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 March 31, 2002
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
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (203) 356-4200
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N/A
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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 May 10, 2002, 22,932,876 shares of the registrant's common
stock were issued and outstanding.
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OFFICIAL PAYMENTS CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2002
TABLE OF CONTENTS
ITEM PAGE NUMBER
- ---------- ----------
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements............................................3
Condensed Balance Sheets as of March 31, 2002
and December 31, 2001...........................................3
Condensed Statements of Operations for the three
months ended March 31, 2002 and 2001............................4
Condensed Statements of Cash Flows for the three
months ended March 31, 2002 and 2001............................5
Notes to the Condensed Financial Statements.....................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk....................................................18
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
Index to Exhibits
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OFFICIAL PAYMENTS CORPORATION
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
March 31, December 31,
2002 2001
------------- ------------
(Unaudited)
ASSETS
Current assets:
Cash ............................................. $ 2,097 $ 3,569
Short-term investments............................ 43,214 45,561
Accounts receivable, net.......................... 6,545 3,666
Prepaid expenses and other current assets......... 115 105
-------- --------
Total current assets............................. 51,971 52,901
Property and equipment, net......................... 5,971 6,902
Other assets........................................ 44 44
-------- --------
Total assets.................................... $ 57,986 $ 59,847
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 4,947 $ 3,323
Accrued merchant discount fees.................... 1,473 1,775
Accrued payroll................................... 223 274
Accrued expenses.................................. 2,308 2,106
Restructuring obligations......................... 1,550 2,038
Current portion of capital lease obligations...... 532 543
-------- --------
Total current liabilities....................... 11,033 10,059
Long-term portion of capital lease obligations...... 52 165
Long-term restructuring obligations................. 1,945 2,029
-------- --------
Total liabilities............................... 13,030 12,253
-------- --------
Stockholders' equity:
Common stock, $.01 par value; 150,000,000 shares
authorized; 22,254,251 and 21,981,615 shares
issued and outstanding as of March 31, 2002
and December 31, 2001, respectively............. 223 220
Additional paid-in capital........................ 130,487 130,127
Accumulated other comprehensive loss.............. (41) -
Accumulated deficit............................... (85,713) (82,753)
-------- --------
Total stockholders' equity...................... 44,956 47,594
-------- --------
Total liabilities and stockholders' equity...... $ 57,986 $ 59,847
======== ========
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 March 31,
----------------------------
2002 2001
-------- --------
Revenues............................................ $ 4,346 $ 3,502
Cost and expenses:
Cost of revenues.................................. 3,128 2,805
Sales and marketing .............................. 1,039 2,380
Development costs................................. 876 1,039
General and administrative ....................... 1,557 2,105
Depreciation expense.............................. 927 454
Amortization of deferred stock-based compensation. - 19,803
-------- --------
Total operating expenses.......................... 7,527 28,586
-------- --------
Loss from operations................................ (3,181) (25,084)
Other income, net................................... 221 949
-------- --------
Net loss............................................ $ (2,960) $(24,135)
======== =========
Basic and diluted net loss per share................ $ (0.13) $ (1.10)
======== =========
Weighted average shares used in computing basic and
diluted net loss per share....................... 22,027 21,846
======== =========
See accompanying notes to unaudited condensed financial statements.
OFFICIAL PAYMENTS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended March 31,
----------------------------
2002 2001
-------- --------
Cash flows used in operating activities:
Net loss............................................. $ (2,960) $ (24,135)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation expense............................ 927 454
Amortization of deferred stock-based
compensation................................. - 19,803
Bad debt expense............................... 6 -
Changes in operating assets and liabilities:
Accounts receivable, net................... (2,885) 1,294
Prepaid expenses and other assets.......... (10) 166
Accounts payable and accrued merchant
discount fees, payroll and expenses..... 1,473 4,188
Restructuring obligations.................. (572) -
-------- --------
Net cash provided by (used in) operating activities.... (4,021) 1,770
-------- --------
Cash flows from investing activities:
Proceeds from sale of short-term investments, net ... 2,306 4,115
Capital expenditures................................. 4 (1,270)
-------- --------
Net cash provided by investing activities.............. 2,310 2,845
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options, net......... 363 643
Repayment of capital leases obligations.............. (124) (126)
-------- --------
Net cash provided by financing activities..... 239 517
-------- --------
Net increase (decrease)in cash......................... (1,472) 5,132
Cash at the beginning of the period.................... 3,569 3,783
-------- --------
Cash at the end of the period.......................... $ 2,097 $ 8,915
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest................................. $ 6 $ 32
======== ========
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" or "Official Payments") is
a leading provider of electronic payment options to government entities,
enabling consumers to use their credit cards to pay, through the Internet or
by telephone, federal and state income taxes, sales and use taxes, real
estate and personal property taxes, tuition payments, utility 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, parking citations and real estate and
personal property taxes. In 1998, the Company signed a credit card payment
contract with the Internal Revenue Service ("IRS") to provide its services
for the payment by telephone of personal federal "balance due" income tax in
1999. In 2000, the Company began processing estimated and extension tax
payments, as well. In 2000, the Company entered into a contract with the IRS
for an initial one-year term (2001), which the IRS subsequently renewed for
an additional year (2002). That contract authorized the Company to collect
credit card payments via its Internet platform, as well as by telephone. In
August 2001, the Company announced that the IRS had further expanded the
scope of its agreement with the Company to include two additional payment
categories beginning in 2002: current-year delinquent tax payments and
installment tax payments. In late April 2002, the IRS awarded the Company a
new contract to continue providing its electronic credit card payment
services for an initial one-year term, with the IRS having the option to
renew this new contract for four additional one-year terms.
