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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 10, 1997
(October 2, 1997)
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PMT SERVICES, INC.
(Exact name of registrant as specified in its charter)
TENNESSEE 0-24420 62-1215125
(State or other (Commission File (I.R.S. Employer
jurisdiction of Number) Identification
incorporation) Number)
3841 GREEN HILLS VILLAGE DRIVE
NASHVILLE, TENNESSEE 37215
(Address of principal executive offices) (Zip Code)
(615) 254-1539
(Registrant's telephone number, including area code)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On October 2, 1997, PMT Services, Inc., a Tennessee corporation (the
"Company"), completed a business combination in which the Company acquired all
of the issued and outstanding capital stock of Bancard, Inc. ("Bancard").
Total consideration paid was 3,870,968 shares of the Company's Common Stock,
$.01 par value per share (the "Consideration"). The amount of Consideration paid
was determined through arm's length negotiations.
ITEM 5. OTHER EVENTS
(a) Unaudited results of operations for the one month ended
August 31, 1997.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
(1) Financial Statements of BANCARD INC. as of and for the year
ended July 31, 1997.
(2) Financial Statement Schedule: Schedule II - Reserve for
Merchant Losses.
(b) Pro forma financial information. The required supplemental
financial statements, giving retroactive effect to the merger for
the three years ended July 31, 1997 will be filed concurrent with
the Company's Form 10-K no later than October 29, 1997.
(c) Exhibits:
2.1 Agreement and Plan of Merger, dated October 2, 1997, between
the Company, PMT BCI Acquisition Corporation, Bancard and
each of Jay W. Hearst, Anthony Sdao, Scott J. Bahneman, Jack
W. Hearst, Gillian G. Hearst and Stephen M. Hearst.
23.1 Consent of Price Waterhouse LLP
SIGNATURES
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PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED HEREUNTO DULY AUTHORIZED.
PMT SERVICES, INC.
BY: /s/ CLAY M. WHITSON
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Clay M. Whitson
Chief Financial Officer
DATE: October 10, 1997
BANCARD, INC.
FINANCIAL STATEMENTS
JULY 31, 1997
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of Bancard, Inc.
In our opinion, the accompanying balance sheet and the related statements of
income, of changes in shareholders' equity and of cash flows present fairly, in
all material respects, the financial position of Bancard, Inc. at July 31, 1997,
and the results of its operations and its cash flows for the year then ended, in
conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Nashville, TN
September 26, 1997
BANCARD, INC.
BALANCE SHEET
JULY 31, 1997
ASSETS
Current assets:
Cash and cash equivalents............................ $ 203,128
Accounts receivable................................... 1,065,392
Notes receivable...................................... 444,356
Inventory............................................. 98,419
Other current assets.................................. 32,784
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Total current assets............................... 1,844,079
Property and equipment, net........................... 224,103
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Total assets....................................... $2,068,182
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 492,188
Accrued liabilities.................................... 664,262
Deferred revenues...................................... 56,620
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Total current liabilities............................. 1,213,70
Long-term debt......................................... 1,673,644
Shareholders' equity:
Common stock, no par value, authorized: 50,000 shares;
issued: 11,200 shares............................... 197,087
Accumulated earnings (deficit).......................... (1,015,619)
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(818,532)
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Commitments and contingencies (Notes 7 and 10)
Total liabilities and shareholders' equity............ $ 2,068,182
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The accompanying notes are an integral part of these financial statements.
2
BANCARD, INC.
STATEMENT OF INCOME
YEAR ENDED JULY 31, 1997
Revenues............................................... $40,827,022
Cost of revenues....................................... 31,666,249
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Gross margin.......................................... 9,160,773
Selling, general and administrative expenses........... 5,287,564
Depreciation and amortization expense.................. 134,084
Provision for merchant losses and bad debts............ 147,279
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Total operating expenses.............................. 5,568,927
Income from operations................................. 3,591,846
Interest expense, net.................................. (206,822)
Other expenses, net.................................... (729,326)
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Net income............................................ $ 2,655,698
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The accompanying notes are an integral part of these financial statements.
