1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: JANUARY 11, 2000
CHECKFREE HOLDINGS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 0-26802 58-2360335
- ---------------------------- --------------------- ----------------------
(STATE OR OTHER JURISDICTION (COMMISSION FILE NO.) (IRS EMPLOYER
OF INCORPORATION OR IDENTIFICATION NUMBER)
ORGANIZATION)
4411 East Jones Bridge Road
Norcross, Georgia 30092
(678) 375-3387
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER
INCLUDING AREA CODE OF REGISTRANT'S
PRINCIPAL EXECUTIVE OFFICES)
Not Applicable
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
2
ITEM 5. OTHER EVENTS.
On December 21, 1999, CheckFree Holdings Corporation, a Delaware
corporation (the "Company"), announced that it will acquire BlueGill
Technologies, Inc. ("BlueGill"), the leading provider of Internet billing and
statement creation software applications, for shares of the Company's Common
Stock. Attached as an exhibit hereto are the financial statements of BlueGill as
of December 31, 1997 and 1998 together with the Report of the Independent Public
Accountants, and pro forma financial information pertaining to the Company and
BlueGill.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
The following is a list of audited and unaudited financial statements
for BlueGill Technologies, Inc. filed herewith:
Report of Independent Accountants....................................................... F-1
Audited Consolidated Balance Sheets as of December 31, 1997 and 1998 and Unaudited
Consolidated Balance Sheet as of September 30, 1999............................. F-2
Audited Consolidated Statements of Operations for the Years Ended December 31, 1997
and 1998 and Unaudited Consolidated Statement of Operations for the Nine
Months Ended September 30, 1998 and 1999 ....................................... F-3
Audited Consolidated Statements of Stockholders' Deficit for the Years Ended
December 31, 1997 and 1998 and Unaudited Consolidated Statement of
Stockholders' Deficit for the Nine Months Ended September 30, 1999 ............. F-4
Audited Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997 and 1998 and Unaudited Consolidated Statement of Cash
Flows for the Nine Months Ended September 30, 1998 and 1999 .................... F-5
Notes to Audited Consolidated Financial Statements for the Years Ended
December 31, 1997 and 1998 and Notes to Unaudited Consolidated Financial
Statements for the Nine Months Ended September 30, 1999 ........................ F-6
(B) PRO FORMA FINANCIAL INFORMATION.
The following is a list of pro forma financial information pertaining
to CheckFree Holdings Corporation and BlueGill Technologies, Inc. filed
herewith:
Unaudited Pro Forma Condensed Combining Balance Sheet as of
September 30, 1999.............................................................. PF-1
Unaudited Pro Forma Condensed Combining Statement of Operations
For the Year Ended June 30, 1999................................................ PF-2
Unaudited Pro Forma Condensed Combining Statement of Operations
For the Three Months Ended September 30, 1999................................... PF-3
Notes to Unaudited Pro Forma Condensed Combining Financial Information.................. PF-4
(C) EXHIBITS.
EXHIBIT NO. DESCRIPTION
23 Consent of Arthur Andersen LLP.
2
3
Report of Independent Public Accountants
To the Board of Directors and Stockholders of
BlueGill Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of BLUEGILL
TECHNOLOGIES, INC. (a Delaware corporation) AND SUBSIDIARY as of December 31,
1998 and 1997, and the related consolidated statements of operations,
stockholders' deficit and cash flows for the years then ended. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide 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 BlueGill Technologies, Inc. as
of December 31, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Ann Arbor, Michigan,
March 12, 1999
F-1
4
BLUEGILL TECHNOLOGIES, INC.
---------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
December 31,
----------------------------- September 30,
ASSETS 1997 1998 1999
------ ----------- ----------- -------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 98,528 $ 4,111,200 $19,290,022
Accounts receivable 256,000 484,235 1,281,909
Prepaid expenses and other -- 23,777 101,190
----------- ----------- -----------
Total current assets 354,528 4,619,212 20,673,121
PROPERTY AND EQUIPMENT, at cost:
Computer equipment 66,387 260,423 793,883
Office furniture and equipment 3,113 29,630 187,330
Vehicles and other -- 19,080 19,080
----------- ----------- -----------
69,500 309,133 1,000,293
Less- Accumulated depreciation 18,987 64,392 197,019
----------- ----------- -----------
Net property and equipment 50,513 244,741 803,274
----------- ----------- -----------
OTHER ASSETS 4,226 3,099 2,254
----------- ----------- -----------
TOTAL ASSETS $ 409,267 $ 4,867,052 $21,478,649
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Line of credit $ -- $ 189,569 $ 368,963
Note payable 500,000 -- --
Accounts payable 64,886 244,363 626,404
Accrued compensation and payroll taxes 31,923 22,739 87,769
Other accrued liabilities 78,979 61,870 222,281
Deferred revenue -- 21,209 408,827
----------- ----------- -----------
Total current liabilities 675,788 539,750 1,714,244
----------- ----------- -----------
COMMITMENTS
REDEEMABLE PREFERRED STOCK:
Series A, convertible preferred stock,
12,503,302 shares outstanding -- 6,468,387 6,468,387
Series B, convertible preferred stock,
12,825,651 shares outstanding -- -- 19,495,000
----------- ----------- -----------
Total redeemable preferred stock -- 6,468,387 25,963,387
----------- ----------- -----------
STOCKHOLDERS' DEFICIT:
Common stock, $0.001 par value,
41,000,000 shares authorized, 4,766,000 shares
issued and outstanding at December 31, 1997 and
1998, and 4,961,000 at September 30, 1999 4,766 4,766 4,961
Additional paid-in capital 890,584 939,482 950,987
Accumulated deficit (1,162,226) (3,091,162) (7,154,135)
Cumulative translation adjustment 355 5,829 (795)
----------- ----------- -----------
Total stockholders' deficit (266,521) (2,141,085) (6,198,982)
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 409,267 $ 4,867,052 $21,478,649
=========== =========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
F-2
5
BLUEGILL TECHNOLOGIES, INC.
