CyberCash Inc., the electronic payments company that seven years ago was flush with money and pioneering expectations, on Friday became another casualty of the dot-com crash, with the firm declaring bankrupcty.
CyberCash, which offers gateway services for Internet transactions, was supposed to be acquired by Network 1, which provides settlement services for those transactions.
That deal, a stock swap announced in December, fell apart Friday when CyberCash said it could not scrounge the money it needed to pay closing costs, fees to investment bankers, and severance fees for layoffs. It also owes $6 million to $7 million to creditors. Nasdaq halted trading of CyberCash stock on Friday.
The bankruptcy filing capped a rapid series of setbacks for CyberCash, which has been plagued by unfavorable capital markets, dwindling cash reserves, and the resignation last month of its prominent and deep-pocketed founder, William N. Melton, who disputed a move by two major investors to dilute warrants in the company. Even before running out of money, Cybercash, of Reston, Va., had had to change its business model quickly, reinventing itself from a consumer Internet payments firm to one that primarily targeted merchants.
CyberCash said it had approached more than 40 potential investors about putting in the money to thwart bankruptcy, but none had bitten.
Given the markets, we were unable to raise sufficient capital to get the closing to close, said John Karnes, executive vice president and chief financial officer of CyberCash. Right now, there is no appetite for investment in Internet companies. CyberCash filed for Chapter 11 bankruptcy in Delaware, and arranged a new plan for Network 1 to acquire its assets from the court.
Network 1, a private company in McLean, Va., had hoped to have CyberCash under its wing by April, but now its $9 million bid is subject to the courts approval, and may be trumped by higher bids from other firms. Even so, Network 1 officials say they are optimistic they will win their bid for CyberCashs assets and be able to turn a profit out of the beleaguered company.
We have a whole different type revenue model that allows us to share a larger portion of revenues, said Christian Fadel, Network 1s chief financial officer. On a $100 transaction, CyberCash would earn only 9 or 10 cents, whereas Network 1 would earn a percentage of about 2%, or $2. The delta between those two is pretty significant, Mr. Fadel said.
Even in bankruptcy, CyberCash said it will continue to support its customer base of more than 27,500 Internet merchants and more than 100,000 software users, and will also maintain all normal business functions, including marketing and sales activities.
There is absolutely no chance of a service interruption, and no degradation of support whatsoever, Mr. Karnes said.
CyberCash may have been too visionary for its own good. It was founded to develop Internet payment products for consumers, such as digital wallets that held credit card numbers, digital coins, and electronic checks. But while CyberCash was focused on the consumer market, its competitors were developing products for the faster growing business-to-business market.
Despite consistently increasing revenues, and meeting or exceeding Wall Streets earnings estimates for five consecutive quarters, CyberCash never turned a profit, and its stock slid into the gutter. On Friday, when Nasdaq halted trading of CyberCash and said it was seeking additional information from the company, the last sale price was 78 cents. In January, 2000, it had been trading at $8 a share.