UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission File Number: 000-28187
OFFICIAL PAYMENTS CORPORATION
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-2190781
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Three Landmark Square
Stamford, CT 06901-2501
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (203) 356-4200
--------------
N/A
----------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since
last report
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. Yes [X] No[ ]
As of August 8, 2001, 21,981,615 shares of the registrant's common
stock were issued and outstanding.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OFFICIAL PAYMENTS CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2001
TABLE OF CONTENTS
ITEM PAGE NUMBER
- ---------- ----------
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements............................................3
Condensed Balance Sheets as of June 30, 2001 and
December 31, 2000...............................................3
Condensed Statements of Operations for the three and
six-month periods ended June 30, 2001 and 2000................. 4
Condensed Statements of Cash Flows for the six-
month period ended June 30, 2001 and 2000...................... 5
Notes to the Condensed Financial Statements.................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk....................................................17
PART II: OTHER INFORMATION
Item 1. Legal Proceedings..............................................18
Item 2. Changes in Securities and Use of Proceeds......................18
Item 3. Defaults Upon Senior Securities................................19
Item 4. Submission of Matters to a Vote of Security
Holders........................................................19
Item 5. Other Information..............................................19
Item 6. Exhibits and Reports on Form 8-K...............................19
Signatures...................................................................20
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OFFICIAL PAYMENTS CORPORATION
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
June 30, December 31,
2001 2000
--------- -----------
(Unaudited)
ASSETS
Current assets:
Cash ............................................. $ 5,112 $ 3,783
Short-term investments............................ 53,653 62,115
Accounts receivable, net.......................... 1,390 2,210
Prepaid expenses and other current assets......... 359 600
-------- --------
Total current assets............................ 60,514 68,708
Property and equipment, net......................... 9,117 7,511
Other assets........................................ 94 44
-------- --------
Total assets.................................... $ 69,725 $ 76,263
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............. $ 7,520 $ 6,561
Deferred revenues................................. 89 65
Current portion of capital lease obligations...... 566 580
-------- --------
Total current liabilities....................... 8,175 7,206
Long-term portion of capital lease obligations...... 381 604
-------- --------
Total liabilities............................... 8,556 7,810
-------- --------
Stockholders' equity:
Common stock, $.01 par value; 150,000,000 shares
authorized; 21,981,615 and 21,505,770 shares
issued and outstanding as of June 30, 2001 and
December 31, 2000, respectively................. 220 215
Additional paid-in capital........................ 130,127 129,473
Deferred stock-based compensation................. - (19,803)
Accumulated deficit............................... (69,178) (41,432)
-------- --------
Stockholders' equity...................... 61,169 68,453
-------- --------
Total liabilities and stockholders' equity.... $ 69,725 $ 76,263
======== ========
See accompanying notes to unaudited condensed financial statements.
OFFICIAL PAYMENTS CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2001 2000 2001 2000
-------- -------- -------- --------
Net revenues..................... $ 19,784 $ 17,715 $ 23,286 $ 19,539
Cost and expenses:
Cost of revenues............... 17,217 14,252 20,022 15,762
Sales and marketing ........... 2,502 2,604 4,882 6,801
Development costs.............. 1,057 522 2,096 1,004
General and administrative .... 2,422 2,754 4,527 5,085
Depreciation................... 907 429 1,361 619
Amortization of deferred
stock-based compensation..... - 2,987 19,803 6,184
Severance and other related
charges...................... - 4,140 - 4,140
-------- -------- -------- --------
Total cost and expenses........ 24,105 27,688 52,691 39,595
-------- -------- -------- --------
Loss from operations............. (4,321) (9,973) (29,405) (20,056)
Other income, net................ 711 1,045 1,660 2,179
-------- -------- -------- --------
Net loss......................... $ (3,610) $ (8,928) $ (27,745) $(17,877)
======== ======== ======== ========
Basic and diluted net loss per-
share......................... $ (0.16) $ (0.42) $ (1.27) $ (0.84)
======== ======== ======== ========
Weighted average shares used in
computing basic and diluted
net loss per share............ 21,980 21,376 21,913 21,339
======== ======== ======== ========
See accompanying notes to unaudited condensed financial statements.
OFFICIAL PAYMENTS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Six Months Ended June 30,
--------------------------
2001 2000
-------- --------
Cash flows used in operating activities:
Net loss............................................. $ (27,745) $ (17,877)
Adjustments to reconcile net loss to net cash
from operating activities:
Depreciation.................................... 1,361 619
Amortization of deferred stock-based
compensation................................. 19,803 9,800
Changes in operating assets and liabilities
Accounts receivable, net........................ 820 445
Prepaid expenses and other assets............... 191 167
Accounts payable and accrued expenses........... 959 2,722
Deferred revenues............................... 24 44
-------- --------
Net cash used in operating activities......... (4,587) (4,080)
-------- --------
Cash flows from investing activities:
Proceeds from sale of short-term investments, net ... 8,462 7,118
Capital expenditures................................. (2,967) (4,175)
-------- --------
Net cash provided by investing activities..... 5,495 2,943
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options, net......... 658 1,163
Borrowings on sale-leaseback agreement............... - 968
Repayment of notes payable and capital leases........ (237) (192)
-------- --------
Net cash provided by financing activities..... 421 1,939
-------- --------
Net increase in cash................................... 1,329 802
Cash at the beginning of the period.................... 3,783 1,643
-------- --------
Cash at the end of the period.......................... $ 5,112 $ 2,445
======== ========
Supplemental disclosure of noncash activity:
Cash paid for interest................................. $ 63 $ 221
======== ========
Assets acquired through capital leases................. $ - $ 998
======== ========
Cash paid for taxes.................................... $ 24 $ 103
======== ========
See accompanying notes to unaudited condensed financial statements.