As of March 31, 2002, the Company was processing, or had recently
entered into agreements to process, payments for the District of Columbia, 21
state governments and over 1,200 counties and municipalities in all 50
states. The highest concentrations of local government entities serviced by
the Company are in California, Michigan, Texas, Virginia and Washington.
Comerica Incorporated, a financial holding company, is the record owner
of approximately 52% of the outstanding common stock of the Company.
BASIS OF PRESENTATION
The accompanying condensed financial statements as of March 31, 2002 and
the three months ended March 31, 2002 and 2001, are unaudited. The condensed
balance sheet at December 31, 2001 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 March 31, 2002 and for the three months ended March 31, 2002 and 2001.
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, 2001. The results for the three months ended March 31, 2002 are
not necessarily indicative of the expected results for the year ending
December 31, 2002.
USE OF 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 reported results of operations during the reporting period.
Some of the significant estimates embedded in the financial statements
include the allowance for sales returns, doubtful accounts, and accruals for
restructuring obligations and facility consolidations. With respect to
estimating the allowance for doubtful accounts, management analyzes its
historical reversals and chargebacks experience, the aging of accounts
receivable, customer and product specific factors and client credit
worthiness. In determining restructuring obligations, management considered
the number of individuals affected by the action, the expected date of
termination and the applicable severance amount. In addition, for lease
termination obligations, management considered the actual or expected date of
termination and did not consider any possible sublease income since the
realization of sublease income is not probable and is not estimable.
RECLASSIFICATION
Certain amounts in financial statements for prior years have been
reclassified to conform to the current year's presentation.
CASH AND RESTRICTED CASH
Cash consists of demand deposits and certificates of deposit with
original maturities of three months or less.
In December 1999, the Company entered into a letter of credit agreement
to secure a facilities operating lease for the corporate headquarters located
in Stamford, Connecticut. As part of this agreement, the Company is required
to hold a three-month certificate of deposit as a form of security for the
letter of credit. As of March 31, 2002, the three-month certificate of
deposit amounted to approximately $151,000.
SHORT-TERM INVESTMENTS
As of March 31, 2002, the Company had short-term investments of $43.2
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 twelve months. Such short-term investments are recorded
at fair value, with unrealized holding losses reported as a separate
component of stockholders' equity. As of March 31, 2002, the unrealized
holding losses were approximately $41,000. There were no unrealized holding
losses as of December 31, 2001.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a
concentration of credit risk consist principally of cash and cash
equivalents, short-term investments and accounts receivable. The Company
performs ongoing credit evaluations of its clients and generally does not
require collateral. Uncollectible accounts have been insignificant to date.
Most of the Company's agreements with its clients (including the IRS)
can be terminated by the respective client without cause on short notice,
generally 30 to 90 days. In addition, a client may choose not to renew its
contract with the Company or may not choose the Company's proposal in
response to a Request for Proposals to perform additional service or the
existing service in subsequent time periods. If one of the Company's larger
existing government clients (such as the IRS) chooses to terminate its
contract or memorandum of understanding with the Company, the business,
operating results and financial condition of the Company could be materially
and adversely affected.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 144, "Accounting for the Impairment of Disposal of Long-Lived Assets,"
the Company periodically evaluates its long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount
of such assets may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of any asset to
future net cash flows expected to be generated by the asset and the Company's
terminal value. If any assets are considered to be impaired, the impairment
to be recognized in the current period is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Since
June 26, 1996 (inception) through March 31, 2002, no impairment losses have
been identified.
