| Delaware | 0-26123 | 52-1623052 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
| 4795 Meadow Wood Lane, Suite 300, Chantilly, Virginia | 20151 | |
| (Address of principal executive offices) | (Zip Code) |
| § | Unaudited Balance Sheet as of March 31, 2006 | ||
| § | Unaudited Statements of Operations for the three-months ended March 31, 2006 and 2005 | ||
| § | Unaudited Statements of Cash Flows for the three-months ended March 31, 2006 and 2005 | ||
| § | Notes to Unaudited Financial Statements, March 31, 2006 | ||
| § | Report of Independent Registered Public Accounting Firm | ||
| § | Audited Balance Sheets as of December 31, 2005 and 2004 | ||
| § | Audited Statements of Operations for the years ended December 31, 2005 and 2004 | ||
| § | Audited Statements of Changes in Stockholders’ Deficit for the years ended December 31, 2005 and 2004 | ||
| § | Audited Statements of Cash Flows for the years ended December 31, 2005 and 2004 | ||
| § | Notes to Audited Financial Statements, December 31, 2005 and 2004 | ||
| § | Report of Independent Certified Public Accountants | ||
| § | Audited Balance Sheet as of December 31, 2003 | ||
| § | Audited Statement of Operations for the year ended December 31, 2003 | ||
| § | Audited Statement of Changes in Stockholders’ Deficit for the year ended December 31, 2003 | ||
| § | Audited Statement of Cash Flows for the years ended December 31, 2003 | ||
| § | Notes to Audited Financial Statements, December 31, 2003 |
| § | Unaudited Pro Forma Consolidated Condensed Balance Sheet as of March 31, 2006 | ||
| § | Unaudited Pro Forma Consolidated Condensed Statements of Operations for the year ended December 31, 2005 and three-months ended March 31, 2006 |
| Exhibit No. | Document Description | |
3.2
|
Certificate of Correction to the Certificate of Designation of the shares of Series A-1 Stock | |
23.1
|
Consent of KPMG, LLP, Independent Registered Public Accounting Firm | |
23.2
|
Consent of Burton McCumber & Cortez, L.L.P. |
2
| March 31, | December 31, | |||||||
| 2006 | 2005 | |||||||
| (unaudited) | ||||||||
Assets |
||||||||
Current assets: |
||||||||
Consumer deposits: |
||||||||
Cash |
$ | 72,529,118 | $ | 16,763,575 | ||||
Receivables from billers |
— | 773 | ||||||
Total consumer deposits |
72,529,118 | 16,764,348 | ||||||
Cash and cash equivalents |
5,537,613 | 6,935,944 | ||||||
Accounts receivable, net of allowance of $179,812 and $176,103 |
4,518,032 | 3,912,051 | ||||||
Prepaid expenses and other assets |
2,685,089 | 1,585,285 | ||||||
Total current assets |
85,269,852 | 29,197,628 | ||||||
Property and equipment, net |
2,511,512 | 3,150,399 | ||||||
Restricted cash |
479,193 | 479,193 | ||||||
Other assets |
78,000 | 78,000 | ||||||
Total assets |
$ | 88,338,557 | $ | 32,905,220 | ||||
Liabilities and Stockholders’ Deficit |
||||||||
Current liabilities: |
||||||||
Consumer deposits payable |
$ | 72,529,118 | $ | 16,764,348 | ||||
Line of credit |
— | 1,450,000 | ||||||
Current portion of long-term debt |
35,216 | 49,752 | ||||||
Accounts payable |
2,209,894 | 1,162,641 | ||||||
Accrued expenses |
1,796,471 | 1,980,798 | ||||||
Deferred revenue |
555,946 | 578,636 | ||||||
Total current liabilities |
77,126,645 | 21,986,175 | ||||||
Long-term debt |
122,611 | 132,139 | ||||||
Deferred revenue |
481,808 | 617,886 | ||||||
Other liabilities |
424,477 | 452,201 | ||||||
Total liabilities |
78,155,541 | 23,188,401 | ||||||
Series A-1 mandatorily redeemable convertible preferred stock, $0.01 par value. Authorized 16,500,000 shares; issued and outstanding 15,500,000 shares (liquidation value of $21,537,696) at March 31, 2006 |
21,242,077 | 20,790,828 | ||||||
Series B-1 mandatorily redeemable convertible preferred stock, $0.01 par value. Authorized 11,000,000 shares; issued and outstanding 8,560,745 shares (liquidation value of $5,190,771) at March 31, 2006 |
5,165,883 | 5,065,379 | ||||||
Series C-1 mandatorily redeemable convertible preferred stock, $0.01 par value. Authorized 47,000,000 shares; issued and outstanding 39,011,536 shares (liquidation value of $15,660,082) at March 31, 2006 |
15,555,830 | 15,250,920 | ||||||
Series D-1 mandatorily redeemable convertible preferred stock, $0.01 par value. Authorized 75,500,000 shares; issued and outstanding 51,503,965 shares (liquidation value of $18,313,111) at March 31, 2006 |
16,897,487 | 16,373,639 | ||||||
Warrants for mandatorily redeemable convertible preferred stock |
3,534,995 | 3,534,995 | ||||||
Commitments and contingencies |
||||||||
Stockholders’ deficit: |
||||||||
Common stock, $0.01 par value; authorized 300,000,000 shares; issued and
outstanding 44,533,767 and 43,831,117 shares |
445,338 | 438,311 | ||||||
Additional paid-in capital |
191,994,083 | 191,987,466 | ||||||
Accumulated deficit |
(244,652,677 | ) | (243,724,719 | ) | ||||
Total stockholders’ deficit |
(52,213,256 | ) | (51,298,942 | ) | ||||
Total liabilities and stockholders’ deficit |
$ | 88,338,557 | $ | 32,905,220 | ||||
3
| 2006 | 2005 | |||||||
| (unaudited) | (unaudited) | |||||||
Revenues: |
||||||||
Transaction fees |
$ | 7,880,244 | $ | 6,633,162 | ||||
Professional services fees |
458,708 | 423,325 | ||||||
Interest revenue on consumer deposits |
1,444,566 | 608,742 | ||||||
Total revenues |
9,783,518 | 7,665,229 | ||||||
Operating expenses: |
||||||||
Cost of services |
3,637,646 | 3,674,777 | ||||||
Research and development costs |
972,256 | 1,143,074 | ||||||
Selling, general and administrative |
4,625,793 | 5,144,630 | ||||||
Total operating expenses |
9,235,695 | 9,962,481 | ||||||
Operating income (loss) |
547,823 | (2,297,252 | ) | |||||
Other income
(expense) |
95,270 | (8,571 | ) | |||||
Net income (loss) |
452,553 | (2,288,681 | ) | |||||
Accretion of preferred stock and amortization of warrant costs |
(219,231 | ) | (219,231 | ) | ||||
Preferred stock dividends |
(1,161,280 | ) | (1,071,893 | ) | ||||
Net loss applicable to common stockholders |
$ | (927,958 | ) | $ | (3,579,805 | ) | ||
4
| 2006 | 2005 | |||||||
| (unaudited) | (unaudited) | |||||||
Cash flows from operating activities: |
||||||||
Net income (loss) |
$ | 452,553 | $ | (2,288,681 | ) | |||
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities: |
||||||||
Depreciation and amortization |
661,695 | 999,905 | ||||||
Equity compensation expense |
5,237 | — | ||||||
Provision for bad debts |
3,709 | 12,000 | ||||||
Changes in operating assets and liabilities: |
||||||||
Consumer deposits |
(55,764,770 | ) | (7,245,852 | ) | ||||
Accounts receivable |
(609,690 | ) | (939,864 | ) | ||||
Prepaid expenses and other assets |
(1,099,804 | ) | (898,228 | ) | ||||
Consumer deposits payable |
55,764,770 | 7,245,852 | ||||||
Deferred revenue |
(158,768 | ) | 177,998 | |||||
Accounts payable |
1,047,253 | 819,348 | ||||||
Accrued expenses |
(184,327 | ) | (602,736 | ) | ||||
Other liabilities |
(27,724 | ) | 28,332 | |||||
Net cash provided by (used in) operating activities |
90,134 | (2,691,926 | ) | |||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(22,808 | ) | (782,354 | ) | ||||
Restricted cash |
— | 170,637 | ||||||
Net cash used in investing activities |
(22,808 | ) | (611,717 | ) | ||||
Cash flows from financing activities: |
||||||||
Repayments on line of credit |
(1,450,000 | ) | 312 | |||||
Payments on long-term debt |
(24,064 | ) | (17,501 | ) | ||||
Proceeds from exercise of stock options |
8,407 | 67,479 | ||||||
Net cash
(used in) provided by financing activities |
(1,465,657 | ) | 50,290 | |||||
Net decrease in cash and cash equivalents |
(1,398,331 | ) | (3,253,353 | ) | ||||
Cash and cash equivalents, beginning of period |
6,935,944 | 8,793,344 | ||||||
Cash and cash equivalents, end of period |
$ | 5,537,613 | $ | 5,539,991 | ||||
5
| (1) | Background | |
| Princeton eCom Corporation (the Company) was incorporated on January 25, 1984 in the state of Delaware. The Company maintains its headquarters in Princeton, New Jersey. The Company operates in one business segment and is an industry-leading provider of electronic payment solutions. The Company’s solutions enable consumers to process bill payments from the Web, telephone (integrated voice response), customer service representative, and home banking platforms, resulting in significant cost savings, faster collections, and improved service for its bank and biller customers. The Company’s services are utilized by financial institutions, billers, and distribution partners, including many top 100 banks and Fortune 1000 billers. These customers take advantage of the Company’s wide range of electronic payment solutions, which include lockbox and concentration payment products; one-time, enrolled, and convenience pay services; and electronic bill presentment solutions. The Company generates revenue from (i) transaction fees, including invoice presentment and payment processing fees; (ii) professional services fees for implementation and customized solutions; and (iii) interest on funds held. | ||
| Interim Financial Information | ||
| The accompanying condensed unaudited financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”) for interim financial information. In the opinion of management, the condensed unaudited financial statements include all adjustments necessary (which are of a normal and recurring nature) for the fair presentation of the results of the interim periods presented. These condensed unaudited financial statements should be read in conjunction with our audited financial statements for the year ended December 31, 2005. The results of operations for any interim period are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year. | ||
| (2) | Stock Based Compensation | |