OFFICIAL PAYMENTS CORPORATION
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Official Payments Corporation (the "Company") is a leading provider of
electronic payment options to government entities, enabling consumers to
use their credit cards and "pin-less" debit cards to pay, by the Internet
or the telephone, personal federal and state income taxes, sales and use
taxes, property taxes, tuition payments, motor vehicle fees, fines for
traffic violations and parking citations and other government-imposed taxes
and fees. The Company commenced operations on June 26, 1996, initially
offering its credit card payment services for the payment of fines for
traffic violations and parking citations and property taxes. In 1998, the
Company signed a contract with the Internal Revenue Service ("IRS") and in
1999 began providing its services for the balance-due payment of personal
federal incomes taxes. In 2000, the Company extended its contract with the
IRS, adding two additional payment services, extension and estimated
personal federal income taxes. For the 2001 tax filing season, the IRS
further extended its contract with the Company, authorizing the Company to
add an Internet payment option to its existing automated interactive voice
response telephone ("IVR") payment option for balance-due, extension, and
estimated personal federal income taxes. On August 1, 2001, the Company
announced that the IRS further expanded the scope of its agreement with the
Company to include two additional credit card payment categories:
current-year delinquent tax payments and installment tax payments.
BASIS OF PRESENTATION
The accompanying condensed financial statements as of June 30, 2001 and
December 31, 2000, and the three and six months ended June 30, 2001 and
2000, are unaudited. The condensed balance sheet at December 31, 2000 has
been derived from audited financial statements at that date. The unaudited
interim condensed financial statements have been prepared on the same basis
as the annual financial statements, and in the opinion of management,
reflect all adjustments necessary to present fairly the Company's financial
position, results of operations and cash flows as of June 30, 2001 and for
the three months ended June 30, 2001 and for the three and six months ended
June 30, 2001 and 2000. These adjustments are of a normal, recurring
nature. These condensed financial statements and notes thereto are
unaudited and should be read in conjunction with the Company's audited
financial statements and related notes included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2000. The results for
the three and six months ended June 30, 2001 are not necessarily indicative
of the expected results for the year ending December 31, 2001. Certain
prior period balances have been reclassified to conform to the current
period presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management of the Company 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 reported
results of operations during the reporting period. Actual results could
differ from those estimates.
SHORT-TERM INVESTMENTS
As of June 30, 2001, the Company had short-term investments of $53.7
million. The Company classifies its short-term investments as
"available-for-sale." Financial instruments classified as short-term
investments include government securities and commercial paper (with a
Standard and Poor's rating of A-1 or better), with maturity dates of
generally less than nine months. Such short-term investments are recorded
at fair value based on quoted market prices, with unrealized gains and
losses, which are de minimus for all periods presented, recorded (net of
tax) as a separate component of stockholders' equity.
COMPREHENSIVE INCOME (LOSS)
The Company has no components of other comprehensive income (loss).
STOCK-BASED COMPENSATION
In the third and fourth quarters of 1999, the Company recorded on its
balance sheet an amount representing the intrinsic value of the common
stock underlying options granted to certain officers and employees of the
Company in August, September, and November of 1999 in excess of the
exercise prices of those options.
In the second quarter of 2000, the Company recorded on its balance
sheet deferred stock-based compensation totaling $633,000 representing the
fair value of restricted shares of common stock granted to employees as
performance-based awards and also in replacement of, and in exchange for
cancelled, unvested stock options with exercise prices in excess of the
current market value at the time of grant.
In the first quarter of 2001, the Company fully amortized the $19.8
million deferred stock-based compensation for employee stock options and
restricted shares of common stock that became fully vested, pursuant to the
terms of the Company's stock incentive plans, as a result of Comerica
Incorporated's acquisition of Imperial Bancorp, the parent of the Company's
majority controlling stockholder, which constituted a change of control of
the Company. Prior to the Comerica/Imperial transaction, the Company
expected to amortize the deferred stock-based compensation charge over the
next six consecutive quarters through the second quarter of 2002.
REVENUE RECOGNITION
The Company's revenues are derived primarily from convenience fees paid
by consumers for credit card payment services provided by the Company.
Convenience fees are charged based on the amount of the payment processed
and the type of government obligation being paid. Revenues are recognized
in the period in which the services are provided. The revenues are
presented net of a sales and return allowance made when the collection of
the amount is not reasonably assured but is estimated and established in
the period in which the services are provided.
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. Such costs are
included in sales and marketing expense on the condensed statement of
operations and totaled approximately $1.5 million and $1.6 million for the
three months ended June 30, 2001 and 2000 and $2.9 million and $4.8 million
for the six months ended June 30, 2001 and 2000, respectively.
During the year 2000, the Company entered into cooperative advertising
agreements with two of its credit card partners, where such credit card
companies contributed an aggregate of $515,000 to the Company for use in
the Company's 2001 advertising campaign. The Company considered these funds
as a reimbursement of costs incurred and netted the proceeds against sales
and marketing expenses as incurred.
Note 2. NET LOSS PER SHARE
Net loss per share is computed in accordance with SFAS No. 128,
"Earnings per Share". Under the provisions of SFAS No. 128, basic net loss
per share is computed by dividing the net loss for the period by the
weighted-average number of outstanding shares of common stock during the
period. Diluted net loss per share is computed using the weighted-average
number of shares of common stock outstanding and, when dilutive, potential
common shares from options to purchase common stock using the treasury
stock method.
Net loss per share for the three and six months ended June 30, 2001 and
2000 does not include the effect of approximately 7,092,600 and 6,200,098
options to purchase common stock with a weighted average exercise price of
$5.47 and $4.48 per share, respectively, because the effects are
anti-dilutive.
Note 3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
June 30, December 31,
2001 2000
-------- --------
Computer equipment..................................... $ 6,478 $ 6,242
Web site development................................... 5,422 2,757
Furniture and fixtures................................. 813 747
-------- --------
12,713 9,746
Less accumulated depreciation.......................... 3,596 2,235
-------- --------
$ 9,117 $ 7,511
======== ========
The Company has adopted Statement of Position ("SOP") 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use,"
which requires that certain costs for the development of internal use
software be capitalized, including costs of coding, software configuration,
upgrades and enhancements. For the six months ended June 30, 2001 and
fiscal year 2000, the Company capitalized approximately $5.4 million and
$2.8 million, respectively, of its internally developed web site.
Certain computer equipment, software and office equipment are recorded
under capital leases that aggregated $1,588,000 as of June 30, 2001 and
2000. Accumulated depreciation on the assets recorded under capital leases
aggregated $764,000 and $262,000 as of June 30, 2001 and 2000,
respectively. Depreciation expense was $1,361,000 and $619,000 as of June
30, 2001 and 2000, respectively, which included depreciation expense for
assets under capital leases of $251,000 and $200,000 as of June 30, 2001
and 2000, respectively.