---------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
Nine Months Ended
Years Ended December 31, September 30,
----------------------------- -----------------------------
1997 1998 1998 1999
---------- ----------- ----------- -----------
(Unaudited)
REVENUES $ 422,500 $ 1,474,678 $ 799,046 $ 3,192,602
COST OF REVENUES 74,000 218,095 127,985 378,750
---------- ----------- ----------- -----------
Gross profit 348,500 1,256,583 671,061 2,813,852
---------- ----------- ----------- -----------
OPERATING EXPENSES:
Research and development 479,938 894,944 490,992 1,572,724
Selling, general and
administrative 845,198 2,416,938 1,336,812 5,590,184
---------- ----------- ----------- -----------
Total operating expenses 1,325,136 3,311,882 1,827,804 7,162,908
---------- ----------- ----------- -----------
Loss from operations (976,636) (2,055,299) (1,156,743) (4,349,056)
INTEREST INCOME 11,471 148,167 71,666 303,470
INTEREST EXPENSE (17,900) (21,804) (21,804) (17,387)
---------- ----------- ----------- -----------
Loss before taxes (983,065) (1,928,936) (1,106,881) (4,062,973)
PROVISION (BENEFIT) FOR INCOME TAXES -- -- -- --
---------- ----------- ----------- -----------
NET LOSS $ (983,065) $(1,928,936) $(1,106,881) $(4,062,973)
========== =========== =========== ===========
NET LOSS PER SHARE $ (0.22) $ (0.17) $ (0.10) $ (0.19)
========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 4,530,340 11,073,837 10,566,465 21,826,806
========== =========== =========== ===========
The accompanying notes are an integral part of these statements.
F-3
6
BLUEGILL TECHNOLOGIES, INC.
---------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
------------------------------------------------
Common Stock Additional Cumulative Total
------------------- Paid-In Accumulated Translation Stockholders' Comprehensive
Shares Amount Capital Deficit Adjustment Deficit Loss
--------- ------ ---------- ----------- ----------- ------------- -------------
BALANCE - DECEMBER 31, 1996 3,900,000 $3,900 $ 398,400 $ (179,161) $ 42 $ 223,181
Issuance of common stock
for cash 866,000 866 323,884 -- -- 324,750
Compensation expense on
stock option grants -- -- 168,300 -- -- 168,300
Net loss -- -- -- (983,065) -- (983,065) $ (983,065)
Foreign currency
translation adjustment -- -- -- -- 313 313 313
--------- ------ --------- ----------- ------- ----------- -----------
Comprehensive loss $ (982,752)
===========
BALANCE - DECEMBER 31, 1997 4,766,000 4,766 890,584 (1,162,226) 355 (266,521)
Issuance of common stock
for cash 823,000 823 492,977 -- -- 493,800
Conversion of preferred
stock in exchange for
common stock (823,000) (823) (492,977) -- -- (493,800)
Compensation expense on
stock option grants -- -- 48,898 -- -- 48,898
Net loss -- -- -- (1,928,936) -- (1,928,936) $(1,928,936)
Foreign currency
translation adjustment -- -- -- -- 5,474 5,474 5,474
--------- ------ --------- ----------- ------- ----------- -----------
Comprehensive loss $(1,923,462)
===========
BALANCE - DECEMBER 31, 1998 4,766,000 4,766 939,482 (3,091,162) 5,829 (2,141,085)
Issuance of common stock
for cash (Unaudited) 195,000 195 11,505 -- -- 11,700
Net loss (Unaudited) -- -- -- (4,062,973) -- (4,062,973) $(4,062,973)
Foreign currency translation
adjustment (Unaudited) -- -- -- -- (6,624) (6,624) (6,624)
--------- ------ --------- ----------- ------- ----------- -----------
Comprehensive loss
(Unaudited) $(4,069,597)
===========
BALANCE - SEPTEMBER 30,
1999 (UNAUDITED) 4,961,000 $4,961 $ 950,987 $(7,154,135) $ (795) $(6,198,982)
========= ====== ========= =========== ======= ===========
The accompanying notes are an integral part of these consolidated statements.
F-4
7
BLUEGILL TECHNOLOGIES, INC.
---------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Years Ended Nine Months Ended
December 31, September 30,
----------------------------- ------------------------------
1997 1998 1998 1999
---------- ----------- ------------ ------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(983,065) $(1,928,936) $(1,106,881) $(4,062,973)
Adjustments to reconcile net loss to
net cash used in operating activities-
Depreciation and amortization 18,711 47,128 30,091 132,279
Compensation expense on stock
Option grants 168,300 48,898 36,496 --
Interest expense on converted
note payable 17,737 -- -- --
Increase (decrease) in cash resulting
from changes in-
Accounts receivable (256,000) (228,235) (197,973) (797,674)
Prepaid expenses and other -- (23,777) (22,449) (77,413)
Other assets (5,635) -- -- --
Accounts payable 32,236 179,477 (40,004) 382,041
Accrued compensation and
payroll taxes 12,188 (9,184) 4,666 65,030
Other accrued liabilities 61,242 21,445 -- 160,411
Deferred revenue -- 21,209 -- 387,618
--------- ----------- ----------- -----------
Net cash used in operating
activities (934,286) (1,871,975) (1,296,054) (3,810,681)
--------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchase of property and equipment (44,045) (239,634) (146,655) (689,967)
--------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock -- 5,435,045 5,883,743 19,495,000
Proceeds from issuance of common stock 324,750 493,800 493,800 11,700
Borrowings (payments) under note payable
and line of credit 500,000 189,569 (500,000) 179,394
--------- ----------- ----------- -----------
Net cash provided by
financing activities 824,750 6,118,414 5,877,543 19,686,094
--------- ----------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 601 5,867 (355) (6,624)
--------- ----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (152,980) 4,012,672 4,434,479 15,178,822
CASH AND CASH EQUIVALENTS:
Beginning of period 251,508 98,528 98,528 4,111,200
--------- ----------- ----------- -----------
End of period $ 98,528 $ 4,111,200 $ 4,533,007 $19,290,022
========= =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION-
Cash paid for interest $ 163 $ 1,042 $ 1,042 $ 17,387
========= =========== =========== ===========
The accompanying notes are an integral part of these consolidated statements.