RESTRUCTURING CHARGE
Restructuring activities are accounted for in accordance with the
guidance provided by the Emerging Issue Task Force (EITF) in EITF Issue No.
94-3 "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity" and the Securities and Exchange Commission
in SAB No. 100 "Restructuring and Impairment Charges." With respect to the
recognition of restructuring expenses, these two pronouncements generally
require management approval of the restructuring plan, the determination of
the employees to be terminated and communication of the severance benefits
arrangement to the employees.
STOCK-BASED COMPENSATION
The Company uses the intrinsic value method of accounting for all of its
employee stock-based compensation plans. Expense associated with stock-based
compensation is being amortized on a straight-line basis over the vesting
period of the individual awards consistent with the method described in
Accounting Principles Board (APB) Opinion No. 25.
In the first quarter of 2001, the Company fully amortized the $19.8
million of 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.
COMPREHENSIVE LOSS
Comprehensive loss is comprised of net loss and unrealized losses on
available-for sale marketable securities. The Company's comprehensive loss is
as follows (in thousands):
THREE MONTHS ENDED MARCH 31,
----------------------------
2002 2001
-------- --------
Net loss ....................................... $ (2,960) $(24,135)
Change in unrealized loss on
available-for-sale securities............... (41) -
--------- ----------
$ (3,001) $(24,135)
========= ==========
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 obligation being paid. Revenues are recognized in the period in
which the services are provided. The revenues are presented net of a
provision for convenience fees when the collection of the amount due is not
reasonably assured but is estimated and established in the period in which
the services are provided.
In the normal course of business and with respect to certain government
clients, the Company collects tax payments in addition to the convenience
fees, and then forwards the tax payments to the government entities. The
Company's obligation with respect to the tax payments totaled approximately
$0, and $678,000 at March 31, 2002 and December 31, 2001, respectively and is
included in Accounts Payable on the accompanying balance sheet.
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 $220,000 and $1.4 million for the three months ended
March 31, 2002 and 2001, respectively.
In 2001 and the beginning of 2002, the Company entered into cooperative
advertising arrangements with four of its credit card partners pursuant to
which it will receive a total of $900,000 from the companies for use in the
Company's 2002 April tax season advertising campaign. The Company considers
these funds to be a reimbursement of costs incurred and nets the proceeds
against advertising expenses as incurred.
ACCOUNTING FOR INCOME TAXES
Income taxes are recorded using the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carry-forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect of a change in tax rate on deferred tax
assets and liabilities is recognized in income in the period that includes
the tax rate change enactment date. A valuation allowance is recorded to
reduce deferred tax assets reported if, based on the weight of the available
evidence, it is more likely than not that some portion or all of the deferred
tax asset will not be realized.
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 does not include the effect of 3,890,475 and
4,422,278 options to purchase common stock with a weighted average exercise
price of $1.33 and $1.55 per share for the three months ended March 31, 2002
and 2001, respectively, because the effects are anti-dilutive.
Note 3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
March 31, December 31,
2002 2001
-------- -------------
Computer equipment.............................. $ 6,766 $ 6,771
Purchased software development cost............. 6,477 6,477
Furniture and fixtures.......................... 803 803
-------- --------
14,046 14,051
Less: Accumulated depreciation.................. 8,075 7,149
-------- --------
$ 5,971 $ 6,902
======== ========
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 internally used
software be capitalized, including costs of coding, software configuration,
upgrades and enhancements. Upon completion of the application and
infrastructure development stage, the Company amortizes these costs on a
straight-line basis over an estimated useful life of three years. As of March
31, 2002 and December 31, 2001, the Company capitalized approximately $6.5
million of its internally developed Web site. The net book values of these
costs were approximately $4.3 million and $4.8 million as of March 31, 2002 and
December 31, 2001, respectively.
Certain computer equipment, software and office equipment are recorded
under capital leases that aggregated $1.6 million as of March 31, 2002 and
December 31, 2001. Accumulated depreciation on the assets recorded under
capital leases aggregated $1.4 million and $1.3 million as of March 31, 2002
and December 31, 2001, respectively. Depreciation expense was $927,000 and
$454,000 for the three months ended March 31, 2002 and 2001, respectively,
which included depreciation expense for assets under capital leases of
$63,000 and $125,000 for the three months ended March 31, 2002 and 2001,
respectively.