Note 4. AMORTIZATION OF DEFERRED STOCK-BASED COMPENSATION
Deferred stock-based compensation included as a component of
stockholders equity is non-cash and has been presented, when amortized, as
a separate component of operating expense in the Company's statement of
operations. The following table shows the costs (in thousands) of such
charges as allocated to sales and marketing, development costs and general
and administrative expenses, which allocation is based on the functional
responsibilities of the underlying employees:
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2001 2000 2001 2000
-------- -------- -------- --------
Sales and marketing............. $ - $ 266 $ 1,872 $ 515
Development costs............... - 10 53 10
General and administrative...... - 6,327 17,878 9,275
-------- -------- -------- --------
$ - $ 6,603 $ 19,803 $ 9,800
======== ======== ======== ========
During the first quarter of 2001, the Company fully amortized the
remaining $19.8 million of deferred stock-based compensation for employee
stock options that became fully vested as a result of Comerica
Incorporated's acquisition of Imperial Bancorp, the parent of the Company's
majority controlling stockholder, which constituted a change in control of
the Company.
Note 5. OTHER INCOME (EXPENSE), NET
Other income (expense), net, consists of the following (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2001 2000 2001 2000
------- -------- -------- --------
Interest income................ $ 735 $ 1,275 $ 1,741 $ 2,415
Interest expense............... (30) (229) (63) (241)
Other income (expenses), net... 6 (1) (18) 5
------- -------- -------- --------
$ 711 $ 1,045 $ 1,660 $ 2,179
======= ======== ======== ========
Note 6. CONCENTRATION OF REVENUES
For the three and six months ended June 30, 2001, convenience fees from
tax payments to the IRS accounted for approximately 79% and 74% of the
Company's total revenues. This is comparable to the three and six months
ended June 20, 2000, when the convenience fees from tax payments to the IRS
accounted for approximately 85% and 80% of the Company's total revenues.
The Company's current agreement with the IRS (which expires in January
2003) authorizes the Company to collect credit card payments for balance
due, estimated and extension taxes and, beginning in 2002, current-year
delinquent tax and installment tax payments.
Note 7. SEGMENT INFORMATION
The Company operates in a single operating segment within the United
States of America. The Chief Executive Officer (CEO) has been identified as
the Chief Operating Decision Maker because he has final authority over
resource allocation decisions and performance assessment. The CEO reviews
revenues by product for purposes of making operating decisions and
assessing financial performance. The financial information reviewed by the
CEO is consistent with the information presented in the accompanying
condensed statements of operations.
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2001 2000 2001 2000
-------- -------- -------- --------
Revenues by product are
Transaction fees:
Federal............... $ 15,595 $ 15,063 $ 17,236 $ 15,585
State................. 2,382 1,319 2,867 1,602
Local................. 1,807 1,333 3,183 2,352
-------- -------- -------- --------
Total revenues.......... $ 19,784 $ 17,715 $ 23,286 $ 19,539
======== ======== ======== ========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information in this report contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as
amended, and section 21E of the Securities Exchange Act of 1934, as
amended. Any statements contained herein that are not statements of
historical facts may be deemed to be forward-looking statements. For
example, words such as "may", "will", "should", "estimates", "predicts",
"potential", "continue", "strategy", "believes", "anticipates", "plans",
"expects", "intends", and similar expressions are intended to identify
forward-looking statements. Such statements are based upon the current
economic environment and current expectations that involve risks and
uncertainties, including, but not limited to statements regarding the
Company's competitive position, expected operating and financial
performance, business model and expected growth of electronic payments to
government entities. All forward-looking statements included in this report
are based upon information available to the Company as of the date hereof.
You are cautioned that these statements are not guarantees of future
performance. The Company's actual results and the timing of certain events
may differ significantly from those anticipated in, or caused by, any
forward-looking statements as a result of certain risks and uncertainties,
including, without limitation, general economic and business conditions,
major systems failures, constraints in capacity, rapid technological
changes, ability to retain existing government contracts and enter into new
government contracts, competitive nature of the market in which the Company
competes, pricing pressures, changes in laws and regulations (including
changes in the ability or predisposition of government entities to accept
directly payments by credit card), the continued development of the
Company's products, and the lack of widespread market acceptance of the
Company's products. A more complete description of these and other risks
and uncertainties associated with the Company's business can be found in
the Company's filings with the United States Securities and Exchange
Commission, including its Annual Report on Form 10-K for the year ended
December 31, 2000. The Company does not undertake any obligation to update
publicly any forward-looking statement, whether as a result of new
information, future events or otherwise.
Overview
The Company is a leading provider of electronic payment options to
government entities, enabling consumers to use their credit cards and
"pin-less" debit cards to pay, by the Internet or the telephone, personal
federal and state income taxes, sales and use taxes, property taxes,
tuition payments, motor vehicles fees, fines for traffic violations and
parking citations and other government-imposed taxes and fees. As of June
30, 2001, the Company offered approximately 1,493 services to approximately
910 government entities, including the IRS for whom the Company accepted
via the Internet and telephone balance-due and estimated tax payments for
the 2000 tax year, as well as estimated payments for the 2001 tax year.
The Company's most recent contract with the IRS had an initial one-year
term, with the IRS having the option to renew the contract for one
additional year (i.e., through January 2003). The IRS exercised this
renewal option in March 2001. On August 1, 2001, the Company announced that
the IRS further expanded the scope of its agreement with the Company to
include two additional credit card payment categories: current-year
delinquent tax payments and installment tax payments. In the three and six
months ended June 30, 2001, convenience fees from tax payments to the IRS
accounted for approximately 79% and 74% of the Company's total revenues. If
the IRS does not continue to select the Company's services in subsequent
years, the business, operating results and financial condition of the
Company would be materially and adversely affected.
As of June 30, 2001, the Company was providing its payment services to
the District of Columbia, as well as the states of Alabama, California,
Connecticut, Illinois, Iowa, Kansas, Maryland, Minnesota, Mississippi, New
Jersey, New York, Ohio, Oklahoma, Virginia, and Wisconsin. In addition, as
of June 30, 2001, the Company had entered into agreements to provide its
services for the following states: Arkansas, Washington and West Virginia.
The Company's revenues consist primarily of convenience fees, which are
transaction fees paid by consumers for using the Company's credit card
payment services. For processing many payments (including personal federal
and state income tax payments, sales and use tax payments and property tax
payments), the amount of the convenience fee charged varies based on the
specific amount of the government obligation. For processing other types of
payments (including fines for traffic violations and parking citations),
the amount of the convenience fee charged is fixed, regardless of the
specific amount of the government obligation. Total revenues have increased
significantly since the Company started providing services in January 1999
for personal federal income tax payments.