| At March 31, 2006, the Company had one stock-based employee compensation plan, which is described more fully below. Prior to January 1, 2006, the Company accounted for this plan under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”), and related interpretations, as permitted by Statements of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”). No stock-based employee compensation cost was recognized in the Statement of Operations for the three months ended March 31, 2005, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123(R), Share-Based Payment (“SFAS No. 123(R)”), using the modified-prospective transition method. Under that transition method, compensation cost recognized in the three months ended March 31, 2006 includes compensation cost for all share-based payments granted on or subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R). Results for prior periods have not been restated. | ||
| As a result of adopting SFAS No. 123(R) on January 1, 2006, the Company’s income before income taxes for the three months ended March 31, 2006 is approximately $6,000 lower, than if it had continued to account for share-based compensation under APB No. 25. | ||
| Prior to the adoption of SFAS No. 123(R), if the Company had not recognized a full valuation allowance against its deferred tax asset, it would have presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows in the Statement of Cash Flows. SFAS No. 123(R) requires the cash flows resulting from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) to be classified as financing cash flows. | ||
| The following table illustrates the effect on net income and net income per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to options granted under the Company’s stock option plans for the three months ended March 31, 2005. For purposes of this pro forma disclosure, the value of the options is estimated using a Black-Scholes-Merton option-pricing formula and amortized to expense over the options’ vesting periods. |
6
| Three Months Ended | ||||
| March 31, 2005 | ||||
Net loss, as reported |
$ | (2,288,681 | ) | |
Less total stock-based employee compensation
expense determined under the fair-value-based
method for all awards |
(385,006 | ) | ||
Pro forma net loss |
$ | (2,673,687 | ) | |
| Weighted- | ||||||||||||||||
| Weighted- | Average | |||||||||||||||
| Average Exercise | Remaining | Aggregate | ||||||||||||||
| Shares | Price | Contract Term | Intrinsic Value | |||||||||||||
Outstanding at January 1, 2006 |
22,460,578 | $ | 0.41 | |||||||||||||
Granted |
91,000 | $ | 0.01 | |||||||||||||
Exercised |
(702,650 | ) | $ | 0.01 | ||||||||||||
Forfeited or expired |
(43,701 | ) | $ | 0.67 | ||||||||||||
Outstanding at March 31, 2006 |
21,805,227 | $ | 0.42 | 7.10 | $ | 7,849,882 | ||||||||||
Vested or expected to vest at March 31, 2006 |
21,193,515 | $ | 0.64 | 7.00 | $ | 11,656,433 | ||||||||||
Exercisable at March 31, 2006 |
14,153,823 | $ | 0.64 | 7.00 | $ | 7,784,603 | ||||||||||
| Cash received from option exercises under all share-based payment arrangements for the three months ended March 31, 2006 and 2005 was $8,407 and $67,479, respectively. There was no tax benefit realized for the tax deductions from option exercise of the share-based payment arrangements since the Company currently recognizes a full valuation allowance against that benefit. | ||
| (3) | Net Loss Per Share | |
| Basic EPS is computed by dividing net loss by the weighted average number of shares of Common stock outstanding for the period. Diluted EPS includes the dilutive effect, if any, from the potential exercise or conversion of securities such as stock options, warrants and convertible preferred stock, which would result in the issuance of additional shares of common stock. For the three months ended March 31, 2006 and 2005, the impact of stock options, warrants and mandatorily redeemable convertible preferred stock was not considered as the effect on net loss per share would be anti-dilutive. | ||
| (4) | Subsequent Event | |
| On May 5, 2006, the Company entered into a definitive agreement to be acquired for $180 million in cash, with a $10 million potential earn-out, by Online Resources Corporation. The merger was consummated on July 3, 2006. |
7
| /s/ KPMG LLP |
8
| 2005 | 2004 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Consumer deposits: |
||||||||
Cash |
$ | 16,763,575 | $ | 25,891,435 | ||||
Receivables from billers |
773 | 736,468 | ||||||
Total consumer deposits |
16,764,348 | 26,627,903 | ||||||
Cash and cash equivalents |
6,935,944 | 8,793,344 | ||||||
Accounts receivable, net of allowance of $176,103 and $180,797 |
3,912,051 | 3,471,877 | ||||||
Prepaid expenses and other assets |
1,585,285 | 955,906 | ||||||
Total current assets |
29,197,628 | 39,849,030 | ||||||
Property and equipment, net |
3,150,399 | 5,474,538 | ||||||
Restricted cash |
479,193 | 749,830 | ||||||
Other assets |
78,000 | 125,450 | ||||||
Total assets |
$ | 32,905,220 | $ | 46,198,848 | ||||
Liabilities and Stockholders’ Deficit |
||||||||
Current liabilities: |
||||||||
Consumer deposits payable |
$ | 16,764,348 | $ | 26,627,903 | ||||
Line of credit |
1,450,000 | 1,450,000 | ||||||
Current portion of long-term debt |
49,752 | 72,674 | ||||||
Accounts payable |
1,162,641 | 892,185 | ||||||
Accrued expenses |
1,980,798 | 2,761,843 | ||||||
Deferred revenue |
578,636 | 410,319 | ||||||
Total current liabilities |
21,986,175 | 32,214,924 | ||||||
Long-term debt |
132,139 | 41,507 | ||||||
Deferred revenue |
617,886 | 953,860 | ||||||
Other liabilities |
452,201 | 409,701 | ||||||
Total liabilities |
23,188,401 | 33,619,992 | ||||||
Series A-1 mandatorily redeemable convertible preferred stock, $0.01 par
value. Authorized 16,500,000 shares; issued and outstanding 15,500,000 shares (liquidation value of $21,124,648) |
20,790,828 | 19,110,930 | ||||||
Series B-1 mandatorily redeemable convertible preferred stock, $0.01 par
value. Authorized 11,000,000 shares; issued and outstanding 8,560,745 shares (liquidation value of $5,095,044) |
5,065,379 | 4,673,567 | ||||||
Series C-1 mandatorily redeemable convertible preferred stock, $0.01 par
value. Authorized 47,000,000 shares; issued and outstanding 39,011,536 shares (liquidation value of $15,369,261) |
15,250,920 | 14,072,843 | ||||||
Series D-1 mandatorily redeemable convertible preferred stock, $0.01 par
value. Authorized 75,500,000 shares; issued and outstanding 51,503,965 shares (liquidation value of $17,974,281) |
16,373,639 | 14,336,243 | ||||||
Warrants for mandatorily redeemable convertible preferred stock |
3,534,995 | 3,255,792 | ||||||
Commitments and contingencies (note 9) |
||||||||
Stockholders’ deficit: |
||||||||
Common stock, $0.01 par value; authorized 300,000,000 shares; issued and
outstanding 43,831,117 and 29,725,555 shares |
438,311 | 297,256 | ||||||
Additional paid-in capital |
191,987,466 | 191,985,630 | ||||||
Accumulated deficit |
(243,724,719 | ) | (235,153,405 | ) | ||||
Total stockholders’ deficit |
(51,298,942 | ) | (42,870,519 | ) | ||||
Total liabilities and stockholders’ deficit |
$ | 32,905,220 | $ | 46,198,848 | ||||
9
| 2005 | 2004 | |||||||
Revenues: |
||||||||
Transaction fees |
$ | 26,460,966 | $ | 24,191,618 | ||||
Professional services fees |
2,416,615 | 1,583,833 | ||||||
Interest revenue on consumer deposits |
3,208,542 | 1,052,933 | ||||||
Total revenues |
32,086,123 | 26,828,384 | ||||||
Operating expenses: |
||||||||
Cost of services |
14,713,165 | 15,131,272 | ||||||
Research and development costs |
5,130,553 | 6,425,637 | ||||||
Selling, general and administrative |
16,446,833 | 16,599,707 | ||||||
Total operating expenses |
36,290,551 | 38,156,616 | ||||||
Operating loss |
(4,204,428 | ) | (11,328,232 | ) | ||||
Interest income |
109,291 | 80,339 | ||||||
Interest expense |
(85,531 | ) | (56,088 | ) | ||||
Loss on disposal of assets |
— | (260,962 | ) | |||||
Net loss before income tax benefit |
(4,180,668 | ) | (11,564,943 | ) | ||||
Income tax benefit |
896,538 | 877,844 | ||||||
Net loss |
(3,284,130 | ) | (10,687,099 | ) | ||||
Accretion of preferred stock and amortization of warrant costs |
(876,924 | ) | (785,793 | ) | ||||
Preferred stock dividends |
(4,410,260 | ) | (3,900,483 | ) | ||||
Net loss applicable to common stockholders |
$ | (8,571,314 | ) | $ | (15,373,375 | ) | ||
10
| Common Stock | Additional paid- | Accumulated | ||||||||||||||||||
| Shares | Amount | in capital | deficit | Total | ||||||||||||||||
Balance, December 31, 2003 |
29,725,555 | $ | 297,256 | $ | 191,985,630 | $ | (219,780,030 | ) | $ | (27,497,144 | ) | |||||||||
Accretion of preferred
stock to redemption
value |
— | — | — | (785,793 | ) | (785,793 | ) | |||||||||||||
Accretion of preferred
stock dividends |
— | — | — | (3,900,483 | ) | (3,900,483 | ) | |||||||||||||
Net loss |
— | — | — | (10,687,099 | ) | (10,687,099 | ) | |||||||||||||
Balance, December 31, 2004 |
29,725,555 | 297,256 | 191,985,630 | (235,153,405 | ) | (42,870,519 | ) | |||||||||||||
Exercise of stock options |
14,105,562 | 141,055 | — | — | 141,055 | |||||||||||||||
Issuance of common stock
warrants |
— | — | 1,836 | — | 1,836 | |||||||||||||||
Accretion of preferred
stock to redemption
value |
— | — | — | (876,924 | ) | (876,924 | ) | |||||||||||||
Accretion of preferred
stock dividends |
— | — | — | (4,410,260 | ) | (4,410,260 | ) | |||||||||||||
Net loss |
— | — | — | (3,284,130 | ) | (3,284,130 | ) | |||||||||||||
Balance, December 31, 2005 |
43,831,117 | $ | 438,311 | $ | 191,987,466 | $ | (243,724,719 | ) | $ | (51,298,942 | ) | |||||||||
11
| 2005 | 2004 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (3,284,130 | ) | $ | (10,687,099 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Depreciation and amortization |
3,527,425 | 5,508,726 | ||||||
Amortization of lease guarantee |
— | 10,012 | ||||||
Provision for bad debts |
24,000 | (16,114 | ) | |||||
Loss on disposal of assets |
— | 260,962 | ||||||
