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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] 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
BILLING CONCEPTS CORP.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 74-2781950
(State of Incorporation) (I.R.S. Employer
Identification No.)
7411 JOHN SMITH DRIVE, SUITE 200, SAN ANTONIO, TEXAS 78229
(Address of Principal Executive Office) (Zip Code)
(210) 949-7000
(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)
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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
Portions of the Registrant's Definitive Proxy Statement for the 2001
Annual Meeting of Stockholders to be held on May 15, 2001, are incorporated by
reference in Part III hereof.
BILLING CONCEPTS CORP.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000
ITEM PAGE
NUMBER NUMBER
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Index..................................................................... 2
PART I
1. Business.................................................................. 3
2. Properties................................................................ 13
3. Legal Proceedings......................................................... 14
4. Submission of Matters to a Vote of Security Holders....................... 14
PART II
5. Market for the Company's Common Equity and Related Stockholder Matters.... 15
6. Selected Financial Data................................................... 16
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................. 18
7A. Quantitative and Qualitative Disclosure About Market Risk................. 22
8. Financial Statements and Supplementary Data............................... 23
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure................................................................ 43
PART III
10. Directors and Executive Officers of the Company........................... 44
11. Executive Compensation.................................................... 44
12. Security Ownership of Certain Beneficial Owners and Management............ 44
13. Certain Relationships and Related Transactions............................ 44
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......... 45
Signatures................................................................ 47
2
PART I
ITEM 1. BUSINESS
THIS ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN "FORWARD-LOOKING" STATEMENTS AS
SUCH TERM IS DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND
INFORMATION RELATING TO THE COMPANY AND ITS SUBSIDIARIES THAT ARE BASED ON THE
BELIEFS OF THE COMPANY'S MANAGEMENT AS WELL AS ASSUMPTIONS MADE BY AND
INFORMATION CURRENTLY AVAILABLE TO THE COMPANY'S MANAGEMENT. WHEN USED IN THIS
REPORT, THE WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE," "EXPECT" AND "INTEND" AND
WORDS OR PHRASES OF SIMILAR IMPORT, AS THEY RELATE TO THE COMPANY OR ITS
SUBSIDIARIES OR COMPANY MANAGEMENT, ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. SUCH STATEMENTS REFLECT THE CURRENT RISKS, UNCERTAINTIES AND
ASSUMPTIONS RELATED TO CERTAIN FACTORS INCLUDING, WITHOUT LIMITATIONS,
COMPETITIVE FACTORS, GENERAL ECONOMIC CONDITIONS, CUSTOMER RELATIONS,
RELATIONSHIPS WITH VENDORS, THE INTEREST RATE ENVIRONMENT, GOVERNMENTAL
REGULATION AND SUPERVISION, SEASONALITY, DISTRIBUTION NETWORKS, PRODUCT
INTRODUCTIONS AND ACCEPTANCE, TECHNOLOGICAL CHANGE, CHANGES IN INDUSTRY
PRACTICES, ONETIME EVENTS AND OTHER FACTORS DESCRIBED HEREIN AND IN OTHER
FILINGS MADE BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION. BASED
UPON CHANGING CONDITIONS, SHOULD ANY ONE OR MORE OF THESE RISKS OR UNCERTAINTIES
MATERIALIZE, OR SHOULD ANY UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL
RESULTS MAY VARY MATERIALLY FROM THOSE DESCRIBED HEREIN AS ANTICIPATED,
BELIEVED, ESTIMATED, EXPECTED OR INTENDED. THE COMPANY DOES NOT INTEND TO UPDATE
THESE FORWARD-LOOKING STATEMENTS.
INTRODUCTION
Billing Concepts Corp. (the "Company" or "BCC") is a business services and
technology company with historical operations in three principal segments -
Internet, Transaction Processing (formerly known as LEC Billing) and Software.
On October 23, 2000, the Company completed the sale of the Transaction
Processing and Software divisions to Platinum Equity Holdings ("Platinum") of
Los Angeles, California (the "Transaction"). Total consideration consisted of
$52.5 million in cash and a royalty, assuming achievement of certain revenue
targets associated with the divested divisions, of up to $20 million. In
addition, the Company will receive payments totaling $7.5 million for consulting
services provided to Platinum over the twenty-four month period subsequent to
the Transaction. All financial information presented has been restated to
reflect the Transaction Processing and Software divisions as discontinued
operations as of September 30, 2000, in accordance with Accounting Principles
Board Opinion No. 30. Pursuant to the Transaction agreement, the Company will
change its name and Nasdaq National Market symbol prior to May 31, 2001.
CONTINUING OPERATIONS - INTERNET
Over the last five years, the Internet and the Worldwide Web have grown at
an explosive rate. The growth of the Internet is a global phenomenon that is
fundamentally changing the way business is conducted. The increase in the number
of Internet users, coupled with the proliferation of new types of on-line and
electronic commerce, or e-commerce, has fueled the emergence of new service
providers such as Internet Service Providers ("ISPs") and Internet telephony
providers. In addition, traditional telecommunications carriers have entered the
Internet market, providing on-line and e-commerce services to both businesses
and consumers. One of the consequences of the widespread growth and acceptance
of Web use is that consumers are rapidly embracing the ability to pay their
bills and conduct other personal business over the Internet. This trend has
generated a growing interest by large national and regional bill senders to
publish their bills electronically. The Company has embraced the Internet
phenomenon through acquisition opportunities, as discussed below.
In September 1998, BCC acquired 22% of the capital stock of Princeton eCom
Corporation ("Princeton"), formerly known as Princeton Telecom Corporation.
Princeton, founded in 1983 by a group of Princeton University professors, is a
privately held company headquartered in Princeton, New Jersey specializing in
comprehensive electronic bill presentment and payment services via the Internet
and telephone to financial institutions and large businesses. Princeton's
services eliminate the need for companies to generate and mail paper bills as
well as the need for consumers to write and mail paper checks. Princeton also
provides electronic lockbox (ELS), credit card balance transfer services and
business to business transaction services. During 1999, the Company acquired
additional shares of Princeton common stock, increasing the Company's ownership
to approximately 24% at September 30, 1999.
In March 2000, the Company increased its ownership percentage in Princeton
with an additional $33.5 million equity investment, which consisted of $27.0
million of convertible preferred stock and $6.5 million of common stock. In
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June 2000, under the terms of a Convertible Promissory Note, the Company
advanced $5.0 million to Princeton. During the fourth quarter of 2000, the
Convertible Promissory Note was converted into shares of Princeton preferred
stock, which is convertible into 1,111,111 shares of Princeton common stock. The
Company's ownership percentage in Princeton at September 30, 2000, was
approximately 42.5%.
In November 1999, the Company completed the acquisition of FIData, Inc.
("FIData"), a company located in Austin, Texas that provides Internet-based
automated loan approval products to the financial services industries. FIData
was formed in 1988 to provide the credit union industry with self-service
technology. FIData specializes in developing products for the financial services
industry that improve service, build loyalty and help its clients do business in
more efficient, cost effective ways through Internet-based technology. The
proprietary products of FIData facilitate automated approval of consumer and
home equity loans. The FIData state-of-the-art technology is easily installed
and may rapidly change a lender's website into an interactive revenue and
self-service center. In addition to credit unions, the FIData products have
application in the banking, insurance, mortgage and retail markets.
In March 2000, the Company completed the purchase of a voting preferred
stock investment of $6.0 million in COREINTELLECT, Inc. ("CORE"), a Dallas,
Texas-based company. This represents approximately 22% of the voting stock of
CORE. CORE develops and markets Internet-based business-to-business products for
the acquisition, classification, retention and dissemination of
business-critical knowledge and information. CORE's product was launched
successfully in November 2000.
DISCONTINUED OPERATIONS - TRANSACTION PROCESSING
GENERAL
The Company, through its wholly owned subsidiaries Billing Concepts, Inc.,
Enhanced Services Billing, Inc., BC Transaction Processing Services, Inc. and
Operator Service Company (collectively, "Billing"), provides third-party billing
clearinghouse and information management services to the telecommunications
industry. Billing maintains contractual billing arrangements with local
telephone companies that provide access lines to, and collect for services from,
end users of telecommunication services. Billing processes telephone call
records and other transactions and collects the related end-user charges from
these local telephone companies on behalf of its customers. This process is
known within the industry as "Local Exchange Carrier billing" or "LEC billing."
Billing's customers include direct dial long distance telephone companies,
operator services providers, information providers, competitive local exchange
companies, Internet service providers and integrated communications services
providers.
In general, Billing performs four types of LEC billing services under
different billing and collection agreements with the local telephone companies.
First, Billing performs direct dial long distance billing, which is the billing
of "1+" long distance telephone calls to individual residential customers and
small commercial accounts. Although such carriers can bill end users directly,
Billing provides these carriers with a cost-effective means of billing and
collecting residential and small commercial accounts through the local telephone
companies. Second, Billing offers zero plus - zero minus LEC billing services to
customers providing operator services largely to the hospitality, penal and
private pay telephone industries. Billing processes records for telephone calls
that require operator assistance and/or alternative billing options such as
collect and person-to-person calls, third-party billing and calling card
billing. Since operator services providers have only the billing number and not
the name or address of the billed party, they must have access to the services
of the local telephone companies to collect their charges. Billing provides this
access to its customers through its contractual billing arrangements with the
local telephone companies that bill and collect on behalf of these operator
services providers. This service is the original form of local telephone company
billing provided by Billing and has driven the development of the systems and
infrastructure utilized by all of Billing's LEC billing services. Third, Billing
performs enhanced LEC billing services whereby it bills a wide array of charges
that can be applied to a local telephone company telephone bill, including
charges for 900 access pay-per-call transactions, cellular services, paging
services, voice mail services, Internet access, Caller ID and other nonregulated
telecommunications equipment. Finally, in addition to its full-service LEC
billing product, Billing also offers billing management services to customers
who have their own billing and collection agreements with the local telephone
companies. These management services may include data processing, accounting,
end-user customer service and telecommunication tax processing and reporting.
