UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 10-K/A
/X/ AMENDMENT NO. 2 TO ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 2000
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: 0-28536
NEW CENTURY EQUITY HOLDINGS CORP.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 74-2781950
(State of Incorporation) (I.R.S. Employer
Identification No.)
10101 REUNION PLACE, SUITE 450, SAN ANTONIO, TEXAS 78216
(Address of Principal Executive Office) (Zip Code)
(210) 302-0444
(Registrant's Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class)
-----------
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the Registrant's outstanding Common Stock held
by non-affiliates of the Registrant as of December 15, 2000 was approximately
$96,456,833. There were 36,745,460 shares of the Registrant's Common Stock
outstanding as of December 15, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF REPORT
1. Financial Statements:
The Consolidated Financial Statements of the Company and the related
report of the Company's independent public accountants thereon have
been filed under Item 8 hereof.
Audited Financial Statements of Princeton eCom Corporation.
2. Financial Statement Schedules:
The information required by this item is not applicable.
3. Exhibits:
The exhibits listed below are filed as part of or incorporated by
reference in this report. Where such filing is made by incorporation by
reference to a previously filed document, such document is identified
in parentheses. See the Index of Exhibits included with the exhibits
filed as a part of this report.
EXHIBIT DESCRIPTION OF EXHIBITS
NUMBER -----------------------
------
2.1 - Plan of Merger and Acquisition Agreement among BCC, CRM Acquisition
Corp., Computer Resources Management, Inc., and Michael A. Harrelson
dated effective June 1, 1997 (incorporated by reference from Exhibit
2.1 to June 30, 1997, Form 10-Q)
2.2 - Stock Purchase Agreement between Princeton TeleCom Corporation and
BCC dated September 4, 1998 (incorporated by reference from Exhibit
2.2 to September 30, 1998, Form 10-K)
2.3 - Stock Purchase Agreement dated February 21, 2000, by and between BCC
and Princeton eCom Corporation (incorporated by reference from
Exhibit 2.1 to Current Report on Form 8-K dated March 16, 2000)
3.1 - Amended and Restated Certificate of Incorporation of BCC
(incorporated by reference from Exhibit 3.1 to the Amendment No. 1
to the Company's Registration Statement on Form 10/A dated July 11,
1996), as amended by Certificate of Amendment to Certificate of
Incorporation, amending Article I to change the name of the Company
to Billing Concepts Corp. and amending Article IV to increase the
number of authorized shares of common stock from 60,000,000 to
75,000,000, filed with the Delaware Secretary of State on February
27, 1998 (incorporated by reference from Exhibit 3.4 to March 31,
1998, Form 10-Q)
3.2 - Certificate of Designation of Series A Junior Participating
Preferred Stock (incorporated by reference from Exhibit 3.2 to the
Amendment No. 1 to BCC's Registration Statement on Form 10/A dated
July 11, 1996)
3.3 - Amended and Restated Bylaws of BCC (incorporated by reference from
Exhibit 3.3 to September 30, 1998, Form 10-K)
4.1 - Form of Stock Certificate of Common Stock of BCC (incorporated by
reference from Exhibit 4.1 to March 31, 1998, Form 10-Q)
10.1 - BCC's 1996 Employee Comprehensive Stock Plan, amended as of August
31, 1999 (incorporated by reference from Exhibit 10.8 to September
30, 1999, Form 10-K)
10.2 - Form of Option Agreement between BCC and its employees under the
1996 Employee Comprehensive Stock Plan (incorporated by reference
from Exhibit 10.9 to September 30, 1998, Form 10-K)
10.3 - Amended and Restated 1996 Non-Employee Director Plan of BCC,
amended as of August 31, 1999 (incorporated by reference from
Exhibit 10.10 to September 30, 1999, Form 10-K)
10.4 - Form of Option Agreement between BCC and non-employee directors
(incorporated by reference from Exhibit 10.11 to September 30, 1998,
Form 10-K)
10.5 - BCC's 1996 Employee Stock Purchase Plan, amended as of January 30,
1998 (incorporated by reference from Exhibit 10.12 to September 30,
1998, Form 10-K)
10.6 - BCC's Executive Compensation Deferral Plan (incorporated by reference
from Exhibit 10.12 to the Post Effective Amendment No. 2 to the
Company's Registration Statement on Form 10/A dated August 1, 1996)
10.7 - BCC's Executive Qualified Disability Plan (incorporated by reference
from Exhibit 10.14 to the Amendment No. 1 to the Company's
Registration Statement on Form 10/A dated July 11, 1996)
10.8 - Office Building Lease Agreement dated July 12, 1996 between Medical
Plaza Partners, Ltd. and Billing Concepts, Inc. (incorporated by
reference from Exhibit 10.21 to the Post Effective Amendment No. 1
to the Company's Registration Statement on Form 10/A dated July 22,
1996), as amended by First Amendment to Lease Agreement dated
September 30, 1996 (incorporated by reference from Exhibit 10.31 to
March 31, 1998, Form 10-Q), Second Amendment to Lease Agreement
dated November 8, 1996 (incorporated by reference from Exhibit 10.32
to March 31, 1998, Form 10-Q), and Third Amendment to Lease
Agreement dated January 24, 1997 (incorporated by reference from
Exhibit 10.33 to March 31, 1998, Form 10-Q)
10.9 - Put Option Agreement between BCC and Michael A. Harrelson dated
effective June 1, 1997 (incorporated by reference from Exhibit 10.1
to June 30, 1997, Form 10-Q)
10.10 - Employment Agreement dated January 15, 1999, between BCC and W. Audie
Long, as amended (incorporated by reference from Exhibit 10.10 to
September 30, 2000, Form 10-K)
10.11 - Amended and Restated Employment Agreement dated January 25, 1999,
between BCC and Parris H. Holmes, Jr., as amended (incorporated by
reference from Exhibit 10.11 to September 30, 2000, Form 10-K)
10.12 - Employment Agreement dated August 30, 1999, between BCC and David P.