3
BANCARD, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
ACCUMULATED TOTAL
COMMON EARNINGS TREASURY SHAREHOLDERS'
STOCK (DEFICIT) STOCK EQUITY
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Balance at July 31, 1996......... $277,489 $ 2,047,176 ($2,081,152) $ 243,513
Cancellation of treasury stock.. (80,402) (2,000,750) 2,081,152 --
Distributions to shareholders... (3,717,743) (3,717,743)
Net income for the year......... 2,655,698 2,655,698
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Balance at July 31, 1997......... $197,087 ($1,015,619) -- ($818,532)
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The accompanying notes are an integral part of these financial statements.
4
BANKCARD, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED JULY 31, 1997
Reconciliation of net income to net cash provided by
operating activities:
Net income............................................ $ 2,655,698
Adjustments:
Depreciation and amortization...................... 134,084
Loss on disposal of property and equipment......... 39,706
Provision for merchant losses and bad debts........ 147,279
Changes in assets and liabilities:.................
Accounts and notes receivable................... (571,144)
Inventory....................................... 416,423
Other assets.................................... (6,728)
Accounts payable................................ 204,496
Accrued liabilities............................. (148,959)
Deferred revenues............................... 56,620
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Net cash provided by operating activities.. 2,927,475
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Cash flows from investing activities:
Purchase of property and equipment.................... (100,801)
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Cash flows from financing activities:
Payments on long-term debt............................ (775,000)
Distributions to Shareholders......................... (2,044,099)
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Net cash used by financing activities...... (2,819,099)
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Net increase in cash and cash equivalents................. 7,575
Cash and cash equivalents at beginning of year............ 195,553
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Cash and cash equivalents at end of year.................. $ 203,128
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest................................... 204,238
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITY:
The Company sold its office building in December 1996, to an entity owned by
shareholders of the Company. The buyer assumed the note payable of $846,972 and
issued the Company a promissory note in the amount of $420,184.
The Company issued notes payable to its majority shareholder in the amount of
$1,673,644 related to a distribution of accumulated earnings.
The accompanying notes are an integral part of these financial statements.
5
BANCARD, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Operations
Bancard, Inc. (the "Company") markets and services electronic credit card
authorization and payment systems to merchants. The Company provides these
services to merchants pursuant to contracts between the Company and various
processing banks. Generally, the Company's agreements with the processing banks
contain certain aspects of both marketing and service.
Management estimates
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.
Revenue and cost recognition
Revenues derived from the electronic processing of transactions (merchant
discount rate and related fees) on the credit card authorization equipment are
recognized at the time the merchants' transactions are processed. Related
commission expense and processing charges are also recognized at that time.
Revenues related to the direct sale of credit card authorization equipment
are recognized when the equipment is shipped. Installation fees related to both
the direct sale and the marketing of this equipment are recognized when
installation is completed. Fees received in advance of shipment or installation
are not recognized as revenue until earned. Revenues related to annual fees
charged to merchants are initially deferred and recognized straight-line over
the applicable year.
Cost of revenues includes interchange fees paid to the credit card-issuing
bank and fees paid to the network service provider, VISA and MasterCard and the
processing bank. These costs are recognized at the time the merchants'
transactions are processed and the related revenue is recorded.
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BANCARD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Company recognizes as revenue in its statement of income the full
discount rate and fees collected from the merchant. The various costs incurred
by the Company, including amounts paid to the card-issuing bank, the processor
and network service provider, are reflected as costs of revenues. In accordance
with the Company's contracts with its processing banks, all of the funds
collection and most of the disbursement function is performed on behalf of the
Company by the processing bank. At month end, the processing bank collects the
total discount rate and fees from the merchants and disburses to each of the
service providers their fees. Disbursements for the interchange fee paid to the
card-issuing bank are made monthly. Shortly after month end, the processing bank
disburses to the Company the remainder of the funds collected from the merchant
which represents a significant portion of the Company's gross margin.
Cash equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Financial instruments
The Company has various financial instruments, including cash, time
deposits, receivables, accounts payable, and accrued liabilities. Cash, time
deposits, receivables, accounts payable and accrued liabilities are settled
within a year and are not subject to market rate fluctuations. The carrying
value of these financial instruments approximates their fair market values.
Notes payable with a carrying amount of $1,673,644 had a market value of
$1,606,668 at July 31, 1997 using discounted flow analyses, based on the prime
rate.
Accounts receivable
Accounts receivable primarily comprise amounts due from processing banks
which represent the discount rate and fees earned, after related interchange
fees and other processing costs, on transactions processed during the month
ending on the balance sheet date. Such balances are received from processing
banks approximately 20 days following the end of each month.
