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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amended
FORM 10-SB/A
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
ACT OF 1934
INTERNATIONAL FOAM SOLUTIONS, INC.
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(Name of Small Business Issuer in its charter)
Florida 65-0412538
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1885 Southwest 4th Avenue, Building B-3, Delray Beach FL 33444
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Issuer's Telephone Number (561) 272-6900
Securities to be registered pursuant to Section 12(b) of the Act.
None
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Title of each class Name of each exchange on which registered
Securities to be registered pursuant to Section 12(g) of the Act.
None
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Title of each class Name of each exchange on which registered
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PART 1
ITEM 1. DESCRIPTION OF BUSINESS
(a) Business Development
International Foam Solutions, Inc., ("IFS, Inc.") was incorporated
under the laws of the State of Florida in May 1993. IFS, Inc. produces and
markets a self-contained system, termed the "Stryo Solve System," which utilizes
IFS, Inc.'s "Solution Machine" and a "Styro Solve" solution, for disposing of
and recycling polystyrene foam products. Polystyrene is a lightweight plastic,
composed of hydrogen and carbon atoms. It is derived from petroleum and natural
gas by-products, the most common of which, styrofoam, is utilized in the
packaging industry. IFS, Inc.'s Styro Solve System can also recycle other
polystyrene products, such as the material from which many computer monitors and
keyboards are made. To IFS, Inc.'s knowledge, IFS, Inc. offers the only safe,
efficient, economical and practical means of recycling such waste materials.
Since its inception, IFS, Inc. has been primarily engaged in the
research and development of its Styro Solve System, including the development
of machinery required to process the Styro Solve solution and recycle
polystyrene. IFS, Inc., together with two outside manufacturers, have
developed four models of its Solution Machines, for use by various businesses,
depending on their respective polystyrene usage and recycling requirements. The
smallest of the Solution Machines is approximately the size of an outdoor U.S.
Government issued mail deposit box, suitable for smaller cafeterias serving up
to eight hundred meals per day, as well as other businesses which consume up to
thirty pounds of styrofoam per day; the largest of such machines can recycle
approximately one hundred pounds per hour.
Due to limited capital resources, IFS, Inc.'s sales activities to date
have been minimal for its Styro Solve System. Prior to commencing its sales
activities, IFS, Inc. engaged in extensive beta site testing with a variety of
businesses in several locations, including a school district and several major
Fortune 500 companies, some of which continue to be current Company customers.
As a result of the beta site testing in prior years, IFS, Inc. believes it has
now developed an effective product and system for the recycling of polystyrene.
(b) Business of the Issuer
(1) Principal Products and Services and their Markets
IFS, Inc.'s principal products and services consist of two distinct
categories of products. One category is based on its Styro Solve System, for
consolidating, reducing and discarding polystyrene foam materials, which is
leased or sold to customers who have a need to discard used or excess
polystyrene products; the second category is the supply by IFS, Inc. of
recycled polystyrene beads and chips that are sold to plastic manufacturers as
raw material. IFS, Inc. has not generated any revenues from the sale of
recycled polystyrene beads and chips as IFS, Inc. does not presently have a
recycling plant in the U.S.
The Styro Solve System is made up of four fundamental components: the
Solution Machine (four models); the Styro Solve solution which is added to the
Solution Machine and sprayed on the polystyrene as it is shredded within the
Solution Machine, causing the compression (by removing the air) of the
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polystyrene into a gel-like substance called "Polygel," the pick up and removal
of the Polygel; and finally, support services by IFS, Inc., including
extended warranties on equipment and a full educational program (videos,
posters, teacher and student guides, student questionnaires, training of food
service and custodial personnel) on the Styro Solve System.
Styro Solve is IFS, Inc.'s brand name for the solvent used in the
Solution Machine to reduce the volume of polystyrene foam by approximately 90%
and convert the material into the Polygel. Styro Solve is based on a compound
derived from citrus oils, which may be readily obtained from the rinds and
other natural products of the citrus industry. An additional proprietary patent
pending on the process is also used in the manufacture of the Styro Solve
solution.
The Styro Solve System provides for polystyrene materials to be placed
in a free-standing metal bin (the Solution Machine) that houses a shredder to
physically break down the foam materials, and a sprayer to douse the shredded
material with a non-toxic, environmentally safe solution (Styro Solve). The
Solution Machine is sold or leased to a customer and is physically located on
such customer's premises. The Solution Machine shreds the polystyrene and
automatically sprays Styro Solve solution on the shredded foam pieces.
Shredding the polystyrene speeds the reduction process because the small pieces
dissolve more quickly in the Styro Solve solution than large pieces. The Styro
Solve softens and dissolves the polystyrene. Air trapped in the foam is
released leaving the Polygel, which is deposited into a removable bag or
container at the base of the Solution Machine. The bags of Polygel are
collected periodically from the machine by the customer and placed in large
drums or gaylords (large square storage containers that rest on a single
pallet) supplied by IFS, Inc. for a fee, for later shipping at IFS, Inc.'s
expense. There is a minimum of eight hundred pounds of Polygel required prior
to IFS, Inc. collecting the Polygel from its customers. The Polygel undergoes
a filtering and extrusion process, during which impurities and the Styro Solve
solution used earlier are removed, leaving condensed polystyrene material in
the form of hard plastic beads or chips. Such polystyrene beads or chips may
then be sold to plastic manufacturers for use in other polystyrene products.
The Styro Solve solution removed during this step may be repackaged, reused (up
to approximately eighteen times) and resold to customers. IFS, Inc. is
currently storing the Polygel until such time as a recycling facility may be
built. While IFS, Inc. has not constructed a recycling facility in the U.S.,
a Japanese based licensee of IFS, Inc.'s patent is currently operating a
recycling facility on a limited basis in Japan. Because of insufficient
quantities of polygel being produced, the Japanese company has recycled on a
limited basis. IFS, Inc. believes, based upon its current internal analysis,
that the construction of a recycling facility in the U.S. will not be viable
until Polygel production reaches approximately four million pounds per year.
IFS, Inc. currently stores approximately 100,000 pounds of Polygel. The cost
estimated to construct a recycling facility is $1.5 million, based upon its
current internal analysis; IFS, Inc. has no immediate plans or funds set
aside for the construction of a recycling facility at this time.
IFS, Inc. does not presently manufacture or market its own recycled
products, but intends to do so, depending upon the availability of funding, of
which no assurances are given, in the event that a recycling facility may be
constructed. It is anticipated that such recycled products could include rebar
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chairs (for concrete), signage, paperclip holders, mechanical pencils,
electronics casings, etc., and that, depending upon funding availability, IFS,
Inc. could either purchase or lease appropriate manufacturing equipment. IFS,
Inc. has estimated that the cost to recycle the Polygel, which would include
overhead, machinery, shipping, labor and similar expenses, would be
approximately $.20 per pound of recycled product. This amount would increase to
approximately $.33 per pound if the cost of marketing activities for the end
product, which could entail utilizing Company employees and/or outside
distributors/independent contractors, were considered. It is estimated by IFS,
Inc. that the end product could resell for approximately $4.00 per pound.