The Company's primary cost of revenues is the merchant discount fees
paid to its credit card processors, which is a function of the total amount
paid by the consumer, the specific credit card used and the type of
transaction. The Company also incurs telecommunications costs and IVR
license royalty fees through its telephone conduit and third party
technology license fees for payments completed via the Company's Internet
conduit.
Operating expenses include sales and marketing expenses, development
costs, general and administrative expenses, depreciation expenses,
amortization of deferred stock-based compensation, and severance and other
related charges. The largest component of these expenses, amortization of
deferred stock-based compensation, amounted to approximately $19.8 million
for the six months ending June 30, 2001. In January 2001, the company
completely amortized the deferred stock-based compensation for employee
stock options that became fully vested as a result of Comerica
Incorporated's acquisition of Imperial Bancorp, the parent of the Company's
majority controlling stockholder, which constituted a change of control of
the Company.
Sales and marketing expenses consist primarily of advertising expenses
and salaries and commissions for sales and marketing personnel. Development
costs consist primarily of salaries for engineering personnel. General and
administrative expenses consist primarily of salaries and other
compensation expense for executive, finance, customer service and
administrative personnel.
The Company has incurred significant losses since inception and expects
to continue to incur losses for the foreseeable future. The Company
recognizes that further reductions in its operating losses are contingent
upon its ability to increase consumer adoption rates of its services and to
obtain lower merchant discount fees charged by the credit card companies.
In addition, the Company is continuing to examine additional ways to
improve the Company's internal operating efficiencies in order to reduce
costs.
As of June 30, 2001, the Company had an accumulated deficit of
approximately $69.2 million.
RECENT EVENTS
On August 7, 2001, Vernon Loucks Jr. resigned as a director of the
Company for personal reasons unrelated to the Company.
On August 1, 2001, the Company announced that the IRS has authorized
the Company to collect credit card payments in two new categories:
current-year delinquent tax payments and installment tax payments.
Commencing on May 1, 2002, individual taxpayers who receive delinquent
balance-due return payment notices from the IRS for taxes owed for tax year
2001 will have the option of using the Company's services to make such
payments. In addition, beginning January 11, 2002, individual taxpayers who
have installment agreements with the IRS for tax years 1998 though 2001
will be able to use the Company's services to make their installment
payments by credit card.
NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 2001, the Company adopted Financial Accounting Standards
Board Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities", which requires all derivatives to be recorded on the balance
sheet at fair value. The Company's adoption did not have any effect on our
financial position or results of operations.
In June 2001, the Financial Accounting Standards Board issued Statement
No. 141, "Business Combinations" (FAS 141), and Statement No. 142,
"Goodwill and Other Intangible Assets" (FAS 142). FAS 141 requires the
purchase method of accounting be used for all business combinations
initiated after June 30, 2001. Use of the pooling-of-interests method is
prohibited. FAS 141 also provides new criteria to determine whether an
acquired intangible asset should be recognized separately from goodwill.
Upon adoption of FAS 142, amortization of existing goodwill would cease
and the remaining book value would be tested for impairment at least
annually at the reporting unit level using a new two-step impairment test.
Amortization of goodwill recorded on equity investments would also cease,
but this embedded goodwill will continue to be tested for impairment under
current accounting rules for equity investments. In addition, the Company
will have adjustments to the equity in net income of affiliates line item
to reflect the impact of adopting these new statements on the operations of
our equity investments.
The Company will adopt both statements on January 1, 2002 and Company
does not have any goodwill as of June 30, 2001.
RESULTS OF OPERATIONS
The following table sets forth, for the periods illustrated, certain
statement of operations data expressed as a percentage of total revenues.
The data has been derived from the unaudited financial statements contained
in this report, which in management's opinion, have been prepared on
substantially the same basis as the audited financial statements and
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial information for the
periods presented. The operating results for any period should not be
considered indicative of the results for any future period. This
information should be read in conjunction with the financial statements
included in this report, as well as the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000.
STATEMENT OF OPERATIONS DATA:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- --------------------------
2001 2000 2001 2000
------- ------- ------- -------
Net revenues.................. 100% 100% 100% 100%
Cost and expenses:
Cost of revenues........... 87 80 86 81
Sales and marketing........ 13 15 21 35
Development costs.......... 5 3 9 5
General and administrative. 12 16 19 26
Depreciation 5 2 6 3
Amortization of deferred
stock-based compensation. - 17 85 32
Severance and other related
Other related charges - 23 - 21
------- ------- ------- -------
Total costs and expenses 122 156 226 203
------- ------- ------- -------
Loss from operations.... (22) (56) (126) (103)
Other income, net........ 4 6 7 12
------- ------- ------- -------
Net loss................ (18)% (50)% (119)% (91)%
======= ======= ======= =======
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2001 AND 2000
REVENUES
Total Net Revenues. Total net revenues increased $2.1 million to $19.8
million for the three months ended June 30, 2001 from $17.7 million
for the three months ended June 30, 2000, an increase of 12%. This
increase is primarily attributable to two factors. First, compared to
the year prior period, the Company processed an increased amount of
federal balance-due, extension and estimated income tax payments and
state income and sales and use tax payments. Second, additional state
and local clients and services added by the Company between June 30,
2000 and June 30, 2001, resulted in increased revenues from the
processing of additional state and local taxes. These two factors were
partially offset by a decrease in the average convenience fee rate
charged for federal and state income and sales and use taxes compared
to the year prior period.
Federal Transaction Fees. Federal transaction revenues consist of fees
earned in connection with processing payments related to personal
federal balance-due, extension and estimated income taxes. Federal
transaction fees increased $500,000 to $15.6 million for the three
months ended June 30, 2001 from $15.1 million for the three months
ended June 30, 2000, an increase of 4%. The increase in revenues is
primarily attributable to the growth in payments processed of 15% over
the prior year period. This was largely offset by a decrease of 9% in
the average convenience fee rate charged from 2.76% of the dollar
amount processed for the three months ended June 30, 2000 to 2.50% for
the three months ended June 30, 2001. For the three months ended June
30, 2001, the Company processed approximately 179,000 transactions
totaling $627.6 million, compared to approximately 164,000
transactions totaling $545.7 million for the three months ended June
30, 2000. Federal transaction fees represented 79% of total revenues
for the three months ended June 30, 2001 compared to 85% of total
revenues for the three months ended June 30, 2000.