Billing acts as an aggregator of telephone call records and other
transactions from various sources and, due to its large volume, it receives
discounted billing costs with the local telephone companies and can pass on
these discounts to its
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customers. Additionally, Billing can provide its services to those long distance
carriers and operator services providers who would otherwise not be able to make
the investments in billing and collection agreements with the local telephone
companies, fees, systems, infrastructure and volume commitments required to
establish and maintain the necessary relationships with the local telephone
companies. The billing and collection agreements do not provide for any
penalties other than payment of the obligation should the usage levels not be
met. Billing has met all such volume commitments in the past.
INDUSTRY BACKGROUND
Billing clearinghouse and information management services, or LEC billing,
in the telecommunications industry developed out of the 1984 breakup of American
Telephone & Telegraph ("AT&T") and the Bell System. In connection with the
breakup, the local telephone companies that make up the Regional Bell Operating
Companies ("RBOCs"), Southern New England Telephone, Cincinnati Bell and the
General Telephone Operating Companies ("GTE") were required to provide billing
and collections on a nondiscriminatory basis to all carriers that provided
telecommunication services to their end-user customers. Due to both the cost of
acquiring and the minimum charges associated with many of the local telephone
company billing and collection agreements, only the largest long distance
carriers, including AT&T, MCI Telecommunications Corporation, now MCI Worldcom
("MCI"), and Sprint Incorporated ("Sprint"), could afford the option of billing
directly through the local telephone companies. Several companies, including
Billing, entered into these billing and collection agreements and became
aggregators of telephone call records for operator services providers and second
and third-tier long distance carriers, thereby becoming "third-party
clearinghouses."
The operator services industry began to develop in 1986 with deregulation
that allowed a zero-plus call (automated calling card call) or zero-minus call
(collect, third-party billing, operator assisted calling card or
person-to-person call) to be routed away from AT&T to a competitive long
distance services provider. Since a zero-plus or zero-minus call is placed by an
end user whose billing information is unrelated to the telephone being used to
place the call, a long distance carrier would not typically have adequate
information to produce a bill. This information typically resides with the
billed party's local telephone company. In order to bill its telephone call
records, a long distance services provider carrying zero-plus and zero-minus
telephone calls must either obtain billing and collection agreements with the
local telephone companies or utilize the services of a third-party clearinghouse
that has the billing and collection agreements required.
Third-party clearinghouses such as Billing process these telephone call
records and other transactions and submit them to the local telephone companies
for inclusion in their monthly bills to end users. As the local telephone
companies collect payments from end users, they remit them to the third-party
clearinghouses that, in turn, remit payments to their carrier customers.
DEVELOPMENT OF BUSINESS
On August 2, 1996, U.S. Long Distance Corp. ("USLD") distributed to its
stockholders all of the outstanding shares of common stock of the Company (the
"Distribution"), which, prior to the Distribution, was a wholly owned subsidiary
of USLD. Upon completion of the Distribution, BCC became an independent,
publicly held company that owns and operates the billing clearinghouse and
information management services business previously operated by USLD through
Billing.
In 1988, USLD acquired ZPDI and its billing and collection agreements with
several local telephone companies. USLD used these billing and collection
agreements to bill and collect through the local telephone companies for its own
operator services call record transactions. As USLD's operator services business
expanded, ZPDI entered into additional billing and collection agreements with
other local telephone companies, including the RBOCs, GTE and other independent
local telephone companies. Billing recognized the expense and time related to
obtaining and administering these billing and collection agreements and began
offering its services as a third-party clearinghouse to other operator services
businesses who did not have any proprietary agreements with the local telephone
companies. In 1992, Billing entered into a new set of billing and collection
agreements with the local telephone companies and began offering LEC billing
services to direct dial long distance services providers.
A key factor in the evolution of Billing's business has been the ongoing
development of its information management systems. In 1990, Billing developed a
comprehensive information system capable of processing, tracing and accounting
for telephone call record transactions (see "Business - Operations"). Also in
1990, Billing became the first third-party billing
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clearinghouse to finance its customers' accounts receivable. In 1991, USLD
separated the day-to-day management and operations of Billing from its long
distance and operator services businesses (the "Telecommunications Group"). The
purpose of this separation was to satisfy some of Billing's customers who were
also competitors of USLD's long distance and operator services businesses. These
customers had two main concerns: (i) that USLD's long distance and operator
services businesses could gain knowledge of its competitors through call records
processed by Billing and (ii) that Billing was somehow subsidizing USLD's long
distance and operator services businesses with which these customers compete.
Subsequent to the separation, the Billing Group and the Telecommunications Group
operated independently, except for certain corporate activities conducted by
USLD's corporate staff.
In 1993, Billing began to offer billing management services to direct dial
long distance carriers and information services providers who have their own
billing and collection agreements with the local telephone companies. These
customers collect charges directly from the local telephone companies and, for
marketing purposes, may desire to place their own logo, name and customer
service number on the long distance bill page. Billing management services
provided by Billing to such customers may include contract management,
transaction processing, information management and reporting, tax compliance and
customer service.
In 1994, Billing began offering enhanced billing clearinghouse and
information management services to other businesses within the
telecommunications industry. These businesses include telecommunications
equipment providers, information providers and other communication services
providers of non-regulated services and products such as 900 access pay-per-call
transactions, cellular long distance services, paging services, voice mail
services, Internet access, Caller ID and other non-regulated telecommunications
equipment charges. Billing entered into additional billing and collection
agreements with the local telephone companies to process these types of
transactions.
PROCESS
LEC billing refers to billing for transactions that are included in the
monthly local telephone bill of the end user as opposed to a direct bill that
the end user would receive directly from the telecommunications or other
services provider. The Company's customers submit telephone call record data in
batches on a daily to monthly basis, but typically in weekly intervals. The data
is submitted either electronically or via magnetic tape. Billing, through its
proprietary software, processes the telephone call record data to determine the
validity of each record and to include for each record certain telecommunication
taxes and applicable customer identification information and sets up an account
receivable for each batch of call records processed. Billing then submits,
through a third-party vendor, the relevant billable telephone call records and
other transactions to the appropriate local telephone company for billing and
collection. Billing monitors and tracks each account receivable by customer and
by batch throughout the billing and collection process. The local telephone
companies then include these telephone call records and other transactions in
their monthly local telephone bills and remit the collected funds to Billing for
payment to its customers. The complete cycle can take up to 18 months from the
time the records are submitted for billing until all bad debt reserves are
"trued up" with actual bad debt experience. However, the billing and collection
agreements provide for the local telephone companies to purchase the accounts
receivable, with recourse, within a 40 to 90 day period.
Billing does not record an allowance for doubtful accounts for LEC billing
trade receivables, but does accrue an estimated liability for end-user customer
service refunds and local telephone company adjustments related to certain
customers. Billing reviews the activity of its customer base to detect potential
losses. If there is uncertainty with an account, Billing can discontinue paying
the customer in order to hold funds to cover future end-user customer service
refunds, bad debt and unbillable adjustments. If a customer discontinues doing
business with Billing, and there are insufficient funds being held to cover
future refunds and adjustments, Billing's only recourse is through legal action.
An allowance for doubtful accounts is not necessary for LEC billing trade
receivables since these receivables are collected from the funds received from
the local telephone company before remittance is made to the customer.
Billing processes the tax records associated with each customer's
submitted telephone call records and other transactions and files certain
federal excise and state and local telecommunications-related tax returns
covering such records and transactions on behalf of many of its customers.
Billing provides end-user inquiry and investigation (customer service) for
billed telephone call records. This service allows end users to inquire
regarding calls for which they were billed. Billing's customer service telephone
number is
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included in the local telephone company bill to the end user, and Billing's
customer service representatives are authorized to resolve end-user disputes
regarding such calls.
Billing earns its revenues based on (i) a processing fee that is assessed
to customers either as a fee charged for each telephone call record or other
transaction processed or as percentage of the customer's revenue that is
submitted by Billing to the local telephone companies for billing and collection
and (ii) a customer service inquiry fee that is assessed to customers either as
a fee charged for each record processed by the Company or as a fee charged for
each billing inquiry made by end users. Any charges assessed to Billing by local
telephone companies for billing and collection services are also included in
revenues and are passed through to the customer.
Through its advance funding program, Billing offers its customers the
option to receive, within five days of the customer's submission of records to
Billing, a significant portion of the revenue associated with such records. The
customer pays interest for the period of time between the purchase of records by
Billing and the time the local telephone company submits payment to Billing for
the subject records.
OPERATIONS
Billing's LEC billing services are highly automated through Billing's
proprietary computer software and state-of-the-art data transmission protocols.
Except for the end-user inquiry and investigation service (customer service),
the staff required to provide Billing's LEC billing services is largely
administrative and the number of employees is not directly volume sensitive.
Many of Billing's customers submit their records to Billing using electronic
transmission protocols directly into Billing's electronic bulletin board, which
is accessible through the Internet via Billing's "BCWebTrack" website. These
records are automatically accessed by Billing's proprietary software, processed,
and submitted to the local telephone companies electronically. Upon completion
of the billing process, Billing provides reports through its BCWebTrack website
relating to billable records and returns any unbillable records to its customers
electronically through the BCWebTrack Record Manager.