Generally, IFS, Inc. plans to either sell or lease one of its four
models of its Solution Machines to prospective customers, depending upon their
particular polystyrene usage and recycling requirements. The retail price for
such machines are as follows: SM1100 (front load food service) -- $4,995.00;
SM2200 (top load food service) -- $5,995.00; SM 3300 (industrial grinder) --
$15,500.00; SM 3500 (industrial grinder/debulker combination) -- $29,995.00.
The Stryo Solve Solution is sold by IFS, Inc. to its customers/end users on
an as needed basis, depending upon their particular polystyrene usage and
recycling requirements, in either five gallon containers at a suggested retail
price of $100, or in fifty-five gallon drums at a suggested retail price of
$990.00. Certain discounts are afforded to Company distributors. To date,
virtually all of IFS, Inc.'s current customers, which number 55, have
purchased Solution Machines from IFS, Inc. All of the models of Solution
Machines are currently being utilized. One of IFS, Inc.'s customers entered
into a lease-to-own arrangement to acquire a Solution Machine. IFS, Inc. has
investigated several companies which have expressed interest in providing
lease-to-own financing to prospective customers, which companies IFS, Inc.
plans to introduce to prospective customers should they desire to lease a
Solution Machine rather than purchase the machine outright.
IFS, Inc. currently utilizes the services of two unaffiliated
subcontractors to manufacture all four models of the Solution Machines so as
not to be wholly reliant on a single source manufacturer. IFS, Inc. assembles
the Solution Machines at its facility in Delray Beach, Florida. IFS, Inc. has
found both subcontractors to be comparable in cost, reliable and comparable in
purchase/financing terms with 50% of purchase price payable with the order and
the balance due in 30 days.
Generally, IFS, Inc. maintains several of its four Solution Machine
models in inventory. Depending upon the availability of additional funding, of
which no assurances are given, IFS, Inc. plans to increase its inventory.
IFS, Inc. believes its principal market consists primarily of
various institutions and businesses which utilize and have a need to dispose of
polystyrene products, including participants in the food service industry such
as school, hospital and business cafeterias, and to a lesser extent, consumers
and the general public.
IFS, Inc. sells its products by its own sales force and through
distributors. Currently, IFS, Inc. has two in-house salesmen, two domestic
distributors and four independent representatives.
Current customers of IFS, Inc.'s distributors include a school
district located in Albany, NY, Time Warner, HBO, Estee Lauder, Hewlett-Packard
and University of Pennsylvania Hospital. Some of IFS's direct sales customers
include ARCO Alaska, Pitney Bowes, Warwick School District (Warwick, NY),
BrandsMart U.S.A., Brooks Medical Center (US Army), San Diego Anti-Nuclear
Submarine College (US Navy) and DAAP MEDCO (US Navy).
The chart below shows the approximate percentage of annual revenues
generated by distributors and IFS's sales force for the last three years:
1997 1998 1999
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IFS 60.1% IFS 86.1% IFS 77.5%
Dist. 39.9% Dist. 13.9% Dist. 22.5%
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IFS, Inc. also plans to target regions and companies in foreign
countries, pursuant to which it intends to enter into licensing agreements or
other arrangement with foreign companies for the manufacture and sale of IFS,
Inc.'s products. IFS, Inc. previously entered into a license agreement with a
Japanese entity pursuant to which IFS, Inc. was paid one million dollars in
consideration for IFS, Inc. granting this entity exclusive rights in Japan to
use and develop IFS, Inc.'s existing patents. This agreement further provides
that if the Japanese entity builds recycling centers (termed "reconverting
facilities"), IFS, Inc. shall be paid a one time licensing fee based on
recycling capacity requirements which may apply to each facility. To date, the
agreement has not been further implemented by the Japanese entity due to local
economic conditions. IFS, Inc. understands from discussions with Styro Japan
that the Japanese economy was in an unstable condition, an effect of which
distracted potential clients from utilizing the recycling technology. Two
regions initially targeted by IFS, Inc. for foreign sales are the Far East and
European block countries. IFS, Inc. believes that due to, among other things,
the falling Japanese Yen, and due to IFS, Inc.'s lack of sufficient capital to
effectively market in these regions, IFS, Inc. has not been able to develop
business relationships in these regions.
IFS, Inc. is currently testing its Styro Solve solution for other
proprietary applications.
(2) Distribution Methods
IFS, Inc. distributes its products and services in essentially three
manners: (1) in-house employee and independent contractor sales, (2)
independent distributors and (3) outside independent contractors.
In-house sales are generated primarily from IFS, Inc.'s executive
offices located in Delray Beach, Florida, where the executive officers of IFS,
Inc. actively pursue business leads for IFS, Inc.'s products. IFS, Inc.
presently has one independent sales contractor (who is viewed as an "in-house"
independent sales contractor as he focuses solely upon IFS, Inc.'s products and
services), located in the Chicago, Illinois area, who is primarily responsible
for securing customers in the area. IFS, Inc.'s officers are currently paid
salaries, but no bonuses or commissions on their sales of IFS, Inc.'s products.
The "in-house" independent sales contractor is paid commissions only.
Currently, IFS, Inc. has two domestic distributors, one in the Anaheim,
California area and one in Houston, Texas. Distributors execute agreements with
IFS, Inc. for the area in which they desire to market IFS, Inc.'s products.
These distributorship agreements currently provide for sales to distributors at
wholesale prices. Distributors are essentially resellers, who purchase products
from IFS, Inc. and resell the products to their customers at a mark-up from the
price charged by IFS, Inc. to the distributors. Some agreements grant
distributors partial exclusive territorial rights for certain types of
businesses (e.g. California public schools). The distributorship agreements
further provide, in some instances, that distributors have options to distribute
IFS, Inc.'s products on a non-exclusive basis to other specified territories,
provided that the distributor meets certain sales conditions which may be
established by the distributorship agreement.
On or about January 11, 1997, IFS, Inc. entered into an agreement with
Styro Japan Co., Ltd., a Japanese corporation ("StyroJapan"), whereby IFS, Inc.
sold StyroJapan an exclusive license to utilize and develop IFS, Inc.'s patented
process for recycling or reconverting polystyrenes in Japan. The license differs
from a distributorship agreement, as the former grants the use of the patented
recycling process, whereas the latter grants the right to sell IFS, Inc.'s
products, such as the Solution Machines and Styro Solve. Since 1997, there have
been no further sales to Styro Japan or any licensing agreements. In addition,
IFS, Inc. sold StyroJapan (through the Japanese distributor) approximately
$635,800 of its product during 1997. License revenues from the Japanese company
aggregated $1,000,000 in 1997.
Outside representatives are paid commissions on sales. There are
currently 8 Company representatives servicing four states, North Carolina,
South Carolina, Florida and Illinois. Representatives generally execute an
independent representative agreement, pursuant to which, among other things, a
commission
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is payable based on sales by the representative. These agreements generally
provide that IFS, Inc. will provide the sales representative with leads and
training, and that the representative shall not compete with IFS, Inc.
Depending upon the availability of additional funding, which may be
derived from operations as well from additional funding efforts, neither of
which are assured, IFS, Inc. intends to retain, during approximately the next
twelve months, up to approximately four additional in-house sales
representatives, as well as to secure additional distributors and outside sales
representative relationships in other parts of the United States such as Texas,
Wisconsin, California, Washington, New York, New Jersey.