Tusa (incorporated by reference from Exhibit 10.12 to September 30,
2000, Form 10-K)
10.13 - Office Building Lease Agreement dated November 11, 1999 between
Prentiss Properties Acquisition Partners, L.P. and Aptis, Inc.
(incorporated by reference from Exhibit 10.33 to September 30, 1999,
Form 10-K)
10.14 - BCC's 401(k) Retirement Plan (incorporated by reference from Exhibit
10.14 to September 30, 2000, Form 10-K)
10.15 - Agreement and Plan of Merger, dated as of September 15, 2000, among
BCC, Billing Concepts, Inc., Enhanced Services Billing, Inc., BC
Transaction Processing Services, Inc., Aptis, Inc., Operator Service
Company, BC Holding I Corporation, BC Holding II Corporation, BC
Holding III Corporation, BC Acquisition I Corporation, BC Acquisition
II Corporation, BC Acquisition III Corporation and BC Acquisition IV
Corporation (incorporated by reference from Exhibit 2.1 to Current
Report on Form 8-K dated September 15, 2000)
21.1 List of Subsidiaries (incorporated by reference from Exhibit 21.1 to
September 30, 2000, Form 10-K)
23.1 - Consent of Arthur Andersen LLP (incorporated by reference from
Exhiit 23.1 to September 30, 2000, Form 10-K)
27.1 - Financial Data Schedule (incorporated by reference from Exhibit 27.1
to September 30, 2000, Form 10-K)
(b) REPORTS ON FORM 8-K
Form 8-K dated September 15, 2000, announcing the agreement to sell
Billing Concepts, Inc., Enhanced Services Billing, Inc., BC Transaction
Processing Services, Inc., Aptis, Inc. and Operator Service Company to Platinum
Equity Holdings.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
NEW CENTURY EQUITY HOLDINGS CORP.
(Registrant)
Date: April 12, 2001 By: /s/ DAVID P. TUSA
--------------------------------
David P. Tusa
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(Duly authorized and principal financial officer)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Princeton eCom Corporation:
We have audited the accompanying consolidated balance sheets of Princeton eCom
Corporation (a Delaware corporation) and subsidiary, formerly Princeton TeleCom
Corporation, as of December 31, 1999 and 2000, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 2000. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Princeton eCom
Corporation and subsidiary as of December 31, 1999 and 2000, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
March 20, 2001 (except with respect to the matter
discussed in Note 1, as to which
the date is April 12, 2001)
PRINCETON ECOM CORPORATION
TABLE OF CONTENTS
PAGE
CONSOLIDATED BALANCE SHEETS
As of December 31, 1999 and 2000........................................................................................1
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1998, 1999 and 2000....................................................................2
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the years ended December 31, 1998, 1999 and 2000....................................................................3
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1998, 1999 and 2000....................................................................4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000.......................................................................................................5
PRINCETON ECOM CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 2000
1999 2000
--------------- ---------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,243,310 $ 24,304,681
Accounts receivable, net of allowance of $59,625 and
$110,625 1,246,990 3,731,764
Prepaid expenses and other 1,242,561 2,805,081
--------------- ---------------
Total current assets 4,732,861 30,841,526
PROPERTY AND EQUIPMENT, NET 8,517,858 12,772,229
OTHER ASSETS 570,204 435,450
SOFTWARE LICENSE 1,000,000 865,385
--------------- ---------------
$ 14,820,923 $ 44,914,590
=============== ===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Bank overdraft $ 8,228,518 $ --
Customer deposits payable 11,022,120 11,235,134
Current portion of capital lease obligations 33,821 15,793
Deferred revenue -- 136,523
Accounts payable 1,665,694 3,487,793
Accrued expenses 2,691,188 2,249,445
--------------- ---------------
Total current liabilities 23,641,341 17,124,688
DEFERRED RENT -- 125,946
DEFERRED REVENUE -- 627,988
CAPITAL LEASE OBLIGATIONS 15,793 --
OTHER LIABILITIES 185,014 185,014
--------------- ---------------
Total liabilities 23,842,148 18,063,636
--------------- ---------------
SERIES A MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK -- 24,004,409
--------------- ---------------
SERIES B MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK -- 2,558,416
--------------- ---------------
SERIES C MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK -- 33,971,002
--------------- ---------------
COMMITMENTS AND CONTINGENCIES (NOTE 8)
STOCKHOLDERS' DEFICIT:
Preferred stock, $.01 par value, 15,000,000 shares
authorized -- --
Common stock, $.01 par value, 100,000,000 shares
authorized, 11,364,002 and 11,839,340 shares issued and
outstanding 113,640 118,393
Additional paid-in capital 15,705,915 33,148,266
Common stock warrants -- 2,114,431
Accumulated deficit (23,468,896) (67,549,007)
Subscriptions receivable (94,703) --
Deferred compensation (1,277,181) (1,514,956)
--------------- ---------------
Total stockholders' deficit (9,021,225) (33,682,873)
--------------- ---------------
$ 14,820,923 $ 44,914,590
=============== ===============
The accompanying notes are an integral part of
these consolidated financial statements.