Billing operates two independent computer systems to ensure continual,
uninterrupted processing of LEC billing services. One system is dedicated to
daily processing activities, and the other serves as a back-up to the primary
system and provides storage for up to 12 months of billing detail, which is
immediately accessible to Billing's customer service representatives who handle
billing inquiries. Detail of records older than 12 months is stored on CD-ROM
and magnetic tape for at least seven years. Since timely submission of call
records to the local telephone companies is critical to prompt collections and
high collection rates, Billing has made a significant investment in computer
systems so that its customers' call records are processed and submitted to the
local telephone companies in a timely manner, generally within 24 hours of
receipt by Billing.
Billing's contracts with its customers provide for the LEC billing
services required by the customer, specifying, among other things, the services
to be provided and the cost and term of the services. Once the customer executes
an agreement, Billing updates tables within each of the local telephone
companies' billing systems to control the type of records processed, the
products or services allowed by the local telephone companies and the printing
of the customer's name on the end user's monthly bill. While these local
telephone company tables are being updated, Billing's technical support staff
tests the customer's records through its proprietary software to ensure that the
records can be transmitted to the local telephone companies.
Billing maintains a relatively small direct sales force and accomplishes
most of its marketing efforts through active participation in telecommunications
industry trade shows, educational seminars and workshops. Billing advertises to
a limited extent in trade journals and other industry publications.
CUSTOMERS
Billing provides LEC billing services and direct billing systems sales and
development to the following categories of telecommunications services
providers:
o Interexchange Carriers or Long Distance Companies: Facilities-based
carriers that possess their own telecommunications switching equipment and
networks and provide traditional direct dial telecommunications services.
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Certain long distance companies provide operator assisted services as well as
direct dial services. These calls are billed to the end user by the local
telephone company in the case of residential and small commercial accounts.
o Switchless Resellers: Marketing organizations, affinity groups, or even
aggregator operations that buy direct dial long distance services in volume at
wholesale rates from a facilities based long distance company and sell them back
to individual customers at market rates. These calls are billed to the end user
by the local telephone company in the case of residential and small commercial
accounts.
o Operator Services Providers: Carriers who handle "live" operator
assisted or "automated" operator assisted calls from remote locations using a
centralized telecommunications switching device. These calls are billed to local
telephone company calling cards, collect, to third-party numbers or
person-to-person.
o Customer Owned Coin-Operated Telephone Providers: Privately owned,
intelligent pay telephones that handle "automated" operator assisted calls that
are billed to a local telephone company calling card, collect or to a
third-party number.
o Customer Premise Equipment Providers: Carriers who install equipment at
aggregator locations, such as hotels, university dormitories and penal
institutions, which handle calls originated from that location device. These
calls are subsequently billed to local telephone company calling cards, collect,
to third-party numbers or person-to-person.
o Information Providers: Companies that provide various forms of
information, entertainment or voice mail services to subscribers. These services
are typically billed to the end user by the local telephone company based on a
900 pay-per-call or a monthly recurring service fee.
o Competitive Local Exchange Carriers ("CLEC"): Carriers that provide
local exchange services to subscribers who were previously served exclusively by
the incumbent local exchange carrier.
o Incumbent Local Exchange Carrier ("ILEC"): The existing local telephone
company who has previously offered service as a regulated monopoly company.
o Internet Service Providers ("ISP"): Companies that offer Internet access
and Internet-based services.
o Integrated Communications Providers ("ICP"): Carriers who offer multiple
communications services through a combination of owned network facilities and
resale of other network facilities. These multiple services are typically
bundled and priced as a package of services.
o Other Customers: Suppliers of various forms of telecommunications
equipment and pager and cellular telephone companies.
COMPETITION
Billing competes with several other billing clearinghouses in servicing
the telecommunications industry. Billing is one of the largest participants in
the third-party clearinghouse industry in the United States. Competition among
the clearinghouses is driven by the quality of information reporting, collection
history, the speed of collections and the price of services.
There are several significant challenges that face potential new entrants
in the LEC billing industry. The cost to acquire the necessary billing and
collection agreements is significant, as is the cost to develop and implement
the required systems for processing telephone call records and other
transactions. Additionally, most billing and collection agreements require a
user to make substantial monthly or annual volume commitments. Given these
factors, the average cost of billing and collecting a record could hinder
efforts to compete effectively on price until a new entrant could generate
sufficient volume. The price charged by most local telephone companies for
billing and collection services is based on volume commitments and actual
volumes being processed.
8
Since most customers in the billing clearinghouse industry are under
contract with Billing or one of its competitors, the majority of the existing
market may be committed for up to five years. In addition, a new entrant must be
financially sound and have system integrity because funds collected by the local
telephone companies flow through the third-party clearinghouse, which then
distributes the cash to the customer whose traffic is being billed. Billing
enjoys a good reputation within the industry for the timeliness and accuracy of
its collections and disbursements to customers.
The principal competitive factors in Billing's market include
responsiveness to client needs, timeliness of implementation, quality of
service, price, project management capability and technical expertise. The
ability to compete depends in part on a number of competitive factors outside
its control, including the development by others of software that is competitive
with Billing's services and products, the price at which competitors offer
comparable services and products, the extent of competitors' responsiveness to
customer needs and the ability of Billing's competitors to hire, retain and
motivate key personnel. As a result, Billing's competitors may be able to adapt
more quickly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the promotion and sale of their
products than can Billing. In addition, the clearinghouse industry continues to
come under pressure from competitors offering a means of billing end users
directly as consumer demand increases for bundled services that can be directly
billed cost-effectively due to the larger size of such convergent accounts. The
ongoing consolidation in the communications industry is also making it more
feasible for the resulting larger companies to have their own LEC billing
agreements or bill consumers directly.
Billing does not currently hold any patents and relies upon a combination
of contractual non-disclosure obligations and statutory and common law
copyright, trademark and trade secret laws to establish and maintain its
proprietary rights to its products. Due to the rapid pace of technological
change in the telecommunications and software industries, the legal protections
for Billing's products are less significant factors in Billing's success than
the knowledge, ability and experience of Billing's employees, the frequency of
product enhancements and the timeliness and quality of support services provided
by Billing. Billing generally enters into confidentiality agreements with its
employees, consultants, clients and potential clients and limits access to, and
distribution of, its proprietary information.
RESEARCH AND DEVELOPMENT
Transaction Processing internally funds research and development
activities with respect to efforts associated with creating new and enhanced
billing services products. Transaction Processing is currently exploring
customer care software applications that allow consumers to view their bills and
request adjustments or make payments via the Internet.
DISCONTINUED OPERATIONS - SOFTWARE
GENERAL
Aptis, Inc. ("Aptis") develops, markets and supports convergent billing
and customer care software applications. Aptis' customers include Network
Service Providers ("NSPs"), ISPs, Integrated Communications Providers ("ICPs")
and other providers of enhanced data services via the Internet. Aptis offers
products and services to these companies through licensing agreements and
outsourcing arrangements.
Aptis has developed, and continues to enhance, sophisticated software
applications in order to meet the current and evolving billing requirements of
its customers. Aptis' software applications support complex billing of NSP, ISP
and ICP customers in a multi-service environment. Aptis' convergent billing
platform has the capability to produce a single convergent bill whereby multiple
services and products such as local exchange, long distance, wireless and data
communications can be billed directly to the end user under one, unified billing
statement. The software also has the flexibility to be configured to meet a
company's unique business rules and product set.
In addition to its software products, a full range of professional
services are also available through Aptis. These services include consulting,
development and systems operations services centered on the Internet and
communications industry and its software products. Aptis also provides ongoing
support, maintenance and training related to customers' billing and customer
care systems. In addition to its software applications and services, Aptis is a
reseller of IBM AS/400 hardware that is used as the hardware platform to host
certain Aptis software applications.
9
DEVELOPMENT OF BUSINESS
BCC entered the software market in June 1997 in conjunction with the
acquisition of Computer Resources Management, Inc. ("CRM"). At that time the
software division was re-named Billing Concepts Systems, Inc. ("BCS"). CRM had
developed and sold billing applications to the long distance and convergent
services markets. Additionally, in October 1998, BCC acquired Expansion Systems
Corp. ("ESC") and integrated it into BCS. ESC had developed a customer care and
billing application for ISPs that automates the registration of new Internet
subscribers and creates bills for customers' services. In December 1998, BCC
completed the merger of Communications Software Consultants, Inc. ("CommSoft").
CommSoft was an international software development and consulting firm
specializing in the telecommunications industry. In April 1999, BCC announced
that BCS would operate under the name Aptis. Through these actions, Aptis has
expanded its potential markets to include companies focused on providing
sophisticated broadband Internet Protocol ("IP") and enhanced data services.
INDUSTRY BACKGROUND
In the competitive communications marketplace today, companies
increasingly realize the value of a direct customer relationship as a means of
growing its revenues. Many companies who have relied on LEC billing have grown
significantly and are looking to implement solutions that will give them the
option to bill customers themselves. Companies who have systems which bill
customers are looking to replace them with solutions that provide sophisticated
capabilities such as convergent billing and product bundling. Aptis provides
such direct billing solutions through its software operations.
Increased competition has ISPs rushing to offer a proliferation of
services that did not exist a few years ago: on-line chat, e-commerce support,
broadband services, Voice over Internet Protocol (VoIP), on-line backup, MP3,
website design and marketing and application leasing and maintenance. Several
causes of this rush relate to the facts that customer need is acute and demand
is strong. Also, revenues from traditional dial-up services are dramatically
declining due in part to competition from free services. Bandwidth is difficult
to acquire for smaller ISPs, and their costs are steadily increasing.