Note 4. AMORTIZATION OF DEFERRED STOCK-BASED COMPENSATION
Deferred stock-based compensation are non-cash and have been presented
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 MARCH 31,
----------------------------
2002 2001
-------- --------
Sales and marketing........................... $ - $ 1,872
Development costs............................. - 53
General and administrative.................... - 17,878
-------- --------
$ - $ 19,803
======== ========
During the first quarter of 2001, the Company fully amortized the $19.8
million of 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.
Note 5. OTHER INCOME, NET
Other income, net, consists of the following (in thousands):
THREE MONTHS ENDED MARCH 31,
----------------------------
2002 2001
-------- --------
Interest income.............................. $ 237 $ 1,006
Interest expense............................. (19) (32)
Other income (expenses), net................. 3 (25)
-------- --------
$ 221 $ 949
======== ========
Note 6. CONCENTRATION OF REVENUES
In the three months ended March 31, 2002 and 2001, transaction fees from
IRS payments accounted for 36% and 47% of total revenues, respectively. The
Company currently has agreements with the IRS which authorize the Company to
collect credit card payments for balance due, estimated and extension taxes,
current-year delinquent taxes and installment agreement tax payments.
Note 7. SEGMENT INFORMATION
The Company operates in a single operating segment. The Chief Executive
Officer has been identified as the Chief Operating Decision Maker because he
has final authority over resource allocation decisions and performance
assessment. The Chief Executive Officer reviews revenues by product for
purposes of making operating decisions and assessing financial performance.
The financial information reviewed by the Chief Executive Officer is
consistent with the information presented in the accompanying condensed
statements of operations.
THREE MONTHS ENDED MARCH 31,
----------------------------
2002 2001
-------- --------
Revenues by product are:
Transaction fees:
Federal............................. $ 1,555 $ 1,641
State............................... 662 485
Local............................... 2,052 1,348
Other revenues........................ 77 28
-------- --------
Total revenues........................ $ 4,346 $ 3,502
======== ========
Note 8. RESTRUCTURING AND ASSET ABANDONMENT
The following table details the restructuring and asset abandonment
activities during the three months ended March 31, 2002 (in thousands):
Facility Restructuring
Employee Consolida Contract Restructuring Asset & Asset
Separation -tions Settlements Total Abandonment Abandonment
----------- ----------- ----------- ------------- ----------- -------------
Balance at
December 31, $ 2,358 $ 1,077 $ 632 $ 4,067 - $ 4,067
2001
Cash paid (360) (34) (178) (572) - (572)
----------- ----------- ----------- ------------- ----------- -------------
Balance at
March 31,
2002 $ 1,998 $ 1,043 $ 454 $ 3,495 - $ 3,495
=========== =========== =========== ============= =========== =============
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. Such
statements are based upon the current economic environment and current
expectations that involve risks and uncertainties, and you are cautioned that
these statements are not guarantees of future performance. 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. The
Company's actual results and the timing of certain events may differ
significantly from the results discussed in the forward-looking statement. 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, 2001 (the "2001
Form 10-K"). 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
Official Payments is a leading provider of electronic payment options to
government entities enabling consumers to use their credit cards to pay,
through the Internet or by telephone, federal and state income taxes, sales
and use taxes, real estate and personal property taxes, tuition payments,
utility payments, motor vehicles 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, parking
citations and real and personal property taxes. As of March 31, 2002, the
Company offered 2,051 services to 1,202 government entities. In 1998, the
Company signed a credit card payment contract with the Internal Revenue
Service ("IRS") to provide its services for the payment by telephone of
personal federal "balance due" income taxes in 1999. In 2000, the Company
began processing estimated and extension tax payments, as well. In 2000, the
Company entered into a contract with the IRS for an initial one-year term
(2001), which the IRS subsequently renewed for an additional year (2002).
That contract authorized the Company to collect credit card payments via its
Internet platform, as well as by telephone. In August 2001, the Company
announced that the IRS had further expanded the scope of its agreement with
the Company to include two additional payment categories beginning in 2002:
current-year delinquent tax payments and installment agreement tax payments.
In late April 2002, the IRS awarded the Company a new contract to continue
providing its electronic credit card payment services for an initial one-year
term, with the IRS having the option to renew this new contract for four
additional one-year terms.