Changes in operating assets and liabilities: |
||||||||
Consumer deposits |
9,863,555 | 7,052,101 | ||||||
Accounts receivable |
(464,174 | ) | (128,403 | ) | ||||
Prepaid expenses and other assets |
(300,891 | ) | 219,037 | |||||
Consumer deposits payable |
(9,863,555 | ) | (7,052,101 | ) | ||||
Deferred revenue |
(167,657 | ) | 648,267 | |||||
Accounts payable |
270,456 | (235,798 | ) | |||||
Accrued expenses |
(781,045 | ) | (47,298 | ) | ||||
Other liabilities |
42,500 | 1,942 | ||||||
Net cash used in operating activities |
(1,133,516 | ) | (4,465,766 | ) | ||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(1,203,286 | ) | (1,118,208 | ) | ||||
Proceeds from sale of property and equipment |
— | 20,230 | ||||||
Restricted cash |
270,637 | 291,436 | ||||||
Net cash used in investing activities |
(932,649 | ) | (806,542 | ) | ||||
Cash flows from financing activities: |
||||||||
Proceeds from sale of preferred stock, net |
— | 10,254,746 | ||||||
Repayments on line of credit |
— | (49,707 | ) | |||||
Proceeds from long-term debt |
154,036 | 50,415 | ||||||
Payments on long-term debt |
(86,326 | ) | (59,315 | ) | ||||
Proceeds from exercise of stock options |
141,055 | — | ||||||
Net cash provided by financing activities |
208,765 | 10,196,139 | ||||||
Net (decrease) increase in cash and cash equivalents |
(1,857,400 | ) | 4,923,831 | |||||
Cash and cash equivalents, beginning of year |
8,793,344 | 3,869,513 | ||||||
Cash and cash equivalents, end of year |
$ | 6,935,944 | $ | 8,793,344 | ||||
12
| (1) | Background | |
| Princeton eCom Corporation (the Company) was incorporated on January 25, 1984 in the state of Delaware. The Company maintains its headquarters in Princeton, New Jersey. The Company operates in one business segment and is an industry-leading provider of electronic payment solutions. The Company’s solutions enable consumers to process bill payments from the Web, telephone (integrated voice response), customer service representative, and home banking platforms, resulting in significant cost savings, faster collections, and improved service for its bank and biller customers. The Company’s services are utilized by financial institutions, billers, and distribution partners, including many top 100 banks and Fortune 1000 billers. These customers take advantage of the Company’s wide range of electronic payment solutions, which include lockbox and concentration payment products; one-time, enrolled, and convenience pay services; and electronic bill presentment solutions. The Company generates revenue from (i) transaction fees, including invoice presentment and payment processing fees; (ii) professional services fees for implementation and customized solutions; and (iii) interest on funds held. | ||
| (2) | Liquidity | |
| The Company has a stockholders’ deficit of $51,298,942 as of December 31, 2005. Based on a combination of expense reduction actions, margin improvement, and revenue growth, the Company achieved profitability in the second half of 2005. Management believes that cash on-hand and expected cash flows from operations are sufficient to sustain operations for the foreseeable future with no expected need for additional financing. | ||
| (3) | Summary of Significant Accounting Policies |
| (a) | Use of Estimates | ||
| The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. | |||
| (b) | Cash and Cash Equivalents | ||
| Cash and cash equivalents include highly liquid investments with original maturities of three months or less. The Company maintains cash and cash equivalents with various major financial institutions. At times such amounts may exceed the Federal Deposit Insurance Corporation limits. Management believes that no significant concentration of credit risk exists with respect to cash investments. | |||
| (c) | Accounts Receivable | ||
| Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on historical write-offs and specific review of customer balances. Accounts receivable balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers. | |||
| (d) | Property and Equipment | ||
| Property and equipment are recorded at cost. Property and equipment also includes fees paid to third parties for software licenses and consulting services related to the development of internal-use software applications in accordance with Statement of Position (SOP) 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. | |||
| Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized straight line over the shorter of the lease term or estimated useful life of the asset. Expenditures for maintenance, repairs, and betterments that do not prolong the useful life of an asset have been charged to operations as incurred. | |||
| (e) | Impairment of Long-Lived Assets | ||
| In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, then an impairment charge is recognized by the amount by which the |
13
| carrying amount of the asset exceeds the fair value of the asset. As of December 31, 2005 and 2004, management believes that no revision of the remaining useful lives or write-down of long-lived assets is required. | |||
| (f) | Restricted Cash | ||
| Restricted cash relates to outstanding letters of credit required by certain operating lease and vendor agreements. | |||
| (g) | Consumer Deposits and Consumer Deposits Payable | ||
| Consumer deposits represent assets held on behalf of consumers for the satisfaction of payment processing and include both cash and receivables from billers. Receivables from billers are created when payment processing has been completed, but collection of funds from consumer bank accounts is delayed. Management believes that receivables from billers are fully realizable assets because contractual agreements permit reversals from biller accounts or stipulate that the biller is obligated to reimburse the Company for such payments. | |||
| (h) | Revenue Recognition and Concentration of Credit Risk | ||
| Transaction fees are amounts charged to billers and financial institutions based on contractual rates. Transaction fees are recognized as the services are performed based upon the actual number of processed transactions. Professional services fees consist of consulting services provided to customers on a time-and-materials basis and fees earned for implementation services. Revenues from consulting services are recognized as the services are performed. Implementation fees are deferred and recognized as revenue over the term of the ongoing transaction service periods, which generally range from one to five years. Interest revenue on consumer deposits reflects amounts earned on the overnight investment of funds received from consumers pending payment processing and is recorded as revenue as earned. | |||
| For 2004, the Company had one customer that accounted for 11% of revenues. At December 31, 2004, this customer accounted for 12% of accounts receivable. For 2005, no customer accounted for 10% or more of revenue. | |||
| (i) | Development Costs | ||
| Research and development costs are expensed as incurred. | |||
| (j) | Advertising and Marketing Expense | ||
| Advertising and marketing costs are expensed as incurred. Advertising and marketing costs totaled $920,348 and $476,507 for the years ended December 31, 2005 and 2004, respectively. | |||
| (k) | Income Taxes | ||
| Income taxes are accounted for under the asset-and-liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Deferred tax assets and liabilities are measured at the balance sheet date using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period such tax rate changes are enacted. | |||
| (l) | Stock-Based Compensation | ||
| The Company applies the intrinsic-value-based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, to account for its fixed-plan stock options. Under this method, compensation expense is recorded for option grants to employees for the amount, if any, by which the fair value per share exceeds the exercise price per share at the measurement date, which is generally the grant date. SFAS No. 123, Accounting for Stock-Based Compensation, and SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, an Amendment of SFAS No. 123, established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. As permitted by existing accounting standards, the Company has elected to continue to apply the intrinsic-value-based method of accounting described above, and has adopted only the disclosure requirements of SFAS No. 123, as amended. In addition, the Company applies the SFAS No. 123 fair-value-based method of accounting for stock option grants to nonemployees by recording the fair value based on the Black-Scholes model. |
14
| Pro forma information provided below has been determined as if the Company had accounted for its employee stock options in accordance with SFAS No. 123. The determination of the fair value of the options noted above was estimated at the date of grant using a Black-Scholes options pricing model with the following weighted average assumptions for 2005 and 2004: risk-free interest rate of 3.8% and 3.5%, respectively; dividend yield of 0%; volatility factor of 70%; and an expected life of the options of four years. |
| Year ended December 31 | ||||||||
| 2005 | 2004 | |||||||
Net loss, as reported |
$ | (3,284,130 | ) | (10,687,099 | ) | |||
Less total stock-based employee compensation
expense determined under the fair-value-based
method for all awards |
(888,271 | ) | (1,315,226 | ) | ||||
Pro forma net loss |
$ | (4,172,401 | ) | (12,002,325 | ) | |||
| The Company will adopt the provisions of SFAS No. 123R (revised 2004), Share-Based Payment, as discussed below. | |||
| (m) | Fair Value of Financial Instruments | ||