Adding new service offerings is a necessity to stay in business. Finding a
way to maintain high levels of accessibility to the Internet, developing new
avenues for generating revenue, and streamlining operations to lower costs are
the preeminent management challenges for ISPs. In light of the changing business
environment, ISPs are creating larger, more loyal customer bases and need to be
able to bill them.
New Internet services and the need for innovative billing options also has
added to the demand for customer care and billing systems. IP and enhanced
service providers are faced with commoditization of services, rapid introduction
of new and more complex services and demands to generate more revenues from new
and existing customers. Many of these services are being offered by companies
who already offer other communications and/or enhanced data services and who
want to combine usage onto a single customer account, which is known in the
industry as convergent billing. This demand for convergent billing of Internet,
enhanced data and communications services has driven growth and spending by
Internet and communications companies on customer care and billing solutions.
PRODUCTS AND SERVICES
With the expansion into the software development business in 1997, Aptis
broadened its product offerings to include customer care and billing solutions
and entered additional markets not previously served. Aptis ICPTM (Integrated
Communications Product) is Aptis' comprehensive software suite that is a fully
integrated, comprehensive and adaptable billing and customer care solution
designed to meet the evolving needs of integrated communications providers,
including and emphasizing the CLEC market and those companies offering VoIP
and/or enhanced data communications. Aptis ICP is a Web-enabled, remotely
accessible software solution that integrates existing product technology. Aptis
ICP has enhanced the convergent architecture model by providing a common
application that provides key functionality in all communications industry
segments and provides tools for order fulfillment, service assurance and billing
and rating. Aptis ICP enables virtually all communications carriers
(facilities-based, competitive, incumbent, resale, wholesale or any combination)
to facilitate growth and market expansion. As an example, the hierarchical
account structure inherent in the system easily accommodates mergers and
acquisitions, new market penetration and large, multi-level corporate billing.
In addition, the common application in Aptis ICP provides the framework for
optional software functionality to be added. Aptis ICP offers
10
components that deliver enhanced capabilities for every segment of the
communications industry, including Internet, cable television, local, long
distance and wireless. These components may be further customized to achieve
operational goals by adding tools for provisioning, polling, point-of-sale,
facilities inventory management, data transfer interfaces and more. Further,
open application programming interfaces (APIs) provide pre-integration with
other third-party applications.
With the acquisition of ESC in October 1998, Aptis added TotalBillTM to
its product suite. With TotalBill version 3.0, Aptis introduces a broader IP and
data focused product strategy that incorporates distributed server architecture,
multi-platform availability and a host of other features such as upgraded
hierarchical account structures, anytime billing and an automated workflow
engine. TotalBill 3.0 is a browser-based, Oracle billing and customer management
software solution specifically designed for Internet and enhanced data service
providers. Taking full advantage of a distributed server environment, TotalBill
provides separate registration, application, data and reports servers. This
architecture enables distributed workloads, ensures greater scalability and
allows for geographically dispersed service centers and allows Aptis to bring an
innovative measured-service billing solution to the emerging ASP (Application
Service Provider) market. With TotalBill version 3.0, Aptis is updating and
upgrading billing features such as hierarchical and anytime billing.
Hierarchical billing enables service providers the flexibility and scalability
needed to facilitate and manage complex billing scenarios for businesses with
dispersed and growing offices, departments and employees. Anytime billing
enables providers to generate bills via predetermined user intervals or by
individually processing bills on demand in order to meet customized billing
cycles. TotalBill 3.0 also will rate virtually any metered IP service or
scenario, including flat rate, usage based and volume discounting. TotalBill's
innovative standards-based workflow engine acts as a master process control to
provide customized provisioning and interfaces with internal and external
entities. TotalBill's workflow engine allows service providers to automate many
of the processes normally associated with billing and collecting revenues.
Instant-RegTM, the customer profile management component of TotalBill 3.0,
provides a highly flexible customer self-care and provisioning system that can
be incorporated into the provider's existing Internet website or in a portal
environment. This feature allows customers to register, self-maintain and modify
their profile, which frees internal resources for other tasks and reduces
expensive customer support costs.
With the acquisition of CommSoft in December 1998, Aptis obtained
CommSoft's flagship product, which is an account number based, table-driven
suite of software applications that facilitates the administration of every
aspect of a company's business operations from application to service order, to
billing, and collections. It is a suite of business operation software for local
telephone, long distance, paging, cellular and PCS services. More specifically,
the core modules of the product include Subscriber Management and Billing,
Rating and Call Plans, Customer Care, and Telephone Plant Inventory Systems. In
addition to the billing product, Aptis acquired modules for Carrier Access
Billing, Full Function Accounting and complete Inventory Management. CommSoft's
14 plus years of success with local and wireless telephone companies, coupled
with Aptis' 10 plus years of success, primarily with long distance companies and
CLECs, is a complementary match of experience. By combining CommSoft's menu of
products with those of Aptis, the Company has a broader depth of telecom
functionality to offer its customers.
In 1998, Aptis focused attention on its professional services resources,
growing the staff significantly to support current and new customers. This
organization provides consulting, application development, training, call center
services and back office support to customers in the IP and communications
industry. The organization has entered into a number of long-term arrangements
to provide outsourced services and consulting services to the ICP and TotalBill
customers.
OPERATIONS
Aptis ICP and TotalBill are delivered to customers in a number of ways.
Aptis offers various outsourcing and facilities management options that allow
providers to take advantage of Aptis facilities and resources. In these
situations, the provider would pay a right-to-use fee for access to the
software, and pay for other services on an as-used basis. These arrangements can
include full systems hosting and operations with back office services or any
subset of services. Both applications also may be available to be delivered to
customers to use in their own premises by licensing the applications. Customers
purchase a license that entitles them use of the application in a defined
enterprise, and they acquire their own hardware and operations resources. In
most situations, Aptis provides additional services for the implementation,
conversion and training required to make the application operational from its
professional services staff. If a customer desires some unique enhancements to
the application, professional services staff provides the service at an
additional fee.
11
Aptis revenues are earned from license fees, right-to-use fees,
maintenance fees, professional services fees and facilities management fees.
License fees and right-to-use fees are based on the modules licensed and the
number of customers supported by the application. Maintenance fees are a
percentage of the total license fees. Professional services fees include time
and materials charges and facilities management fees. Aptis revenues also
include retail sales of IBM AS/400 hardware and operating software.
CUSTOMERS
Aptis provides direct billing systems sales and development to the
following categories of communications services providers:
o Network Service Providers ("NSP"): Companies providing
business-to-business enhanced data services based on next generation network
architecture.
o Internet Service Providers ("ISP"): Companies that offer Internet access
and Internet-based services.
o Integrated Communications Providers ("ICP"): Carriers who offer multiple
communications services through a combination of owned network facilities and
resale of other network facilities. These multiple services are typically
bundled and priced as a package of services.
o Interexchange Carriers or Long Distance Companies: Facilities-based
carriers that possess their own telecommunications switching equipment and
networks and provide traditional direct dial telecommunications services.
Certain long distance companies provide operator assisted services as well as
direct dial services. The local telephone company in the case of residential and
small commercial accounts bills these calls to the end user.
o Switchless Resellers: Marketing organizations, affinity groups, or even
aggregator operations that buy direct dial long distance services in volume at
wholesale rates from a facilities based long distance company and sell them back
to individual customers at market rates. The local telephone company in the case
of residential and small commercial accounts bills these calls to the end user.
o Competitive Local Exchange Carriers ("CLEC"): Carriers that provide
local exchange services to subscribers who were previously served exclusively by
the incumbent local exchange carrier.
o Incumbent Local Exchange Carrier ("ILEC"): The existing local telephone
company who has previously offered service as a regulated monopoly company.
o Wireless Carriers: Carriers that provide direct dial telecommunications
services by means of cellular or PCS technology that is not dependent on
traditional landlines.
o Cable Companies: Facilities-based companies that possess their own cable
networks to provide cable television access and may also offer telephone and
Internet services.
In 1999, an aggressive marketing and advertising campaign was implemented
to increase industry understanding and awareness of Aptis' capabilities and
vision. As a means of highlighting Aptis' expanded capabilities, a new identity,
positioning and messaging were created. This new identity is consistently
pervasive through all advertising and marketing materials. A program designed to
insure high visibility and contact with the industry began in July 1998 and is
supported by advertising, public relations and participation in key industry
events. Aptis added significant direct sales resources to the organization,
industry experience, knowledgeable individuals and strategic partnerships with
other vendors serving the industry. Aptis maintains a direct sales force and
accomplishes most of its marketing efforts through active participation in
Internet and communications industry trade shows, educational seminars and
workshops. Aptis advertises in trade journals and other industry publications.
Aptis has targeted as likely candidates for direct billing products and
services the following types of customers: network and enhanced data service
providers, Internet service providers, long distance providers serving
commercial accounts, cellular services providers, competitive local access
providers and cable television companies.
12
COMPETITION
The market for telecommunications billing systems and services is highly
competitive. Aptis competes with both independent providers of billing systems
and services and with the internal billing departments of telecommunications
service providers. The continued growth and merging of the enhanced data,
Internet and communications industry and the deregulation of other industries
will encourage new competitors to enter the billing market in the future. The
growth in total expenditures on customer care and billing solutions is expected
to increase at significant rates over the next few years. Companies that offer
broad solutions capability have the opportunity to gain significant market share
and establish long-term relationships with industry players. The principal
competitive factors in its market include responsiveness to client needs,
timeliness of implementation, quality of service, price, project management
capability and technical expertise. The ability to compete depends on a number
of competitive factors outside Aptis' control. Some of these factors include the
development of software that is competitive with Aptis' services and products,
the price at which competitors offer comparable services and products, the
extent of competitors' responsiveness to customer needs and the ability of
Aptis' competitors to hire, retain and motivate key personnel.