1
PRINCETON ECOM CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
1998 1999 2000
------------- -------------- ------------
REVENUES:
Payment and presentment transaction fees $ 2,385,587 $ 3,686,663 $ 9,494,496
Implementation and other professional
service fees -- 158,000 1,265,916
Interest 1,436,448 1,465,857 2,301,672
------------- -------------- ------------
Total revenues 3,822,035 5,310,520 13,062,084
------------- -------------- ------------
OPERATING EXPENSES:
Cost of services:
Cost of payment and presentment
transactions 1,966,956 3,537,914 8,527,720
Cost of implementation and other
professional services -- 151,680 1,947,497
Development costs 895,152 3,393,865 3,485,268
Selling, general and administrative:
Other selling, general and administrative 3,282,669 8,536,788 22,982,067
Financing related costs -- 970,038 1,316,815
Noncash commissions related to warrants -- -- 2,718,518
Amortization of deferred compensation, net 1,017,744 1,285,792 2,201,701
------------- -------------- ------------
Total operating expenses 7,162,521 17,876,077 43,179,586
------------- -------------- ------------
OPERATING LOSS (3,340,486) (12,565,557) (30,117,502)
INTEREST INCOME -- -- (528,369)
INTEREST EXPENSE 14,150 9,510 110,097
AMORTIZATION OF ORIGINAL ISSUANCE DISCOUNT -- -- 323,462
------------- -------------- ------------
Net loss (3,354,636) (12,575,067) (30,022,692)
Accretion of preferred stock -- -- 100,227
Preferred stock dividends -- -- 1,020,000
Beneficial conversion feature treated as a
dividend -- -- 12,937,192
------------- -------------- ------------
Net loss applicable to common stockholders $ (3,354,636) $ (12,575,067) $(44,080,111)
============= ============== ============
BASIC AND DILUTED NET LOSS APPLICABLE TO
COMMON STOCKHOLDERS PER SHARE $ (.36) $ (1.11) $ (3.79)
============= ============== ============
SHARES USED IN COMPUTING, BASIC AND DILUTED
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS
PER SHARE 9,423,068 11,292,223 11,616,164
============= ============== ============
The accompanying notes are an integral part of
these consolidated financial statements.
2
PRINCETON ECOM CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
COMMON STOCK ADDITIONAL COMMON
--------------------- PAID-IN STOCK ACCUMULATED SUBSCRIPTIONS
SHARES AMOUNT CAPITAL WARRANTS DEFICITS RECEIVABLE
---------- --------- ----------- ---------- ------------- -------------
BALANCE, DECEMBER 31, 1997 8,614,806 $ 86,148 $ 334,366 $ -- $ (7,539,193) $(266,507)
Sale of common stock 2,493,870 24,939 9,975,061 -- -- --
Exercise of stock options 10,950 109 256 -- -- --
Deferred compensation resulting from grant --
of options -- -- 1,884,500 -- --
Amortization of deferred compensation -- -- -- -- -- --
Net loss -- -- -- -- (3,354,636) --
---------- --------- ----------- ---------- ------------ ---------
BALANCE, DECEMBER 31, 1998 11,119,626 111,196 12,194,183 -- (10,893,829) (266,507)
Sale of common stock 134,376 1,344 537,504 -- -- --
Exercise of stock options 110,000 1,100 2,567 -- -- --
Deferred compensation resulting from grant
of options -- -- 1,819,467 -- -- --
Compensation resulting from nonemployee
option grants -- -- 307,694 -- -- --
Compensation resulting from options granted
in connection with terminated employee -- -- 567,750 -- -- --
Sale of common stock by majority stockholder -- -- 400,000 -- -- --
Amortization of deferred compensation, net
of forfeitures -- -- (123,250) -- -- --
Repayment of subscription receivable -- -- -- -- -- 171,804
Net loss -- -- -- -- (12,575,067) --
---------- --------- ----------- ---------- ------------ ---------
BALANCE, DECEMBER 31, 1999 11,364,002 113,640 15,705,915 -- (23,468,896) (94,703)
Sale of common stock 150,000 1,500 973,500 -- -- --
Exercise of stock options 325,338 3,253 31,675 -- -- --
Compensation resulting from nonemployee
option grants -- -- 132,959 -- -- --
Deferred compensation resulting from grant
of options -- -- 2,439,476 -- -- --
Amortization of deferred compensation -- -- -- -- -- --
Issuance of common stock warrant -- -- -- 2,114,431 -- --
Noncash commissions relating to warrants -- -- 2,718,518 -- -- --
Accretion of preferred stock redemption
value -- -- -- -- (100,227) --
Cumulative preferred stock dividends -- -- -- -- (1,020,000) --
Beneficial conversion feature on preferred
stock -- -- 11,146,223 -- -- --
Beneficial conversion feature treated as a
dividend -- -- -- -- (12,937,192) --
Repayment of subscription receivable -- -- -- -- -- 94,703
Net loss -- -- -- -- (30,022,692) --
---------- --------- ----------- ---------- ------------ ---------
BALANCE, DECEMBER 31, 2000 11,839,340 $118,393 $33,148,266 $2,114,431 $(67,549,007) $ --
========== ========= =========== ========== ============ =========
DEFERRED
COMPENSATION TOTAL
------------ -------------
BALANCE, DECEMBER 31, 1997
Sale of common stock $ -- $ (7,385,186)
Exercise of stock options -- 10,000,000
Deferred compensation resulting from grant -- 365
of options (1,884,500) --
Amortization of deferred compensation 1,017,744 1,017,744
Net loss -- (3,354,636)
------------ ------------
BALANCE, DECEMBER 31, 1998 (866,756) 278,287
Sale of common stock -- 538,848
Exercise of stock options -- 3,667
Deferred compensation resulting from grant
of options (1,819,467) --
Compensation resulting from nonemployee
option grants -- 307,694
Compensation resulting from options granted
in connection with terminated employee -- 567,750
Sale of common stock by majority stockholder -- 400,000
Amortization of deferred compensation, net
of forfeitures 1,409,042 1,285,792
Repayment of subscription receivable -- 171,804
Net loss -- (12,575,067)
------------ ------------
BALANCE, DECEMBER 31, 1999 (1,277,181) (9,021,225)
Sale of common stock -- 975,000
Exercise of stock options -- 34,928
Compensation resulting from nonemployee
option grants -- 132,959
Deferred compensation resulting from grant
of options (2,439,476) --
Amortization of deferred compensation 2,201,701 2,201,701
Issuance of common stock warrant -- 2,114,431
Noncash commissions relating to warrants -- 2,718,518
Accretion of preferred stock redemption
value -- (100,227)
Cumulative preferred stock dividends -- (1,020,000)
Beneficial conversion feature on preferred
stock -- 11,146,223
Beneficial conversion feature treated as a
dividend -- (12,937,192)
Repayment of subscription receivable -- 94,703
Net loss -- (30,022,692)
------------ ------------
BALANCE, DECEMBER 31, 2000 (1,514,956) $(33,682,873)
============ ============
The accompanying notes are an integral part of
these consolidated financial statements.