Due to limited capital resources, IFS, Inc. has not engaged in any
media-type advertising, although Company personnel have performed demonstrations
of IFS, Inc.'s products and services before current and prospective customers,
as well as attended various industry trade shows. Depending on the availability
of additional funding, as discussed above, IFS, Inc. plans to engage in
advertising for its products and services utilizing infomercials, the internet,
radio and co-operative advertising with other companies including restaurants,
environmental groups and foam product manufacturers, as well as continue to
attend and present its products and services at industry trade shows. Emphasis
will be placed on education concerning the importance of recycling and
protecting the environment as well as promoting IFS, Inc.'s Styro Solve System
as the preferred safe and effective means of disposing of polystyrene waste.
(3) Status of Publicly Announced New Products or Services
IFS, Inc. has no new publicly announced products or services.
(4) Competitive Business Conditions
At present, to IFS, Inc.'s knowledge, IFS, Inc.'s Styro Solve System is
the world's only environmentally safe and economically practical means of
recycling polystyrene products and materials. IFS, Inc. potentially faces
competition from two primary fronts: competing companies (technologies) and
substitute products. Currently, IFS, Inc. does not believe that it faces
significant competition from other companies. No assurances can be given,
however, that IFS, Inc. will not face competition from new entrants into the
industry, having substantially greater financial and other resources than IFS,
Inc., in view of the substantial use of polystyrene products in the U.S. economy
and world-wide, and in IFS, Inc.'s view, the perceived need for disposing of and
recycling such products.
Three competing companies have participated or currently participate
in the polystyrene recycling market: National Polystyrene Recycling Company
("NPRC"), Dart Container Corporation ("Dart") and Resource Recovery Technology
("RRT"). One additional potential competitor, Styro Melt, was due to release
their line of recycling equipment, but has yet to do so.
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Until recently, IFS, Inc. considered its largest competitor to be
NPRC, which was originally formed as a joint venture between several major
chemical and petroleum companies. NPRC recently discontinued operations as a
result of, to IFS, Inc.'s knowledge, and among other factors, customer
dissatisfaction in having to wash and repack polystyrene materials prior to
shipment to recycling centers, utilization of valuable warehouse space to store
original shipping containers, incurring of labor costs to clean and package
polystyrene materials and incurring a fifteen cent per pound fee to recycle
such materials.
Dart, based in Wisconsin, currently offers a compacting machine only
to the food service industry which compacts only Dart polystyrene products and
requires the compacted polystyrene to be returned to Dart for recycling when
full, with the required shipping charge. Additionally, Dart relied on NPRC for
its recycling needs.
RRT based in Lakeland, Florida, utilizes a system similar in nature to
the Styro Solve System. RRT provides its customers with a large, six-foot
stainless steel container with a solvent that resides at the base of the
container. As polystyrene material is discarded into the bin, the solution
melts the foam into a fluid which is later removed. However, the polystyrene
material is not shredded to maximize use of the solution, which is itself a
chlorine based chemical which is potentially hazardous with environmental
risks. Their system is also quite expensive to operate. Upon information and
belief, RRT charges a five thousand dollar fee to have a container placed in a
customer's premises and one hundred forty dollars to periodically remove the gel
fluid from the machine. Each one hundred forty dollar charge will process
approximately 100 pounds of polystyrene, amounting to one dollar forty cents per
pound, which is substantially higher than the cost per pound using IFS, Inc.'s
Stryo Solve System. Since direct access must be provided to RRT's containers in
order to pump out the waste, geographical limits are placed on the location of
the polystyrene container. Further, limits on the placement of the container may
also be imposed by requirements of the Environmental Protection Agency ("EPA")
due to the caustic nature of the solution.
The second competitive challenge to IFS, Inc. is that of substitute
products; such products are primarily found in the food service industry where
three general categories of products compete. They include: disposable paper
products, disposable polystyrene foam products and non-disposable china
products (made from various materials).
Two concerns in the decision to use polystyrene foam products are the
environmental concerns and the related public relations impact, and the
economic concerns of the traditional waste management options. Due to public
relations and other concerns, certain large corporations, such as McDonalds,
have switched from utilizing polystyrene to paper based containers. Concerning
waste management, foam products consume a tremendous amount of space for their
weight. Very large dumpsters and frequent emptying, both of which are
expensive, are to be expected in any operation for which polystyrene foam is a
waste product.
Paper products generally cost more than polystyrene equivalents. The
U.S. Food and Drug Administration mandates that all paper-based food service
ware be made from virgin materials. The production of paper materials requires
more energy, creates three times more pollution and costs significantly more
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than analogous polystyrene products. Foam products are more sanitary, prevent
growth and spread of bacteria, more sturdy, more thermally efficient and can
be recycled instead of adding to landfills.
As to china and tableware, in addition to the high purchase price,
which will vary depending upon material and quality, non-disposable china and
tableware incur greater labor and clean up costs, including expensive
dish-washing equipment, detergents, water, electricity, labor, replacement of
broken pieces, inspection of sewage lines and inspection by local health
departments.
In view of the foregoing, IFS, Inc. believes that polystyrene foam
products are economically superior to substitute products and that with the
development of the Styro Solve System, cafeterias and restaurants may have
little reason to avoid making use of these products.
Based upon 1998 production figures published by the Plastic News
Magazine, the total polystyrene market aggregates approximately $8 to $10
billion in sales each year. The overall market for polystyrene recycling
continues to remain underdeveloped and under-marketed due to lack of awareness
of market opportunity and the current availability of technology to address
polystyrene environmental concerns. In many cases, companies and institutions
are unaware of the option or possibility of polystyrene foam recycling. Of the
few participants in this market, none are, in IFS, Inc.'s opinion, adequately
marketing the advantages of their products or the importance of recycling.
(5) Sources and Availability of Raw Materials and Names of Principal
Suppliers. The specific chemical identities, other than the terpenes, comprising
IFS, Inc.'s Styro Solve solution, are considered by IFS, Inc. to be proprietary
trade secrets. The ingredients comprising IFS, Inc.'s Styro Solve solution are
readily available from a number of suppliers, including Chem Central, Inc.,
Florida Chemical, Inc., BASF, Inc., DuPont, Inc. IFS, Inc. utilizes two outside
manufacturers to manufacture its four models of Solution Machines and has found
both manufacturers to be timely and responsive to IFS, Inc.'s need for the
Solution Machines.
(6) Dependence on Major Customers. IFS, Inc. is not currently dependent
on one or more major customers. However, IFS, Inc.'s primary source of revenue
in 1997 was generated by sales to a Japanese entity, Styro Japan. This revenue
is not expected to recur.
(7) Intellectual Property. IFS, Inc. owns a U.S. patent for the process
by which polystyrene is reduced to the Polygel. The patent is titled "Reduction
in Polystyrene with Activated Agent." Patent # 5223543 and expires in 2010. IFS,
Inc. has a patent pending for another process by which polystyrene may be
reduced to Polygel. This patent pending is titled "Reduction in Polystyrene
Foams with Dibastic Esters." IFS, Inc. is in the process of applying for patents
on its Solution Machine design and for trademarks for the Styrosolve Solution,
Polygel and the Solution Machine, within approximately the next two to three
months.
(8) Governmental Approval. At this point in time, there is no need for
government approval of IFS, Inc.'s principal products or services.
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(9) Governmental Approval, Regulation and Environmental Compliance.