F-5
8
BLUEGILL TECHNOLOGIES, INC.
---------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Information for the Nine Months ended September 30, 1998 and 1999 is unaudited)
(1) THE COMPANY
BlueGill Technologies, Inc. ("BlueGill") and its wholly-owned
subsidiary (collectively, the "Company") develop, market and
support electronic document transmission software technology. In
addition, the Company provides consulting, training and
maintenance services to customers.
The Company is in the early phases of implementing its operating
strategy. The Company's future success is subject to several
technical and business risks including customer acceptance,
availability and retention of key employees, competition and
technological changes. Since inception, the Company's revenues
have been derived from a limited number of customers located
primarily in the United States.
(2) SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the
accounts of BlueGill and its wholly owned subsidiary, BlueGill
Technologies Corporation (an Ontario Corporation, "BlueGill
Canada"). BlueGill Canada is a research and development center
that conducts development activities solely for BlueGill. Prior
to 1998, BlueGill owned a 49% interest in BlueGill Canada. In
1998, the Company purchased the remaining 51% interest in
BlueGill Canada for $51. A minority stockholder of BlueGill
held the 51% interest. All significant intercompany balances
and transactions have been eliminated in consolidation.
Interim Financial Information
-----------------------------
The consolidated financial statements for the nine months ended
September 30, 1998 and 1999 are unaudited, but include all
adjustments (consisting of normal recurring entries) which the
company considers necessary for fair presentation. Operating
results for the nine months ended September 30, 1999 are not
necessarily indicative of the results that may be expected for
any future periods.
Foreign Currency Translation
----------------------------
The assets and liabilities of BlueGill Canada are translated using
exchange rates in effect at the balance sheet date. Revenues
and expenses are translated at average exchange rates during
the period. The resulting foreign currency translation
adjustments are reflected as a separate component of
stockholders' equity in the accompanying consolidated financial
statements.
F-6
9
BLUEGILL TECHNOLOGIES, INC.
---------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Information for the Nine Months ended September 30, 1998 and 1999 is unaudited)
(Continued)
Revenue Recognition
-------------------
Revenue consists primarily of license fees for the Company's
software products. Revenue is recognized only when a customer
contract is fully executed, the software is delivered and no
significant remaining obligations to the customer exist.
Revenue related to advance payments received under software
maintenance agreements is deferred and amortized over the terms
of the respective agreements. Revenue from other services is
recognized upon performance of the service.
The Company derived approximately 83%, 38% and 12% of its revenues
from three customers in 1997, three customers in 1998 and one
customer in 1999, respectively. The Company had accounts
receivables of $230,000, $484,235 and $960,541 from two
accounts at December 31, 1997, three accounts at December 31,
1998 and two accounts at September 30, 1999, respectively.
Research and Development Expense
--------------------------------
Research and development expenses include all payroll costs
attributable to product development activities and an
allocation of overhead expenses incurred by the Company.
Product Development
-------------------
Under the criteria set forth in Statement of Financial Accounting
Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed,"
capitalization of software development costs begins upon the
establishment of technological feasibility of the product
(defined as a working model). The establishment of
technological feasibility and the ongoing assessment of the
recoverability of these costs require considerable judgment by
management with respect to certain external factors, including,
but not limited to, anticipated future gross product revenue,
estimated economic product lives and changes in software and
hardware technology. Amounts that would have been capitalized
under this statement after consideration of the above factors
were immaterial, and therefore no software development costs
have been capitalized by the Company.
Cash and Cash Equivalents
-------------------------
The Company considers highly liquid investments with a maturity of
90 days or less to be cash equivalents.
Property and Equipment
----------------------
Additions to property and equipment are recorded at cost.
Depreciation is provided using the straight-line method over
the estimated useful lives of the respective assets generally
ranging from three to five years.
F-7
10
BLUEGILL TECHNOLOGIES, INC.
---------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Information for the Nine Months ended September 30, 1998 and 1999 is unaudited)
(Continued)
Reclassifications
-----------------
Certain reclassifications have been made to the prior period
financial statements to conform with the current presentation.
Stock-Based Compensation
------------------------
The Company accounts for stock-based compensation using the
intrinsic value method prescribed under Accounting Principles
Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to
Employees." Accordingly, compensation cost for stock options is
measured as the excess, if any, of the fair value of the
Company's common stock at the date of the grant over the amount
the employee must pay to acquire the stock. Compensation
expense recognized for options granted with exercise prices at
less than fair value totaled $168,317 and $48,898 in 1997 and
1998, respectively, $36,496 and $ - in the nine months ended
September 30, 1998 and 1999. As supplemental information, the
Company has provided pro forma disclosure of the fair value at
the date of grant of stock options granted during 1998 in Note
6, in accordance with the requirements of Statement of
Financial Accounting Standards No. 123 (SFAS 123), "Accounting
for Stock-Based Compensation."