State Transaction Fees. Revenues from processing state payments are
related to state income tax payments for balance-due, extension, and
estimated personal income taxes and sales and use tax payments to the
District of Columbia and the states of Alabama, California,
Connecticut, Illinois, Iowa, Kansas, Maryland, Minnesota, Mississippi,
New Jersey, New York, Ohio, Oklahoma, Virginia, and Wisconsin. State
transaction fees increased $1.1 million to $2.4 million for the three
months ended June 30, 2001 from $1.3 million for the three months
ended June 30, 2000, an increase of 81%. For the three months ended
June 30, 2001, the Company processed approximately 82,000 transactions
totaling $94.2 million, compared to approximately 36,900 transactions
totaling $46.0 million for the three months ended June 30, 2000. The
increase in revenues is primarily related to growth in existing
government client collections, additional state contracts, and
additional payment services and options provided to existing state
clients. The Company processed income tax payments for 15 states (and
the District of Columbia) during the three months ended June 30, 2001,
as compared to six states (and the District of Columbia) during the
three months ended June 30, 2000. On average, during the three months
ended June 30, 2001, the Company charged consumers a convenience fee
equal to 2.5% of the dollar amount of the payment for processing state
income and sales and use taxes, as compared to a 2.9% convenience fee
in the three months ended June 30, 2000, a decrease of 14%. State
transaction fees represented 12% of total revenues for the three
months ended June 30, 2001 compared to 7% of total revenues for the
three months ended June 30, 2000.
Local Transaction Fees. Revenues from processing local payments
consist of property taxes, traffic violations, parking citations, fax
filing, utility payments, and other miscellaneous payments. Local
transaction fees increased $500,000 to $1.8 million for the three
months ended June 30, 2001 from $1.3 million for the three months
ended June 30, 2000, an increase of 36%. For the three months ended
June 30, 2001, the Company processed approximately 176,000
transactions totaling $64.9 million, compared to approximately 133,000
transactions totaling $47.0 million for the three months ended June
30, 2000. Revenues from processing property tax payments increased
$313,000 to $982,000 for the three months ended June 30, 2001 from
$669,000 for the three months ended June 30, 2000, an increase of 47%.
Revenues from processing fines for traffic violations increased
$19,000 to $378,000 for the three months ended June 30, 2001 from
$359,000 for the three months ended June 30, 2000, an increase of 5%.
Revenues from processing fines for parking citations increased $17,000
to $125,000 for the three months ended June 30, 2001 from $108,000 for
the three months ended June 30, 2000, an increase of 16%. Revenues
from other transaction fees increased $105,000 to $235,000 for the
three months ended June 30, 2001 from $130,000 for the three months
ended June 30, 2000, an increase of 81%. Additional property tax,
moving violation, and parking citation clients and growth in existing
government client collections contributed to the increase in local
transaction fees. Local transaction fees represented 9% of total
revenues for the three months ended June 30, 2001 compared to 8% of
total revenues for the three months ended June 30, 2000.
COST AND EXPENSES
Cost of Revenues. Cost of revenues increased $2.9 million to $17.2
million for the three months ended June 30, 2001 from $14.3 million
for the three months ended June 30, 2000, an increase of 21%. The
largest component of cost of revenues, merchant discount fees,
increased $3.2 million to $16.8 million for the three months ended
June 30, 2001 from $13.6 million for the three months ended June 30,
2000, an increase of 23%. The cost of Internet and telecommunication
charges for the Company's Internet and IVR systems decreased $191,000
to $327,000 for the three months ended June 30, 2001 from $518,000 for
the three months ended June 30, 2000, a decrease of 37%. The decrease
is primarily attributable to lower rates negotiated with one of the
Company's telecommunications carriers and a higher percentage of
transactions processed through the Company's Internet platform, which
involves a lower cost per transaction than the IVR. Other cost of
transaction fees decreased $36,000 to $81,000 for the three months
ended June 30, 2001 from $117,000 for the three months ended June 30,
2000. Cost of revenues was 87% of total revenues for the three months
ended June 30, 2001, compared to 80% for the three months ended June
30, 2000.
Sales and Marketing. Sales and marketing expenses decreased $100,000
to $2.5 million for the three months ended June 30, 2001 from $2.6
million for the three months ended June 30, 2000. This was primarily a
result of a decrease in advertising expense of $100,000 from $1.6
million for the three months ended June 30, 2000 to $1.5 million for
the three months ended June 30, 2001, due to the cooperative
advertising agreement the Company entered into with its credit card
partners for an aggregate amount of $515,000. Sales and marketing
expenses represented 13% of total revenues for the three months ended
June 30, 2001 compared to 15% for the three months ended June 30,
2000.
Development Costs. Development costs increased $535,000 to $1.1
million for the three months ended June 30, 2001 from $522,000 for the
three months ended June 30, 2000. The increase is primarily
attributable to the increase in engineering personnel and related
salary costs. Development costs represented 5% of total revenues for
the three months ended June 30, 2001 compared to 3% for the three
months ended June 30, 2000.
General and Administrative. General and administrative expenses
decreased $400,000 to $2.4 million for the three months ended June 30,
2001 from $2.8 million for the three months ended June 30, 2000.
General and administrative expenses represented 12% of total revenues
for the three months ended June 30, 2001 compared to 16% for the three
months ended June 30, 2000.
Depreciation. Depreciation and amortization increased $478,000 to
$907,000 for the three months ended June 30, 2001 from $429,000 for
the three months ended June 30, 2000. The increase is primarily
related to the purchase of computer equipment and software in
connection with adding functionality to the Company's Web site.
Depreciation and amortization represented 5% of total revenues for the
three months ended June 30, 2001 compared to 2% for the three months
ended June 30, 2000.
Amortization of deferred stock-based compensation. The Company did not
have any amortization of deferred stock-based compensation during the
quarter ended June 30, 2001 compared to $3.0 million for the three
months ended June 30, 2000. The Company fully amortized the remaining
$19.8 million of deferred stock-based compensation in January 2001,
when the employee stock options (for which the original expense charge
had been taken) became fully vested as a result of Comerica
Incorporated's acquisition of Imperial Bancorp, the parent of the
Company's majority controlling stockholder, (thereby effectuating a
change in control of the Company). Prior to the Comerica/Imperial
transaction, the Company expected to amortize the deferred stock-based
compensation charge over the next six consecutive quarters through the
second quarter of 2002. Amortization of deferred stock-based
compensation represented 17% of total revenues for the three months
ended June 30, 2000.