The Company began providing services for the payment of personal state
income taxes in California in December 1998. As of March 31, 2002, the
Company was providing, or had entered into contracts to provide (and was in
the process of implementing), its payment services for the District of
Columbia, as well as the states of Alabama, Arkansas, California,
Connecticut, Illinois, Indiana, Iowa, Kansas, Maryland, Minnesota,
Mississippi, New Jersey, New York, Ohio, Oklahoma, Pennsylvania, Rhode
Island, Virginia, Washington, West Virginia and Wisconsin. For nearly all of
these states, consumers can make payments to these states through both the
Company's interactive voice response telephone ("IVR") system and Web site,
except for Indiana and Washington where the Company is only authorized to
offer its services through the IVR or Internet, respectively. In 2002, the
Company begun offering its electronic payment services to non-governmental
entities (e.g., non-government owned utilities, private universities, etc.)
who may have a need for such services and wish to realize similar benefits as
the Company's government clients.
The Company's revenues consist primarily of convenience fees, which are
transaction fees paid by consumers for using its credit card payment
services. For processing many payments (including, personal federal and state
income tax payments, sales and use tax payments and real and personal
property tax payments), the amount of the convenience fee charged varies
based on the specific amount of the underlying 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 underlying 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 variable 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 cost of revenues, sales and marketing
expenses, development costs, general and administrative expenses,
depreciation expenses and amortization of deferred stock-based compensation.
In 2001, the largest component of these expenses was amortization of deferred
stock-based compensation, which amounted to approximately $19.8 million for
the three months ending March 31, 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 and consulting
expenses relating to research and development activities. General and
administrative expenses consist primarily of salaries and other compensation
expenses for executive, customer service, finance 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 March 31, 2002, the Company had an accumulated deficit of
approximately $85.7 million.
In November 2001, the Board of Directors approved and the Company
initiated a restructuring plan to reduce certain of the Company's operating
expenses. The restructuring plan includes a reduction in marketing,
administrative and telephony costs, the involuntary termination of 44
employees, and the consolidation of certain facilities. Concurrently, the
Company abandoned certain IVR equipment.
During the quarter ended March 31, 2002, the Company paid approximately
$572,000 of its restructuring obligations. There were no additional
restructuring or asset abandonment charges during the quarter ended March 31,
2002.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
For the Company's critical accounting policies and estimates, refer to
Official Payments' Annual Report on Form 10-K for the year ended December 31,
2001 filed with the Securities and Exchange Commission on March 29, 2002.
There were no changes to the Company's critical accounting policies and
estimates during the quarter ended March 31, 2002.
RECENT EVENTS
In late April 2002, the IRS awarded the Company a new contract to
continue providing its electronic credit card payment services for an initial
one-year term, with the IRS having the option to renew this new contract for
four additional one-year terms. The IRS has informed the Company that it is
one of two vendors who received this contract award.
NEW ACCOUNTING PRONOUNCEMENTS
In July 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 to 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, there would be
adjustments to the equity in net income of affiliates line item to reflect
the impact of adopting these Statements on the operations of equity
investments. The Company adopted both Statements on January 1, 2002 and the
Company did not have any intangible assets as March 31, 2002. The adoption of
these Statements does not have a material effect on the Company's financial
position or results of operations.
In October 2001, the Financial Accounting Standards Board issued
Statement No. 144, "Accounting for the Impairment of Disposal of Long-Lived
Assets" (FAS 144). This Statement establishes a single accounting model,
based on the framework established in FAS 121 "Accounting for the Impairment
of Long-Loved Assets and for Long-Lived Assets to Be Disposed Of" for
long-lived assets to be disposed of by sale, whether previously held and used
or newly acquired, and broadens the presentation of discontinued operations
to include more disposed transactions. The provisions of FAS 144 are
effective for financial statements issued for fiscal years beginning after
December 15, 2001. The Company adopted FAS 144 on January 1, 2002 and the
adoption does not have a material effect on the Company's financial position
or results of operation.
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, 2001.
STATEMENT OF OPERATIONS DATA:
Three Months Ended March 31,
----------------------------
2002 2001
-------- --------
Revenues........................................ 100% 100%
Cost and expenses:
Cost of revenues.............................. 72 80
Sales and marketing .......................... 24 68
Development costs............................. 20 30
General and administrative ................... 36 60
Depreciation expense.......................... 21 13
Amortization of deferred
stock-based compensation................ - 565
---------- --------
Total operating expenses...................... 173 816
---------- --------
Loss from operations............................ (73) (716)
Other income, net............................... 5 27
---------- --------
Net loss........................................ (68)% (689)%
========== ========
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
REVENUES
Revenues. Revenues increased $844,000 to $4.3 million for the three
months ended March 31, 2002 from $3.5 million for the three months ended
March 31, 2001, an increase of 24%. This increase is primarily
attributable to additional state and local clients and services added by
the Company between March 31, 2001 and March 31, 2002, as well as
increased revenues from the processing of additional state and local
taxes for existing clients.