The Styro Solve solution utilized in the Styro Solve System is non-hazardous
and biodegradable and therefore not subject to state or federal regulations
that would otherwise apply to hazardous substances. IFS, Inc. is and
otherwise will be subject to local, state and federal laws, rules and
regulations concerning the operation of businesses generally.
(10) Research and Development. IFS, Inc., on its own initiative, as
well as with third parties, is engaged in limited research and development
concerning potentially new proprietary applications for the Styro Solve
solution. Such amounts aggregated none and $81,344 in 1998 and 1997,
respectively, and $21,222 and none for the nine months ended September 30, 1999
and 1998, respectively.
(11) Employees. As of October 31, 1999, IFS, Inc. had four (4)
full-time employees. IFS, Inc. also engages sales representatives and
independent distributors. None of IFS, Inc.'s employees is represented by a
labor union, and IFS, Inc. considers its employee relations to be good. IFS,
Inc. does not anticipate the number of employees to grow significantly over the
next twelve months. IFS, Inc. believes that its future success will depend in
part on its continued ability to attract, hire and retain qualified personnel.
(c) Reports to Security Holders
Prior to filing this Form 10-SB, IFS, Inc. has not been required to
deliver annual reports and has not filed reports with the Securities and
Exchange Commission. In accordance with Section 12(g) of the Act, once IFS, Inc.
becomes a reporting company, management anticipates that appropriate reports and
other filings as may be required under the Act will be filed as they become due.
To the extent that IFS, Inc. is required to deliver annual reports to security
holders through its status as a reporting company, IFS, Inc. shall deliver
annual reports. Also, to the extent IFS, Inc. is required to deliver annual
reports by the rules or regulations of any exchange upon which IFS, Inc.'s
shares may be traded, IFS, Inc. shall deliver annual reports. If IFS, Inc. is
not required to deliver annual reports, IFS, Inc. will not go to the expense of
producing and delivering such reports. If IFS, Inc. is required to deliver
annual reports, they will contain audited financial statements as required.
Prior to the filing of this Form 10-SB, IFS, Inc. has not filed reports with the
Securities and Exchange Commission. Once IFS, Inc. becomes a reporting company,
management anticipates that appropriate reports and other filings as may be
required under the Securities Exchange Act of 1934 will have to be filed as they
become due. If IFS, Inc. issues additional shares, IFS, Inc. may file additional
registration statements for those shares. The public may read and copy materials
IFS, Inc. files with the Securities and Exchange Commission at the Commission's
Public Reference Room at 450 Fifth Street, N.W., Washington, 20549. The public
may obtain information on the operation of the Public Reference Room by calling
the Commission at 1-800-SEC-0330. The Commission maintains an Internet site that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the Commission. The Internet
address of the Commission's site is (http://www.sec.gov). The internet address
of IFS, Inc.'s site is (http://SOLUTIONS-net.com/IFS).
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(d) Year 2000 Disclosure
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. In other words,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of operations, including, among others, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities. IFS, Inc. does not believe that it has material exposure to
the Year 2000 issue with respect to its own information systems since its
existing systems correctly define the year 2000.
IFS, Inc. does not anticipate any problem in dealing with computer
entries in the year 2000 or thereafter, with any computers currently used at its
facility. Management believes all of IFS, Inc.'s computer systems are Year 2000
compliant. IFS, Inc. keeps current with all updates and revisions with all
software IFS, Inc. currently uses. It is anticipated that the software updates
reflect required revisions to accommodate transactions in the Year 2000 and
thereafter. Though it is not anticipated that IFS, Inc. will have a problem at
the turn of the century, IFS, Inc. intends to coordinate the resolution of any
Year 2000 problems with the vendors of the software IFS, Inc. utilizes.
Nonetheless, IFS, Inc. recognizes the problems which may arise in connection
with the Year 2000 issue.
IFS, Inc. has informally surveyed its clients to determine the extent
to which their computer systems (insofar as they relate to IFS, Inc.'s business)
are Year 2000 compliant and, as a result of such informal survey, believes the
Year 2000 issue will not materially affect its clients. Notwithstanding the
foregoing, the failure of a major client, if any, subject to the Year 2000 issue
to become Year 2000 compliant, could have an adverse effect on IFS, Inc. in
regards to such clients timely ability to process Company invoices, orders and
deliveries.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR
PLAN OF OPERATION
This Form 10-SB contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 with respect to
financial condition, results of operations and business of IFS, Inc., which
could cause actual results to differ materially from those anticipated. The
words "believe," "expect," "intend," "anticipate," "estimate," "plan" and
similar expressions identify certain of such forward looking statements, which
speak only as of the date of which they were made. All statements herein other
than those consisting solely of historical facts, that address activities,
events or development that IFS, Inc. expects or anticipates will or may occur
in the future, including such things as business strategy, measures to implement
strategy, competitive strengths, goals, projected revenues, costs and other
financial results. References to future success and other events may be forward-
looking statements.
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(a) Financial Condition, Changes in Financial Condition and Results of
Operations.
DECEMBER 31, 1998 COMPARED TO DECEMBER 31, 1997
Revenues
Revenues for the year ended December 31, 1998 decreased by
approximately $1.7 million from 1997 due primarily to actual and threatened
litigation which diverted IFS, Inc.'s management from its operations and
effectively curtailed IFS, Inc.'s marketing programs and related sales efforts
(refer to Part II, Item 2). In addition, during 1997 substantially all of IFS,
Inc.'s sales were to two Japanese companies, one of which entered into an
exclusive licensing agreement for Japan which resulted in IFS, Inc. earning a $1
million licensing fee. With respect to the other Japanese customer that
purchased the Styro Solve chemical product, IFS, Inc. reduced its selling price
on the expectation of increased sales volume. This resulted in lower gross
profit in 1997 as compared to 1998. In 1998, IFS, Inc. did not discount its
selling prices for Styro Solve.
On or about January 11, 1997, IFS, Inc. entered into an agreement with
Styro Japan Co., Ltd., a Japanese corporation ("StyroJapan"), whereby IFS, Inc.
sold StyroJapan an exclusive license to utilize and develop IFS, Inc.'s patented
process for recycling or reconverting polystyrenes in Japan. The license differs
from a distribution agreement, as the former grants the use of the patented
recycling process, whereas the latter grants the right to sell IFS, Inc.'s
products, such as the Solution Machines and Styro Solve. Since 1997, there have
been no further sales to Styro Japan or any licensing agreements. In addition,
IFS, Inc. sold StyroJapan (through the Japanese distributor) approximately
$635,800 of its product during 1997. A $1 million one time non-cancellable
license fee was recorded in 1997 and -0- in all other periods.
Cost of Sales
Cost of sales for the year ended December 31, 1998 decreased by
approximately $792,000 from 1997. The decrease was attributable to the sales
quantity decrease primarily due to the absence of the Japanese sales made in
1997.
Selling, general and administrative expenses
Selling, general and administrative expenses for the year ended
December 31, 1998 decreased by approximately $1.2 million from 1997. The more
significant changes from 1997 to 1998 include the following: Rent expense
decreased by approximately $162,000. Repairs, maintenance and supplies decreased
by $51,000. These decreases were attributable to IFS, Inc. terminating its
existing lease and relocating to a new facility with a lower monthly rent and
maintenance expenses. Officers salaries decreased by approximately $382,000.