Severance and other related charges. The Company did not have any
severance and other related charges during the quarter ended June 30,
2001 compared to $4.1 million for the three months ended June 30,
2000. The severance and other related charges during the second
quarter of 2000 related to the departure of the Company's former Chief
Financial Officer.
OTHER INCOME, NET
Other income, net, consists of interest income, interest expense and
other non-operating expenses. Other income, net, decreased by $289,000
to $711,000 for the three months ended June 30, 2001 compared to $1.0
million in other income, net for the three months ended June 30, 2000.
This decrease is directly related to lower interest income resulting
from lower average cash balances and lower average interest rate
earned during the recent period, as compared to the second quarter of
fiscal year 2000.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
REVENUES
Total Net Revenues. Total net revenues increased $3.8 million to $23.3
million for the six months ended June 30, 2001 from $19.5 million for
the six months ended June 30, 2000, an increase of 19%. This increase
is primarily attributable to two factors. First, compared to the year
prior period, the Company processed an increased amount of federal
balance-due, extension and estimated income tax payments and state
income and sales and use tax payments. Second, additional state and
local clients and services added by the Company between June 30, 2000
and June 30, 2001, resulted in increased revenues from the processing
of additional state and local taxes. These two factors were partially
offset by a decrease in the average convenience fee rate charged for
federal and state income and sales and use taxes compared to the year
prior period.
Federal Transaction Fees. Federal transaction revenues consist of fees
earned in connection with processing payments related to personal
federal balance-due, extension and estimated income taxes. Federal
transaction fees increased $1.6 million to $17.2 million for the six
months ended June 30, 2001 from $15.6 million for the six months ended
June 30, 2000, an increase of 11%. The increase in revenues is
primarily attributable to the growth in payments processed of 23% over
the prior year period. This was largely offset by a decrease of 9.8%
in the average convenience fee rate charged from 2.76% of the dollar
amount processed for the six months ended June 30, 2000 to 2.50% for
the six months ended June 30, 2001. For the six months ended June 30,
2001, the Company processed approximately 198,000 transactions
totaling $692.3 million, compared to approximately 175,000
transactions totaling $564.2 million for the six months ended June 30,
2000. Federal transaction fees represented 74% of total revenues for
the six months ended June 30, 2001 compared to 80% of total revenues
for the six months ended June 30, 2000.
State Transaction Fees. Revenues from processing state payments are
related to state income tax payments for balance-due, extension, and
estimated personal income taxes and sales and use tax payments to the
District of Columbia and the states of Alabama, California,
Connecticut, Illinois, Iowa, Kansas, Maryland, Minnesota, Mississippi,
New Jersey, New York, Ohio, Oklahoma, Virginia, and Wisconsin. State
transaction fees increased $1.3 million to $2.9 million for the six
months ended June 30, 2001 from $1.6 million for the six months ended
June 30, 2000, an increase of 79%. For the six months ended June 30,
2001, the Company processed approximately 98,000 transactions totaling
$112.9 million, compared to approximately 44,900 transactions totaling
$55.6 million for the six months ended June 30, 2000. The increase in
revenues is primarily related to growth in existing government client
collections, additional state contracts, and additional payment
services and options provided to existing state clients. The Company
processed income tax payments for 15 states (and the District of
Columbia) during the six months ended June 30, 2001, as compared to
six states (and the District of Columbia) during the six months ended
June 30, 2000. On average, during the six months ended June 30, 2001,
the Company charged consumers a convenience fee equal to 2.5% of the
dollar amount of the payment for processing state income and sales and
use taxes, as compared to a 2.9% convenience fee in the six months
ended June 30, 2000, a decrease of 12%. State transaction fees
represented 12% of total revenues for the six months ended June 30,
2001 compared to 8% of total revenues for the six months ended June
30, 2000.
Local Transaction Fees. Revenues from processing local payments
consist of property taxes, traffic violations, parking citations, fax
filing, utility payments, and other miscellaneous payments. Local
transaction fees increased $1.0 million to $3.1 million for the six
months ended June 30, 2001 from $2.1 million for the six months ended
June 30, 2000, an increase of 45%. For the six months ended June 30,
2001, the Company processed approximately 330,000 transactions
totaling $102.0 million, compared to approximately 239,000
transactions totaling $70.2 million for the six months ended June 30,
2000. Revenues from processing property tax payments increased
$623,000 to $1.6 million for the six months ended June 30, 2001 from
$977,000 for the six months ended June 30, 2000, an increase of 64%.
Revenues from processing fines for traffic violations increased
$72,000 to $752,000 for the six months ended June 30, 2001 from
$680,000 for the six months ended June 30, 2000, an increase of 11%.
Revenues from processing fines for parking citations increased $65,000
to $272,000 for the six months ended June 30, 2001 from $207,000 for
the six months ended June 30, 2000, an increase of 31%. Revenues from
other transaction fees increased $196,000 to $449,000 for the six
months ended June 30, 2001 from $253,000 for the six months ended June
30, 2000, an increase of 77%. Additional property tax, moving
violation, and parking citation clients and growth in existing
government client collections contributed to the increase in local
transaction fees. Local transaction fees represented 14% of total
revenues for the six months ended June 30, 2001 compared to 12% of
total revenues for the three months ended June 30, 2000.
COST AND EXPENSES
Cost of Revenues. Cost of revenues increased $4.2 million to $20.0
million for the six months ended June 30, 2001 from $15.8 million for
the six months ended June 30, 2000, an increase of 27%. The largest
component of cost of revenues, merchant discount fees, increased $4.7
million to $19.3 million for the six months ended June 30, 2001 from
$14.6 million for the six months ended June 30, 2000, an increase of
32%. The cost of Internet and telecommunication charges for the
Company's Internet and IVR systems decreased $323,000 to $590,000 for
the six months ended June 30, 2001 from $913,000 for the six months
ended June 30, 2000, a decrease of 35%. The decrease is primarily
attributable to lower rates negotiated with one of the Company's
telecommunications carriers, one time installation charges that were
incurred in February 2000, and a higher percentage of transactions
processed through the Company's Internet platform, which involves a
lower cost per transaction than the IVR. Other cost of transaction
fees decreased $51,000 to $122,000 for the six months ended June 30,
2001 from $173,000 for the six months ended June 30, 2000. Cost of
revenues was 86% of total revenues for the six months ended June 30,
2001, compared to 80% for the six months ended June 30, 2000.
