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2007 Annual Shareholder Meeting Questions Submitted by Email
With Management’s Answers
Rather than answer questions that are
similar in context and inquiry, we have chosen to collect them together
and try to answer them at one time.
1) What
are management's long and short term goals of increasing shareholder value
now that we are debt-free and have our PCI security certification?
2) How
can the PR firm of Nagle & Ferri and our other partners help us get
recognized and achieve a more equitable share price in the next year?
3) Why
is it that your quarter by quarter advance in earnings is not matched by
an equivalent move in the share price? I just assume that if you keep; on
delivering the goods, one day this will show up in the price of the share.
4) Given
the growth in revenues, why has the stock fallen back to 0.10 a share?
What is needed to move the stock to a higher price?
5) Can
you explain why profitability has thus far eluded us and what is being
done differently to fix the problem?
6) Revenues
increased 82% to $633,196 for the quarter ended March 31, 2007 from
$348,010 for the first quarter of 2006 and Cost of services was $524,115
and $298,382 for the quarters ended March 31, 2007 and 2006,
respectively. Is this the ratio of revenues to cost of services we should
continue to expect? As this rate how will you ever survive let alone be
profitable, although there was no mention of that?
7) Second
question, in your statement we believe that net loss will decrease, does
this mean as per yesterdays news release of a record processing 2nd
quarter that net will STILL decrease?
a)
Answer:
The following from the ASM presentation slide on Strategic Objectives
should help with the understanding of some methods of how we plan to
improve shareholder value.
·
Growing Transactions Volumes and
Associated Revenues
o
To exceed $15MM per month in credit cards
processed (resulting in Run Rate Revenues of $4.5MM per year.
o
Sell over 50,000 new Prepaid Card –
Celebrity and Corporate Card offerings.
o
Connect the billx Bill Payment platform to
at least four new card issuers.
·
Financial Strength
o
Continue to keep Administrative Expenses
fixed at or below current levels.
o
Increase sales and transactions to hit
lower variable costs for the issuing and acquiring business segments (80%
discount for next tier on issuing, and 20% discount available for
acquiring).
o
Move more bill payments from checks to
electronic transactions ($.60 per check vs. <$.10 per electronic payment).
o
Achieve positive cash flow.
·
Product Delivery
o
Natalie Gulbis Gift MasterCard
o
Billx Prepaid MasterCard and Billx Teen
MasterCard (Goal – 2,000 cards issued in 2007 – 2008).
o
Carmen Electra Prepaid MasterCard Bill
Payment System (Focused on Unbanked).
·
Enhance Investor Relations and Public
Awareness
o
Hire a quality full time Investor Relations
firm.
o
Utilize Carmen Electra to draw more awareness
to PYDS through the “Win a Date With Carmen” eBay auction and other
events.
·
Growing Through Acquisition
o
Aggressively target complementary business
and/or portfolios that will be accretive to PDS.
We believe strongly that once many of these
strategic initiatives are completed, we can and will achieve a stronger
share price. However, as we all know, share price is a consideration of
many variables. Buyers and sellers, growth and stability of company, size
of company, financial strength of company both in revenue and reserves,
cash flow, profitability, and many more. Buyers and sellers get there
through awareness.
Awareness comes through good IR programs
along with strong and real press releases, not hyperbole and fluff. Good
IR programs raise long term retail and institutional interests. Awareness
also is generated by marketing, media coverage, roadshows, customers,
shareholders and any other person that shares the PYDS story.
We can’t control the market or the
perception in the market. However we can and should, with the resources
we have, utilize the right programs to communicate the health and progress
of the company in order gain the market’s interest. It has been difficult
to date to achieve this with any degree of sustainability, but we remain
committed.
However, all the while, we have continued
to grow the company with increasing customers, transactions and revenues
while administrative costs have been maintained at their historical
levels; therefore, our burn rate (cash used in operations) continues to
drop. Thus, our movement toward positive cash flow continues.
Additionally, our margin profile will
change as we grow and add new products. Today, the bulk of our revenue is
driven by our credit card processing services. As that card processing
volume continues to grow we will be placed into a different pricing tier
by our vendors that will allow us to gain a 20% discount on those
processing fees we pay today. Likewise, as the transaction volume related
to the debit cards we issue grows, the same movement in pricing tiers will
occur, but the discount there is 80%. And by virtue of the business
model, issuing debit cards is clearly much higher margin than is providing
merchants with credit card processing services. See Slide 19 in the ASM
presentation to get an idea of the margins associated with debit cards.
These higher margin products, when delivering higher sales numbers, should
result in a decrease in our cost of services as a percentage of revenues.
Clearly this will have a positive impact on our goals of positive cash
flow and profitability.
Our expectation that net loss will decrease in the second
quarter of 2007 means that we expect our net loss to be less than the net
loss for the first quarter of 2007.