Inventory
Inventory of credit card authorization equipment is stated at the lower of
cost or market, with cost being determined by specific identification.
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BANCARD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Property and equipment
Property and equipment are recorded at cost. Depreciation is computed on
straight-line and accelerated methods over the estimated useful lives of the
assets ranging from 3 to 10 years.
Leases
The Company provides certain customers with credit card terminals for a
monthly rental fee (operating lease) which is recognized as revenue when earned.
Reserve for chargebacks and merchant fraud
Disputes between a cardholder and a merchant periodically arise as a result
of cardholder dissatisfaction with merchandise quality or merchant services and
the disputes may not be resolved in the merchant's favor. In these cases, the
transaction is "charged back" to the merchant and the purchase price is refunded
by the merchant. If the merchant is unable to grant a refund, the Company or,
under limited circumstances, the Company and the processing bank, must bear the
credit risk for the full amount of the transaction. The Company evaluates
its risk and estimates its potential loss for chargebacks based on historical
experience. A provision for these estimated losses is provided in the same
period as the related revenues.
Income taxes
The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code for federal and state income tax purposes. Under
these provisions, the Company does not pay corporate income tax on its income as
the taxable income or loss is included in the personal income tax returns of the
shareholders.
NOTE 2 - BUSINESS COMBINATION:
On August 28, 1996 an independent service organization (HMH, Inc.) owned by
the majority shareholder of the Company was merged into the Company in a
transaction accounted for as a transfer of an entity under common control. The
assets and liabilities of HMH, Inc. were recorded by the Company at their
historical basis and the results of operations of the Company in fiscal 1997
include HMH, Inc. for the full fiscal year as the majority owner of the Company
exercises control over both entities.
8
BANCARD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 3 - PROPERTY AND EQUIPMENT:
Office equipment................................. $ 439,467
Credit card terminals held for lease............. 129,875
Automobiles...................................... 64,594
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633,936
Less: accumulated depreciation................ (409,833)
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$ 224,103
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NOTE 4 - ACCRUED LIABILITIES:
Compensation and payroll taxes................... $ 409,326
Reserve for merchant losses...................... 238,000
Other............................................ 16,936
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$ 664,262
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NOTE 5 - LONG-TERM DEBT:
Note payable to shareholder, due July 26, 1999,
interest payable monthly at 5.80%............. $1,473,644
Note payable to shareholder, due July 26, 1999,
interest payable monthly at 5.80%............. 200,000
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$1,673,644
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NOTE 6 - RETIREMENT PLAN:
The Company maintains a 401(k) savings plan which allows employees to
contribute a portion of their earnings into the plan. The Company's matching
contributions are discretionary. During fiscal 1997, the Company contributed
$5,247 for the benefit of the participants.
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BANCARD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 7 - LEASES:
The Company leases office space from an entity owned by the Company's
shareholders, accounted for as an operating lease. Rent expense was $16,000
during fiscal 1997. Future minimum payments under this lease, including payments
for maintenance expenses, are:
YEAR ENDING
JULY 31
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1998 $ 93,000
1999 155,000
2000 208,000
2001 256,000
2002 161,000
Thereafter --
NOTE 8 - OTHER EXPENSES - NET:
During fiscal 1997, the Company recognized expenses totaling $689,621
related to settlement of litigation with a former officer and shareholder. Net
losses of $39,705 on disposals of property and equipment comprise the
remainder of the balance.
NOTE 9 - SUBSEQUENT EVENT:
The shareholders of the Company entered into an agreement subsequent to
July 31, 1997 to exchange all of the shares of Bancard, Inc. for shares of PMT
Services, Inc. The transaction will be accounted for as a pooling of interests.
NOTE 10 - CONTINGENCIES:
The Company is subject to various legal proceedings and claims which arise
in the ordinary course of its business. Management believes the resolution of
these matters will not have a significant impact on the Company's financial
position or results of operations.
10
SCHEDULE II
BANCARD, INC.
RESERVE FOR MERCHANT LOSSES
BALANCE AT BALANCE AT
BEGINNING END OF
OF PERIOD ADDITIONS(1) DEDUCTIONS(2) PERIOD
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Fiscal Year 1997 $221,400 $163,879 $147,279 $238,000
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(1) Additions represent amounts charged to expense during the respective
periods.
(2) Deductions represent actual chargebacks incurred by the Company during the
respective periods, net of amounts recovered.