Aptis also competes with a number of companies that have substantially
greater financial, technical, sales and marketing resources, as well as greater
name recognition. As a result, Aptis' competitors may be able to adapt more
quickly to emerging technologies, changes in customer requirements or to devote
greater resources to the promotion and sale of their products. Aptis does not
currently hold any patents and relies upon a combination of contractual
non-disclosure obligations as well as statutory and common law copyright,
trademark and trade secret laws to establish and maintain its proprietary rights
to its products. Due to the rapid pace of technological change in the enhanced
data, Internet, communications and software industries, the legal protections
for its products are less significant factors in Aptis' success than the
knowledge, ability and experience of Aptis' employees, the frequency of product
enhancements and the timeliness and quality of support services provided by
Aptis. Aptis generally enters into confidentiality agreements with its
employees, consultants, clients and potential clients and limits access to, and
distribution of, its proprietary information. Use of Aptis' software products is
generally restricted to specified locations and is subject to terms and
conditions prohibiting unauthorized reproduction or transfer of the software
products.
RESEARCH AND DEVELOPMENT
Aptis is actively involved in ongoing research and development efforts
associated with creating new billing modules and enhanced products related to
its convergent billing software platform for both telecommunications and
Internet service providers.
EMPLOYEES
At September 30, 2000, the Company had 833 full-time employees and 342
part-time employees, as follows: Transaction Processing - 419 full-time and 339
part-time; Aptis - 307 full-time and 1 part-time; Internet - 16 full-time; and
corporate office - 91 full-time and 2 part-time employees. Subsequent to the
Transaction, the Company had 15 full-time Internet employees and 16 full-time
corporate office employees. None of the Company's employees are represented by a
union. The Company believes that its employee relations are good.
ITEM 2. PROPERTIES
At September 30, 2000, the Company occupied approximately 130,000 square
feet of space at 7411 John Smith Drive, San Antonio, Texas, which serves as a
customer service facility for Transaction Processing and the corporate and
operational headquarters for the Company's Transaction Processing and Software
divisions. The lease expires in October 2006 and has certain expansion options,
renewal options and rights of first refusal. The Company's Transaction
Processing operations occupied an additional 42,000 square feet for a customer
service facility located at 5302 Avenue Q, Lubbock, Texas, under leases that
expires in 2002 and 2003. The Company has a third Transaction Processing
customer service facility at 802 N. Carancahua, Corpus Christi, Texas, where it
occupied approximately 29,000 square feet at September 30, 2000, under a lease
that expires in September 2005. The Company's Software operations occupy
approximately 29,000 square feet in Austin, Texas and approximately 54,000
square feet in Albany, New York under leases that expire at varying dates
through 2008. The Company's Internet operations are also headquartered at the
leased premises in Austin. In November 1999, the Company signed an agreement to
lease approximately 75,000 square feet of office space in Austin, Texas. This
13
lease expires in 2010 and has certain renewal options. Subsequent to the
Transaction, the Company's corporate headquarters will remain at its current
location until February of 2001. At that time, the Company will occupy
approximately 8,000 square feet of space at 10101 Reunion Place Boulevard, San
Antonio, Texas, under a lease that expires in January 2004. FIData will remain
at their current location in Austin, Texas. In connection with the Transaction,
the locations and corresponding leases (other than the corporate and FIData
spaces) were assumed by Platinum. The Company guaranteed two of the leases
assumed by Platinum. The Company believes that its current facilities are, and
its future facilities will be, adequate to meet its current and future needs.
ITEM 3. LEGAL PROCEEDINGS
A lawsuit was filed on December 31, 1998, in the United States District
Court in San Antonio, Texas by an alleged stockholder of the Company against the
Company and various of its officers and directors, alleging unspecified damages
as a result of alleged false statements in various press releases prior to
November 19, 1998. In September 1999, the U.S. District Court for the Western
District of Texas entered an order and judgment dismissing the plaintiff's
lawsuit. The plaintiff noticed an appeal of that decision on September 29, 1999.
In November 2000, the United States Court of Appeals for the Fifth Circuit
dismissed the appeal pursuant to a stipulation of the parties and settlement.
As previously disclosed, the Company has been engaged in discussions with
the staff of the Federal Trade Commission's ("FTC") Bureau of Consumer
Protection regarding a proposed complaint by the FTC alleging potential
liability arising primarily from the alleged cramming of charges for
non-regulated telecommunication services by certain of our customers. Cramming
is the addition of charges to a telephone bill for programs, products or
services the consumer did not knowingly authorize. These allegations relate to
businesses conducted by the subsidiaries sold by the Company on October 23,
2000. Management cannot assess either the likelihood that this matter will have
an adverse financial impact on the Company or the extent of any such impact.
The Company is involved in various other claims, legal actions and
regulatory proceedings arising in the ordinary course of business. The Company
believes it is unlikely that the final outcome of any of the claims, litigation
or proceedings to which the Company is a party will have a material adverse
effect on the Company's financial position or results of operations; however,
due to the inherent uncertainty of litigation, there can be no assurance that
the resolution of any particular claim or proceeding would not have a material
adverse effect on the Company's results of operations for the fiscal period in
which such resolution occurs.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year, no matter was submitted by
the Company to a vote of its stockholders through the solicitation of proxies or
otherwise.
14
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's common stock, par value $0.01 per share (the "Common
Stock"), is quoted on the Nasdaq National Market ("Nasdaq") under the symbol
"BILL." The table below sets forth the high and low bid prices for the Common
Stock from October 1, 1998, through December 15, 2000, as reported by the Nasdaq
National Market. These price quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not necessarily represent
actual transactions.
HIGH LOW
-------- --------
Fiscal Year Ended September 30, 1999:
1st quarter .......................................... $17 $10
2nd quarter .......................................... $11 7/8 $7 15/16
3rd quarter .......................................... $14 $9 7/8
4th quarter .......................................... $11 3/16 $4 1/2
Fiscal Year Ending September 30, 2000:
1st quarter .......................................... $8 3/16 $3 7/8
2nd quarter .......................................... $9 15/16 $5
3rd quarter .......................................... $7 5/8 $3 1/8
4th quarter .......................................... $4 7/8 $2 27/32
Fiscal Year Ending September 30, 2001:
1st quarter (through December 15, 2000) .............. $3 5/16 $1 11/32
Pursuant to the Transaction agreement, the Company will change its name
and Nasdaq symbol prior to May 31, 2001.
STOCKHOLDERS
At December 15, 2000, there were 36,745,460 shares of Common Stock
outstanding, held by 474 holders of record. The last reported sales price of the
Common Stock on December 15, 2000, was $2 5/8 per share.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on the Common
Stock. The Company presently intends to retain all earnings for the operation
and development of its business and does not anticipate paying any cash
dividends on the Common Stock in the foreseeable future.
15
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial and other data and pro
forma per share data for the Company. The income statement data for the years
ended September 30, 2000, 1999, 1998, 1997 and 1996, and the balance sheet data
at September 30, 2000, 1999, 1998, 1997 and 1996, presented below are derived
from the audited Consolidated Financial Statements of the Company. The data
presented below for the fiscal years ended September 30, 2000, 1999 and 1998,
should be read in conjunction with the Consolidated Financial Statements and the
notes thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the other financial information included in this
report.
FISCAL YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED INCOME STATEMENT DATA:
Operating revenues (1) ............................................ $ 410 $ -- $ -- $ -- $ --
Gross profit (1) .................................................. 61 -- -- -- --
Loss from continuing operations (1) ............................... (16,303) (5,421) (3,344) (2,930) (514)
Net loss from continuing operations (1) ........................... (26,579) (5,224) (4,109) (1,846) (324)
Net income (loss) from discontinued operations, net of
income taxes (1) ................................................ (6,565) 21,046 30,812 6,086 18,420
Net loss from disposal of discontinued operations, including
income taxes (1) ................................................ (9,277) -- -- -- --
Net income (loss) (1) (5) ......................................... (42,421) 15,822 26,703 4,238 18,096
Basic and diluted net loss from continuing operations per
common share (1) ................................................ $ (0.67) $ (0.14) $ (0.12) $ (0.05) --
Basic and diluted net income (loss) from discontinued
operations per common share(1) .................................. $ (0.16) $ 0.57 $ 0.86 $ 0.18 --
Basic and diluted net loss from disposal of discontinued
operations per common share(1) .................................. $ (0.23)
Basic and diluted net income (loss) per common share(1) ........... $ (1.06) $ 0.43 $ 0.74 $ 0.13 --
Pro forma basic and diluted net loss from continuing
operations per common share(1) (2) .............................. -- -- -- -- $ (0.01)
Pro forma basic and diluted net income (loss) from
discontinued operations per common share (1) (2) ................ -- -- -- -- $ 0.58
Pro forma basic and diluted net loss from disposal of
discontinued operations per common share (1) ................... -- -- -- -- --
Pro forma basic and diluted net income (loss) per
common share (1) (2) ............................................ -- -- -- -- $ 0.57
Weighted average common shares outstanding ........................ 39,909 37,116 35,844 33,525 --
Pro forma weighted average common shares outstanding (2) .......... -- -- -- -- 31,703
SEPTEMBER 30,
-------------------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Working capital ................................................... $ 2,968 $ 73,553 $ 60,246 $ 28,594 $ 14,038
Total assets ...................................................... 97,103 113,417 95,317 50,389 24,917
Long-term debt and capital leases, less current portion ........... -- -- -- -- --
Additional paid-in capital (3) .................................... 88,819 63,771 60,028 42,905 19,628
Retained earnings (4) ............................................. 5,792 48,213 34,141 7,438 3,200
16
SEPTEMBER 30,
-------------------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
(IN THOUSANDS)
OPERATING DATA:
EBITDA (5)......................................................... $ (12,502) $ (5,378) $ (3,304) $ (2,888) $ (472)
(1) Amounts for the years ended prior to September 30, 2000 have been restated
to reflect the Transaction Processing and Software segments as
discontinued operations.