Comprehensive Loss
------------------
Comprehensive loss is the total of net loss and all other
non-owner changes in equity. The difference between net loss,
as reported in the accompanying consolidated statements of
operations, and comprehensive loss is the foreign currency
translation adjustment for the period. Accumulated other
comprehensive loss consists solely of the cumulative
translation adjustment as presented in the accompanying
consolidated balance sheet.
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.
F-8
11
BLUEGILL TECHNOLOGIES, INC.
---------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Information for the Nine Months ended September 30, 1998 and 1999 is unaudited)
(Continued)
(3) LINE OF CREDIT AND NOTE PAYABLE
In 1998, the Company entered into a line-of-credit agreement with a
bank whereby the Company may borrow up to $750,000. Outstanding
borrowings bear interest at the bank's prime rate plus 0.25%
(effective rate of 8% as of December 31, 1998) which is payable
monthly. Outstanding borrowings are collateralized by
substantially all assets of the Company.
The note payable at December 31, 1997 represents a $500,000 demand
promissory note dated July 24, 1997, and bears interest at 15%.
The note payable, including accrued interest, was converted to
Series A convertible preferred stock in June 1998 (see Note 5).
(4) OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
Year Ended Nine months ended
December 31, September 30,
----------------------- -----------------
1997 1998 1999
------- ------- --------
(Unaudited)
Accrued Royalties $61,242 $34,000 $ 19,148
Other 17,737 27,870 203,133
------- ------- --------
Total $78,979 $61,870 $222,281
======= ======= ========
(5) INCOME TAXES
The components of the benefit for income taxes are as follows:
Year Ended Nine months ended
December 31, September 30,
------------------------- ---------------------------
1997 1998 1998 1999
---------- ---------- ---------- ------------
(Unaudited)
Tax benefit $(334,000) $(656,000) $(360,000) $(1,367,000)
Valuation Allowance 334,000 656,000 360,000 1,367,000
--------- --------- --------- -----------
Total benefit $ -- $ -- $ -- $ --
========= ========= ========= ==========
F-9
12
BLUEGILL TECHNOLOGIES, INC.
---------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Information for the Nine Months ended September 30, 1998 and 1999 is unaudited)
(Continued)
At December 31, 1998 and September 30, 1999, the Company had net
operating loss carryforwards of approximately $3,100,000 and
$7,149,000, respectively, available for tax reporting purposes
which may be used to offset future taxable income. The loss
carryforwards expire between 2012 and 2018. The Company's ability
to utilize these loss carryforwards may be limited under Section
382 of the Internal Revenue Code. Due to the losses incurred since
inception, the deferred income tax asset is fully reserved by a
valuation allowance.
As of December 31, 1997 and 1998 and September 30, 1999, the Company
has a deferred income tax asset prior to the valuation allowance
totaling $276,000, $1,054,000 and $2,436,000, respectively,
consisting primarily of the tax benefit of net operating loss
carryforwards.
The effective tax rate of zero differs from the Federal statutory
rate primarily due to providing a valuation allowance on future
tax benefits.
(6) STOCKHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK
In June 1998, the Company amended its Certificate of Incorporation in
order to affect a 1000-to-1 common stock split and increased the
authorized shares of common stock to 30,000,000 from 12,000,000
(post-split). All information in the accompanying consolidated
financial statements has been restated to reflect the stock split.
Later in June 1998, the Company amended and restated its Certificate
of Incorporation pursuant to which it authorized 12,500,000 shares
of Series A convertible preferred stock.
In December 1998, the Company amended its Certificate of
Incorporation pursuant to which the Company increased the
authorized shares of Series A convertible preferred stock to
13,250,000 shares from 12,500,000. At various times during the
period from June 1, 1998 through December 31, 1998, the Company
issued an aggregate of 12,503,301 shares of Series A convertible
preferred stock at $0.5174 per share for cash and conversion of a
note payable. Certain holders of common stock were permitted to
exchange that stock for Series A convertible preferred stock.
In June 1999, the Company amended and its Certificate of
Incorporation pursuant to which the Company authorized 12,000,000
shares of Series B convertible preferred stock, authorized
12,000,000 shares of Series B-1 convertible preferred stock, and
increased the number of authorized shares of common stock to
40,000,000, from 30,000,000. The Company then issued 10,829,143
shares of Series B convertible preferred stock at $1.52 per share.
F-10
13
BLUEGILL TECHNOLOGIES, INC.
---------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Information for the Nine Months ended September 30, 1998 and 1999 is unaudited)
(Continued)
In September 1999, the Company amended its Certificate of
Incorporation pursuant to which the Company increased the number
of authorized shares of Series B convertible preferred stock to
13,000,000 shares from 12,000,000 shares, Series B-1 convertible
preferred stock to 13,000,000, from 12,000,000, and common stock
to 41,000,000 from 40,000,000.
At various times during the period from June 1, 1999 through
September 30, 1999, the Company issued an aggregate of 12,825,651
shares of Series B convertible preferred stock at $1.52 per share.
Common Stock
------------
The Company and its founding stockholders (the "Founders") have
entered into agreements generally providing the Company the
right of first refusal to repurchase any shares of common stock
offered for sale by the Founders or upon termination of a
Founder's employment with the Company.
The holder of each outstanding share of common stock is entitled
to one voting right per share.