Federal Transaction Revenues. Federal transaction revenues consist of
fees earned in connection with processing payments related to personal
federal balance-due, extension, estimated income, current-year
delinquent tax and installment tax payments. Federal transaction
revenues decreased approximately $86,000 to $1.56 million for the three
months ended March 31, 2002 from $1.64 million for the three months
ended March 31, 2001, a decrease of 5%. The decrease in revenues is
primarily attributable to a decrease in payments processed to $62.7
million for the three months ended March 31, 2002 from $64.7 million for
the three months ended March 31, 2001, a decrease of 3%. The decrease in
the payments processed was primarily due to a 14% decrease in the
average payment amount, offset by 11% increase in the number of
transactions processed during the three months ended March 31, 2002.
Based on recent economic reports in the media, the Company believes that
the decrease in the average payment may be due, at least in part, to the
recent economic downturn and its impact in lowering the overall amount
of taxes individuals owed (for example, as a result of job layoffs and
reductions or eliminations of job-related bonuses, capital gains and
mutual funds distributions). For the three months ended March 31, 2002,
the Company processed approximately 21,000 transactions, compared to
approximately 19,000 transactions for the three months ended March 31,
2001. Federal transaction fees represented 36% of total revenues for the
three months ended March 31, 2002, compared to 47% of total revenues for
the three months ended March 31, 2001.
State Transaction Revenues. Revenues from processing state payments are
primarily related to state income tax payments for balance-due,
extension, and estimated personal income taxes and sales and use tax
payments (as the case may be) to the District of Columbia and the states
of Alabama, Arkansas, California, Connecticut, Illinois, Indiana, Iowa,
Kansas, Maryland, Minnesota, Mississippi, New Jersey, New York, Ohio,
Oklahoma, Pennsylvania, Rhode Island, Virginia, Washington, West
Virginia and Wisconsin. State transaction revenues increased $177,000 to
$662,000 for the three months ended March 31, 2002 from $485,000 for the
three months ended March 31, 2001, an increase of 36%. The increase in
revenues is primarily related to additional state clients added by the
Company between March 31, 2001 and March 31, 2002, as well as additional
payment services provided to existing state clients. The Company
processed tax payments for twenty-one states (and the District of
Columbia) during the three months ended March 31, 2002, compared to
thirteen states (and the District of Columbia) during the three months
ended March 31, 2001. For the three months ended March 31, 2002, the
Company processed approximately 51,000 transactions totaling $24.8
million, compared to approximately 16,000 transactions totaling $18.7
million for the three months ended March 31, 2001. Another factor
contributing to the overall increase in state transaction revenues was
an increase in the average convenience fee rate charged by the Company
to 2.67% for the three months ended March 31, 2002 from 2.59% for the
three months ended March 31, 2001, an increase of 3%. State transaction
fees represented 15% of total revenues for the three months ended March
31, 2002 compared to 14% of total revenues for the three months ended
March 31, 2001.
Local Transaction Revenues. Local transaction revenues consist of fees
earned in connection with processing payments for real estate and
personal property taxes, traffic violations, parking citations, fax
filing fees and utility bills for the Company's county and municipal
clients. Local transaction revenues increased $700,000 to $2.1 million
for the three months ended March 31, 2002 from $1.4 million for the
three months ended March 31, 2001, an increase of 50%. Additional
property tax and moving violation clients and an increase in the number
of transactions processed for existing local government clients
contributed to the overall increase in local transaction fees. For the
three months ended March 31, 2002, the Company processed approximately
164,000 transactions totaling $60.3 million, compared to approximately
154,000 transactions totaling $37.2 million for the three months ended
March 31, 2001. Revenues from processing real estate and personal
property tax payments increased $696,000 to $1.3 million for the three
months ended March 31, 2002 from $614,000 for the three months ended
March 31, 2001, an increase of 113%. The increase is primarily
attributable to an increase in the number of transactions processed and
new county and municipal clients added during the first quarter of 2002.
Revenues from processing fines for traffic violations, moving
violations, utility bills and other transactions fees increased $24,000
to $732,000 for the three months ended March 31, 2002 from $708,000 for
the three months ended March 31, 2001, an increase of 3%. Local
transaction fees represented 47% of total revenues for the three months
ended March 31, 2002 compared to 38% of total revenues for the three
months ended March 31, 2001.
Other Revenues. Other revenues during the three months ended March 31,
2002 consist of maintenance contract revenues. Other revenues increased
$49,000 to $77,000 for the three months ended March 31, 2002 from
$28,000 for the three months ended March 31, 2001. Other revenues
represented 2% and 1% of total revenues for the three months ended March
31, 2002 and March 31, 2001, respectively.