3
PRINCETON ECOM CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
1998 1999 2000
-------------- -------------- -------------
OPERATING ACTIVITIES:
Net loss $ (3,354,636) $ (12,575,067) $(30,022,692)
Adjustments to reconcile net loss to net
cash used in operating activities-
Depreciation and amortization 276,791 547,933 2,408,835
Noncash compensation expense -- 875,444 132,959
Amortization of lease guaranty -- -- 40,000
Amortization of original issuance
discount -- -- 323,462
Amortization of deferred compensation,
net 1,017,744 1,285,792 2,201,701
Noncash commissions relating to
warrants -- -- 2,718,518
Provision for bad debts 15,500 34,317 51,000
Loss on disposal of assets 10,664 11,195 80,380
Changes in operating assets and
liabilities-
Accounts receivable (46,032) (643,704) (2,535,774)
Prepaid expenses and other assets (1,376,535) 109,195 (1,467,766)
Customer deposits payable (317,383) 3,570,087 213,014
Deferred revenue -- -- 764,511
Accounts payable 291,411 1,163,044 1,822,099
Accrued expenses 76,372 1,255,275 558,257
Deferred rent -- -- 125,946
Other liabilities 8,800 (11,397) --
------------- ------------- ------------
NET CASH USED IN OPERATING ACTIVITIES (3,397,304) (4,377,886) (22,585,550)
------------- ------------- ------------
INVESTING ACTIVITIES:
Purchases of property and equipment (257,327) (8,254,844) (6,608,971)
Purchase of software license -- -- (1,000,000)
------------- ------------- ------------
NET CASH USED IN INVESTING ACTIVITIES (257,327) (8,254,844) (7,608,971)
------------- ------------- ------------
FINANCING ACTIVITIES:
(Decrease)/increase in bank overdraft (443,739) 7,828,709 (8,228,518)
Proceeds from convertible note and
warrant -- -- 5,000,000
Proceeds from sale of preferred stock,
net -- -- 54,413,600
Payments on capital leases (44,386) (29,441) (33,821)
Proceeds from sale of common stock 10,000,000 538,848 975,000
Proceeds from repayment of subscription
receivable -- 171,804 94,703
Proceeds from exercise of stock options 365 3,667 34,928
------------- ------------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 9,512,240 8,513,587 52,255,892
------------- ------------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 5,857,609 (4,119,143) 22,061,371
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 504,844 6,362,453 2,243,310
------------- ------------- ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 6,362,453 $ 2,243,310 $ 24,304,681
============= ============= ============
The accompanying notes are an integral part of
these consolidated financial statements.
4
PRINCETON ECOM CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. BACKGROUND, LIQUIDITY AND BASIS OF PRESENTATION:
On January 25, 1984, Princeton eCom Corporation (the Company) was
incorporated in the State of Delaware as Princeton TeleCom Corporation. In
March 1999, the Company changed its name to Princeton eCom Corporation. The
Company, which operates in one business segment, is a provider of
comprehensive electronic bill presentment and payment services to financial
institutions and large businesses who generate a significant number of
recurring bills. The Company's current customers consist primarily of
financial institutions, utilities, telephone companies, cable companies,
credit card companies, mortgage companies and an international package
delivery company (billers).
The Company has incurred significant operating losses and expects to incur
significant operating losses on a quarterly and annual basis for the
foreseeable future. As of December 31, 2000, the Company had an accumulated
deficit of $67,549,007 and during 2000 the Company incurred a net loss of
$30,022,692. Since its inception, the Company has incurred costs to develop
and enhance its technology, establish marketing and customer relationships
and build its capital infrastructure and administrative organization.
Management believes that substantial additional financing will be required
for the Company to fund its operations and continue to execute its strategy.
On April 12, 2001, the Company issued $20,000,000 in bridge notes to two
existing stockholders. There can be no assurance that additional financing
will be obtained in the future. Management believes that its current cash and
cash equivalents and the funds received under the bridge note will be
sufficient to fund its operations during 2001.
The Company currently intends to substantially increase its operating
expenses to further develop its business. To the extent that significant
increased revenues are not realized, the Company's business, results of
operations and financial condition will be materially and adversely affected.
In addition, the Company's business model is unproven and evolving and is
subject to possible changing governmental regulations (see Note 5). The
accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
2. SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Princeton eCom Corporation and its subsidiary. All material intercompany
balances and transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Payment and presentment fee revenues primarily consist of transaction fees
charged to billers and financial institutions based on contractual rates.
Transaction fees are recognized as the services are performed. Professional
service fees consist of professional consulting services provided to
customers on a time and materials basis. Revenues from professional
consulting services are recognized as the services are performed. Fees earned
for implementation services are deferred and recognized as revenue over the
term of the ongoing transaction service period. Interest on the overnight
investment of funds received from consumers pending payment processing is
recorded as revenue as earned.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
(SAB 101). SAB 101 provides guidance on a variety of revenue recognition
matters and required adoption no later than the fourth quarter of 2000. Since
the Company's accounting policies are consistent with the provisions of SAB
101, the provisions of SAB 101 did not have an impact on the financial
statements.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments with original
maturities of three months or less and funds received from consumers pending
payment processing. The Company maintains cash and cash equivalents with
various major financial institutions.