| The Company’s financial instruments consist of consumer deposits, cash and cash equivalents, accounts receivable, prepaid expenses and other assets, consumer deposits payable, accounts payable, accrued expenses, and deferred revenue. Management believes the carrying values of these assets and liabilities are representative of their fair values based on the liquidity of these financial instruments or based on their relatively short-term nature. An allowance for doubtful accounts for accounts receivable is established when the fair value is less than the carrying amounts. Amounts outstanding under long-term debt agreements are considered to be carried on the financial statements at their estimated fair values because they were entered into recently and terms are comparable to other financing arrangements available. | |||
| (n) | Supplemental Cash Flow Information | ||
| Cash paid for interest was $79,720 and $83,740 for the years ended December 31, 2005 and 2004, respectively. | |||
| (o) | Reclassifications | ||
| Certain reclassifications have been made to the prior year amounts to conform with current year presentations. | |||
| (p) | Recently Issued Accounting Standards | ||
| In December 2004, the Financial Accounting Standards Board issued SFAS No. 123R, which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. SFAS No. 123R is a revision to SFAS No. 123 and supersedes ABB Opinion No. 25 and its related implementation guidance. For nonpublic companies, SFAS No. 123R will require measurement of the cost of employee services received in exchange for stock compensation based on the grant-date fair value of the employee stock options. Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized. The Company will adopt SFAS No. 123R as of January 1, 2006. |
15
| (4) | Property and Equipment |
| December 31 | ||||||||||
| Useful lives | 2005 | 2004 | ||||||||
Computer and telephone equipment |
3 to 5 years | $ | 10,765,680 | 9,697,862 | ||||||
Purchased software and capitalized
development costs |
3 years | 14,707,456 | 14,571,989 | |||||||
Furniture and fixtures |
5 to 7 years | 1,194,024 | 1,194,024 | |||||||
Leasehold improvements |
Lease term | 1,422,191 | 1,422,191 | |||||||
| 28,089,351 | 26,886,066 | |||||||||
Less accumulated depreciation and
amortization |
(24,938,952 | ) | (21,411,528 | ) | ||||||
| $ | 3,150,399 | 5,474,538 | ||||||||
| For the year ended December 31, 2004, the Company incurred losses on the sale of computer equipment and cancellation of a lease guarantee of $30,674 and $230,288, respectively. | ||
| Depreciation and amortization expense was $3,527,425 and $5,508,726 for the years ended December 31, 2005 and 2004, respectively. | ||
| (5) | Line of Credit | |
| The Company entered into a line of credit agreement with a financial institution. The line of credit allows the Company to borrow the lesser of $5,000,000 or 80% of eligible accounts receivable, as defined, at an interest rate of prime plus 2%, available through July 2006, subject to annual renewal. The Company was subject to an annual interest rate of 9.25% and 7.25% at December 31, 2005 and 2004, respectively. Substantially all assets of the Company serve as collateral for the line of credit. Outstanding borrowings were $1,450,000 as of December 31, 2005 and 2004. | ||
| The Company entered into a letter of credit with the financial institution that serves as the security deposit with the landlord of the Company’s office facility. The amount of borrowing permitted under the line of credit is reduced by the amount of the letter of credit, or $955,132. | ||
| (6) | Mandatorily Redeemable Convertible Preferred Stock and Warrants | |
| As of December 31, 2005, the Company has authorized 150,000,000 shares of Preferred stock with a par value of $0.01 per share, of which 16,500,000 shares have been designated as Series A-1 mandatorily redeemable convertible preferred stock (Series A-1), 11,000,000 shares have been designated as Series B-1 mandatorily redeemable convertible preferred stock (Series B-1), 47,000,000 shares have been designated as Series C-1 mandatorily redeemable convertible preferred stock (Series C-1), and 75,500,000 shares have been designated as Series D-1 mandatorily redeemable convertible preferred stock (Series D-1) (collectively, Series A-1, B-1, C-1, and D-1). | ||
| The holders of Series A-1, B-1, C-1, and D-1 are entitled to liquidation preferences equal to the original purchase price, plus all accrued but unpaid dividends. The holders of the Series A-1, B-1, C-1, and D-1 are entitled to receive dividends at an annual rate of 8%, and such dividends are cumulative. The Series D-1 preference is senior to the preferences of Series A-1, B-1, and C-1 and would be distributed in full to the Series D-1 holders before any distribution to the holders of Series A-1, B-1, and C-1. Dividends recorded in 2005 and 2004 were $4,410,260 and $3,900,483, respectively, which has increased the recorded redemption value of the preferred stock. | ||
| In the event of a liquidation, the holders of Series A-1, B-1, C-1, and D-1 would receive both the liquidation preference defined above and a pro rata share of the remaining proceeds as if the shares were converted to common stock. The Series A-1, B-1, C-1, and D-1 are convertible at any time into common stock at the holders’ option at a conversion rate of one-to-three-and-one-third (1:3-1/3), one-to-one-and-one-half (1:1-1/2), one-to-one (1:1), and one-to-one (1:1), respectively, at December 31, 2005. All outstanding shares of the Series A-1, B-1, C-1, and D-1 are automatically convertible into common stock upon the closing of a qualified underwritten public offering, as defined. The holders of Series A-1, B-1, C-1, and D-1 are entitled to certain voting, antidilution, and registration rights, as defined. | ||
| The Series D-1 are redeemable at the liquidation value, as defined, at the option of the holders and upon the receipt of notice of a majority of said holders, on or after March 25, 2008. The holders of Series A-1, B-1, and C-1 also have the same redemption rights; however, the redemption date may be delayed 180 days under certain circumstances by a majority of the Series D-1 holders. The Company would have issued 155,023,284 shares of common stock had all of the Series A-1, B-1, C-1, and D-1 been converted at December 31, 2005 and 2004. |
16
| In March 2004, the Company sold 34,837,298 shares of Series D-1 at $0.30 per share for proceeds of $10,254,746, net of offering costs of $196,443. In addition, the Series D-1 investors received warrants to purchase 8,709,325 shares of Series D-1 at an exercise price of $0.30 per share. | ||
| The Company allocated the proceeds to the Series D-1 and the warrants based on their relative fair values. The fair value of the warrants was determined using the Black-Scholes option-pricing model with the following assumptions: no dividend yield, weighted average risk-free interest rate of 4.23%, volatility of 75%, and the contractual life of the warrants of 10 years. As a result, the Company allocated $8,493,368 to the Series D-1 and $1,761,737 to the warrants. | ||
| The value allocated to the warrants is being accreted as a dividend using the effective interest method from the date of issuance of the Series D-1 through the redemption date. For the years ended December 31, 2005 and 2004, the Company recorded a total of $639,579 and $542,909, respectively, of accretion. | ||
| The offering costs for each series of preferred stock will be accreted using the effective-interest method from the date the shares were issued through the redemption date. For the years ended December 31, 2005 and 2004, the Company recorded a total of $237,345 and $242,884, respectively, for the accretion of the Series A-1, B-1, C-1, and D-1 offering costs. | ||
| In connection with the issuance of the Series D-1 and related warrants in 2005 and 2004, the holders of the Series A-1, B-1, and C-1 agreed to waive the antidilution provisions of these securities. As such, no adjustment was made to the conversion features of the Series A-1, B-1, and C-1 as a result of the issuance of the Series D-1. | ||
| In 2005, the Company issued warrants to purchase 1,465,200 shares of Series D-1 and 976,800 shares of common stock to a customer at an exercise price of $0.30 and $0.10 per share, respectively. The fair value of the warrants was determined using the Black-Scholes option-pricing model with the following assumptions: no dividend yield, weighted average risk-free interest rate of 3.74%, volatility of 75%, and the contractual life of the warrants of five years. As a result, the Company allocated $281,039 to the warrants that will be amortized against revenue over the term of the customer contract. | ||
| (7) | Stock Option Plan | |
| Effective December 13, 2001, the Company adopted the 2001 Stock Plan (the Plan). The Plan provides for the granting of incentive and nonqualified stock options to employees, directors, and consultants of the Company. The Compensation Committee of the board of directors administers the Plan and awards grants and determines the terms of such grants at its discretion. The Company has reserved approximately 28,500,000 shares of common stock for issuance pursuant to the Plan. | ||
| Information with respect to the options under the Plan is as follows: |
| Weighted | ||||||||||||
| average | ||||||||||||
| Outstanding | Exercise price | exercise | ||||||||||
| shares | per share | price | ||||||||||
Options outstanding at December 31, 2003 |
21,512,709 | $ | 0.16 – 41.57 | 0.77 | ||||||||
Granted |
33,289,704 | 0.01 | 0.01 | |||||||||
Exercised |
— | — | — | |||||||||
Canceled |
(20,515,625 | ) | 0.01 – 41.57 | 0.32 | ||||||||
Options outstanding at December 31, 2004 |
34,286,788 | 0.01 – 41.57 | 0.30 | |||||||||
Granted |
3,370,000 | 0.01 | 0.01 | |||||||||
Exercised |
(14,105,562 | ) | 0.01 | 0.01 | ||||||||
Canceled |
(1,090,648 | ) | 0.01 – 41.57 | 0.82 | ||||||||