This decrease was attributable to the officers reducing their annual
compensation. Selling expenses decreased by approximately $591,000. This change
includes a one time sales commission of $250,000 which was paid to the sales
person that procured the 1997 $1 million license fee as discussed in revenues
above and to decreases in selling salaries and use of consultants of $341,000
resulting from IFS, Inc.'s deliberate reduction in its selling personnel in
1998 as compared to 1997. Travel expenses also decreased by approximately
$128,000. Due to a reduction in IFS, Inc.'s overall operating activities,
other professional services and other expenses decreased by $35,000 and $79,000,
respectively. The foregoing decreases in expenses during 1998 were offset by
increases in bad debts of $95,000 and legal fees and settlement costs of
$133,000.
Legal fees and settlement expenses aggregated $82,600 and $83,000 in
1998 and $33,500 and $0 in 1997, respectively. (See Section Item 2, Legal
Proceedings).
Research and development
As a result of limited funds, there were no research and development
expenses incurred in 1998.
Other income (expense)
Other income-net in 1998 consists principally of a $100,000 premium
from its Japanese licensee net of interest expense. Other expense-net in 1997
principally consists of interest expense and loss on disposal of leasehold
improvements.
Pursuant to a distribution agreement and as a result of the licensee
not reaching certain minimum order provisions, IFS, Inc. was entitled to a
$100,000 premium from its Japanese licensee in 1998. In this connection, IFS,
Inc. recorded the $100,000 premium as other income. Subsequently, IFS, Inc.
provided for a related allowance, since the amount has not yet been paid. No
other activity occurred in 1999 between IFS, Inc. and the licensee.
Provision for income taxes
No provision for income taxes was necessary in 1998 and 1997 due to
the loss reported for such years (see Note 4 to the financial statements).
Further, given the uncertainties as to realization, the deferred tax assets
have been fully reserved.
11
<PAGE> 12
SEPTEMBER 30, 1999 COMPARED TO SEPTEMBER 30, 1998
Revenues
Revenues for nine months ended September 30, 1999 increased by
approximately $33,000 from 1998 as a result of IFS, Inc. being able to focus on
its core operations and shift its focus from dealing with actual and threatened
litigation which diverted IFS, Inc.'s attention in 1998. IFS, Inc. established
relationships with several new customers during this period.
Cost of sales
Cost of sales for the year nine months ended September 30, 1999
increased by approximately $21,000 from 1998. The increase was directly
attributable to the increase in sales. For the same period, the gross profit
margin improved by 7%, which resulted from IFS, Inc. being able to obtain higher
selling prices for its products.
12
<PAGE> 13
Selling general and administrative expenses
Selling, general and administrative for the nine months ended September
30, 1999 increased by approximately $181,000 from 1998. The increase was
primarily attributable to the recording of additional compensation expense from
the granting of certain stock options in 1999, increases in officer's
compensation, legal and accounting fees.
Research and development
Research and development expenses resumed in 1999. In 1999, IFS, Inc.
incurred approximately $21,000 for activities relating to improving the field
performance of its Solution Machines by minimizing the customer's need for
repair and servicing.
Provision for income taxes:
No provision for income taxes was provided in 1999 due to the recurring
losses reported for the period and related uncertainty as to the recovery of the
related deferred tax assets. (See Note 4 to the financial statements)
Liquidity and Capital Resources:
IFS, Inc.'s sources of cash, primarily from financing activities during
1997, 1998 and during the nine months ended September 30, 1999 and 1998,
included proceeds from the issuance of common stock, shareholders loans from
IFS, Inc.'s officers and other borrowings. Sources are as follows: (1) Common
Stock issuance and exercise of options of $63,454 and $125,245 during the years
ended December 31, 1998 and 1997 respectively; and $618,670 and $22,353 for the
nine month period ended September 30, 1999 and 1998, respectively, (2)
Shareholders loans of $46,445 and $175,000 during the years ended December 31,
1998 and 1997 respectively, and (3) Borrowings from a commercial institution in
the amounts of $100,000 and $200,000 during the years ended December 31, 1998
and 1997, respectively. Operating activities used cash primarily due to IFS,
Inc.'s inability to achieve a profitable level of operations. The decrease in
cash used in operating activities from $880,274 to $166,421 from December 31,
1997 to December 31, 1998, was principally attributed to a decrease in the net
loss from one year to another. The increase in cash used in operating activities
from $131,931 for the nine months ended September 30, 1998 to $429,340 for the
nine months ended September 30, 1999, was principally attributed to an increase
in the net loss of $197,308 and a decrease in accounts payable and accrued
expenses from one period to another in the amount of $247,697.
Through September 30, 1999, IFS, Inc. raised approximately $574,000
from private investors.
The material terms of the shareholder and bank loans as of September
30, 1999 consist of (i) Equipment notes to Florida First Capital Finance Corp.
of $177,800 payable in monthly installments of $3,030 including principal and
interest at a fixed rate of 6.5%, maturing July 1, 2004, collateralized by
equipment. IFS, Inc. is in default under the terms of this loan and in violation
of certain convenants, (ii) Shareholder loans from Harvey Katz and Claudia
Iovino (also officers of the Company) of $70,746 payable in monthly principal
installments of $5,000 and interest computed at prime rate (8.25% at September
30, 1999 and 7.75% at December 31, 1998) due on March 1, 2001, (iii) Equipment
loans from CMC, Inc. of $90,513 payable in monthly installments of $3,555
including principal and interest, maturing in June 2003. (42% at September 30,
1999 and December 31, 1998), (iv) Shareholder loan from Harvey Katz and Claudia
Iovino of $30,898 principal and interest due 90 days after date of note. All
loans are past due and accrue interest at a 10% annual fixed rate, and (v)
Related party loan from HKI, Inc. of $20,000 principal and interest due 90 days
after date of note. The loan is past due and accrues interest at a 10% annual
fixed rate.
IFS, Inc. is a guarantor for a shareholder's loan to the Israel
Discount Bank, Ltd. During 1999, both the shareholder and IFS, Inc. (as
guarantor) were in default. In this connection, IFS, Inc. and its shareholder's
entered in a forbearance agreement with the bank on June 19, 1999. Among other
things, the forbearance agreement provides for the collateralization of all of
IFS, Inc.'s assets and a rescheduling of the amounts due.
13
<PAGE> 14
IFS, Inc.'s financial statements are prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. During the latter part of 1997 and 1998 the
Company experienced protracted litigation which diverted management's efforts
from its core business, and effectively curtailed the Company's marketing
programs. During 1999 certain aspects of the previously mentioned litigation
were resolved and the Company was able to refocus and continue its marketing
efforts. IFS, Inc. has been in settlement negotiations to reduce the quantity of
outstanding litigation and the threat of any potentially adverse findings.
Management believes that resolving many of these matters through settlements
will enable it to focus much more of its attention on sales and to spend more of
its time on sales activities. Management believes that with the increased time
spent on marketing efforts, increased sales will result. Since it will be mostly
an increase of time spent by management which will be utilized in marketing and
sales activities as opposed to increased costs for, among other things,
advertising, the Company does not foresee the need for substantial, additional
capital to perform such increased marketing and sales activities. In the event
that substantial, additional capital is required, however, the Company would be
required to seek outside funding mechanisms, of which no assurances are given
that any funding would be made available to the Company or if made available, on
terms satisfactory to the Company.
