 31, 1999. The
increase in depreciation and amortization expenses from the prior year period is
primarily attributable to the amortization of intangibles acquired in connection
with the acquisition of FIData in November 1999.
Net other expense of $3.1 million in the quarter ended December 31, 2000
compares to net other expense of $1.0 million in the quarter ended December 31,
1999. The increase in net other expense from the prior year period is primarily
due to the Company's equity in the net loss of Princeton and CORE of $4.2
million for the quarter ended December 31, 2000, compared to $1.0 million for
the quarter ended December 31, 1999. The net other expense for the quarter ended
December 31, 2000, also includes consulting income of $0.6 million from
Platinum.
The Company's effective tax rate was 5.2% and 19.8% in the quarters ended
December 31, 2000 and 1999, respectively. The Company's effective income tax
benefit was lower than the federal statutory benefit due to certain deductions
taken for financial reporting purposes that are not deductible for federal
income tax purposes.
The Company reported a net loss from continuing operations of $5.1 million
for both quarters ended December 31, 2000 and 1999. The net loss for the quarter
ended December 31, 1999 includes special charges of $1.7 million in FIData
in-process research and development.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance increased to $36.5 million at December 31, 2000
from a cash deficit of $0.1 million at September 30, 2000. This increase is
primarily related to the $52.5 million received from Platinum in connection with
the Transaction, net of treasury stock purchases. The Company's working capital
position increased to $32.5 million at December 31, 2000, from $3.0 million at
September 30, 2000. The increase in the working capital was primarily
attributable to the increase in the cash balance. In January 2001, the Company
transferred $15.0 million of cash into a fixed income portfolio. Net cash
provided by operating activities was $1.4 million in the quarter ended December
31, 2000 as compared to net cash used in operating activities of $2.2 million in
the quarter ended December 31, 1999.
Capital expenditures amounted to approximately $0.2 million in the quarter
ended December 31, 2000 and related primarily to the purchase of computer
equipment and software. The Company anticipates capital expenditures before
acquisitions, if any, of approximately $0.6 million during fiscal year 2001,
largely related to expenditures for furniture, fixtures, leasehold improvements,
computer software and hardware upgrades. The Company believes that it will be
able to fund expenditures with cash on hand.
In November 1999, the Company completed the acquisition of FIData, a
company located in Austin, Texas that provides Internet-based automated loan
approval products to the financial services industries. The total consideration
for the acquisition was approximately $4.2 million in cash and debt assumption
and 1,100,000 shares of the Company's
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common stock. This acquisition has been accounted for as a purchase.
Accordingly, the results of operations for FIData have been included in the
Company's consolidated financial statements, and the shares related to the
acquisition have been included in the weighted average shares outstanding for
purposes of calculating net loss from continuing operations per common share
since the date of acquisition. Approximately $7.4 million was recorded as
goodwill and other intangibles and is included in other assets. During the
quarter ended December 31, 2000, the Company expensed $1.7 million of in-process
R&D acquired in connection with this acquisition.
In March 2000, the Company increased its ownership percentage in Princeton
with an additional $33.5 million equity investment, which consisted of $27.0
million of convertible preferred stock and $6.5 million of common stock. In
connection with this investment, the Company expensed $2.5 million of in-process
R&D costs during 2000. In June 2000, under the terms of a Convertible Promissory
Note, the Company advanced $5.0 million to Princeton. In the quarter ended
September 30, 2000, the Convertible Promissory Note was converted into shares of
Princeton preferred stock, which is convertible into 1,111,111 shares of
Princeton common stock. The Company's ownership percentage in Princeton at
December 31, 2000, was approximately 42.4%. The Company anticipates additional
equity investments in Princeton as Princeton positions itself for further
growth.
In March 2000, the Company completed the purchase of a voting preferred
stock investment of $6.0 million in CORE, a Dallas, Texas-based company that
develops and markets Internet-based business-to-business products for the
acquisition, classification, retention and dissemination of business-critical
knowledge and information. During 2000, the Company expensed $2.5 million of
in-process R&D costs acquired in connection with this equity investment.
The Company's operating cash requirements consist principally of funding
of corporate and FIData expenses and capital expenditures.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to interest rate risk primarily through its
portfolio of cash equivalents and short-term marketable securities. The Company
does not believe that it has significant exposure to market risks associated
with changing interest rates as of December 31, 2000, because the Company's
intention is to maintain a liquid portfolio to take advantage of investment
opportunities. The Company does not use derivative financial instruments in its
operations.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously disclosed, the Company has been engaged in discussions with
the staff of the Federal Trade Commission's ("FTC") Bureau of Consumer
Protection regarding a proposed complaint by the FTC alleging potential
liability arising primarily from the alleged cramming of charges for
non-regulated telecommunication services by certain of its customers. Cramming
is the addition of charges to a telephone bill for programs, products or
services the consumer did not knowingly authorize. These allegations relate to
businesses conducted by the subsidiaries sold by the Company on October 23,
2000. Management cannot assess either the likelihood that this matter will have
an adverse financial impact on the Company or the extent of any such impact.
The Company is involved in various other claims, legal actions and
regulatory proceedings arising in the ordinary course of business. The Company
believes it is unlikely that the final outcome of any of the claims, litigation
or proceedings to which the Company is a party will have a material adverse
effect on the Company's financial position or results of operations; however,
due to the inherent uncertainty of litigation, there can be no assurance that
the resolution of any particular claim or proceeding would not have a material
adverse effect on the Company's results of operations for the fiscal period in
which such resolution occurs.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None.
(b) Current Reports on Form 8-K:
Form 8-K dated October 23, 2000, announcing the disposal of
Billing Concepts, Inc., Enhanced Services Billing, Inc., BC
Transaction Processing Services, Inc., Aptis, Inc. and Operator
Service Company to Platinum Equity Holdings.
Form 8-K dated December 22, 2000, announcing the change in the
Company's fiscal year-end from September 30 to December 31.
ITEMS 2, 3, 4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
BILLING CONCEPTS CORP.
(Registrant)
Date: February 1, 2001 By: /S/ DAVID P. TUSA
David P. Tusa
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(Duly authorized and
principal financial officer)
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