Options outstanding at December 31, 2005 |
22,460,578 | $ | 0.01 – 41.57 | 0.41 | ||||||||
17
| Options outstanding | ||||||||||||
| Weighted | ||||||||||||
| average | ||||||||||||
| remaining | ||||||||||||
| contractual | Options | |||||||||||
| Exercise price | Shares | life (years) | exercisable | |||||||||
$ 0.01
|
21,686,641 | 7.43 | 13,263,628 | |||||||||
0.16
|
19,246 | 2.83 | 19,128 | |||||||||
0.24
|
279,100 | 6.76 | 229,600 | |||||||||
0.80
|
124,600 | 6.09 | 124,600 | |||||||||
7.79
|
9,815 | 5.77 | 9,815 | |||||||||
17.98
|
33,391 | 5.24 | 33,355 | |||||||||
20.78
|
23,672 | 3.02 | 23,667 | |||||||||
23.38
|
142,416 | 4.81 | 142,376 | |||||||||
27.69
|
65,435 | 3.20 | 65,435 | |||||||||
33.77
|
68,362 | 4.14 | 68,326 | |||||||||
41.57
|
7,900 | 4.55 | 7,894 | |||||||||
| 22,460,578 | 13,987,824 | |||||||||||
| The weighted average remaining contractual life of options outstanding as of December 31, 2005 is 7.4 years. The total remaining number of options available for future grant under the Plan was approximately 6,000,000 as of December 31, 2005. | ||
| In May 2004, the Company offered option holders the opportunity to exchange options granted at strike prices of $0.24 and $0.80 per share in 2002 and 2003. For each option exchanged, the option holder received one-and-one-half options at the then-fair-market value of the Company’s common stock six months and one day after the exchange period expired. Options to purchase 17,809,926 shares of common stock were exchanged for options to purchase 26,714,893 shares of common stock at a strike price of $0.01 per share under this program in November 2004. | ||
| (8) | Income Taxes | |
| The reconciliation of the statutory federal income tax rate to the Company’s effective income tax rate is as follows: |
| Year ended December 31 | ||||||||
| 2005 | 2004 | |||||||
Statutory federal income tax rate |
34.0 | % | 34.0 | % | ||||
State income taxes, net of federal tax benefit |
5.9 | 5.9 | ||||||
Nondeductible expenses |
(0.5 | ) | (0.2 | ) | ||||
Sale of New Jersey net operating loss |
(27.3 | ) | (8.2 | ) | ||||
Net operating loss |
(39.4 | ) | (39.7 | ) | ||||
| (27.3 | )% | (8.2 | )% | |||||
18
| Deferred taxes are determined based upon the estimated future tax effects of differences between the financial statements and income tax basis of assets and liabilities given the provisions of the enacted tax laws. The tax effect of temporary differences that give rise to deferred taxes are as follows: |
| December 31 | ||||||||
| 2005 | 2004 | |||||||
Deferred tax assets: |
||||||||
Net operating loss carryforwards |
$ | 54,800,000 | 53,900,000 | |||||
Deferred compensation |
2,200,000 | 2,200,000 | ||||||
Development costs |
— | 300,000 | ||||||
Accruals and reserves not currently deductible |
800,000 | 900,000 | ||||||
Total deferred tax assets |
57,800,000 | 57,300,000 | ||||||
Deferred tax liabilities: |
||||||||
Property and equipment |
(500,000 | ) | (1,700,000 | ) | ||||
Total deferred tax liabilities |
(500,000 | ) | (1,700,000 | ) | ||||
Net deferred tax asset, prior to
valuation allowance |
57,300,000 | 55,600,000 | ||||||
Less valuation allowance |
(57,300,000 | ) | (55,600,000 | ) | ||||
Net deferred tax asset |
$ | — | — | |||||
| As of December 31, 2005, the Company had total operating loss carryforwards totaling approximately $137,000,000 for federal tax purposes that begin to expire in 2006. The availability of the net operating loss carryforwards and certain future tax deductions to reduce taxable income is subject to limitations under Section 382 of the Internal Revenue Code of 1986, as amended, in the event of an ownership change. This section states that after a change in corporate ownership (a 50% cumulative change in ownership by a greater-than-5% shareholder over a three-year period), the use of certain carryforwards may be limited or prohibited. Management believes that ownership changes under Section 382 have taken place which will significantly impact the Company’s ability to fully utilize its entire net operating loss carryforwards in the future. Due to the uncertainty surrounding the realization of the net deferred tax asset, management has provided a full valuation allowance. As of December 31, 2005, the Company has net operating loss carryforwards of approximately $106,000,000 for state tax purposes that begin to expire in 2007. | ||
| (9) | Commitments and Contingencies |
| (a) | Lease Commitments | ||
| The Company is obligated under capital leases covering certain computer software and equipment that expire on various dates through 2010. The net book value of computer software and equipment recorded under the capital leases was $216,679 and $126,124 as of December 31, 2005 and 2004, respectively. | |||
| Amortization of assets held under the capital leases is included with depreciation expense. For the years ended December 31, 2005 and 2004, the Company recorded $16,457 and $17,284, respectively, of interest expense on the capital leases. | |||
| The Company leases office space and computer software and equipment under noncancelable operating leases, which have various terms and expire through 2009. The Company entered into a sublease for a portion of its office space in 2005 that expires in 2009. Rent expense for operating leases was $1,650,593 and $2,676,172 for the years ended December 31, 2005 and 2004, respectively. |
19
| Future minimum lease payments under noncancelable operating leases, net of sublease, having terms in excess of one year and future minimum capital lease payments as of December 31, 2005, are as follows: |
| Operating | Capital | |||||||
| lease | lease | |||||||
2006 |
$ | 1,558,968 | 68,150 | |||||
2007 |
1,368,691 | 52,316 | ||||||
2008 |
1,321,738 | 43,938 | ||||||
2009 |
1,318,902 | 39,749 | ||||||
2010 |
— | 19,875 | ||||||
Total minimum lease payments |
$ | 5,568,299 | 224,028 | |||||
Less amount representing interest |
(42,137 | ) | ||||||
Present value of minimum capital
lease payments |
181,891 | |||||||
Less current
portion of obligation under capital leases |
(49,752 | ) | ||||||
Obligations under capital leases excluding
current installments |
$ | 132,139 | ||||||
| (b) | Litigation | ||
| The Company is involved, from time to time, in various legal matters and claims, including patent infringement claims, which are being defended and handled in the ordinary course of business. None of these matters are expected, in the opinion of management, to have a material adverse effect on the financial position or results of operations of the Company. | |||
| (c) | Employment Agreements | ||
| The Company has employment agreements with certain officers of the Company. The agreements provide for, among other things, salaries, bonuses, stock options, and severance payments. | |||
| (d) | Incentive Bonus Plan | ||
| In March 2004, the Company established the Incentive Bonus Plan (the Bonus Plan). The Bonus Plan establishes a pool of funds that will be distributed to certain members of management as a bonus in the event that the Company is liquidated or sold to a third party. | |||
| (e) | Government Regulation | ||
| Management believes, based upon consultation with legal counsel, that the Company is not required to be licensed by the Office of the Comptroller of the Currency, the Federal Reserve Board, or other federal or state agencies that regulate or monitor banks or other providers of electronic commerce. However, the Company is periodically examined by banking authorities since the Company is a supplier of services to financial institutions. |
| (10) | Employee Benefit Plan | |
| The Company has a Section 401(k) retirement savings plan (the 401(k) Plan). The 401(k) Plan allows employees to contribute from 2% to 15% of their annual compensation subject to statutory limitations. Company contributions to the 401(k) Plan are discretionary. In 2005 and 2004, the Company made matching contributions of 50% of the first 6% of employee contributions. For the years ended December 31, 2005 and 2004, the Company recorded charges for matching contributions to the 401(k) Plan of $200,608 and $202,260, respectively. | ||
| (11) | Related Parties | |
| The Company provided services in 2004 to a customer that is also a holder of less than 1% of the Company’s common and preferred stock. The Company recognized revenue totaling $393,925. The Company did not provide services to any related parties in 2005. | ||
| The Company receives banking services from a financial institution that is also a holder of 33% of the Company’s common and preferred stock. For the years ended December 31, 2005 and 2004, the Company paid $1,791,828 and $1,957,199, |
20
21
| /s/ BURTON MCCUMBER & CORTEZ, L.L.P. |
22
| 2003 | ||||
Assets |
||||
Current assets: |
||||
Consumer deposits: |
||||
Cash |
$ | 33,236,324 | ||
Receivables from billers |
443,680 | |||
Total consumer deposits |
33,680,004 | |||
Cash and cash equivalents |
3,869,513 | |||
Accounts receivable, net of allowance of $196,911 |
3,327,360 | |||
Prepaid expenses and other assets |
1,165,943 | |||
Total current assets |
42,042,820 | |||
Property and equipment, net |
9,915,960 | |||
Restricted cash |
1,041,266 | |||
Other assets |
374,750 | |||
Total assets |
$ | 53,374,796 | ||
Liabilities and Stockholders’ Deficit |
||||
Current liabilities: |
||||
Consumer deposits payable |
$ | 33,680,004 | ||
Line of credit |
1,499,707 | |||
Current portion of long-term debt |
41,380 | |||
Accounts payable |
1,127,983 | |||
Accrued expenses |
2,809,141 | |||
Deferred revenue |
317,513 | |||
Total current liabilities |
39,475,728 | |||
Long-term debt |
81,701 | |||
Deferred revenue |
398,399 | |||
Other liabilities |
407,759 | |||
Total liabilities |
40,363,587 | |||
Series A-1 mandatorily redeemable convertible preferred stock, $0.01 par value.