5
At times such amounts may exceed the FDIC limits. The Company limits the
amount of credit exposure with any one financial institution and management
believes that no significant concentration of credit risk exists with respect
to cash investments.
PREPAID EXPENSES AND OTHER
At December 31, 1999 and 2000, prepaid expenses and other included $511,829
and $1,346,278, respectively, for payments made to billers where consumers'
bank accounts had insufficient balances at the time of collection. Management
believes that these amounts are fully realizable assets because contractual
agreements stipulate that the Company's customers are obligated to reimburse
the Company for such payments.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Property and equipment
capitalized under capital leases are recorded at the present value of the
minimum lease payments due over the term of the lease. Depreciation and
amortization are provided using the straight-line method over the estimated
useful lives or the lease term, whichever is shorter. Expenditures for
maintenance, repairs and betterments that do not prolong the useful life of
an asset have been charged to operations as incurred. Additions and
betterments that substantially extend the useful life of the asset are
capitalized. Upon sale or other disposition of assets, the cost and related
accumulated depreciation and amortization are removed from the respective
accounts, and the resulting gain or loss, if any, is included in operating
results.
LONG-LIVED ASSETS
The Company reviews its long-lived assets for possible impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. When factors indicate that such assets should
be evaluated for possible impairment, the Company uses an estimate of the
related future undiscounted cash flows in measuring whether the asset should
be written down to fair value. As of December 31, 2000, management believes
that there are no impairment losses or needed revisions to remaining useful
lives.
OTHER ASSETS
In December 1999, the Company entered into a lease for their primary
operating facility. In order to induce an existing shareholder, New Century
Equity Holdings Corp. (formerly Billing Concepts Corp.), (NCEH) to guarantee
the lease, the Company's then Chief Executive Officer sold NCEH 150,000 shares
of Common stock from his personal account at $5.33 per share, which was below
the then estimated fair market value of $8.00 per share. The in-the-money
value of the common stock sold to NCEH of $400,000 has been recorded as a
deferred asset with a corresponding credit to additional paid-in capital. The
deferred asset is being amortized to rent expense over the ten-year lease
term. In 2000, the Company recognized $40,000 of rent expense related to this
deferred asset. The guaranty will automatically terminate upon an initial
public offering, as defined, at which time any unamortized balance will be
recognized as a charge to operations.
SOFTWARE LICENSE
On October 19, 1999, the Company entered into an agreement with Bottomline
Technologies, Inc. (Bottomline) pursuant to which the Company purchased a
five-year license to certain Bottomline software products. In 2000, the
Company paid Bottomline the $1,000,000 nonrefundable license fee.
Amortization of the license fee was $134,615 for the year ended December 31,
2000. There was no amortization of the license fee in 1999.
CUSTOMER DEPOSITS PAYABLE
Customer deposits payable represents funds received from consumers that are
held by the Company pending payment processing.
DEFERRED RENT
Rent expense on leases is recorded on a straight-line basis over the lease
period. The excess of rent expense over the actual cash paid is recorded as
deferred rent.
DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred.
6
ADVERTISING AND MARKETING EXPENSE
The Company charges to expense advertising and marketing costs as incurred.
Advertising and marketing expense was $98,861, $457,346 and $1,266,903 for the
years ended December 31, 1998, 1999 and 2000, respectively.
INCOME TAXES
Income taxes are accounted for using the liability method. Accordingly, deferred
income tax assets and liabilities are determined based on differences between
the financial statement carrying amounts of assets and liabilities and their
respective income tax basis, measured using enacted tax rates.
RESTATEMENT OF CERTIFICATE OF INCORPORATION AND STOCK SPLIT
In August 2000, the Company's Certificate of Incorporation was amended to
authorize 15,000,000 shares of preferred stock and 100,000,000 shares of common
stock. In June 1999, the Company declared a 3-for-1 split of its common stock in
the form of a stock dividend. The increase in authorized capital stock and the
stock split have been retroactively reflected in the consolidated financial
statements.
STOCK COMPENSATION
The Company has elected to follow Accounting Principles Board (APB) Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations in
accounting for its employee stock options. Under APB No. 25, if the exercise
price of the Company's employee stock options equals or exceeds the market price
of the underlying stock on the date of the grant, no compensation expense is
recognized. If the exercise price of an option is below the market price of the
underlying stock on the date of grant, compensation cost is recorded and is
recognized in the statements of operations over the vesting period (see Note 7).
NET LOSS PER SHARE
Basic EPS is computed by dividing net loss by the weighted average number of
shares of common stock outstanding for the period. Diluted EPS includes the
dilutive effect, if any, from the potential exercise or conversion of securities
such as stock options, which would result in the issuance of additional shares
of common stock. For each of the three years in the period ended December 31,
2000, the impact of stock options, warrants to acquire common stock and the
conversion of mandatorily convertible preferred stock was not considered as the
effect on net loss per share would be anti-dilutive.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, accounts receivable, prepaid expenses and other,
customer deposits payable, bank overdraft, accounts payable, accrued expenses,
deferred revenue and related party note receivable are reflected in the
accompanying consolidated financial statements at fair value due to the
relatively short-term nature of those instruments.
RECLASSIFICATION
Certain items in the prior year financial statements were reclassified to
conform to the 2000 financial statement presentation
COMPREHENSIVE LOSS
The only comprehensive loss item for the years ended December 31, 1998, 1999 and
2000, was net loss.
3. SUPPLEMENTAL CASH FLOW INFORMATION:
For the years ended December 31, 1998, 1999 and 2000, the Company paid interest
of $14,150, $9,510 and $5,929, respectively.