(2) The per share and weighted average common shares outstanding data for the
year ended September 30, 1996 is unaudited and presented on a pro forma
basis as BCC had no publicly held common shares outstanding prior to its
spin-off from USLD on August 2, 1996. The number of weighted average
common shares outstanding used in the calculation of the pro forma
earnings per share gives effect to the shares assumed to be issued had the
spin-off occurred at the beginning of fiscal 1996.
(3) Additional paid-in capital for the years ended September 30, 1997 and 1996
was restated to give effect to the one-for-one common stock dividend that
was distributed on January 30, 1998 to stockholders of record on January
20, 1998. No additional proceeds were received on the dividend date and
all costs associated with the share dividend were capitalized as a
reduction of additional paid-in capital.
(4) The Company has never declared cash dividends on its Common Stock, nor
does it anticipate doing so in the foreseeable future.
(5) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
is a profitability/cash flow measurement that is commonly used in the
telecommunications industry. EBITDA also excludes non-cash special
charges, equity in net loss of equity affiliates and in-process research
and development. EBITDA is not a financial measure pursuant to Generally
Accepted Accounting Principles ("GAAP"), nor is it acceptable or
considered an alternative measure of cash flows from operations under GAAP
or funds available for dividends, reinvestments or other discretionary
uses. For a presentation of cash flows, including cash flows related to
operating activities, investing activities and financing activities, see
the Statements of Cash Flows included in the Company's Consolidated
Financial Statements.
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company, the Notes thereto and the
other financial information included elsewhere in this Report. For purposes of
the following discussion, references to yearly periods refer to the Company's
fiscal years ended September 30.
GENERAL
The Company's revenues are derived primarily from its Internet division.
FIData, Inc. ("FIData"), acquired in November 1999, provides Internet-based
automated loan approval products to the financial services industries. The
Company has an equity interest in Princeton eCom Corporation ("Princeton"),
which offers electronic bill presentment and payment services via the Internet
and telephone. The Company purchased additional equity interests in Princeton
during the second and fourth quarters of 2000. As of September 30, 2000, the
Company's ownership percentage in Princeton approximated 42.5%. During the
second quarter of 2000, the Company purchased a 22% equity interest in
COREINTELLECT, Inc. ("CORE"), which provides Internet-based business-to-business
products for the acquisition, classification, retention and dissemination of
business-critical knowledge and information.
On October 23, 2000, the Company completed the sale of the Transaction
Processing ("Transaction Processing") and Software ("Software") divisions to
Platinum Equity Holdings ("Platinum") of Los Angeles, California (the
"Transaction"). Total consideration consisted of $52.5 million in cash and a
royalty, assuming achievement of certain revenue targets associated with the
divested divisions, of up to $20 million. In addition, the Company will receive
payments totaling $7.5 million for consulting services provided to Platinum over
the twenty-four month period following the Transaction. Through the Transaction
Processing division, the Company provided billing clearinghouse and information
management services in the United States to the telecommunications industry.
Through its subsidiary, Aptis, Inc., the Software division developed, licensed
and supported convergent billing systems for telecommunications and Internet
service providers and provides direct billing outsourcing services.
The operating results of the Internet division are segregated and reported
as continuing operations while the Transaction Processing and Software operating
results are segregated and reported as discontinued operations in the
accompanying Consolidated Statements of Operations in accordance with Accounting
Principles Board Opinion No. 30. Prior period operating results and financial
position have been restated to reflect continuing operations. The operating
results of both continuing and discontinued operations are presented below.
RESULTS OF CONTINUING OPERATIONS - INTERNET
Total revenues for 2000 were $0.4 million compared to no revenues in 1999
and 1998. These revenues were derived from FIData's automated loan approval
products and services. Gross profit margin of 15% reported for 2000 could
increase in subsequent periods as a result of the release of the new version of
FIData's core instant loan application approval product.
Selling, general and administrative ("SG&A") expenses are comprised of all
selling, marketing and administrative costs incurred in direct support of the
business operations of the Company. SG&A expenses for 2000 were $9.3 million
compared to $5.3 million in 1999 and $3.3 million in 1998. SG&A expenses
increased from 1999 to 2000 primarily due to the acquisition of FIData in
November 1999, as well as SG&A expenses incurred by efforts to develop a
financial services website focused on the credit union industry. In the third
quarter of 2000, the Company narrowed its credit union efforts to focus on
FIData only. Corporate SG&A expenses increased from 1998 to 1999 primarily due
to an increase in operating leases and overall increased expenditures.
Research and development ("R&D") expenses are comprised of the salaries
and benefits of the employees involved in development and related expenses. R&D
expenses incurred during 2000 related to the development of the financial
services website, which was suspended during the third quarter of 2000.
Depreciation and amortization expenses are incurred with respect to
certain assets, including computer hardware, software, office equipment,
furniture, goodwill and other intangibles. Depreciation and amortization expense
was $1.6 million in 2000 compared to $0.04 million in 1999 and 1998. The
increase from 1999 to 2000 is attributable to the
18
amortization of intangibles acquired in connection with the acquisition of
FIData in November 1999. During 2000, the Company recognized $1.3 million of
amortization expense related to these intangibles.
Net other expense of $15.0 million in 2000 compares to $1.8 million in
1999 and $2.0 million in 1998. The increase in net other expense from 1999 was
primarily due to an increase in the Company's equity interest in Princeton and
the equity interest in CORE, acquired in the second quarter of 2000. Net other
expense in 2000 also includes $5.0 million of in-process research and
development costs acquired in connection with the March 2000 equity investments
in Princeton and CORE.
The Company's effective tax benefit was 15% in 2000, 28% in 1999 and 23%
in 1998. The Company's effective tax benefit is lower than the federal statutory
benefit due to certain deductions taken for financial reporting purposes that
are not deductible for federal income tax purposes. Exclusive of nondeductible
in-process research and development costs related to the acquisition of
Princeton and CORE and nondeductible losses from its Internet investments, the
Company's effective tax benefit would have been 37.0% in 2000, 1999 and 1998.
Loss from continuing operations was $26.6 million, $5.2 million and $4.1
million in 2000, 1999 and 1998, respectively. Loss from continuing operations
for 2000 includes special charges of $7.1 million incurred in the first and
second quarters. In the first quarter, special charges of $1.7 million represent
in-process research and development costs acquired in connection with the
acquisition of FIData in November 1999. In the second quarter, the Company
recorded $5.0 million of in-process research and development costs acquired in
connection with the equity investments in Princeton and CORE. Loss from
continuing operations for 1998 reflects special charges of $2.0 million during
the fourth quarter of 1998, representing in-process research and development
costs acquired in connection with the acquisition of 22% of the capital stock of
Princeton. The increase in loss from continuing operations from year to year,
exclusive of special charges, is attributable to higher SG&A, R&D and
depreciation and amortization expenses.
RESULTS OF DISCONTINUED OPERATIONS - TRANSACTION PROCESSING AND SOFTWARE
The following table presents the operating results of the Company's
Transaction Processing and Software divisions and as a percentage of related
revenues for each year, which are reflected as discontinued operations in the
Consolidated Statements of Operations.
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PERCENTAGES) 2000 1999 1998
---------------------- ---------------------- ----------------------
Transaction Processing revenues ............ $ 113,085 78.2% $ 135,403 74.7% $ 147,542 83.8%
Software revenues .......................... 31,522 21.8 45,921 25.3 28,481 16.2
--------- --------- --------- --------- --------- ---------
Operating revenues ....................... 144,607 100.0 181,324 100.0 176,023 100.0
Cost of revenues ........................... 100,010 69.2 109,519 60.4 108,178 61.5
--------- --------- --------- --------- --------- ---------
Gross profit ............................... 44,597 30.8 71,805 39.6 67,845 38.5
Selling, general and administrative expenses 28,830 19.9 28,333 15.6 19,696 11.2
Bad debt expense ........................... 6,081 4.2 1,663 0.9 -- --
Research and development ................... 11,763 8.1 5,725 3.2 3,277 1.9
Advance funding program income, net ........ (1,856) (1.3) (3,673) (2.0) (7,793) (4.4)
Depreciation and amortization expense ...... 11,273 7.8 9,286 5.1 7,055 4.8
Special and other charges .................. 1,216 0.8 1,529 0.8 -- --
--------- --------- --------- --------- --------- ---------
(Loss) income from discontinued operations $ (12,710) (8.8)% $ 28,942 16.0% $ 45,610 25.9%
========= ========= ========= ========= ========= =========
OPERATING REVENUES
Transaction Processing fees charged by Billing included processing and
customer service inquiry fees. Processing fees were assessed to customers either
as a fee charged for each telephone call record or other transaction processed
or as a percentage of the customer's revenue that was submitted by Billing to
local exchange carriers for billing and collection. Processing fees also
included any charges assessed to Billing by local exchange carriers for billing
and collection services that were passed through to the customer. Customer
service inquiry fees were assessed to customers either as a fee charged for each
record processed by Billing or as a fee charged for each billing inquiry made by
end users.