Common Stock Warrants
---------------------
In 1997, the Company issued warrants to purchase 300,000 shares of
common stock at $0.375 per share. The warrants are fully
exercisable through the earlier of July 24, 2002, or
consummation of an initial public offering. As of September 30,
1999, the warrants have not been exercised.
Preferred Stock
---------------
The holders of Series A and Series B convertible preferred stock
have certain rights, privileges and preferences which include
the following:
Dividends
---------
The holders are entitled to receive dividends before any
dividend is declared or paid on shares of common stock. Such
dividends are payable only when declared by the Board of
Directors and are noncumulative. After payment of the
preferential dividends, no dividends are paid to common
stockholders unless an equivalent dividend is made on the
preferred stock.
F-11
14
BLUEGILL TECHNOLOGIES, INC.
---------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Information for the Nine Months ended September 30, 1998 and 1999 is unaudited)
(Continued)
Conversion
----------
At the holder's option, each share of Series A preferred stock
and Series B preferred stock is convertible into shares of
common stock. Each series of preferred stock is
automatically converted into common stock upon a public
offering of common stock of a certain size or upon a
specified percentage vote of holders of that series. The
preferred stock has antidilution protection for issuances
below the specified conversion prices, as defined, which is
initially equal to $0.5174 per share for the Series A
preferred stock and $1.52 for the Series B preferred stock.
Voting Rights
-------------
Except with respect to the election of the directors, the
holders of preferred stock (voting on an as-converted basis)
vote with the holders of common stock. Certain actions
require separate approvals by the holders of each series of
preferred stock, each voting separately as a class.
Redemption Rights
-----------------
The holders of at least 75% of the outstanding shares of the
Series A convertible preferred stock and the holders of 75%
of the outstanding Series B convertible preferred stock may
each require the Company to repurchase such shares of that
series at any time after June 15, 2003. The redemption
prices for the Series A preferred stock and Series B
preferred stock are equal to $0.5174 and $1.52 per share,
respectively, plus any declared but unpaid dividends on
those shares.
Liquidation Preference
----------------------
In the event of any liquidation, dissolution or winding up of
the Company, either voluntarily or involuntarily, the holder
of each share of Series A convertible preferred stock and
each share of Series B convertible preferred stock are
entitled to receive, prior to and in preference to any
distributions to the holders of common stock, an amount
equal to $0.5174 and $1.52 per share, respectively. The
liquidation preference of a particular series will not be
applicable if the Series A preferred stock will receive more
than $2.33 per share or the Series B preferred stock will
receive more than $3.04 per share, plus any declared but
unpaid dividends on those shares.
Registration Rights
-------------------
The holders of Series A and Series B convertible preferred
stock have demand and "piggyback" registration rights.
F-12
15
BLUEGILL TECHNOLOGIES, INC.
---------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Information for the Nine Months ended September 30, 1998 and 1999 is unaudited)
(Continued)
(7) STOCK OPTION PLANS
1997 Stock Option Plan
----------------------
In April 1997, the Company established a stock option plan (the
"1997 Plan") to increase its ability to attract and retain key
employees, consultants and directors. Options granted are
nonqualified stock options, which may be granted at less than
the fair market value of the common stock on the date of grant.
All options are granted at the discretion of the Board of
Directors. The maximum number of shares that may be granted
under the 1997 Plan is 3,200,000, except that upon
establishment of the 1998 Stock Option Plan (see below), the
remaining 525,000 ungranted options under the 1997 Plan can no
longer be granted. Options granted generally become exercisable
over a period of two years from the date of grant, except that
450,000 options granted vested immediately. Outstanding options
expire ten years after the date of grant.
In June 1998, the Company cancelled and regranted 1,125,000
options in which the exercise price of the options being
cancelled were significantly in excess of the estimated fair
value of the underlying common stock. Additionally, the Company
extended the vesting period for 1,100,000 options that were
fully vested.
1998 Stock Option Plan
----------------------
In June 1998, the Company established a stock option plan (the
"1998 Plan") to increase its ability to attract and retain key
employees, consultants and directors. Options granted may be
either incentive stock options, which are granted at the fair
market value of the common stock on the date of grant (as
determined under the plan), or nonqualified stock options,
which may be granted at less than the fair market value of the
common stock on the date of grant. All options are granted at
the discretion of the Board of Directors. The maximum number of
shares that may be granted under the 1998 Plan is 6,000,000.
Options granted generally become exercisable over a period of
five years from the date of grant except that 200,000 options
granted vest over two years, 750,000 options granted vest over
four years and 118,000 options granted vested immediately.
Outstanding options expire ten years after the date of grant.
F-13
16
BLUEGILL TECHNOLOGIES, INC.
---------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Information for the Nine Months ended September 30, 1998 and 1999 is unaudited)
(Continued)
Other information concerning all stock options is as follows:
Weighted
Price Average
Number of per Exercise Expiration
Shares Price Price Date
---------- ----------- --------- ----------
Plan Inception - April 1997 -- -- -- --
Options granted 2,450,000 $0.001-0.06 $0.02 2007-2008
Options exercised --
Options cancelled --
----------
Outstanding - December 31, 1997 2,450,000 $0.001-0.06 $0.02
Options granted 4,787,000 $0.001-0.06 $0.04 2007-2008
Options exercised --
Options cancelled (2,265,000) $0.001-0.06 $0.16
----------
Outstanding - December 31, 1998 4,972,000 $0.001-0.06 $0.04 2007-2008
Options granted 1,480,000 $0.06-0.32 $0.15 2009
Options exercised (77,000) $0.06 $0.06
Options cancelled (578,500) $0.001-0.32 $0.05
----------
Outstanding - September 30, 1999
(Unaudited) 5,796,500 $0.07 2007-2009
==========
Exercisable - September 30, 1999
(Unaudited) 3,770,688
==========
Using the intrinsic value method under APB 25, no compensation
expense has been recognized in the accompanying consolidated
statement of operations for options granted at fair value. Had
compensation expense been determined based on the fair value at
the date of grant consistent with SFAS 123, the reported net loss
would have been as follows:
Year Ended Nine months ended
December 31, September 30,
----------------------------- -----------------------------
1997 1998 1998 1999
---------- ------------ ------------ ------------
(Unaudited)
Net Loss:
As Reported $(983,065) $(1,928,936) $(1,106,881) $(4,062,973)
Pro Forma (983,187) (1,936,314) (1,110,731) (4,077,693)
F-14
17
BLUEGILL TECHNOLOGIES, INC.