7
4. PROPERTY AND EQUIPMENT:
DECEMBER 31,
-----------------------------
USEFUL LIVES 1999 2000
------------ ------------- -------------
Computer and telephone equipment 3-5 years $ 7,452,932 $ 13,373,675
Furniture and fixtures 5 years 911,177 1,137,550
Leasehold improvements Lease term 1,139,866 1,420,165
------------- -------------
9,503,975 15,931,390
Less- Accumulated depreciation and
amortization (986,117) (3,159,161)
------------- -------------
$ 8,517,858 $ 12,772,229
============= =============
Depreciation and amortization expense for the years ended December 31, 1998,
1999 and 2000, was $276,791, $547,933 and $2,274,220, respectively. As of
December 31, 1999 and 2000, the Company had property and equipment under
capitalized lease obligations of $134,069, net of accumulated amortization of
$84,688 and $118,276, respectively.
5. BRIDGE NOTE, WARRANT AND MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
STOCK:
ACCOUNTING FOR BRIDGE NOTE AND WARRANT
On June 1, 2000, the Company issued a $5,000,000 bridge note to NCEH. The bridge
note was convertible into shares of Series C mandatorily redeemable preferred
stock (Series C) at the Series C offering price. The bridge note bore interest
at 10 percent and the principal was due on July 1, 2001. In connection with the
bridge note, NCEH was issued a warrant to purchase 500,000 shares of the
Company's common stock at an exercise price of $2.50 per share.
The Company allocated the proceeds from the bridge note to the note and the
warrant based on their relative fair values. The fair value of the note was
determined based on a discounted cash flow analysis using a discount rate of
30 percent. The fair value of the warrant was determined based on the
Black-Scholes option-pricing model. As a result, the Company allocated
$2,885,569 to the note and $2,114,431 to the warrant.
The Company recognized interest expense on the note of $427,630 in 2000, of
which $104,168 was accrued coupon interest payable in cash as of December 31,
2000, and $323,462 was amortization of the debt discount.
MANDATORILY REDEEMABLE PREFERRED STOCK
As of December 31, 2000, the Company has authorized 15,000,000 shares of
Preferred stock with a par value of $.01 per share. The authorized shares have
been designated as 3,753,846 shares of Series A mandatorily redeemable
convertible preferred stock (Series A), 487,805 shares of Series B mandatorily
redeemable convertible preferred stock (Series B) and 7,555,556 shares of Series
C.
The Series A, Series B and Series C are convertible at any time into common
stock at the holders' option at a conversion rate, as defined (one-to-one at
December 31, 2000). All outstanding shares of the Series A, Series B and Series
C are automatically convertible into common stock upon the closing of a
qualified underwritten public offering, as defined. The Series A, Series B and
Series C have voting rights equivalent to the number of common shares into which
they are convertible. The holders of Series A, Series B and Series C are
entitled to certain anti-dilution and registration rights, as defined.
The Series A, Series B and Series C are redeemable, upon the receipt of notice
of the election of two-thirds of the Series C holders to redeem the Series C, at
the option of the holders in March 2005. The holders of Series A, Series B and
Series C are entitled to liquidation preferences equal to the original purchase
prices of $6.50, $5.33 and $4.50 per share, respectively, plus all accrued but
unpaid dividends. The holders of the Series C are entitled to receive cumulative
dividends at an annual rate of 8 percent. The Company has recorded cumulative
dividends of $1,020,000 for the year ended December 31, 2000. The holders of
Series A and Series B are not entitled to cumulative dividends.
In March 2000, the Company sold 3,753,846 shares of Series A for $6.50 per
share and 487,805 shares of Series B for $5.33 per share to NCEH for
aggregate proceeds of $26,489,241, net of offering costs of $510,759. The
offering costs will be accreted using the
8
effective interest method through the March 2005 redemption date of the
Series A and Series B. For the year ended December 31, 2000, the Company
recorded $73,584 of such accretion.
In August 2000, the Company sold 6,111,112 shares of Series C to new
investors at $4.50 per share for proceeds of $27,174,359, net of offering
costs of $325,641, and NCEH converted the bridge note into 1,111,111 shares
of Series C. The offering costs will be accreted using the effective interest
method through the March 2005 redemption date of the Series C. For the year
ended December 31, 2000, the Company recorded $26,643 of such accretion. In
connection with the conversion of the bridge note, the Company recorded a
beneficial conversion feature as a preferred stock dividend for the
difference between the carrying amount of the bridge note and the fair value
of the common shares to be issued upon conversion in the amount of
$1,790,969. Also in August 2000, the Company sold 333,333 shares of Series C
at $4.50 per share to the Company's Chief Executive Officer for cash of
$750,000 and a full recourse note of $750,000. The note accrues interest at
6.18% and the principal and accrued interest are payable on August 10, 2005.
The note receivable was recorded as a reduction of the Series C on the
accompanying consolidated balance sheets.
SERIES A AND SERIES B CONVERSION PRICE ADJUSTMENT
In connection with the sale of Series C, the conversion prices of the Series A
and Series B were adjusted to $4.50 per share from $6.50 and $5.33,
respectively. These conversion price adjustments created a contingent beneficial
conversion feature for financial reporting purposes. Upon the issuance of the
Series C, the Company recorded a discount on the Series A and Series B of
$10,666,667 and $479,556, respectively, for the beneficial conversion feature.
This beneficial conversion feature is being treated as a preferred stock
dividend. During 2000, the Company recorded a deemed preferred stock dividend in
the amount of $11,146,223.
6. COMMON STOCK AND PERFORMANCE WARRANTS:
COMMON STOCK
On September 4, 1998, the Company entered into an agreement with NCEH whereby
NCEH acquired 2,493,870 shares of the Company's common stock for $10,000,000.
NCEH was also given the right to purchase 134,376 shares of the Company's
common stock, as defined. This purchase right was exercised on March 30,
1999. In addition, this agreement provides for, among other things, the right
of first refusal on certain equity transactions.
In February 1999, the Company's then Chairman of the Board sold 102,000 shares
of his holdings of the Company's common stock to certain NCEH affiliates and to
a former director of the Company at $5.33 per share. In addition, in July 1999,
the Company's then Chairman of the Board sold 150,000 shares of his holdings of
the Company's common stock to NCEH in connection with NCEH's guarantee of the
lease on the Company's new operating facility (see Note 2).