Transaction Processing revenues decreased $22.3 million, or 16.5%, from
1999, and $12.1 million, or 8.2%, from 1998. The decrease in revenue from year
to year was primarily attributable to an overall decrease in the number of call
19
records processed. The number of call records processed for billing was
negatively impacted by market pressures that have occurred in the long distance
industry. Management has continued to take actions in order to mitigate the
effects of "slamming and cramming" issues on the call record volumes of its
current customer base. Consequently, the number of call records processed for
billing decreased from the prior years. Telephone call record volumes were as
follows:
YEAR ENDED SEPTEMBER 30,
------------------------------
2000 1999 1998
-------- -------- --------
(IN MILLIONS)
Direct dial long distance services ............ 457.8 599.0 612.6
Operator services ............................. 76.3 97.2 134.6
Enhanced billing services ..................... 3.5 4.7 11.4
Billing management services ................... 204.0 230.4 329.1
In addition to license and maintenance fees charged by Software for the
use of its billing software applications, fees were charged on a time and
materials basis for software customization and professional services. Software
revenues also included retail sales of third-party computer hardware and
software.
Software revenues decreased $14.4 million, or 31.4%, from 1999 compared to
increased revenues of $17.4 million, or 61.2%, from 1998. The decrease in
revenues from 1999 was primarily attributable to lower sales of billing systems
in 2000, which corresponded to a decrease in software license fees. The increase
in revenues from 1998 was primarily attributable to the increase in license and
maintenance fees.
COST OF REVENUES
For the Transaction Processing division, cost of revenues included billing
and collection fees charged by local exchange carriers as well as all costs
associated with the customer service organization, including staffing expenses
and costs associated with telecommunications services. Billing and collection
fees charged by the local exchange carriers included fees that were assessed for
each record submitted and for each bill rendered to its end-user customers. For
the Software division, cost of revenues included the cost of third-party
computer hardware and software sold, and the salaries and benefits of software
support, technical and professional service personnel who generated revenue from
contracted services. The decrease in cost of revenues from 1999 is primarily
related to higher billing and collection costs charged by the local exchange
carriers.
SELLING, GENERAL AND ADMINISTRATIVE
SG&A expenses for 2000 were $28.8 million, compared to $28.3 million in
1999 and $19.7 million in 1998. The increase in SG&A in 1999 was primarily due
to the Software division incurring a higher level of SG&A expenses to build an
infrastructure consistent with expected growth. The SG&A expenses remained
consistent in 2000 as the growth in the Software division declined.
BAD DEBT EXPENSE
Bad debt expense for 2000 was $6.1 million compared to $1.7 million in
1999 and $0 in 1998. Bad debt increased from 1999 primarily due to a $3.5
million charge taken in the third quarter of 2000. Related to the Software
division, this charge is a result of the narrowing of various software product
offerings, the refocusing of software development efforts and a reserve
associated with a significant account.
RESEARCH AND DEVELOPMENT
R&D expenses were comprised of the salaries and benefits of the employees
involved in software development and related expenses. The Company internally
funded R&D activities with respect to efforts associated with creating new and
enhanced Transaction Processing services products and products related to its
convergent billing software platform for both telecommunication and Internet
service providers. R&D expenses in 2000 were $11.8 million compared to $5.7
million in 1999 and $3.3 million in 1998.
20
ADVANCE FUNDING PROGRAM INCOME AND EXPENSE
Advance funding program income was $2.0 million in 2000 compared to $3.8
million in 1999 and $7.9 million in 1998. The decrease from year to year was
primarily the result of a lower level of customer receivables financed under
Billing's advance funding program. The quarterly average balance of purchased
receivables was $20.4 million, $48.2 million and $83.0 million in 2000, 1999 and
1998, respectively.
The advance funding program expense was $0.1 million in 2000, 1999 and
1998, due to the Company financing all customer receivables during 2000, 1999
and 1998 with internally generated funds rather than with funds borrowed through
the Company's revolving credit facility. The expense recognized represents
unused credit facility fees and was the minimum expense that Billing could have
incurred during these years.
INCOME FROM DISCONTINUED OPERATIONS
Including special and other charges, loss from discontinued operations in
2000 was $12.7 million compared to income from discontinued operations in 1999
of $28.9 million and $45.6 million in 1998. The decrease in income from
discontinued operations from year to year is attributable to lower revenues and
higher operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance for continuing operations was a $0.2 million
deficit at September 30, 2000 compared to $0.2 million at September 30, 1999.
These low balances are the result of funding for continuing operations coming
from the discontinued operations. During 2000, the Company made cash investments
of $39.6 million in Princeton and $6.0 million in CORE. In connection with the
Transaction, the Company received $52.5 million in October 2000. In addition,
the Company may receive a royalty, assuming achievement of certain revenue
targets associated with the divisions sold to Platinum, of up to $20 million.
The Company also will receive payments totaling $7.5 million for consulting
services provided to Platinum over the twenty-four month post-closing period.
The Company's working capital position decreased to $3.0 million at
September 30, 2000 from $73.6 million at September 30, 1999. On a pro forma
basis and assuming the Transaction was completed on September 30, 2000, the
Company's working capital position was $47.9 million. The decrease in working
capital was primarily attributable to the equity investments in Princeton and
CORE and the acquisition of FIData. Net cash provided by operating activities
was $50.8 million in 2000, compared to net cash used by operating activities of
$0.9 million in 1999 and net cash provided by operating activities of $1.1
million in 1998. The amounts primarily reflect net income from 1998 to 2000,
exclusive of special charges.
In December 1996, the Company secured a $50.0 million revolving line of
credit facility with certain lenders primarily to draw upon to advance funds to
its billing customers prior to collection of the funds from the local exchange
carriers. This credit facility terminated on March 20, 2000. The Company
currently does not have a need for a line of credit due to its significant cash
resources from the Transaction.
Capital expenditures amounted to approximately $50,000 in 2000 and related
primarily to the purchase of computer equipment and software. The Company
anticipates capital expenditures before acquisitions, if any, of approximately
$0.1 million in fiscal 2001 largely related to expenditures for furniture,
fixtures, leasehold improvements, computer software and hardware upgrades. The
Company believes that it will be able to fund expenditures with internally
generated funds and borrowings, but there can be no assurance that such funds
will be available or expended.
In September 1998, the Company acquired a 22% ownership position in
Princeton, which is a privately held company headquartered in Princeton, New
Jersey specializing in comprehensive electronic bill presentment and payment
services via the Internet and telephone to financial institutions and large
businesses. During 1999, the Company acquired additional shares of Princeton
common stock, increasing the Company's ownership position to approximately 24%
at September 30, 1999. The Company accounts for its investment in Princeton
under the equity method.
In November 1999, the Company completed the acquisition of FIData, a
company located in Austin, Texas that provides Internet-based automated loan
approval products to the financial services industries. The total consideration
for the
21
acquisition was approximately $4.2 million in cash and debt assumption and
1,100,000 shares of the Company's common stock. This acquisition has been
accounted for as a purchase. Accordingly, the results of operations for FIData
have been included in the Company's consolidated financial statements, and the
shares related to the acquisition have been included in the weighted average
shares outstanding for purposes of calculating net loss from continuing
operations per common share since the date of acquisition. Approximately $7.4
million was recorded as goodwill and other intangibles and is included in Other
assets. During the first quarter of 2000, the Company expensed $1.7 million of
in-process R&D acquired in connection with this acquisition.
In March 2000, the Company increased its ownership percentage in Princeton
with an additional $33.5 million equity investment, which consisted of $27.0
million of convertible preferred stock and $6.5 million of common stock. In
connection with this investment, the Company expensed $2.5 million of in-process
R&D costs during 2000. In June 2000, under the terms of a Convertible Promissory
Note, the Company advanced $5.0 million to Princeton. In the fourth quarter of
2000, the Convertible Promissory Note was converted into shares of Princeton
preferred stock, which is convertible into 1,111,111 shares of Princeton common
stock. The Company's ownership percentage in Princeton at September 30, 2000,
was approximately 42.5%. The Company anticipates additional equity investments
in Princeton as Princeton positions itself for further growth.
In March 2000, the Company completed the purchase of a voting preferred
stock investment of $6.0 million in CORE, a Dallas, Texas-based company that
develops and markets Internet-based business-to-business products for the
acquisition, classification, retention and dissemination of business-critical
knowledge and information. During 2000, the Company expensed $2.5 million of
in-process R&D costs acquired in connection with this equity investment.
The Company's operating cash requirements consist principally of funding
of corporate and FIData expenses and capital expenditures.
SEASONALITY
The Company's Internet operations are not significantly affected by
seasonality.
EFFECT OF INFLATION
Inflation has not been a material factor affecting the Company's business.
General operating expenses such as salaries, employee benefits and occupancy
costs are subject to normal inflationary pressures.
NEW ACCOUNTING STANDARDS
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements," which provides the SEC's views in applying generally accepted
accounting principles to selected revenue recognition issues. Management has
reviewed the SAB and believes that the accounting policies of the Company are
appropriate and reflect the requirements of this SAB.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to interest rate risk primarily through its
portfolio of cash equivalents and short-term marketable securities. The Company
does not believe that it has significant exposure to market risks associated
with changing interest rates as of September 30, 2000 because the Company's
intention is to maintain a liquid portfolio to take advantage of investment
opportunities. The Company does not use derivative financial instruments in its
operations.
22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company and the related
report of the Company's independent public accountants thereon are included in
this report at the page indicated.
PAGE
----
Report of Independent Public Accountants................................................................... 24
Consolidated Balance Sheets at September 30, 2000 and 1999................................................. 25
Consolidated Statements of Operations for the Years Ended September 30, 2000, 1999 and 1998................ 26
Consolidated Statements of Stockholders' Equity for the Years Ended September 30, 2000, 1999 and 1998...... 27
Consolidated Statements of Cash Flows for the Years Ended September 30, 2000, 1999 and 1998................ 28
Notes to Consolidated Financial Statements................................................................. 29
23
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Billing Concepts Corp.:
We have audited the accompanying consolidated balance sheets of Billing
Concepts Corp. (a Delaware corporation) and subsidiaries as of September 30,
2000 and 1999, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended September 30, 2000. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with 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 financial statements referred to above present fairly,
in all material respects, the financial position of Billing Concepts Corp. and
subsidiaries as of September 30, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 2000, in conformity with accounting principles generally accepted
in the United States.