COST AND EXPENSES
Cost of Revenues. Cost of revenues increased $300,000 to $3.1 million
for the three months ended March 31, 2002 from $2.8 million for the
three months ended March 31, 2001, an increase of 11%. The largest
component of cost of revenues, merchant discount fees, increased
$500,000 to $3.0 million for the three months ended March 31, 2002 from
$2.5 million for the three months ended March 31, 2001, an increase of
20%. The cost of Internet and telecommunication charges for the
Company's Internet and IVR platforms decreased $161,000 to $102,000 for
the three months ended March 31, 2002 from $263,000 for the three months
ended March 31, 2001, a decrease of 61%. 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 per transaction cost than the IVR. Other cost of transaction fees
decreased $10,000 to $32,000 for the three months ended March 31, 2002
from $42,000 for the three months ended March 31, 2001, a decrease of
24%. Cost of revenues was 72% of total revenues for the three months
ended March 31, 2002, compared to 80% for the three months ended March
31, 2001.
Sales and Marketing. Sales and marketing expenses decreased $1.4 million
to $1.0 million for the three months ended March 31, 2002 from $2.4
million for the three months ended March 31, 2001, a decrease of 58%.
This decrease was primarily attributable to a planned reduction by the
Company in television, radio and publication advertising expense of
approximately $1.1 million compared to the prior year period. In
addition, the Company will receive a total of $900,000 in cooperative
advertising funds from four of its credit card partners for use in the
Company's 2002 April tax season, of which $150,000 was applied against
sales and marketing expenses during the quarter ended March 31, 2002. The
remaining cooperative advertising funds will be applied to reduce sales
and marketing expenses during the quarter ended June 30, 2002. For the
2001 April tax season advertising campaign, the Company received $515,000
in cooperative advertising funds, none of which the Company used during
the quarter ended March 31, 2001. Sales and marketing expenses
represented 24% of total revenues for the three months ended March 31,
2002, compared to 68% for the three months ended March 31, 2001.
Development Costs. Development costs decreased $124,000 to $876,000 for
the three months ended March 31, 2002 from $1.0 million for the three
months ended March 31, 2001, a decrease of 12%. The decrease is
primarily attributable to a reduction in engineering personnel and
related salary costs as a result of the corporate restructuring that the
Company initiated in November 2001. Development costs represented 20% of
total revenues for the three months ended March 31, 2002 compared to 30%
for the three months ended March 31, 2001.
General and Administrative. General and administrative expenses
decreased $500,000 to $1.6 million for the three months ended March 31,
2002 from $2.1 million for the three months ended March 31, 2001, a
decrease of 24%. This decrease is mainly attributable to a decrease in
personnel expenses of $111,000, a decrease in legal and consulting
expenses of $110,000, a decrease in other employee related expenses of
$109,000, and a decrease in insurance expenses of $53,000. General and
administrative expenses represented 36% of total revenues for the three
months ended March 31, 2002 compared to 60% for the three months ended
March 31, 2001.
Depreciation Expense. Depreciation expense increased $473,000 to
$927,000 for the three months ended March 31, 2002 from $454,000 for the
three months ended March 31, 2001, an increase of 104%. The increase is
primarily related to the purchase of computer equipment, as well as an
increase in software and development expenses related to adding
functionality to the Company's Web site. Depreciation expense
represented 21% of total revenues for the three months ended March 31,
2002 compared to 13% for the three months ended March 31, 2001.
Amortization of deferred stock-based compensation. The Company did not
have any amortization of deferred stock-based compensation during the
quarter ended March 31, 2002 compared to $19.8 million for the three
months ended March 31, 2001. The Company fully amortized the remaining
$19.8 million of deferred stock-based compensation in January 2001, when
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 quarterly
through the second quarter of 2002. Amortization of deferred stock-based
compensation represented 565% of total revenues for the three months
ended March 31, 2001.
OTHER INCOME, NET
Other income, net, consists of interest income, interest expense and
other non-operating expenses. Other income, net, decreased by $728,000
to $221,000 for the three months ended March 31, 2002 compared to
$949,000 in other income, net for the three months ended March 31, 2001,
a decrease of 77%. This decrease is directly related to lower interest
income resulting from lower average cash balances and a lower average
interest rate earned during the recent period, as compared to the first
quarter of fiscal year 2001.
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 March 31, 2002, the Company had
$45.3 million in cash and short term investments, and $40.9 million in
working capital.