---------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Information for the Nine Months ended September 30, 1998 and 1999 is unaudited)
(Continued)
Due to the insignificance of the pro forma compensation expense,
there is no impact on the net loss per share. This pro forma
compensation expense may not be representative of that to be
expected in future years.
The fair value of options was estimated at the date of grant using
the minimum value option valuation method under SFAS 123 with the
following assumptions: Weighted average risk free interest rate of
5.12%; dividend yield of 0%; and expected life of options of five
years. Option valuation models require the input of highly
subjective assumptions. Because changes in subjective input
assumptions can materially affect the fair value estimate, in
management's opinion, the existing model does not necessarily
provide a reliable single measure of the fair value of the
Company's stock options.
(8) RELATED PARTY TRANSACTIONS
The holder of the note payable, who subsequently became a stockholder
of the Company in 1998, provided consulting services to the
Company in 1997 and 1998. Payments for these consulting services
totaled approximately $28,000 and $35,000 in the years ended 1997
and 1998, respectively.
(9) COMMITMENTS
The Company leases its office space under operating lease agreements,
which expire at various dates through July 2001. Total rent
expense was approximately $12,000 and $33,000 in 1997 and 1998,
respectively. Minimum future rental payments under noncancellable
operating lease agreements as of December 31, 1998, are as
follows:
1999 $ 194,000
2000 268,000
2001 261,000
2002 212,000
Thereafter 299,000
---------
$1,234,00
=========
In February 1999, BlueGill Canada terminated its previous lease
agreement for office space and entered into a new lease agreement
for different office space. The above minimum future rental
payments include the terms of the new lease.
(10) SUBSEQUENT EVENT
In December 1999, the Company signed an agreement and Plan of Merger
with Checkfree Acquisition Corporation IV, a subsidiary of
CheckFree Holdings Corporation, a publicly held Delaware
corporation ("CheckFree"). The merger agreement provides for all
of the outstanding shares of BlueGill Technologies, Inc. capital
shares to be exchanged for approximately 3,205,000 shares of the
CheckFree's common stock, subject to an adjustment, depending on
the average trading price of CheckFree's common stock.
F-15
18
CHECKFREE HOLDINGS CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(IN THOUSANDS)
HISTORICAL HISTORICAL
AMOUNTS AMOUNTS PRO FORMA
CHECKFREE BLUEGILL ADJUSTMENTS TOTAL
Assets:
Current assets:
Cash and cash equivalents $ 6,439 $ 19,290 $ - $ 25,729
Investments 8,956 - - 8,956
Accounts receivable, net 51,758 1,282 - 53,040
Prepaid expenses and other assets 7,624 101 - 7,725
Deferred income taxes 5,997 - - 5,997
------------ ---------- ----------- -----------
Total current assets 80,774 20,673 - 101,447
------------ ---------- ----------- -----------
Property and equipment, net 73,400 803 - 74,203
Capitalized software, net 21,287 - 13,606 (1) 34,893
Intangible assets, net 44,691 - 274,294 (1) 318,985
Investments 1,875 - - 1,875
Deferred income taxes 24,831 - - 24,831
Other noncurrent assets 9,924 2 - 9,926
------------ ---------- ----------- -----------
Total Assets $ 256,782 $ 21,478 $ 287,900 $ 566,160
============ ========== =========== ===========
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable $ 10,184 $ 626 $ - $ 10,810
Line of Credit - 369 - 369
Accrued liabilities 26,643 310 - 26,953
Deferred income tax - - 9,226 (4) 9,226
Current portion of long-term obligations 1,640 - - 1,640
Deferred revenue 24,750 409 - 25,159
------------ ---------- ----------- -----------
Total current liabilities 63,217 1,714 9,226 74,157
Accrued rent and other 3,596 - - 3,596
Deferred income tax - - 7,868 (4) 7,868
Obligations under capital leases - less current portion 3,814 - - 3,814
------------ ---------- ----------- -----------
Total liabilities 70,627 1,714 17,094 89,435
Redeemable Preferred Stock - 25,963 (25,963)(1),(2) -
Stockholders' equity 186,155 (6,199) 296,769 (1),(2) 476,725
------------ ---------- ----------- -----------
Total Liabilities and Stockholders' Equity $ 256,782 $ 21,478 $ 287,900 $ 566,160
============ ========== =========== ===========
See Notes to Unaudited Pro Forma Condensed Combining Financial Information
PF-1
19
CHECKFREE HOLDINGS CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL HISTORICAL
AMOUNTS AMOUNTS PRO FORMA
CHECKFREE BLUEGILL ADJUSTMENTS TOTAL
Revenues:
Processing and servicing $ 201,059 $ - $ - $ 201,059
License Fees 15,975 2,517 - 18,492
Maintenance Fees 17,746 48 - 17,794
Other 15,351 925 - 16,276
------------ ---------- ----------- -----------
Total revenues 250,131 3,490 - 253,621
------------ ---------- ----------- -----------
Expenses:
Cost of processing, servicing and support 146,704 969 - 147,673
Research and development 21,085 1,457 - 22,542
Sales and marketing 32,354 2,318 - 34,672
General and administrative 31,466 2,045 - 33,511