In March 2000, the Company sold 150,000 shares of common stock to a director of
the Company at $6.50 per share.
PERFORMANCE WARRANTS
In August 2000, the Company agreed to grant warrants to certain Series C
investors to purchase 924,867 shares of common stock at $.01 per share in
exchange for certain future performance obligations. In 2000, one of the Series
C investors satisfied a portion of the obligation and the Company recorded a
noncash commission charge of $2,718,518 related to the granting of 604,911 fully
vested warrants.
7. STOCK OPTIONS:
Effective August 17, 2000, the Company adopted the 2000 Stock Option Plan (the
Plan). The Plan provides for the granting of incentive and nonqualified stock
options to employees and consultants of the Company. The Compensation Committee
of the Board of Directors administers the Plan and awards grants and determines
the terms of such grants at its discretion. The Company has reserved 6,500,000
shares of common stock for issuance pursuant to the Plan. The Plan supercedes
the 1996 Stock Option Plan and the 1998 Non-Employee Director Plan. All
available and unissued shares previously authorized under the 1996 Stock Option
Plan and the 1998 Non-Employee Director Plan expired on August 17, 2000.
9
Information with respect to the Company's common stock options is as follows:
WEIGHTED
EXERCISE AVERAGE
SHARES PRICE EXERCISE PRICE
---------- ------------ --------------
Balance, December 31, 1997 1,093,200 $ .03 $ .03
Granted at fair market value 492,000 4.00 4.00
Granted below fair market value 733,500 .03 .03
Exercised (10,950) .03 .03
Canceled (140,850) .03 .03
--------- ----------- ----------
Balance, December 31, 1998 2,166,900 .03-4.00 .93
Granted at fair market value 978,850 6.50-8.00 7.47
Granted below fair market value 661,000 4.00-5.33 4.90
Exercised (110,000) .03 .03
Canceled (276,375) .03-8.00 1.35
--------- ----------- ----------
Balance, December 31, 1999 3,420,375 .03-8.00 3.57
Granted at fair market value 3,375,572 4.50-6.50 5.29
Granted below fair market value 2,072,366 .03-4.00 3.40
Exercised (325,338) .03-8.00 .11
Canceled (424,439) .03-8.00 4.82
--------- ----------- ----------
Balance, December 31, 2000 8,118,536 $ .03-8.00 $ 4.28
========= =========== ==========
All options have terms ranging from five to ten years and generally vest over
four years. The weighted average remaining contractual life of all options
outstanding as of December 31, 2000, was 7.59 years. The total number of shares
available for future grant under the Plan as of December 31, 2000, was
2,521,054.
The following table summarizes information relating to the Plan as of December
31, 2000 based upon each exercise price:
OUTSTANDING STOCK OPTIONS EXERCISABLE STOCK OPTIONS
----------------------------------------------------------- -------------------------
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
EXERCISE CONTRACTUAL EXERCISE
EXERCISE PRICE SHARES PRICE LIFE (YEARS) SHARES PRICE
--------------- ----------- ----------- ------------ ---------- ---------
$ .03 1,024,050 $ .03 2.24 910,550 $ .03
3.50 1,994,366 3.50 6.61 664,789 3.50
4.00 573,625 4.00 7.81 380,375 4.00
4.50 1,984,580 4.50 9.70 21,000 4.50
5.33 445,000 5.33 8.21 355,417 5.33
6.50 1,570,326 6.50 9.14 103,558 6.50
7.92 250 7.92 8.34 63 7.92
8.00 526,339 8.00 8.39 131,733 8.00
----------- --------- ----------- --------- --------- ---------
$ .03-8.00 8,118,536 $ 4.28 7.59 2,567,485 $ 2.87
=========== ========= =========== ========= ========= =========
In connection with certain options granted to employees during the years ended
December 31, 1998, 1999 and 2000, the Company recorded $1,884,500, $1,819,467
and $2,439,476 of deferred compensation, respectively. These amounts represent
the difference between the fair market value of the Company's common stock on
the date of grant and the exercise price of options to purchase 733,500, 661,000
and 2,072,366 shares, respectively, of the Company's common stock. Deferred
compensation is amortized over the vesting periods of the options, which range
from immediate vesting to periods of up to four years. For the years ended
December 31,
10
1998, 1999 and 2000, $1,017,744, $1,285,792 and $2,201,701 of deferred
compensation, net of forfeitures, was charged to expense, respectively.
Pro forma information provided below has been determined as if the Company had
accounted for its employee stock options in accordance with SFAS No. 123,
"Accounting for Stock-Based Compensation." The determination of the fair value
of the options noted above was estimated at the date of grant using a
Black-Scholes options pricing model with the following weighted-average
assumptions for the years ended December 31, 1998, 1999 and 2000: risk-free
interest rate of 4.9 percent, 5.6 percent and 6.1 percent, respectively,
dividend yield of 0 percent, volatility factor of the expected market price of
the Company's common stock of 70 percent, and an expected life of the options of
four years.