/s/ ARTHUR ANDERSEN LLP
San Antonio, Texas
November 22, 2000
24
BILLING CONCEPTS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
SEPTEMBER 30,
----------------------------------
2000 2000 1999
-------- --------- ---------
ACTUAL PRO FORMA ACTUAL
(unaudited)
Current assets:
Cash and cash equivalents .................................................................. $ (156) $ 52,344 $ 239
Accounts receivable, net of allowance for doubtful accounts of $25 (2000) and $0 (1999) .... 5,013 5,013 1,219
Prepaids and other ......................................................................... 224 224 99
Net current assets from discontinued operations (see Note 18) .............................. 1,376 -- 72,655
-------- --------- ---------
Total current assets ................................................................ 6,457 57,581 74,212
Property and equipment ....................................................................... 912 912 321
Less accumulated depreciation .............................................................. (292) (292) (128)
-------- --------- ---------
Net property and equipment .......................................................... 620 620 193
Other assets, net of accumulated amortization of $1,348 (2000) and $0 (1999) ................. 6,784 6,784 441
Investments in equity affiliates ............................................................. 37,832 37,832 7,530
Net non-current assets from discontinued operations (see Note 18) ............................ 45,410 -- 31,041
-------- --------- ---------
Total assets ........................................................................ $ 97,103 $ 102,817 $ 113,417
======== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ...................................................................... $ 74 $ 74 $ 99
Accrued liabilities ......................................................................... 609 609 560
Deferred income taxes ....................................................................... 2,806 2,806 --
Net current liabilities of discontinued operations .......................................... -- 6,157 --
-------- --------- ---------
Total current liabilities ........................................................... 3,489 9,646 659
Other liabilities ............................................................................ 569 569 623
-------- --------- ---------
Total liabilities ................................................................... 4,058 10,215 1,282
Commitments and contingencies (see Notes 6 and 13)
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued
or outstanding at September 30, 2000 or 1999 ........................................... -- -- --
Common stock, $0.01 par value, 75,000,000 shares authorized, 41,732,632
shares issued and outstanding at September 30, 2000; 37,378,216 shares issued
and outstanding at September 30, 1999 .................................................. 417 417 374
Additional paid-in capital ................................................................. 88,819 88,819 63,771
Retained earnings .......................................................................... 5,792 5,349 48,213
Deferred compensation ...................................................................... (82) (82) (223)
Treasury stock, at cost, 504,800 shares at September 30, 2000; no shares
at September 30, 1999 .................................................................. (1,901) (1,901) --
-------- --------- ---------
Total stockholders' equity .......................................................... 93,045 92,602 112,135
-------- --------- ---------
Total liabilities and stockholders' equity .......................................... $ 97,103 $ 102,817 $ 113,417
======== ========= =========
The accompanying notes are an integral part
of these consolidated financial statements.
25
BILLING CONCEPTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEAR ENDED SEPTEMBER 30,
------------------------------------
2000 1999 1998
-------- -------- --------
Operating revenues ....................................................................... $ 410 $ -- $ --
Cost of revenues ......................................................................... 349 -- --
-------- -------- --------
Gross profit ............................................................................. 61 -- --
Selling, general and administrative expenses ............................................. 9,317 5,315 3,301
Research and development ................................................................. 3,247 63 --
Depreciation and amortization expense .................................................... 1,631 43 43
Special charges .......................................................................... 2,169 -- --
-------- -------- --------
Loss from continuing operations .......................................................... (16,303) (5,421) (3,344)
Other income (expense):
Interest income ........................................................................ 12 -- --
Interest expense ....................................................................... (3) -- --
Equity in net loss of equity affiliates ................................................ (10,069) (1,809) --
In-process research and development of equity affiliates ............................... (4,965) -- (2,000)
Other, net ............................................................................. 34 -- (3)
-------- -------- --------
Total other expense, net ............................................................ (14,991) (1,809) (2,003)
-------- -------- --------
Loss from continuing operations before income tax benefit ................................ (31,294) (7,230) (5,347)
Income tax benefit ....................................................................... 4,715 2,006 1,238
-------- -------- --------
Net loss from continuing operations ...................................................... (26,579) (5,224) (4,109)
Discontinued operations:
Net income (loss) from discontinued operations, net of income tax (expense)
benefit of $229, ($13,585), and ($19,233), respectively ............................. (6,565) 21,046 30,812
Net estimated loss from disposal of discontinued operations, including income tax
expense of $5,629 ................................................................... (9,277) -- --
-------- -------- --------
Net income (loss) from discontinued operations ..................................... (15,842) 21,046 30,812
-------- -------- --------
Net income (loss) ........................................................................ $(42,421) $ 15,822 $ 26,703
======== ======== ========
Basic and diluted:
Net loss from continuing operations per common share ..................................... $ (0.67) $ (0.14) $ (0.12)
Net income (loss) from discontinued operations per common share .......................... (0.16) 0.57 0.86
Net estimated loss from disposal of discontinued operations per common share ............. (0.23) -- --
-------- -------- --------
Net income (loss) per common share ....................................................... $ (1.06) $ 0.43 $ 0.74
======== ======== ========
Weighted average common shares outstanding ............................................... 39,909 37,116 35,844
======== ======== ========
The accompanying notes are an integral part
of these consolidated financial statements.
26
BILLING CONCEPTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
(IN THOUSANDS)
TREASURY STOCK COMMON STOCK ADDITIONAL
---------------- -------------- PAID-IN RETAINED DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS COMPENSATION TOTAL
------ ------- ------ ------ ---------- -------- ------------ ---------
Balances at September 30, 1997 ............... -- $ -- 34,889 $ 348 $ 42,905 $ 7,438 $ (950) $ 49,741
Issuance of common stock ................... -- -- 47 1 716 -- (170) 547
Exercise of stock options and
warrants ................................. -- -- 1,707 17 16,407 -- -- 16,424
Compensation expense ....................... -- -- -- -- -- -- 726 726
Net income ................................. -- -- -- -- -- 26,703 -- 26,703
------ ------- ------ ------ ---------- -------- ------------ ---------
Balances at September 30, 1998 ............... -- -- 36,643 366 60,028 34,141 (394) 94,141
Issuance of common stock ................... -- -- 268 3 694 (1,750) -- (1,053)
Issuance of stock options .................. -- -- -- -- 84 -- (84) --
Exercise of stock options and
warrants ................................. -- -- 467 5 2,965 -- -- 2,970
Compensation expense ....................... -- -- -- -- -- -- 255 255
Net income ................................. -- -- -- -- -- 15,822 -- 15,822
------ ------- ------ ------ ---------- -------- ------------ ---------
Balances at September 30, 1999 ............... -- -- 37,378 374 63,771 48,213 (223) 112,135
Issuance of common stock ................... -- -- 129 1 304 -- (222) 83
Issuance of common stock for
acquisitions ............................. -- -- 4,177 42 24,702 -- -- 24,744
Issuance of stock options .................. -- -- -- -- (31) -- 31 --
Exercise of stock options and
warrants ................................. -- -- 49 -- 215 -- -- 215
Compensation expense ....................... -- -- -- -- (142) -- 332 190
Purchase of treasury stock ................. (505) (1,901) -- -- -- -- -- (1,901)
Net loss ................................... -- -- -- -- -- (42,421) -- (42,421)
------ ------- ------ ------ ---------- -------- ------------ ---------
Balances at September 30, 2000 ............... (505) $(1,901) 41,733 $ 417 $ 88,819 $ 5,792 $ (82) $ 93,045
====== ======= ====== ====== ========== ======== ============ =========
The accompanying notes are an integral part
of these consolidated financial statements.
27
BILLING CONCEPTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE YEAR ENDED SEPTEMBER 30,
----------------------------------------
2000 1999 1998
---------- ---------- ----------
Cash flows from operating activities:
Net loss from continuing operations ................................................. $ (26,579) $ (5,224) $ (4,109)
Adjustments to reconcile net loss from continuing operations to
net cash provided by (used in) operating activities:
Depreciation and amortization .................................................... 1,631 43 43
Gain on disposition of equipment ................................................. -- -- (114)
Equity in net loss of equity affiliates .......................................... 10,069 1,809 --
In-process research and development of equity affiliates ......................... 4,965 -- 2,000
Noncash special charges .......................................................... 2,136 -- --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ................................... (3,794) 1,075 791
Increase in prepaids and other ............................................... (125) (28) (54)
Increase (decrease) in trade accounts payable ................................ (25) 54 1
Increase (decrease) in accrued liabilities ................................... 49 (195) 438
Increase (decrease) in deferred income taxes ................................. 2,806 -- (51)
Increase (decrease) in other liabilities ..................................... (54) 246 141
---------- ---------- ----------
Net cash used in continuing operating activities ...................................... (8,921) (2,220) (914)
Net cash provided by discontinued operating activities ................................ 59,757 1,281 2,009
---------- ---------- ----------
Net cash provided by (used in) operating activities ................................ 50,836 (939) 1,095
Cash flows from investing activities:
Purchases of property and equipment ................................................. (50) (8) --
Purchase of Internet company, net of cash acquired .................................. (4,264) -- --
Investments in equity affiliates .................................................... (45,580) (1,339) (10,000)
Proceeds from sale of equipment ..................................................... -- -- 538
Other investing activities .....................