Authorized 16,500,000 shares; issued and outstanding 15,500,000 shares (liquidation value of $18,098,756) |
18,073,619 | |||
Series B-1 mandatorily redeemable convertible preferred stock, $0.01 par value.
Authorized 11,000,000 shares; issued and outstanding 8,560,745 shares (liquidation value of $4,375,258) |
4,308,337 | |||
Series C-1 mandatorily redeemable convertible preferred stock, $0.01 par value.
Authorized 47,000,000 shares; issued and outstanding 39,011,536 shares (liquidation value of $13,170,014) |
12,974,914 | |||
Series D-1 mandatorily redeemable convertible preferred stock, $0.01 par value.
Authorized 23,500,000 shares; issued and outstanding 16,666,667 shares (liquidation value of $5,133,333) |
4,196,146 | |||
Commitments and contingencies (note 9) |
||||
Stockholders’ deficit: |
||||
Common stock, $0.01 par value; authorized 200,000,000 shares;
29,725,555 shares issued and outstanding |
297,256 | |||
Additional paid-in capital |
192,940,967 | |||
Accumulated deficit |
(219,780,030 | ) | ||
Total stockholders’ deficit |
(26,541,807 | ) | ||
Total liabilities and stockholders’ deficit |
$ | 53,374,796 | ||
23
| 2003 | ||||
Revenues: |
||||
Transaction fees |
$ | 29,648,080 | ||
Professional services fees |
2,272,796 | |||
Interest revenue on consumer deposits |
637,060 | |||
Total revenues |
32,557,936 | |||
Operating expenses: |
||||
Cost of services |
18,679,561 | |||
Research and development costs |
6,665,258 | |||
Selling, general and administrative |
15,999,976 | |||
Restructuring, severance and asset impairment charges |
828,013 | |||
Total operating expenses |
42,172,808 | |||
Operating loss |
(9,614,872 | ) | ||
Interest income |
37,586 | |||
Interest expense |
(58,319 | ) | ||
Net loss before income tax benefit |
(9,635,605 | ) | ||
Income tax benefit |
250,942 | |||
Net loss |
(9,384,663 | ) | ||
Accretion of preferred stock and amortization of warrant costs |
(378,204 | ) | ||
Preferred stock dividends |
(2,773,611 | ) | ||
Net loss applicable to common stockholders |
$ | (12,536,478 | ) | |
24
| Common Stock | Additional paid- | Accumulated | ||||||||||||||||||
| Shares | Amount | in capital | deficit | Total | ||||||||||||||||
Balance, December 31, 2002 |
29,699,802 | $ | 296,998 | $ | 191,981,362 | $ | (207,243,552 | ) | $ | (14,965,192 | ) | |||||||||
Exercise of stock options and warrants |
25,753 | 258 | 4,268 | — | 4,526 | |||||||||||||||
Accretion of preferred stock to
redemption value |
— | — | — | (378,204 | ) | (378,204 | ) | |||||||||||||
Accretion of preferred stock dividends |
— | — | — | (2,773,611 | ) | (2,773,611 | ) | |||||||||||||
Issuance of Series D-1 preferred
stock warrants |
— | — | 955,337 | — | 955,337 | |||||||||||||||
Net loss |
— | — | — | (9,384,663 | ) | (9,384,663 | ) | |||||||||||||
Balance, December 31, 2003 |
29,725,555 | $ | 297,256 | $ | 192,940,967 | $ | (219,780,030 | ) | $ | (26,541,807 | ) | |||||||||
25
| 2003 | ||||
Cash flows from operating activities: |
||||
Net loss |
$ | (9,384,663 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities: |
||||
Depreciation and amortization |
6,040,793 | |||
Amortization of lease guarantee |
40,052 | |||
Provision for bad debts |
10,443 | |||
Loss on disposal of assets |
3,314 | |||
Changes in operating assets and liabilities: |
||||
Consumer deposits |
422,164 | |||
Service fees payable |
(3,884,158 | ) | ||
Accounts receivable |
456,247 | |||
Prepaid expenses and other assets |
301,881 | |||
Consumer deposits payable |
(422,164 | ) | ||
Deferred revenue |
(441,911 | ) | ||
Accounts payable |
(821,965 | ) | ||
Accrued expenses |
76,812 | |||
Other liabilities |
92,955 | |||
Net cash used in operating activities |
(7,510,200 | ) | ||
Cash flows from investing activities: |
||||
Purchases of property and equipment |
(2,462,367 | ) | ||
Proceeds from sale of property and equipment |
4,714 | |||
Restricted cash |
1,036,910 | |||
Net cash used in investing activities |
(1,420,743 | ) | ||
Cash flows from financing activities: |
||||
Proceeds from sale of preferred stock, net |
4,914,553 | |||
Proceeds on line of credit |
1,499,707 | |||
Proceeds from long-term debt |
149,697 | |||
Payments on long-term debt |
(26,616 | ) | ||
Proceeds from exercise of stock options |
4,526 | |||
Net cash provided by financing activities |
6,541,867 | |||
Net decrease in cash and cash equivalents |
(2,389,076 | ) | ||
Cash and cash equivalents, beginning of year |
6,258,589 | |||
Cash and cash equivalents, end of year |
$ | 3,869,513 | ||
26
27
28
| Year ended December | ||||
| 31, 2003 | ||||
Net loss applicable to common stockholders, as reported |
$ | (12,536,478 | ) | |
Less: Total stock-based employee compensation expense
determined under fair value based method for all
awards, net of related tax effects |
(2,445,318 | ) | ||
Pro forma net loss applicable to common stockholders |
$ | (14,981,796 | ) | |
29
| Useful lives | December 31, 2003 | |||||||
Computer and telephone equipment |
3 - 5 years | $ | 10,052,031 | |||||
Purchased software and capitalized development costs |
3 years | 14,572,927 | ||||||
Furniture and fixtures |
5 - 7 years | 1,194,024 | ||||||
Leasehold improvements |
Lease term | 1,422,191 | ||||||
| 27,241,173 | ||||||||
Less: Accumulated depreciation and amortization |
(17,325,213 | ) | ||||||
| $ | 9,915,960 | |||||||
30
| Weighted average | ||||||||||||
| Shares | Exercise Price | exercise price | ||||||||||
Balance, December 31, 2002 |
22,787,092 | $ | 0.16-41.57 | $ | 0.96 | |||||||
Granted at fair market value |
3,056,226 | $ | 0.24 | $ | 0.24 | |||||||
Exercised |
(25,753 | ) | $ | 0.16-0.24 | $ | 0.18 | ||||||
Canceled |
(4,304,856 | ) | $ | 0.16-41.57 | $ | 1.44 | ||||||
Balance, December 31, 2003 |
21,512,709 | $ | 0.16-41.57 | $ | 0.77 | |||||||
| Outstanding stock options | Exercisable stock options | |||||||||||||||||||||||
| Weighted average | ||||||||||||||||||||||||
| Weighted average | remaining contractual | Weighted average | ||||||||||||||||||||||
| Exercise Price | Shares | exercise price | life (years) | Shares | exercise price | |||||||||||||||||||
| $ | 0.16 | 19,246 | $ | 0.16 | 4.83 | 19,128 | $ | 0.16 | ||||||||||||||||
| $ | 0.24 | 20,598,749 | $ | 0.24 | 7.87 | 9,079,107 | $ | 0.24 | ||||||||||||||||
| $ | 0.80 | 434,400 | $ | 0.80 | 8.09 | 217,450 | $ | 0.80 | ||||||||||||||||
| $ | 1.00 | 20,000 | $ | 1.00 | 8.01 | 20,000 | $ | 1.00 | ||||||||||||||||
| $ | 7.79 | 11,740 | $ | 7.79 | 7.74 | 5,869 | $ | 7.79 | ||||||||||||||||
| $ | 17.98 | 68,416 | $ | 17.98 | 5.37 | 46,498 | $ | 17.98 | ||||||||||||||||
| $ | 20.78 | 27,136 | $ | 20.78 | 5.01 | 27,130 | $ | 20.78 | ||||||||||||||||
| $ | 23.38 | 161,495 | $ | 23.38 | 6.80 | 118,696 | $ | 23.38 | ||||||||||||||||
| $ | 27.69 | 65,435 | $ | 27.69 | 5.20 | 65,435 | $ | 27.69 | ||||||||||||||||
| $ | 33.77 | 87,318 | $ | 33.77 | 6.12 | 71,622 | $ | 33.77 | ||||||||||||||||
| $ | 41.57 | 18,774 | $ | 41.57 | 5.99 | 18,764 | $ | 41.57 | ||||||||||||||||
| 21,512,709 | $ | 0.77 | 7.83 | 9,689,699 | $ | 1.20 | ||||||||||||||||||
31
| Year | Operating Leases | Capital Leases | ||||||
2004 |
$ | 2,340,595 | $ | 55,428 | ||||
2005 |
1,593,859 | 55,428 | ||||||
2006 |
1,622,356 | 21,503 | ||||||
2007 |
1,480,138 | 12,567 | ||||||
2008 |
1,480,138 | 4,189 | ||||||
Thereafter |
1,480,138 | — | ||||||
Total minimum lease payments |
$ | 9,997,224 | 149,115 | |||||
Less amount representing interest |
(26,034 | ) | ||||||
Present value of minimum lease payments |
123,081 | |||||||