IFS, Inc. is currently a party to several lawsuits, which are in
various stages of litigation. Any material adverse decision against IFS, Inc. in
any of such lawsuits will, in all likelihood, have a material adverse effect
upon IFS, Inc. and its operations. See "PART II- ITEM 2. LEGAL PROCEEDINGS."
Over the past three months, IFS has received RFPs (Request For
Proposal) valued at over $10,000,000. RFPs are essentially request for bids
for the polystyrene recycling needs of the potential customer. IFS has provided
live demonstrations to a minimum of 25 prospects and has received further
interest, some of which are submitting the Styro Solve System to their budgets.
The types of potential clients that have submitted RFPs include multiple
school districts and large corporations with in-house cafeterias. These
customers are either currently testing the Styro Solve System or are scheduled
to begin testing the Styro Solve System within the next sixty days.
Unlike the Internet, the market for IFS is not relatively new and
rapidly evolving. The market is established and there is long standing need
for reductions in waste disposal costs. New legislation in various parts of the
country have been enacted to reduce waste disposal by a 50% volume in
landfills. This makes the Styro Solve System even more viable. IFS believes
that the Styro Solve System is the only economical, closed loop, polystyrene
recycling process available in the world today.
In accordance with the Company's business plan, if IFS is able to
obtain additional funding, of which no assurances are given, IFS intends to
expand its operations and employee base, including sales, marketing, technical,
operational and customer support resources. IFS also intends to further develop
new and existing strategic relationships to expand its distribution channels,
such as Dippy Foods in California.
IFS, Inc. anticipates, based on current plans and assumptions relating
to revenues from operations, that revenues from operations and additional third
party funding or investment, if available, will be sufficient to satisfy the
Company's estimated cash requirements to continue its operations. IFS, Inc. has
no firm current arrangements with respect to, or sources of, additional
financing. There can be no assurance that any such additional financing will be
available to the Company, and if available, will enable the Company to attain
profitable operations or continue as a going concern. The financial statements
do not include any adjustments to reflect the possible future effect on the
recoverability and classification of assets or the amount of classification of
liabilities that may result from the possible inability of IFS, Inc. to continue
as a going concern. Through September 30, 1999 and December 31, 1998, the
Company has incurred losses totaling $5,835,547 and $5,168,311. Negative working
capital aggregated $256,025 at September 30, 1999 and $441,330 for December 31,
1998. In addition, the Company is in violation of certain of its loan covenants.
14
<PAGE> 15
IFS, Inc. has no material commitments for capital expenditures.
Solution Machines are purchased by IFS, Inc. on an "as needed" basis based upon
orders received from IFS, Inc.'s customers.
To the extent that IFS, Inc. is able to obtain financing of at least
approximately $2,000,000, IFS, Inc. intends to utilize such funds primarily for
sales and marketing activities as well as for reduction of outstanding long and
short term debt obligations and for the construction of a recycling facility.
Management anticipates that such funds, if obtained, of which no assurances are
given, together with cash flow from operations, will be sufficient to finance
IFS, Inc.'s working capital requirements for approximately the next twelve
months. To the extent IFS, Inc. is unable to secure such approximate amount of
financing, IFS, Inc. plans to utilize any funds received for the same purposes
and in the same order of priority on an approximate pro-rata basis, subject to
the discretion of management to reallocate the usage of such funds. To the
extent IFS, Inc. is only able to secure minimal financing, its level of
operations will be materially and adversely effected.
Other than IFS, Inc.'s school customers, there are no seasonal aspects
that have had a material effect on IFS, Inc.'s financial condition or results of
operation.
From time to time IFS, Inc. may evaluate potential acquisitions
involving complementary businesses, products or technologies. IFS, Inc. has no
present agreements or understanding with respect to any such acquisition. IFS,
Inc.'s future capital requirements will depend on many factors, including entry
into strategic alliances, increases in advertising, marketing and promotions,
growth of IFS, Inc.'s customer base, general economic conditions and other
factors including the results of future operations. IFS, Inc. currently has four
full time employees. Management does not currently expect that it will be
required to hire a significant number of additional employees in the next 12
months.
During the 12 month period following the filing of this Form 10-SB,
IFS, Inc. intends to seek and obtain additional debt and/or equity financing to
further develop its business operations, principally sales and marketing. No
assurances are given that IFS, Inc. will be able to successfully obtain
sufficient debt and/or equity financing on terms acceptable to IFS, Inc. There
are no current commitments for financing IFS, Inc.'s operations. IFS, Inc.'s
inability, for whatever reason, to secure additional financing on terms
acceptable to IFS, Inc. will have a material adverse effect on IFS, Inc. and its
operations.
Impact of Inflation
To the extent permitted by competition, IFS, Inc. passes increased
costs attributable to inflation to its customers by increased sales prices over
a reasonable period of time. Also it is IFS, Inc.'s policy to place all of its
major supplier purchases out to bid.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measures those instruments at fair value.
The statement applies to all entities and is effective for all fiscal quarters
of fiscal years beginning after June 15, 2000. IFS, Inc. did not engage in
derivative instruments or hedging activities in any periods presented in the
financial statements and management does not expect this statement to have a
material impact on IFS, Inc.'s financial position, results of operation, or cash
flows.
15
<PAGE> 16
ITEM 3. DESCRIPTION OF PROPERTY
IFS, Inc.'s executive offices are located in, and substantially all of
its operating activities are conducted from, its leased office space located at
1885 Southwest 4th Avenue, Building B-3, Delray Beach, FL 33444. IFS, Inc.
believes that it will be able to obtain suitable space as needed at competitive
market rates and has the physical ability to acquire additional office space at
its current location. IFS, Inc. leases approximately 3,000 square feet of office
and warehouse space and does not own any real estate. IFS, Inc. is not in the
business of investing in real estate or real estate mortgages.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information as of October 31,
1999 about each person who is known to IFS, Inc. to be the beneficial owner of
more than 5% of IFS, Inc.'s Common Stock:
Security Ownership of Management:
<TABLE>
<S> <C> <C> <C>
Title of Class Name and Address Amount and Nature Percent of Class
Of Beneficial Owner of Beneficial Owner
Common Harvey Katz, 2,920,791(1) 21%
Chief Executive Officer/
Director
50 East Rd. #7E
Delray Beach, FL
Common Antonio Bianco 380,000 3%
Chief Operating Officer
5801 N.W. 74th Terr
Parkland FL
</TABLE>
16
<PAGE> 17
<TABLE>
<S> <C> <C> <C>
Common Claudia Iovino 2,303,117(2) 17%
President/Director
6364 Amberwoods Dr.
Boca Raton, FL
Common Diane Lucien, Director 25,000(3) less than 1%
22732 S.W. 10th St.
Boca Raton, FL 33433
All directors and executive
officers as a group
(4 persons) 5,968,435(4) 40%
</TABLE>
(*) All percentages are calculated based upon 13,783,390 shares issued and
outstanding as of the date of filing this Form 10-SB plus exercisable
warrants and options within 60 days.
(1) Includes warrants to purchase 181,360 shares of common stock; See Item 8
"Warrants." See also, Item 6, "Executive Compensation."