Net cash used in operating activities was $4.0 million for the three
months ended March 31, 2002, and during the same period prior year, net cash
of $1.8 million was provided by operating activities. The cash used in
operating activities for the three months ended March 31, 2002 was primarily
attributable to the Company's net loss, an increase in accounts receivable
and decrease in restructuring obligations, offset by depreciation, an
increase in accounts payable and accrued expenses. The cash provided by
operating activities for the three months ended March 31, 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 an increase in accounts payable and accrued expenses.
Net cash provided by investing activities was $2.3 million and $2.8
million for the three months ended March 31, 2002 and 2001, respectively. For
2002, cash from investing activities primarily reflects proceeds from the
sale of short-term investments. For 2001, cash from investing activities
primarily reflects proceeds from the sale of short-term investments, offset
by purchase of property and equipment.
Net cash provided by financing activities was $239,000 and $517,000 for
the three months ended March 31, 2002 and 2001, respectively. The cash
generated in the three months ended March 31, 2002 and March 31, 2001 is
primarily related to the exercise of stock options by the Company's former
and current employees offset by repayment of capital lease obligations.
The Company believes that, based on its current business plan, existing
cash and investments will be sufficient to meet operating activities, capital
expenditures and other obligations for at least 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 (which may be affected by general changes in overall consumer
spending and general economic conditions), merchant discount fees charged by
credit card companies, economic conditions impacting the Company's revenue
generation (including, without limitation, the effect of such conditions on
the amount of taxes payable by citizens), the 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. Other factors affecting the Company's
business are described in the 2001 Form 10-K under "ITEM 1. BUSINESS - Other
Factors Affecting the Company's Business."
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 the rates of consumer utilization of the Company's services.
Normally, the Company experiences larger revenues in the second quarter,
which are the result of the Company 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 15th 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).
Currently, the Company expects its operating expenses to decline as a
result of a decrease in personnel, marketing, technological and other
infrastructure costs as the Company continues to implement its corporate
restructuring plan. If revenues in any quarter do not increase corresponding
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 analysts 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. As
of March 31, 2002, the Company had short-term investments of $43.2 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 twelve months. Such
short-term investments are recorded at fair value, with unrealized holding
losses reported as a separate component of Stockholders' equity. As of March
31, 2002, the unrealized holding losses were $41,000.
The table below represents principal amounts and related
weighted-average interest rates by year of maturity for the Company's
investment portfolio.
FY2002 FY2003 FY2004 FY2005 FY2006 Thereafter Total
------ ------ ------ ------ ------ --------- ------
Cash $ 2,097 $ - $ - $ - $ - $ - $ 2,097
Average interest rate 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Short-term Investments $43,214 $ - $ - $ - $ - $ - $43,214
Average interest rate 2.23% 0.00% 0.00% 0.00% 0.00% 0.00%
------- ------- ------ ------ ------ --------- ------
Total cash and
Investments $45,311 $ - $ - $ - $ - $ - $45,311
====== ====== ====== ====== ====== ========= ======
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, in addition to general corporate purposes, to make the following
payments: approximately $2.3 million for the purchase and installation of
computer equipment to expand transaction processing capabilities;
approximately $6.5 million to develop and add functionality to its Web site;
approximately $1.6 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 $8.5 million for direct marketing and
promotional activities. The Company paid $135,000 and $151,000 to Imperial
Bank (then the record holder of a majority of the Company's outstanding
common stock) in 2000 and 1999, respectively, for the provision of certain
general administrative services. Through March 31, 2002, in connection with
the primary insurance coverage provided to the Company by unaffiliated
insurance companies as part of Comerica Incorporated's master policies, the
Company incurred approximately $73,000 of premiums payable to Comerica
Assurance Ltd., another Comerica subsidiary, for insurance on certain
deductibles which otherwise would be payable by the Company in the event of
casualty losses under these master policies. Except as described in the
preceding sentence, none of the net offering proceeds have been paid directly
or indirectly to any director or officer of the company or their associates,
persons owing 10% 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
During the three months ended March 31, 2002, there were no matters
submitted to a vote of security holders through a solicitation of proxies or
otherwise.
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Exhibit Index
(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
May 14, 2002 By: /s/ Thomas R. Evans
---------------------------
Thomas R. Evans
Chairman of the Board and
Chief Executive Officer
May 14, 2002 By: /s/ Edward J. DiMaria
---------------------------
Edward J. DiMaria
Chief Financial Officer
(Principal Financial and
Accounting Officer)
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
======== ======================================
10.1 Contract between Internal Revenue Service and the Registrant,
dated as of April 30, 2002.