Sales and Marketing. Sales and marketing expenses decreased $1.9
million to $4.9 million for the six months ended June 30, 2001 from
$6.8 million for the six months ended June 30, 2000. This was
primarily a result of a decrease in advertising expense of $1.9
million from $4.8 million for the six months ended June 30, 2000 to
$2.9 million for the six months ended June 30, 2001, due to the
cooperative advertising agreement the Company entered into with its
credit card partners for an aggregate amount of $515,000. Sales and
marketing expenses represented 21% of total revenues for the six
months ended June 30, 2001 compared to 35% for the six months ended
June 30, 2000.
Development Costs. Development costs increased $1.1 million to $2.1
million for the six months ended June 30, 2001 from $1.0 million for
the six months ended June 30, 2000. The increase is primarily
attributable to the increase in engineering personnel and related
salary costs. Development costs represented 9% of total revenues for
the six months ended June 30, 2001 compared to 5% for the six months
ended June 30, 2000.
General and Administrative. General and administrative expenses
decreased $600,000 to $4.5 million for the six months ended June 30,
2001 from $5.1 million for the six months ended June 30, 2000. General
and administrative expenses represented 19% of total revenues for the
six months ended June 30, 2001 compared to 26% for the six months
ended June 30, 2000.
Depreciation. Depreciation and amortization increased $742,000 to $1.4
million for the six months ended June 30, 2001 from $619,000 for the
three months ended June 30, 2000. The increase is primarily related to
the purchase of computer equipment and software in connection to
adding functionality to the Company's Web site. Depreciation and
amortization represented 6% of total revenues for the six months ended
June 30, 2001 compared to 3% for the six months ended June 30, 2000.
Amortization of deferred stock-based compensation. Amortization of
deferred stock-based compensation increased $13.6 million to $19.8
million for the six months ended June 30, 2001 from $6.2 million for
the six months ended June 30, 2000. The increase is primarily caused
by the full amortization of the $19.8 million deferred stock-based
compensation for employee stock options (for which the original
expense charge had been taken) that became fully vested as a result of
Comerica Incorporated's acquisition of Imperial Bancorp, the parent of
the Company's majority controlling stockholder, (thereby effectuating
a change in control of the Company). Prior to the Comerica/Imperial
transaction, the Company expected to amortize the deferred stock-based
compensation charge over the next six consecutive quarters through the
second quarter of 2002. Amortization of deferred stock-based
compensation represented 85% of total revenues for the six months
ended June 30, 2001 compared to 32% for the six months ended June 30,
2000.
Severance and other related charges. The Company did not have any
severance and other related charges during the six months ended June
30, 2001 compared to $4.1 million for the six months ended June 30,
2000. The severance and other related charges during the first half of
2000 related to the departure of the Company's former Chief Financial
Officer.
OTHER INCOME, NET
Other income, net, consists of interest income, interest expense and
other non-operating expenses. Other income, net, decreased by $500,000
to $1.7 million for the three months ended June 30, 2001 compared to
$2.2 million in other income, net for the three months ended June 30,
2000. This decrease is directly related to lower interest income
resulting from lower average cash balances and lower average interest
rate earned during the recent period, as compared to the first half of
fiscal year 2000.
INCOME TAXES
The Company has incurred operating losses during the period from its
incorporation on September 30, 1999 through June 30, 2001. The Company has
recorded a valuation allowance for the full amount of net deferred tax
assets, since the future realization of the tax benefit is not assured.
Prior to September 30, 1999, the Company was a California limited liability
company. Therefore, all tax operating losses were used by the members of
the limited liability company on their respective corporate tax returns.
LIQUIDITY AND CAPITAL RESOURCES
In November 1999, the Company completed the initial public offering of
its common stock and realized net proceeds from the offering of
approximately $78.7 million. Prior to the offering the Company had financed
its operations through private sales of common stock, with net proceeds of
$1.2 million, and through bank and shareholder loans. As of June 30, 2001,
the Company had $58.8 million in cash and short term investments, and $52.3
million in working capital.
Net cash used in operating activities was $4.6 million and $4.1 million
for the six months ended June 30, 2001 and 2000, respectively. The cash
used by operating activities for the six months ended June 30, 2001 was
primarily attributable to the Company's net loss offset by non-cash
operating expenses (such as amortization of deferred stock-based
compensation and depreciation) and a decrease in accounts receivable, and
an increase in funds due to government clients. The cash used in operating
activities for the six months ended June 30, 2000 was primarily
attributable to the Company's net loss offset by non-cash operating
expenses (such as amortization of deferred stock-based compensation and
depreciation) and an increase in accounts payable and accrued expenses.
Net cash provided from investing activities was $5.5 million and $2.9
million for the six months ended June 30, 2001 and 2000, respectively. In
2001, the Company increased its capital expenditures to continue building
its Internet platform to process federal, state and local payments via the
Internet. This was offset by the sale of short-term investments. In 2000,
the Company increased its IVR equipment purchases to add significant
capacity to process the higher volume of federal and state tax payments in
April 2000 and future periods. These expenditures were offset by the sale
of short-term investments during the six months ended June 30, 2000.
Net cash provided by financing activities was $421,000 and $1.9 million
for the six months ended June 30, 2001 and 2000, respectively. The cash
generated in the six months ended June 30, 2001 was primarily related to
the exercise of stock options by the Company's employees. The cash
generated in the first six months ended June 30, 2000 was primarily related
to the exercise of stock options by one of the Company's directors and
borrowings against a sale-leaseback agreement for IVR equipment. These cash
inflows were offset by the repayment of capital lease obligations.
The Company believes that its current cash resources will be sufficient
to meet its working capital and capital expenditures for the next two
years. The Company's capital and liquidity requirements depend on, and may
be materially and adversely by, numerous factors, including: consumer
utilization of its services, merchant discount fees charged by credit card
companies, economic conditions impacting the Company's revenue generation,
its resources that the Company devotes to developing, marketing, selling
and supporting its services, the resources the Company commits to
technological development and infrastructure and the cost of investment in
complementary businesses, technologies, or other strategic business
transactions.