(2) Includes warrants to purchase 158,167 shares of common stock; See Item 8
"Warrants." See also, Item 6, "Executive Compensation" plus 647,500 shares
of common stock jointly owned with husband plus 419,520 shares of common
stock owned by a Company that Mrs. Iovino has a controlling interest.
(3) Includes warrants to purchase 25,000 shares of common stock; See Item 8,
"Description of Securities; Warrants."
(4) Includes warrants to purchase 339,527 shares of Common Stock
(c) Changes in Control. There is no arrangement which may result in a change of
control.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
(a) Directors and Executive Officers
As of October 31, 1999, the directors and executive officers of IFS,
Inc., their ages, positions in IFS, Inc., the dates of their initial election or
appointment as director or executive officer, and the expiration of the terms as
directors are as follows:
Period Served as Director/
Name Age Position Officer
---- --- -------- -------------------------
Harvey Katz 52 Chief Executive
Officer/Director 1993 to present
Claudia Iovino 61 President/Director 1993 to present
Antonio Bianco 50 Chief Operating
Officer April 1999 to present
Diane Lucien 44 Director February 1999 to present
17
<PAGE> 18
(b) Business Experience
HARVEY KATZ - CHIEF EXECUTIVE OFFICER. In addition to his duties at
IFS, Inc. which commenced in 1993, Mr. Katz is a consultant to HKI, Inc., an
entity in which he is an investor, for which Mr. Katz previously served as
President from 1982 to 1998 (See also Item 7 below). As President of HKI, Inc.,
Mr. Katz developed that company's marketing plans for its NU Silver, Brass Plus,
and Dumpster Fresh products. Mr. Katz was formerly a Trust Accountant at
Continental Illinois National Bank, Assistant District Accountant at Berman
Truck Leasing, and President of both HKC Enterprises and HK Measure Service.
Mr. Katz was educated at Loop City College, Loyola University, and the
University of Chicago, all in Chicago, Illinois. He has had articles published
by the University of Florida Department of Plastics Information regarding the
Styro Solve method of Polystyrene reduction. Mr. Katz served in the US Army
National Guard, where he was activated for the Vietnam War and ultimately
received an Honorable Discharge. Mr. Katz is Co-Chairman of the Broward County
Recycling Committee (for commercial purposes).
CLAUDIA IOVINO - PRESIDENT AND DIRECTOR. Ms. Iovino has been employed
by and has served as a director of IFS, Inc. since 1993 and currently serves as
the President of IFS, Inc. From 1982 until this year, Ms. Iovino was the CEO of
HKI, Inc., an entity in which she holds a controlling interest. Ms. Iovino has
experience in many aspects of operating a growing company involved in the
development, manufacturing and marketing of chemical products and has experience
in the day-to-day operation of a small chemical plant, including sales
coordination.
ANTONIO BIANCO - CHIEF OPERATING OFFICER. Prior to joining IFS, Inc. in
April 1999, Mr. Bianco was self employed as a management consultant from 1997 to
March 1999 and was Vice President/General Manager from 1993-1997 and Vice
President/Operations and Finance from 1989-1992 of Cool Care, Inc., a Deerfield
Beach, Florida based subsidiary of Dole Food Co., where he dealt with the design
and manufacture of equipment and refrigerated facilities for major retail and
wholesale food distributors internationally. Mr. Bianco is fluent in both French
and Italian.
DIANNE LUCIEN - DIRECTOR. Ms. Lucien has owned and operated her own
consulting firm for the past ten years which specializes in accounting software
and management consulting. She received her B.S. degree in accounting from
Arizona State University. Prior to her consulting business, she was employed by
Deloitte, Haskins and Sells (now Deloitte Touche) in Arizona, New York and
Florida, in the audit and emerging business consulting department. Her practice
specializes in the manufacturing, job shop, distribution and service industries.
18
<PAGE> 19
IFS, Inc.'s directors are elected at the annual meeting of stockholders
and hold office until their successors are elected and qualified. IFS, Inc.'s
officers are appointed by the Board of Directors and serve at the pleasure of
the Board and subject to employment agreements, if any, approved and ratified by
the Board.
(c) Directors of Other Reporting Companies
None of IFS, Inc.'s executive officers or directors is a director of
any company that files reports with the Securities and Exchange Commission.
(d) Significant Employees-Not applicable.
(e) Family Relationships
There are no family relationships between the directors, executive
officers or any other person who may be selected as a director or executive
officer of IFS, Inc.
(f) Involvement in Certain Legal Proceedings
None of the officers, directors, promoters or control persons of IFS,
Inc. have been involved in the past five (5) years in any of the following: (1)
Any bankruptcy petition filed by or against any business of which such person
was a general partner or executive officer either at the time of the bankruptcy
or within two years prior to that time; (2) Any conviction in criminal
proceedings or being subject to a pending criminal proceeding (excluding traffic
violations and other minor offenses); (3) Being subject to any order, judgment
or decree, not subsequently reversed, suspended or vacated, or any Court of
competent jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of business,
securities or banking activities; or (4) Being found by a court of competent
jurisdiction (in a civil action), the Commission or the Commodity Futures
Trading Commission to have violated a federal or state securities laws or
commodities law, and the judgment has not been reversed, suspended, or vacated.
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning
aggregate compensation paid to IFS, Inc.'s chief executive officers. No other
officer received compensation of $100,000 or more during the periods presented.
19
<PAGE> 20
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
- ------------------------------------------------------ ---------------------- -----------
Name Other Securities
And Annual Restricted Underlying
Principal Compen- Stock Options/ LTIP All other
Position Year Salary Bonus sation(1) Awards SARs Payouts Compensation
- --------- ---- -------- ----- --------- --------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Harvey Katz 1998 $ 2,884 n/a $77,116 n/a n/a n/a n/a
Chief Executive 1997 $120,750 $6,360(2)
Officer n/a n/a n/a n/a n/a n/a
</TABLE>
(1) Represents stock issued in lieu of cash for salary.
(2) Represents auto allowance.
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End
Option/SAR Values
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End(#) FY-End ($)
Shares Acquired Exercisable/ Exercisable/
on Exercise (#) Value Realized($) Unexercisable Unexercisable
-----------------------------------------------------------------------------------------------
Exercisable/Unexercisable Exercisable/Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Harvey Katz None None 181,360 -- $ 0 $ --
</TABLE>
On or about October 1, 1996, IFS, Inc. entered into an employment
agreement with Harvey Katz. Pursuant to this agreement, Mr. Katz was retained as
IFS, Inc.'s chief executive officer at an annual salary of $150,000, subject to
increases as provided therein, plus reimbursement for expenses, including, but
not limited to, automobile expenses. The agreement was amended in September 1998
to provide for Mr. Katz's salary to be $80,000.00 per year. The agreement
further provides that if Mr. Katz is terminated without cause as defined in the
agreement, he will be entitled to a severance payment equal to thirty six months
of employment.
On or about October 1, 1996, IFS, Inc. executed an employment agreement
with Claudia Iovino. Pursuant to this agreement, Ms. Iovino was retained as the
president of IFS, Inc. at an annual salary of $120,000, subject to increases as
provided therein, plus reimbursement for expenses, including, but not limited
to, automobile expenses. The agreement was amended in September 1998 to provide
for Ms. Iovino to serve as president of IFS, Inc. at an annual salary of $80,000
per year. The agreement further provides that if Ms. Iovino is terminated
without cause as defined in the agreement, she will be entitled to a severance
payment equal to thirty six months of employment.