8) A
quote from a recent news release "Our large new insurance industry
client," I realize confidentiality and disclosure is the client’s choice.
It seems however that sooner or later it all becomes a matter of public
record? Can quicker disclosure of their identity be negotiated during the
contract acquisition phase?
a) Answer:
We have in our contracts the right to create a press release. However, it
must be remembered that we always want to
respect the relationship with
our customer and if they prefer not to be named publicly for reasons that
are important to them, then we try to honor that. Over the past 8
years, only a few companies have requested their names to be withheld.
This company will have to be disclosed in our annual report on Form 10-KSB
for 2007 if they generate more than 5% of our revenues in 2007. At that level, it is considered to
be material and requires disclosure.
We
expect revenues from this client to exceed 5% of our annual revenues and
believe their transaction volume will cause us to reach new record
processing levels as early as May.
9)
When should shareholders expect that they
will see the first .01 of patent royalty income from the debit/credit card
patents PYDS holds?
a) Answer:
What has happened with the Patent without any expense of enforcement
on our part and to our benefit, is that the patent has served as a
placeholder for prospects to work with us in deference to competitors
simply because they want to avoid an appearance of an infringement. The
patent has also served as a competitive differentiator and lead generator
for those looking to bill payment solutions for their card programs.
We expect to sign actual patent license agreements in conjunction with bill
payment processing agreements on a several deals that should close in the next
few months.
10)
Why do you consider an increase in executive
salaries to be a fair expenditure of revenue taking into account the lack
of performance in this company achieving profitability?
Answer:
The salaries that you are referring to, I
assume, are those identified in the employment contracts. The burden for
the company to be able to afford any increases in salaries is on the
management team. If the management team is unable to generate the cash
flow to pay the salaries then they won’t be paid the increased level.
There are no increases in salaries scheduled until 2008. Only one employee
in the company has had a raise since 2000, and for most of 2005 and a
portion of 2006 senior management did not take any salary due to the fact
the company needed to preserve its cash. Senior management even took over
$100,000 due in cash salary in common stock to help the company preserve
cash.
11)
When did
Ken Keller, VP of IT, come on board? He's not mentioned on the website as
of last week.
a) Answer:
Ken has been with us since the beginning and was in fact a senior member
of the Billserv team. Ken also serves as our General Manager of Billx.com.
12)
In a report in April you mentioned a loss of
a large account, which would be offset by the acquisition of the big
insurance account starting in May. What was involved in the loss? Was
this a Kubra(?) account.?
a) Answer:
I think you may be referring
to Online Supplier that we announced via an 8-K
filing on November 7, 2006. The following is excerpted from that filing:
On November 1, 2006, the credit card association bank sponsor we
utilize to provide merchant processing services to Online Supplier, one
of our merchant processing customers, notified us that they would cease
processing credit card transactions for Online Supplier. This was
not a Kubra account.
13)
Netspend is a privately held company based in
Austin which also has a celebrity debit card which includes Vince Young.
I saw they had some security issues with their card based on a google
search. Have you heard of this company and are there any plans to work
with them jointly particularly with security issues?
a) Answer:
Yes, we know NetSpend and have had significant discussions with them in
the past. As of now, we have no plans to partner with them in any
business opportunities.
14)
Any chance of getting on the AMEX? If so, any
time frame?
a) Answer:
Our goal is to get our stock back to trading on a national exchange
as we did when were Billserv and traded on NASDAQ National Market . As
you know, we do not yet qualify for one of the national boards such as
AMEX or Nasdaq. However, in anticipation to that move sometime in the
future, we have and will continue to maintain our fully reporting status.
By doing so, that will aid our return once all the other requirements are
met. It also provides the most transparency of the company to our
shareholders and those that might wish to become shareholders. Our
management team is very familiar with what it takes to move a company from
the OTCBB to Nasdaq since we have done it before with Billserv.
15)
Payroll Cards are replacing paper checks,
tracking, tracing, and cost prohibitive re-issuance methods. 21st.
Century Payment Data Systems must become involved with Payroll Card
distribution, loading and re-loading. Question: What plans (if any) is
management considering that will allow us to participate in an EPP&H
Payroll Card and reloading arena?
Answer:
All our cards are fully capable of participating in the EPP&H Payroll Card
and reloading arena today. Our private label bill payment portals are a
perfect fit for any payroll card issuer as well.
16)
How long do you think it’ll take to acquire
PDS 3rd party processor certification?
Answer:
We have acquired this status and are listed on the PCI list of certified
third party service providers. See “List
of Compliant Service Providers “ at
www.visa.com/cisp under the “Quick Links”
section.
17)
Will Natalie Gulbis Prepaid Cards give card
holders discounts on golf or other merchandise? Do you think plastic
celebrity gift & PPD cards can become collectables?
