Here you go: (bold is my emphasis)
Under Risk Factors:
Reliance on Customers. The Company relies upon three customers for 73% of gross revenues. The Company's largest customer represents over 30% of the Company's revenue for the fiscal year ended December 31, 1997 and 70% of the Company's gross revenue during the three months ended December 31, 1997 and is expected to represent a larger percentage of revenue in the future. If one or more of these three customers were to cease doing business with the Company, it could have a material adverse effect on the Company's business. The Company's largest customer has committed to a five-year contract which began on October 1, 1997. This customer and the anticipated short term future growth in the business are derived from the Master Agreement with BestBank which was arranged for by Messrs. Baetz and Gallant or their affiliates. Management believes that the contract will be honored for the full term and ultimately renewed. However, no assurance can be given to this effect.
Certain Conflicts of Interest. Due to the nature of certain transactions between Messrs. Gallant, Baetz and their affiliates, such as Century, Berwyn and FiScrip, and the Company, the terms under which these agreements were negotiated may not be deemed to have been negotiated on an arm's length basis. The nature of these relationships may be deemed to be a conflict of interest between Messrs. Gallant, Baetz and their affiliates on the one hand and the Company on the other hand. See "Item 12 - Certain Relationships and Related Transactions."
Dependence on Subcontractors for Marketing. The Company's success in marketing its services and in the recent growth of its business and revenues has been dependent upon various companies in the financial services business, some of which are affiliated with Messrs. Baetz and Gallant.
Control by Principal Stockholders. The Company's principal stockholders, directors and executive officers of the Company and their affiliates control the voting power of approximately 85% of the outstanding Common Stock. As a result of such Common Stock ownership, such persons will be in a position to exercise significant control with respect to the affairs of the Company and the election of directors.
No Independent Directors. The Board of Directors consists of five directors, none of whom is independent. Although all directors are required to act in the best interests of the Company and its stockholders, directors not employed by the Company may be able to more independently assess certain key areas, such as compensation of management as it relates to operations and progress of the Company, and reviewing accounting issues, including the scope and adequacy of internal control procedures, and recommending independent auditors to serve the Company. The Company has no compensation committee.
Future Issuances of Preferred Stock. The Company's Certificate of Incorporation authorizes the issuance of preferred stock with such designation, rights, preferences and privileges as may be determined from time to time by the Board of Directors, without stockholder approval. In the event of issuance of preferred stock, such issuance could be utilized, under certain circumstances,
as a method of discouraging, delaying or preventing a change in control of the Company.
Shares Eligible for Future Sale; Issuance of Additional Shares. Future sales of shares of Common Stock by the Company and its stockholders could adversely affect the prevailing market price of the Common Stock. There are currently 1,247,000 shares of Common Stock which are free trading shares or are eligible to have the restrictive legend removed pursuant to Rule 144(k) promulgated under the Securities Act. Sales of substantial amounts of Common Stock in the public market, or the perception that such sales may occur, could have a material adverse effect on the market price of the Common Stock. Pursuant to its Certificates of Incorporation, the Company has the authority to issue additional shares of Common Stock. The issuance of such shares could result in the dilution of the voting power of the currently issued and outstanding Common Stock.
Item 12. Certain Relationships and Related Transactions.
Messrs. Baetz and Gallant, officers, directors and the largest shareholders of the Company, have existing business relationships and affiliations involving entities with which the Company is doing business. These business entities include Century, Berwyn and FiScrip. All transactions between the Company and any of these affiliated entities may be deemed to not be at arms' length. However, management of the Company believes that in all such cases the terms of the agreements between the Company and any of these affiliated entities are on terms at least equal to, if not better than, the terms available from unaffiliated third parties.
The recent growth in volume of credit card processing transactions serviced by the Company is due to new customers of the Company arranged for by Messrs. Baetz and Gallant and their affiliates. Much of the anticipated short term future growth in the business of the Company is expected to be derived from agreements with BestBank and FiScrip, which were similarly arranged for by Messrs. Baetz and Gallant or their affiliates. Messrs. Baetz and Gallant operate businesses in other aspects of the credit card industry. No assurance can be given that such companies will continue to do business with the Company in the future or that the basis upon which they do business with the Company will be profitable to the Company. A loss of involvement in the Company by Messrs. Baetz and Gallant could have a material adverse effect upon the Company.
On September 11, 1997, the Company entered into a line of credit agreement (the "Line of Credit") for aggregate maximums of $2,000,000 with Century. Century is not required to make advances under the Line of Credit. The Line of Credit is secured by all of the assets of the Company. The annual percentage rate charged by Century to the Company is 10% per annum.
The Company maintains offices at 2701 West Oakland Boulevard, Fort Lauderdale, Florida 33311, where the Company utilizes 2,886 square feet of office space at an annual cost of $45,881, including sales and use taxes. This office space is leased from Century which may be deemed to be an affiliate of Messrs. Baetz and Gallant, for a period of 12 months or November 30, 1998. Management of the Company believes that the terms of this lease are on terms at least as good as may be obtained from an unaffiliated third party. |