The weighted average fair value of the options granted is as follows:
YEAR ENDED DECEMBER 31,
--------------------------------------------
1998 1999 2000
---------------- ------------ ------------
Granted at fair market value $ 2.24 $ 4.26 $ 5.29
Granted below fair market value 2.80 5.33 4.58
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the option vesting periods. The Company's pro forma
information is as follows:
YEAR ENDED DECEMBER 31,
---------------------------------------------
1998 1999 2000
-------------- ------------ -------------
Net loss applicable to common
stockholders, as reported $ (3,354,636) $ (12,575,067) $ (46,194,542)
Net loss per share, as reported (0.36) (1.11) (2.98)
Pro forma net loss applicable to common
stockholders (3,364,955) (13,823,739) (48,293,565)
Pro forma net loss per share (0.36) (1.22) (4.16)
8. COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS
The Company leases facilities and equipment under capital and noncancellable
operating leases with expiration dates through December 2009. Rent expense for
the years ended December 31, 1998, 1999 and 2000, was $119,216, $147,561 and
$1,431,570, respectively. Future minimum lease payments as of December 31, 2000,
are as follows:
OPERATING CAPITAL
LEASES LEASES
------------- -----------
2001 $ 1,265,075 $ 16,375
2002 1,340,980 --
2003 1,340,980 --
2004 1,404,233 --
2005 1,404,233 --
2006 and thereafter 5,920,549 --
------------- -----------
Total minimum lease payments $ 12,676,050 16,375
=============
Less- Amount representing interest (582)
-----------
Present value of future minimum lease payments 15,793
Less- Current portion (15,793)
-----------
$ --
===========
11
LITIGATION
The Company is involved, from time to time, in various legal matters and claims
which are being defended and handled in the ordinary course of business. None of
these matters are expected, in the opinion of management, to have a material
adverse effect on the financial position or results of operations of the
Company.
EMPLOYMENT AGREEMENTS
In 1999, the Company entered into employment agreements with two officers of the
Company. In August 2000, the Company entered into an employment agreement with
its Chief Executive Officer. The agreements provide for, among other things,
salaries, bonuses, severance payments and certain other payments payable upon a
change in control, as defined.
GOVERNMENT REGULATION
Management believes, based upon consultation with legal counsel, that the
Company is not required to be licensed by the Office of the Comptroller of the
Currency, the Federal Reserve Board or other federal or state agencies that
regulate or monitor banks or other providers of electronic commerce. However,
the Company may be periodically audited by banking authorities since the Company
is a supplier of services to financial institutions. Laws regulating internet
commerce may be enacted to address issues such as, trust accounting, user
privacy, pricing, content, taxation and the characteristics and quality of
online products and services, among other things. If enacted, these laws could
have a material adverse effect on the Company's business.
9. INCOME TAXES:
The reconciliation of the statutory federal income tax rate to the Company's
effective income tax rate is as follows:
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1999 2000
--------- ---------- --------
Statutory federal income tax rate (34.0)% (34.0)% (34.0)%
State income taxes, net of federal tax benefit (6.3) (6.3) (6.3)
Nondeductible expenses 0.2 0.7 0.1
Valuation allowance 40.1 39.6 40.2
------ ------- -------
-- % -- % -- %
====== ======= =======
Deferred taxes are determined based upon the estimated future tax effects of
differences between the financial statements and income tax basis of assets and
liabilities given the provisions of the enacted tax laws. The tax effect of
temporary differences that give rise to deferred taxes are as follows:
DECEMBER 31,
-----------------------------
1999 2000
------------- -------------
Deferred tax assets:
Net operating loss carryforwards $ 7,966,164 $ 19,187,707
Deferred compensation 928,325 2,178,408
Development costs 525,005 525,005
Accruals and reserves not currently deductible 226,596 588,577
------------- -------------
9,646,090 22,479,697
------------- -------------
Deferred tax liabilities:
Property and equipment (196,151) (880,106)
Other (17,504) (640,643)
------------- -------------
(213,655) (1,520,749)
------------- -------------
9,432,435 20,958,948
Less- Valuation allowance (9,432,435) (20,958,948)
------------- -------------
Net deferred tax asset $ -- $ --
============= =============
12
Due to the uncertainty surrounding the realization of the net deferred tax
asset, management has provided a full valuation allowance. As of December 31,
2000, the Company has net operating loss carryforwards of approximately
$47,600,000 for federal tax purposes, which will begin to expire in 2003, and
$46,200,000 for state tax purposes, which have begun to expire. The Tax Reform
Act of 1986 contains provisions that may limit the net operating loss
carryforwards available in any given year in the event of a 50 percent
cumulative change in ownership over a three-year period.
10. EMPLOYEE BENEFIT PLAN:
The Company has a Section 401(k) retirement savings plan (the 401(k) Plan). The
401(k) Plan allows employees to contribute 2 percent to 15 percent of their
annual compensation subject to statutory limitations. Company contributions to
the 401(k) Plan are discretionary. Effective January 1999, the Company began
matching contributions of 100 percent of the first 6 percent of employee
contributions. For the years ended December 31, 1999 and 2000, the Company made
matching contributions of $171,522 and $235,162, respectively, to the 401(k)
Plan.
11. CONCENTRATION OF CREDIT RISK:
For the years ended December 31, 1998, 1999 and 2000, the Company had two, one
and one customer(s) which accounted for 12 percent, 19 percent and 20 percent of
service fee revenues, respectively. At December 31, 1999 and 2000, the Company
had aggregate accounts receivable for these customers of $394,021 and $676,497,
respectively. The loss of one or more of these customers could have a materially
adverse effect on the Company's business.
12. RELATED-PARTY TRANSACTIONS:
Prepaid expenses and other at December 31, 1999, included $195,027 of advances
made to the Company's then Chief Executive Officer. These advances were repaid
in February 2000.
During 1999, the Company's then Chief Executive Officer sold certain of his
holdings of the Company's common stock to NCEH (see Note 6).
In connection with the Series A and Series B financing, the Company paid
$975,000 to a director and shareholder of the Company. This amount was charged
to financing costs on the accompanying consolidated statements of operations.
In connection with the Series C financing, the Company issued a $750,000 note
receivable to the Company's Chief Executive Officer (see Note 6).
The Company provides services to a customer who is also a stockholder. The
payment and presentment transaction fees and implementation and other
professional service fees recognized from this customer were $945,000 and
$360,948, respectively, for the year ended December 31, 2000. The total accounts
receivable, accrued expenses and deferred revenue for this customer were
$1,179,953, $500,000 and $139,052, respectively, as of December 31, 2000.
13