SEASONALITY AND FLUCTUATION OF QUARTERLY RESULTS
The Company has generally experienced fiscal quarter over fiscal
quarter revenue growth with some seasonal fluctuations, primarily in the
second quarter. The fiscal quarter over fiscal quarter revenue growth is
due to an increase in the number of government clients and payment services
and an increase in utilization rates. The large increase in revenues in the
second quarter is due to processing personal federal and state balance-due
income tax payments in the month of April. The Company expects that results
for the second quarter of future years will continue to be impacted by the
April 15 deadline for paying personal federal and state income taxes. In
addition, the Company's revenues are also impacted by the timing of federal
and state estimated personal income tax payments (which are made quarterly)
and local property tax payments (which are made only once or twice per year
in many jurisdictions).
The Company has continued to incur operating expenses, which are not
classified as cost of revenues, as a result of increased marketing,
technological and other infrastructure costs associated with the growth in
the Company's government client base and transaction volume. Such expenses
are not expected to increase significantly and may actually decrease in
future quarters as the Company realizes efficiencies from its operating
infrastructure. However, if the Company is unable to control the growth of
such costs in any upcoming quarters or if revenues in any quarter do not
increase correspondingly with increases in operating expenses, the
Company's results for that quarter would be materially and adversely
affected.
For the foregoing reasons, the Company believes that comparisons of its
quarterly operating results are not necessarily meaningful and that the
Company's operating results in any particular quarter should not be relied
upon as necessarily indicative of future performance. In addition, it is
possible that in some future quarters the Company's operating results will
be below the expectations of research analyst and investors, and in that
case, the price of the Company's common stock is likely to decline.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's investment portfolio. The Company does
not use derivative financial instruments in its investment portfolio. The
primary objective of the Company's investment activities is to preserve
principal while maximizing yields without significantly increasing risk.
This is accomplished by investing in widely diversified investments,
consisting primarily of investment grade securities. Due to the nature of
the Company's investments, the Company believes that there is no material
risk exposure. All investments are carried at market value, which
approximates cost.
The table below represents principal amounts and related
weighted-average interest rates by year of maturity for the Company's
investment portfolio.
FY2001 FY2002 FY2003 FY2004 FY2005 Thereafter Total
------ ------ ------ ------ ------ --------- ------
Cash $ 5,112 $ - $ - $ - $ - $ - $ 5,112
Average interest rate 0.11% 0.00% 0.00% 0.00% 0.00% 0.00%
Short-term Investments $53,653 $ - $ - $ - $ - $ - $53,653
Average interest rate 4.15% 0.00% 0.00% 0.00% 0.00% 0.00%
------ ------ ------ ------ ------ --------- ------
Total cash and
Investments $58,765 $ - $ - $ - $ - $ - $58,765
====== ====== ====== ====== ====== ========= ======
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company currently is not involved in any material legal
proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On November 29, 1999, the Company completed the initial public offering
of its common stock. The managing underwriters in the offering were
Donaldson, Lufkin, & Jenrette, CIBC World Markets and DLJdirect Inc. The
shares of the common stock sold in the offering were registered under the
Securities Act of 1933, as amended, on a Registration Statement on Form S-1
(No. 333-87325). The Securities and Exchange Commission declared the
Registration Statement effective on November 22, 1999.
The offering commenced on November 23, 1999 and was completed on
November 29, 1999 after the Company had sold all of the 5,750,000 shares of
common stock registered under the Registration Statement (including 750,000
shares sold in connection with the exercise of the underwriters'
over-allotment option). The initial public offering price was $15.00 per
share, resulting in gross proceeds from the initial public offering of
$86.2 million.
The Company paid a total of $6.0 million in underwriting discounts and
commissions and approximately $1.5 million has been incurred for costs and
expenses related to the offering. None of the costs and expenses related to
the offering were paid directly or indirectly to any director or officer of
the Company or their associates, persons owning 10 percent or more of any
class of equity securities of the Company or an affiliate of the Company.
After deducting the underwriting discounts and commissions and the
offering expenses, the estimated net proceeds to the Company from the
offering were approximately $78.7 million. The net offering proceeds have
been used to make the following payments: approximately $2.0 million for
the purchase and installation of computer equipment to expand transaction
processing capabilities; approximately $5.4 million to add capacity, new
features and additional security and privacy measures to its Web site;
approximately $1.5 million for the build-out of the Company's headquarters
in Stamford, Connecticut and expansion of its leased office space in San
Ramon, California; and approximately $8.1 million for direct marketing and
promotional activities. Except for $135,000 and $151,000 paid to Imperial
Bank in 2000 and 1999, respectively, for the provision of certain general
administrative services, none of these costs or expenses were paid directly
or indirectly to any director or officer of the Company or their
associates, persons owning 10 percent or more of any class of equity
securities of the Company or an affiliate of the Company. In the future,
the Company may use a portion of its net proceeds to acquire or invest in
businesses, technologies, products or services (which amount has not been
specifically allocated as of the date hereof). Unused proceeds are invested
in short-term investments.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of the Company was held on May 8,
2001. The following nine nominees were elected as directors of the Company
for a one-year term:
Total Vote Total Vote Withheld
Nominee For Each Nominee For Each Nominee
------- ---------------- -------------------
Andrew Cohan 21,113,055 38,820
Christos M. Cotsakos 21,113,055 38,820
Thomas R. Evans 21,113,055 38,820
George L. Graziadio, Jr. 21,113,055 38,820
John D. Lewis 21,113,055 38,820
Vernon Loucks Jr. 21,113,055 38,820
Lee E. Mikles 21,113,055 38,820
Bruce S. Nelson 21,113,055 38,820
Kenneth Stern 21,113,055 38,820
The stockholders also ratified the selection of the firm KPMG LLP as
independent auditors for the fiscal year ending December 31, 2001, with
21,141,079 shares voting in favor, 9,146 shares voting against and 1,650
shares abstaining.
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant has caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
OFFICIAL PAYMENTS CORPORATION
August 15, 2001 By: /s/ Thomas R. Evans
---------------------------
Thomas R. Evans
Chairman of the Board and Chief Executive
Officer
August 15, 2001 By: /s/ Edward J. DiMaria
---------------------------
Edward J. DiMaria
Chief Financial Officer