Less current portion |
(41,380 | ) | ||||||
Long-term portion of minimum lease payments |
$ | 81,701 | ||||||
| Year ended December | ||||
| 31, 2003 | ||||
Statutory federal income tax rate |
34.0 | % | ||
State income taxes, net of federal tax benefit |
5.9 | % | ||
Nondeductible expenses |
-0.4 | % | ||
Sale of New Jersey NOL |
-2.7 | % | ||
Net operating loss |
-39.6 | % | ||
| -2.8 | % | |||
32
| December 31, 2003 | ||||
Deferred tax assets: |
||||
Net operating loss carry-forwards |
$ | 34,500,000 | ||
Deferred compensation |
2,100,000 | |||
Development costs |
300,000 | |||
Accruals and reserves not currently deductible |
900,000 | |||
Total deferred tax assets |
37,800,000 | |||
Deferred tax liabilities: |
||||
Property and equipment |
(1,600,000 | ) | ||
Total deferred tax liabilities |
(1,600,000 | ) | ||
Net deferred tax asset, prior to valuation allowance |
36,200,000 | |||
Less: valuation allowance |
(36,200,000 | ) | ||
Net deferred tax asset |
$ | — | ||
| Net operating loss carry-forwards | Net Operating Loss | Expiration Date | ||||
1997 |
$ | 5,400,000 | 2017 | |||
1998 |
3,300,000 | 2018 | ||||
1999 |
11,900,000 | 2019 | ||||
2000 |
28,400,000 | 2020 | ||||
2001 |
16,000,000 | 2021 | ||||
2002 |
9,400,000 | 2022 | ||||
2003 |
11,600,000 | 2023 | ||||
| $ | 86,000,000 | |||||
| Net operating loss carry-forwards | Net Operating Loss | Expiration Date | ||||
1999 |
11,000,000 | 2008 | ||||
2000 |
28,400,000 | 2009 | ||||
2001 |
49,000,000 | 2010 | ||||
2002 |
17,000,000 | 2011 | ||||
2003 |
11,600,000 | 2012 | ||||
| $ | 117,000,000 | |||||
33
34
| Online | Princeton | Pro Forma | ||||||||||||||
| Resources | eCom | Adjustments | Pro Forma | |||||||||||||
| Corporation | Corporation | (Note 2) | Combined | |||||||||||||
Assets |
||||||||||||||||
Current assets |
$ | 68,833 | $ | 85,270 | $ | (111,607 | )(a) | $ | 42,496 | |||||||
Property and equipment, net |
16,616 | 2,512 | — | 19,128 | ||||||||||||
Goodwill |
16,322 | — | 154,249 | (b) | 170,571 | |||||||||||
Intangible assets |
2,192 | — | 25,546 | (c) | 27,738 | |||||||||||
Deferred tax assets |
11,635 | — | 10,357 | (d) | 21,992 | |||||||||||
Other assets |
1,155 | 557 | 3,400 | (e) | 5,112 | |||||||||||
Total assets |
$ | 116,753 | $ | 88,339 | $ | 81,945 | $ | 287,037 | ||||||||
Liabilities and stockholders’ equity |
||||||||||||||||
Current liabilities |
$ | 6,376 | $ | 77,127 | $ | (72,872 | ) (f) | $ | 10,631 | |||||||
Notes payable |
— | — | 85,000 | (g) | 85,000 | |||||||||||
Deferred tax
liabilities |
— | — | 10,357 | (h) | 10,357 | |||||||||||
Long-term liabilities |
4,545 | 1,029 | (482 | ) (i) | 5,092 | |||||||||||
Total liabilities |
10,921 | 78,156 | 22,003 | 111,080 | ||||||||||||
Preferred stock |
— | 58,861 | 11,264 | (j) | 70,125 | |||||||||||
Warrants for preferred stock |
— | 3,535 | (3,535 | ) (k) | — | |||||||||||
Stockholders’ equity (deficit) |
105,832 | (52,213 | ) | 52,213 | (l) | 105,832 | ||||||||||
Total liabilities and stockholders’ equity |
$ | 116,753 | $ | 88,339 | $ | 81,945 | $ | 287,037 | ||||||||
35
| Online | Princeton | Pro Forma | ||||||||||||||
| Resources | eCom | Adjustments | Pro Forma | |||||||||||||
| Corporation | Corporation | (Note 3) | Combined | |||||||||||||
Revenues |
$ | 60,501 | $ | 32,086 | $ | — | $ | 92,587 | ||||||||
Costs of revenues |
24,517 | 14,713 | 1,556 | (a) | 40,786 | |||||||||||
Gross profit |
35,984 | 17,373 | (1,556 | ) | 51,801 | |||||||||||
Operating expenses |
||||||||||||||||
Selling, general and administrative |
23,300 | 16,447 | 6,866 | (b) | 46,613 | |||||||||||
Systems development |
4,788 | 5,131 | — | 9,919 | ||||||||||||
Total operating expenses |
28,088 | 21,578 | 6,866 | 56,532 | ||||||||||||
Income (loss) from operations |
7,896 | (4,205 | ) | (8,422 | ) | (4,731 | ) | |||||||||
Interest and other income (expense), net |
1,301 | 24 | (10,346 | )(c) | (9,021 | ) | ||||||||||
Income (loss) before taxes |
9,197 | (4,181 | ) | (18,768 | ) | (13,752 | ) | |||||||||
Income tax benefit |
(13,466 | ) | (897 | ) | — | (14,363 | ) | |||||||||
Net income (loss) |
22,663 | (3,284 | ) | (18,768 | ) | 611 | ||||||||||
Accretion of
preferred stock and amortization of warrant costs |
— | (877 | ) | 181 | (d) | (696 | ) | |||||||||
Preferred
stock dividends |
— | (4,410 | ) | (1,590 | )(e) | (6,000 | ) | |||||||||
Net income (loss)
available to common
shareholders |
$ | 22,663 | $ | (8,571 | ) | $ | (20,177 | ) | $ | (6,085 | ) | |||||
Net income (loss) available to
common shareholders per share |
||||||||||||||||
Basic |
$ | 0.97 | $ | (0.26 | ) | |||||||||||
Diluted |
$ | 0.88 | $ | (0.26 | ) | |||||||||||
Weighted average common shares |
||||||||||||||||
Basic |
23,434 | 23,434 | ||||||||||||||
Diluted |
25,880 | 23,434 | ||||||||||||||
36
| Online | Princeton | Pro Forma | ||||||||||||||
| Resources | eCom | Adjustments | Pro Forma | |||||||||||||
| Corporation | Corporation | (Note 4) | Combined | |||||||||||||
Revenues |
$ | 16,717 | $ | 9,784 | $ | — | $ | 26,501 | ||||||||
Costs of revenues |
7,661 | 3,638 | 441 | (a) | 11,740 | |||||||||||
Gross profit |
9,056 | 6,146 | (441 | ) | 14,761 | |||||||||||
Operating expenses |
||||||||||||||||
Selling, general and administrative |
7,133 | 4,626 | 980 | (b) | 12,739 | |||||||||||
Systems development |
1,143 | 972 | — | 2,115 | ||||||||||||
Total operating expenses |
8,276 | 5,598 | 980 | 14,854 | ||||||||||||
Income (loss) from operations |
780 | 548 | (1,421 | ) | (93 | ) | ||||||||||
Interest and other income (expense), net |
597 | (95 | ) | (3,017 | )(c) | (2,515 | ) | |||||||||
Income (loss) before taxes |
1,377 | 453 | (4,438 | ) | (2,608 | ) | ||||||||||
Income tax provision |
620 | — | — | 620 | ||||||||||||
Net income (loss) |
$ | 757 | $ | 453 | $ | (4,438 | ) | $ | (3,228 | ) | ||||||
Accretion of
preferred stock and amortization of warrant costs |
— | (219 | ) | 45 | (d) | (174 | ) | |||||||||
Preferred
stock dividends |
— | (1,161 | ) | (339 | )(e) | (1,500 | ) | |||||||||
Net income (loss) available to common
shareholders |
$ | 757 | $ | (927 | ) | $ | (4,732 | ) | $ | (4,902 | ) | |||||
Net income (loss) available to
common shareholders per share |
||||||||||||||||
Basic |
$ | 0.03 | $ | (0.19 | ) | |||||||||||
Diluted |
$ | 0.03 | $ | (0.19 | ) | |||||||||||
Weighted average common shares |
||||||||||||||||
Basic |
25,303 | 25,303 | ||||||||||||||
Diluted |
27,447 | 25,303 | ||||||||||||||
37
Cash |
$ | 183,948 | ||
Transaction costs |
6,621 | |||
| $ | 190,569 | |||
Purchase Price |
$ | 190,569 | ||
Less: |
||||
Current assets |
12,768 | |||
Fixed assets |
2,347 | |||
Other assets |
128 | |||
Identifiable intangible assets |
25,546 | |||
Current
liabilities |
(2,814 | ) | ||
Other liabilities |
(502 | ) | ||
Goodwill |
$ | 153,096 | ||
38
| (a) | To record the following as of March 31, 2006: |
|||||
Cash proceeds from notes payable |
$ | 85,000 | ||||
Cash proceeds from redeemable convertible preferred stock |
75,000 | |||||
Cash to Princeton stockholders |
(184,465 | ) | ||||
Transaction costs |
(6,338 | ) | ||||
Financing costs |
(9,125 | ) | ||||
Elimination of cash held for Princeton consumer deposits |
(72,529 | ) | ||||
Debt issuance costs related to $85 million notes payable, current portion |
850 | |||||
Total adjustments to current assets |
$ | (111,607 | ) | |||
| (b) | To record the following as of March 31, 2006: |
|||||
Goodwill |
$ | 154,249 | ||||
Total adjustments to goodwill |
$ | 154,249 | ||||
| (c) | To record the following as of March 31, 2006: |