Depreciation and amortization 24,630 106 72,097 (3) 96,833
In-process research and development 2,201 - - 2,201
------------ ---------- ----------- -----------
Total expenses 258,440 6,895 72,097 337,432
------------ ---------- ----------- -----------
Net gain on disposition of assets 4,576 - - 4,576
------------ ---------- ----------- -----------
Income (loss) from Operations (3,733) (3,405) (72,097) (79,235)
------------ ---------- ----------- -----------
Other:
Interest, net 2,181 194 - 2,375
------------ ---------- ----------- -----------
Income (loss) before income taxes (1,552) (3,211) (72,097) (76,860)
Income tax expense (benefit) (12,009) - (10,510)(4) (22,519)
------------ ---------- ----------- -----------
Net Income (loss) $ 10,457 $ (3,211) $ (61,587) $ (54,341)
============ ========== =========== ===========
Basic earning (loss) per share:
Net income (loss) per common share $ 0.20 $ (0.98)
============ ===========
Equivalent number of shares 52,444 3,205 (2) 55,649
============ =========== ===========
Diluted earnings (loss) per share:
Net income (loss) per common share $ 0.18 $ (0.98)
============ ===========
Equivalent number of shares 56,529 (880) (2),(5) 55,649
============ =========== ===========
See Notes to Unaudited Pro Forma Condensed Combining Financial Information
PF-2
20
CHECKFREE HOLDINGS CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL HISTORICAL
AMOUNTS AMOUNTS PRO FORMA
CHECKFREE BLUEGILL ADJUSTMENTS TOTAL
Revenues:
Processing and servicing $ 58,304 $ - $ - $ 58,304
License Fees 2,996 593 - 3,589
Maintenance Fees 4,438 76 - 4,514
Other 3,282 204 - 3,486
------------ ---------- ----------- ------------
Total revenues 69,020 873 - 69,893
------------ ---------- ----------- ------------
Expenses:
Cost of processing, servicing and support 42,993 363 - 43,356
Research and development 6,824 698 - 7,522
Sales and marketing 8,668 1,112 - 9,780
General and administrative 9,924 865 - 10,789
Depreciation and amortization 6,976 73 13,941 (3) 20,990
------------ ---------- ----------- ------------
Total expenses 75,385 3,111 13,941 92,437
------------ ---------- ----------- ------------
Net gain on disposition of assets - - - -
------------ ---------- ----------- ------------
Income (loss) from Operations (6,365) (2,238) (13,941) (22,544)
------------ ---------- ----------- ------------
Other:
Interest, net 245 233 - 478
------------ ---------- ----------- ------------
Income (loss) before income taxes (6,120) (2,005) (13,941) (22,066)
Income tax expense (benefit) (2,184) - (1,475)(4) (3,659)
------------ ---------- ----------- ------------
Net Income (loss) $ (3,936) $ (2,005) $ (12,466) $ (18,407)
============ ========== =========== ============
Basic earning (loss) per share:
Net income (loss) per common share $ (0.08) $ (0.33)
============ ============
Equivalent number of shares 51,848 3,205 (2) 55,053
============ =========== ============
Diluted earnings (loss) per share:
Net income (loss) per common share $ (0.08) $ (0.33)
============ ============
Equivalent number of shares 51,848 3,205 (2) 55,053
============ =========== ============
See Notes to Unaudited Pro Forma Condensed Combining Financial Information
PF-3
21
CHECKFREE HOLDINGS CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING
FINANCIAL INFORMATION
The accompanying unaudited pro forma condensed combining financial
information as of September 30, 1999, and for the periods ended June 30, 1999,
and September 30, 1999, have been prepared to present the effects of the
Company's purchase of BlueGill. The following Unaudited Pro Forma Condensed
Combining Balance Sheet at September 30, 1999, combines the Company's
consolidated balance sheet at September 30, 1999, with BlueGill's balance sheet
at September 30, 1999, giving effect to the purchase as if it had occurred
September 30, 1999. The following Unaudited Pro Forma Condensed Combining
Statement of Operations for the Year Ended June 30, 1999, and for the Three
Months ended September 30, 1999, combines the Company's results of operations
for such periods with the results of operations of BlueGill for the same
respective periods. The unaudited Pro Forma Condensed Combining Statements of
Operations for all periods give effect to the purchase as if it occurred on July
1, 1998, the beginning of the earliest period presented. The pro forma
information is presented for illustration purposes only and is not necessarily
indicative of the financial position or results of operations that would have
occurred had the purchase been consummated at the beginning of the period
presented, nor is it necessarily indication of future financial position or
future operating results.
The unaudited pro forma condensed combining financial information,
including the notes thereto, is qualified in its entirety by reference to, and
should be read in conjunction with, the Company's: (1) Annual Report on Form
10-K for the fiscal year ended June 30, 1999 (filed September 28, 1999); (2)
Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 (filed
November 15, 1999); and (3) BlueGill's audited financial statements and notes
thereto included elsewhere in this Form 8-K.