Answer:
We do believe that these types of cards can become collectables. The
value of those cards as collectables will be determined by their own
marketplace. We will be printing the cards without raised embossed
lettering which will allow for us to have a much higher quality image on
the card.
We are in discussions
with golf equipment manufacturers to use the Natalie Gulbis Gift
MasterCard for rebates and promotions for their products.
We do have the ability to private label or place a corporate brand on the
Natalie Gulbis Gift MasterCard. Please remember that Natalie already
has a relationship with many of the manufacturers in the golf industry.
Since Natalie’s cards
will be sold at Popshops and other golf retail locations, it is very
possible that those retailers will use the card as a discount/loyalty
program.
18)
Pacific Gas & Electric launched a “Pilot”
program, one that enables utility customers to pay lights, water & gas
bills with plastic. Can Patent #7,021,530 generate “recurring” revenue to
PDS, each time utility companies let customers pay for lights, water and
gas bills with plastic?
Answer: Most likely
that would have to come through from the bill payment provider having paid
us for a license or is paying us a royalty.
19)
Pay-Per-Ping
™ was announced by Nighthawk Systems. Can a PDS card and i-Solution meld
seamlessly with Pay-Per-Ping endeavors?
Answer:
I am not familiar with Pay-Per-Ping but I
assume from the name it is a method that a Nighthawk user could pay
Nighthawk on a usage basis rather than a purchase basis. If that is true,
then Nighthawk would need to be able to accept payments via a card of some
sort or check. As long as those transactions were flowing through us, the
answer would be yes.
20)
MasterCard and Visa are both involved with
chip-embedded RF “Pay-Pass” methods. Can Payment Data Systems’
processing, handling and clearing-house loop keep pace with fast
e.transactions, that chip-embedded “Smart-Cards” and “Smart-Phones” will
generate?
Answer:
Yes we currently have the ability to both issue cards with chip embedded
technology and to process payments at the point of sale with Smart
Card/Smart Phones. We could have chose to embed “PayPass” chips in our
Carmen Electra Prepaid or Natalie Gulbis Gift MasterCard’s. We elected
not to incur the extra costs in card manufacturing at this time. We can
always print new cards with the chip at a later date.
21)
The gaming industry uses convenient card
methods to verify ID through turn-stiles, while also tracking and tracing
money taken-in and paid-out. Should Payment Data Systems consider a
prepaid card endeavor for the lucrative gaming industry? There’s a
$500.00 daily limit on how much a Casino patron can spend in the State.
Coupons are constantly being mailed to residence on a weekly and monthly
basis. This encourages people to patronize certain gaming
establishments. Could Payment Data Systems come up with a card solution
cheaper and better than coupons, now that postage has risen again?
Answer:
For internet gambling, PDS and other processors in the U.S. are
excluded from participating with gaming institutions. The legislation
passed late last year having to do with the shutdown of offshore gaming by
U.S. citizens clearly put a set of legal limits on what we can provide to
that industry segment. Visa and MasterCard specifically exclude those
types of transactions along with others they would find to be
inappropriate.
For legal
gambling, such as in Vegas and similar territories, we have had and are
having discussions with Casinos to provide a stored value card for
services.
22)
Commerce Planet mentions BillX at
www.ibillpayonline.com When will a BillX i-Solution upgrade and get
some life?
Answer:
The ibillpay site (and others like it) are live and we expect to implement
more private label sites this year.
23)
I carry all my insurance cards with me every
place I go. Will the name of the Insurance Company signing on with PDS be
announced soon?
Answer:
See Answer to Question 8.
24)
I got your e-mail about asking
questions...here is the main question - nice revenue growth but still
unprofitable. You double your revenue but show the same loss as last year
- where is your breakeven in terms of revenue - I would think you are
there or should be.
Answer:
Gross profits have grown each year. SG&A expenses have remained constant
and not grown since 2005. Thus cash flow breakeven is getting much
closer. In 2005 we sold bills.com domain name for $9500,000 and
that contributed positively to 2005 earnings. In 2006 we didn't have any
asset sales thus net loss looks higher but it really wasn't when you remove the
gain on the sale of bills.com domain name in 2005.
25)
What will be your plan to control the
day-to-day operating expenses, so that the company can become profitable?
a) Answer:
SG&A Expenses were flat from 2005 to 2006. Costs of services have
increased in proportion to revenues. Management has been doing its job
keeping expenses under control while increasing sales year over year. In
Q4 of 2006 we were just $65,000 short of cash flow breakeven with all cash
being generated from normal business activities. We will continue to
manage our SG&A expenses closely and work to increase sales each quarter
to achieve a cash flow positive scenario.
26)
What bothers me most about
this situation is seeing it called "progress" by management when revenues
have doubled from same quarter last year and yet losses appear to be worse
than same quarter last year.
Answer:
See answer to question # 24
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