|||||
Purchased technology |
$ | 9,370 | ||||
Purchased customer list |
16,163 | |||||
Patent |
8 | |||||
Trademarks |
5 | |||||
Total adjustments to intangible assets |
$ | 25,546 | ||||
| (d) | To record the following as of March 31, 2006: |
|||||
Reduction of
net deferred tax asset valuation allowance |
$ | 10,357 | ||||
Total adjustments to deferred tax assets
|
$ | 10,357 | ||||
| (e) | To record the following as of March 31, 2006: |
|||||
Debt issuance costs related to $85 million notes payable, less current portion |
$ | 3,400 | ||||
Total adjustments to other assets |
$ | 3,400 | ||||
| (f) | To record the following as of March 31, 2006: |
|||||
Elimination of Princeton consumer deposits payable |
$ | (72,529 | ) | |||
Elimination
of Princeton deferred implementation revenues, current portion |
(343 | ) | ||||
Total adjustments to current liabilities |
$ | (72,872 | ) | |||
| (g) | To record the following as of March 31, 2006: |
|||||
Notes payable |
$ | 85,000 | ||||
Total adjustments to notes payable |
$ | 85,000 | ||||
| (h) | To record the following as of March 31, 2006: |
|||||
Deferred tax
liabilities for indentifiable intangible assets |
$ | 10,357 | ||||
Total
adjustments to deferred tax liabilities
|
$ | 10,357 | ||||
| (i) | To record the following as of March 31, 2006: |
|||||
Elimination
of Princeton deferred implementation revenues, less current portion |
$ | (482 | ) | |||
Total adjustments to long-term liabilities |
$ | (482 | ) | |||
| (j) | To record the following as of March 31, 2006: |
|||||
Elimination of Princeton Series A-1 mandatorily redeemable convertible preferred stock |
$ | (21,242 | ) | |||
Elimination of Princeton Series B-1 mandatorily redeemable convertible preferred stock |
(5,166 | ) | ||||
Elimination of Princeton Series C-1 mandatorily redeemable convertible preferred stock |
(15,556 | ) | ||||
Elimination of Princeton Series D-1 mandatorily redeemable convertible preferred stock |
(16,897 | ) | ||||
Issuance of Online Resources Series A-1 redeemable convertible preferred stock, net of issuance costs |
70,125 | |||||
Total adjustments to preferred stock |
$ | 11,264 | ||||
| (k) | To record the following as of March 31, 2006: |
|||||
Elimination of Princeton warrants for mandatorily redeemable convertible preferred stock |
(3,535 | ) | ||||
Total adjustments to warrants for mandatorily redeemable convertible preferred stock |
$ | (3,535 | ) | |||
| (l) | To record the following as of March 31, 2006: |
|||||
Elimination of Princeton common stock |
(445 | ) | ||||
Elimination of Princeton additional paid-in capital |
(191,989 | ) | ||||
Elimination of Princeton accumulated deficit |
244,647 | |||||
Total adjustments to stockholders equity (deficit) |
$ | 52,213 | ||||
39
| (a) | To record the following for the year ended December 31, 2005: |
|||||
Incremental amortization of our purchased technology |
$ | 1,556 | ||||
The amortization of purchased technology has been calculated based on a new fair value basis of $9.4 million, amortized over 6
years. The purchased technology will be amortized over its useful life in accordance with SFAS No. 142, Goodwill and Other
Intangible Assets, based on an accelerated amortization schedule
that approximates the pattern in which economic benefits of the intangible asset are consumed or otherwise used up. |
||||||
Total adjustments to costs of revenues |
$ | 1,556 | ||||
| (b) | To record the following for the year ended December 31, 2005: |
|||||
Incremental amortization of our purchased customer lists |
$ | 6,866 | ||||
The amortization of the purchased customer lists has been calculated based on a new fair value basis of $16.2 million, amortized
over 11 years. The purchased customer lists will be amortized over their useful life in accordance with SFAS No. 142, Goodwill and
Other Intangible Assets, based on the pattern in which economic benefits of the intangible asset are consumed or otherwise used up. |
||||||
Total adjustments to selling, general and administrative |
$ | 6,866 | ||||
| (c) | To record the following for the year ended December 31, 2005: |
|||||
Incremental amortization of debt issuance costs |
$ | (850 | ) | |||
Interest income lost due to use of $35 million in cash for purchase price, transaction costs and financing costs |
(900 | ) | ||||
Incremental
interest expense on $85 million in notes |
(8,596 | ) | ||||
Total adjustments to other income (expense) |
$ | (10,346 | ) | |||
| (d) | To record the following for the year ended December 31, 2005: |
|||||
Incremental increase to preferred stock redemption value |
$ | (696 | ) | |||
Elimination
of Princeton accretion of preferred stock and amortization of warrant
costs |
877 | |||||
Total adjustments to preferred stock accretion |
$ | 181 | ||||
| (e) | To record the following for the year ended December 31, 2005: |
|||||
Incremental
preferred stock dividend |
$ | (6,000 | ) | |||
Elimination
of Princeton preferred stock dividend |
4,410 | |||||
| $ | (1,590 | ) | ||||
40
| (a) | To record the following for the three months ended March 31, 2006: |
|||||
Incremental amortization of our purchased technology |
$ | 441 | ||||
The amortization of purchased technology has been calculated based on a new fair value basis of $9.4 million,
amortized over 6 years. The purchased technology will be amortized over its useful life in accordance with SFAS
No. 142, Goodwill and Other Intangible Assets, based on
an accelerated amortization schedule that approximates the pattern in which economic benefits of the intangible
asset are consumed or otherwise used up. |
||||||
Total adjustments to costs of revenues |
$ | 441 | ||||
| (b) | To record the following for the three months ended March 31, 2006: |
|||||
Incremental amortization of our purchased customer lists |
$ | 980 | ||||
The amortization of the purchased customer lists has been calculated based on a new fair value basis of $16.2
million, amortized over 11 years. The purchased customer lists will be amortized over their useful life in
accordance with SFAS No. 142, Goodwill and Other Intangible Assets, based on the pattern in which economic
benefits of the intangible asset are consumed or otherwise used up. |
||||||
Total adjustments to selling, general and administrative |
$ | 980 | ||||
| (c) | To record the following for the three months ended March 31, 2006: |
|||||
Incremental amortization of debt issuance costs |
$ | (212 | ) | |||
Interest income lost due to use of $35 million in cash for purchase price and transaction costs |
(386 | ) | ||||
Incremental
interest expense on $85 million in notes |
(2,419 | ) | ||||
Total adjustments to other income (expense) |
$ | (3,017 | ) | |||
| (d) | To record the following for the three months ended March 31, 2006: |
|||||
Incremental increase to preferred stock redemption value |
$ | (174 | ) | |||
Elimination
of Princeton accretion of preferred stock and amortization of warrant costs |
219 | |||||
Total adjustments to preferred stock accretion |
$ | 45 | ||||
| (e) | To record the following for the three months ended March 31, 2006: |
|||||
Incremental preferred stock dividend |
$ | (1,500 | ) | |||
Elimination of Princeton preferred stock dividend |
1,161 | |||||
| $ | (339 | ) | ||||
41
| Online Resources Corporation | ||||||
September 14, 2006
|
By: | Catherine A. Graham | ||||
| Name: Catherine A. Graham | ||||||
| Title: Executive Vice President, Chief Financial Officer and Secretary | ||||||
42