Note A: Explanation of Adjustments:
1. Adjustment to reflect the change in net assets for the purchase based
upon preliminary estimates of fair market value as follows:
(In thousands)
CheckFree common stock $287,160
Issuance of options 9,441
Estimated acquisition costs 1,200
--------
Total purchase price $297,801
========
Allocation of purchase price:
In-process research and development $ 7,620
Other intangibles 287,900
Cash and cash equivalents 19,290
Property and equipment 803
Deferred income taxes (17,094)
Other, net (718)
--------
Total $297,801
========
The intangible assets acquired are principally goodwill, in-process
research and development, tradename, customer list, and current
technologies. Amortization of these intangible assets will be on a
straight-line basis over the assets' respective useful life. The
estimated useful lives of the acquired intangibles are from one-to-five
years, and goodwill, the principal intangible acquired, will be
amortized over a five-year period.
2. Adjustment to reflect the assumed issuance of 3,205,128 shares of our
common stock at $89.625 per share in exchange for all shares, warrants
and vested options of BlueGill common stock, net of estimated stock
registration costs and the elimination of BlueGill's stockholders'
equity. The value per share represents the closing price of the
Company's common stock as of January 7, 2000. The pro forma
consolidated stockholder's equity reflected in the unaudited Pro Forma
Consolidated Balance Sheets reflects the write-off of intangible assets
attributable to the value of the purchased in-process research and
development associated with the acquisition of BlueGill.
PF-4
22
3. Adjustment to reflect additional amortization expense associated with
the increase in fair value of BlueGill assets acquired over their
historical basis. Values of $15.1 million allocated to trademarks and
$1.2 million to non-compete agreements will fully amortize in the first
year subsequent to the acquisition.
4. Adjustment to reflect income tax effects of taxable, pre-tax pro forma
adjustments at the statutory rate and the impact of income taxes on
BlueGill's historical amounts.
5. When combined with BlueGill's historical loss and the Pro Forma
adjustments, the historical CheckFree net income resulted in a combined
net loss. As a result, due to the anti-dilutive effect on earnings per
share, shares for diluted earnings per share was reduced to agree with
the equivalent number of shares for basic earnings per share.
Note B: Management believes that the assumptions used in preparing the
Unaudited Pro Forma Condensed Combining Balance Sheet and the Unaudited Pro
Forma Condensed Combining Statements of Operations provide a reasonable basis
for presenting the significant effects of the acquisition of BlueGill; that the
pro forma adjustments give appropriate effect to those assumptions; and that the
pro forma adjustments are properly applied in the Unaudited Pro Forma Condensed
Combining Balance Sheet and Statements of Operations.
Note C: The unaudited pro forma condensed combining balance sheet of our
company and BlueGill has been prepared as if the merger was completed as of
September 30, 1999, and was accounted for as a purchase. The number of shares of
the Company's common stock to be issued in the purchase will depend on a number
of factors as specified in the purchase agreement with BlueGill. It has been
assumed for purposes of these pro forma financial statements that 3,205,128
shares of the Company's common stock will be issued with a fair market value of
$89.625 per share. The total purchase price of $297.8 million was allocated to
assets acquired and liabilities assumed based upon BlueGill's September 30,
1999, balance sheet.
The allocation of the BlueGill purchase price among the identifiable
tangible and intangible assets and purchased research and development is based
on preliminary estimates of the fair market value of those assets. Final
determination of the allocation of the purchase price will be based on
independent appraisals expected to be completed shortly after the merger is
completed. Accordingly, final amounts could differ from those used herein.
Purchased research and development was identified and valued through
interviews and analysis of data concerning each development project. Expected
future cash flows of each development project were discounted to present value
taking into account risks associated with the inherent difficulties and
uncertainties relating to the projects and achieving technological feasibility,
and risks related to the viability of and potential changes in future target
markets. The above analysis and valuation resulted in a preliminary estimate of
$11.7 million for purchased research and development for BlueGill. Using both
man-hours to complete and cost to complete analysis, the purchased research and
development was further divided into completed in-process research and
development of $7.6 million and incomplete in-process research and development
of $4.1 million. The $7.6 million of completed in-process research and
development has not yet reached technological feasibility or commercial
acceptance and does not have alternative future uses and therefore will be
charged to operations immediately upon the closing of the acquisition. The
remaining incomplete portion will be combined with goodwill in the purchase
price allocation.
Note D: The Company's statement of operations for the year ended June 30,
1999 has been combined with the BlueGill statement of operations for the twelve
months ended June 30, 1999. Our statement of operations for the three month
period ended September 30, 1999 has been combined with the BlueGill statement of
operations for the three months ended September 30, 1999. Actual statements of
operations of the Company and BlueGill will be combined from the effective date
of the purchase, with no retroactive restatement. The unaudited pro forma
condensed combining financial statements, including the notes thereto, should be
read in conjunction with the historical consolidated financial statements of the
Company and BlueGill, which we have included elsewhere in this Form 8-K.
Note E: The unaudited pro forma condensed combining statements of
operations for our company and BlueGill have been prepared as if the purchase
was completed as of July 1, 1998, the beginning of the earliest period
presented. The unaudited pro forma combined net income (loss) per share is based
on the weighted average number of shares of the Company's common stock
outstanding during the periods, adjusted to give effect to shares assumed to be
issued had the merger taken place as of July 1, 1998.
Note F: The unaudited pro forma condensed combining statements of
operations do not include a charge for the value of the estimated $7.6 million
(no income tax effect) of purchased research and development arising from the
purchase which will be expensed at acquisition, as such expense will not have a
continuing impact.
PF-5
23
SIGNATURES
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.
CHECKFREE HOLDINGS CORPORATION
Date: January 10, 2000 By: /s/ Allen L. Shulman
-----------------------------------------
Allen L. Shulman, Executive Vice President,
Chief Financial Officer and General Counsel
3
24
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
23 Consent of Arthur Andersen LLP.
4