On or about October 1, 1996, IFS, Inc. entered into an employment
agreement with Anthony DiChiara. Pursuant to this agreement, Mr. DiChiara was
retained as IFS, Inc.'s treasurer at an annual salary, subject to increases as
provided therein, of $80,000. Mr. DiChiara later agreed to accepted a position
with the company as its controller. Mr. DiChiara has sued IFS, Inc. alleging
that he is due a severance pay based on the agreement retaining him as the
treasurer. It is IFS, Inc.'s position that the agreement retaining Mr. DiChiara
was mutually terminated and no further obligations were due under the agreement
retaining him as treasurer.
20
<PAGE> 21
On or about April 5, 1999, IFS, Inc. executed an employment agreement
with Antonio Bianco. Pursuant to this agreement, Mr. Bianco was retained as IFS,
Inc.'s chief operating officer at an annual salary of $50,000, subject to
increases as provided therein. The agreement also provides for Mr. Bianco to
exercise options to purchase IFS, Inc.'s common stock at a price of between $.10
and $1.00 over a period of five years. The agreement further provides that if
Mr. Bianco is terminated without cause as defined in the agreement, Mr. Bianco
will be entitled to a severance payment equal to twelve months of employment.
There is no standard or any other arrangements, pursuant to which any
director of the registrant was compensated for any services provided as a
director. Accordingly, no director was compensated for services provided as a
director for the periods presented.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the past two (2) years, IFS, Inc. has not entered into a
transaction with a value in excess of $60,000 with a director, officer or
beneficial owner of 5% or more of IFS, Inc.'s Common Stock, except as disclosed
in the following paragraphs:
On or about May 20, 1993, IFS, Inc. entered into a five year agreement
with HKI, Inc., whereby IFS, Inc. granted to HKI the exclusive manufacturing and
bottling rights for the Styro Solve Solution. The agreement provided that as
long as HKI, Inc. could timely provide IFS, Inc. with the Styro Solve Solution,
IFS would purchase the Styro Solve Solution from HKI, Inc. The agreement
provided for two renewal periods of five years each. Such amounts aggregated
$4,000 in 1998 and $441,000 in 1997. Neither company renewed the agreement when
it expired on or about May 20, 1998. HKI, Inc. is a Florida Corporation related
to IFS due to its common ownership by Claudia Iovino. Mrs. Iovino, a principal
of IFS, Inc. owns a controlling interest in HKI, Inc.
On or about October 21, 1997, IFS, Inc. borrowed from its officers,
Mrs. Claudia Iovino and Mr. Harvey Katz, $134,700. This loan is payable in
monthly principal installments of $5,000 and interest computed at prime rate
(8.25% at September 30, 1999 and 7.75% December 31, 1998). Amounts outstanding
as of September 30, 1999 and December 31, 1998 totaled $70,746 and $111,553,
respectively.
IFS, Inc. is a guarantor for the shareholder's loan to the bank. During
1999, both the shareholder and IFS, Inc. (as guarantor) were in default. In this
connection, IFS, Inc. and its shareholders entered into a forbearance agreement
with the bank on June 19, 1999. Among other things, the forbearance agreement
provides for the collateralization of all of IFS, Inc.'s assets and a
rescheduling of the amounts due.
During the year ended December 31, 1997, IFS, Inc. issued 181,360
shares of common stock to Harvey Katz, in satisfaction of accrued compensation
of $272,040 that was recorded in 1996. IFS, Inc. also granted warrants to
purchase 181,360 shares of common stock at $2.50 per share expiring on May 31,
2001. Additionally, during 1999, 300,000 shares of common stock were issued to
him for compensation aggregating $80,000.
During the year ended December 31, 1997, IFS, Inc. issued 108,444
shares of common stock to Anthony DiChiara, a former employee of IFS, Inc., in
satisfaction of accrued compensation of $162,666 that was recorded in 1996.
Through December 31, 1998, IFS, Inc. has borrowed from Harvey Katz and
Claudia Iovino, the amount of $105,600 for working capital. The loans bear
interest at 10% and are payable over a 90 day period. All loans are past due.
Amounts outstanding at September 30, 1999 and December 31, 1998, totaled $30,898
and $66,445, respectively.
During the year ended December 31, 1997, IFS, Inc. issued 158,167
shares of common stock to Claudia Iovino in satisfaction of accrued compensation
of $237,250 that was earned and recorded in 1996. IFS, Inc. also granted
warrants to purchase 158,167 shares of common stock at $2.50 per share expiring
on May 31, 2001. Additionally, during 1999, 300,000 shares of common stock were
issued to her for compensation aggregating $80,000. Refer to Item 4 for further
details.
Between April 1, 1999 and July 31, 1999, IFS, Inc. issued Antonio
Bianco, an officer, options to purchase 1,150,000 shares of IFS, Inc.'s common
stock at prices ranging from $.10 to $1.00. The options vest from April 1999 to
April 2000 and have expiration dates ranging from July 1999 to April 2002. IFS,
Inc. valued these options using the Black-Scholes Method. 450,000 options were
exercised during the nine month period ended September 30, 1999.
21
<PAGE> 22
On or about May 1, 1998, IFS, Inc. executed an employment agreement
with Robert Kauffman for Mr. Kauffman to serve as IFS, Inc.'s chief executive
officer for a period of five years. The terms of the agreement generally
provided for Mr. Kauffman to act as chief executive officer at a $150,000 per
year salary. IFS, Inc. contends that Mr. Kauffman never activated the contract
or assumed the position for which he had been contracted and had otherwise
materially and repeatedly breached the agreement. See, however, Part II, Item 2
below.
IFS, Inc. currently shares office space with HKI, Inc., which is
currently owned primarily by Claudia Iovino, IFS, Inc.'s president. IFS, Inc.
subleases space from HKI, Inc. at a rent of $12,000 per year, which includes
electricity. The companies maintain their own telephone lines and currently pay
their own office expenses.
ITEM 8. DESCRIPTION OF SECURITIES
Common Stock
IFS, Inc.'s Articles of Incorporation authorizes the issuance of
20,000,000 shares of Common Stock, $.01 par value per share. There is no
preferred stock authorized. Holders of shares of Common Stock are entitled to
one vote for each share on all matters to be voted on by the stockholders.
22
<PAGE> 23
Holders of shares of Common Stock are entitled to share ratably in dividends,
if any, as may be declared from time to time by the Board of Directors in its
discretion from funds legally available therefor. In the event of a liquidation,
dissolution or winding up of IFS, Inc., the holders of shares of Common Stock
are entitled to share pro rata all assets remaining after payment in full of all
liabilities. Holders of Common Stock have no preemptive or other subscription
rights, and there are no conversion rights or redemption or sinking fund
provisions with respect to such shares. All of the shares of Common Stock issued
and outstanding are fully paid and non assessable.
Warrants
Each purchaser who purchased IFS, Inc.'s common stock pursuant to its
Section 4(2) and 4(6) private placement of stock in 1996 received warrants to
purchase IFS, Inc.'s common stock, exercisable at a price of $2.50. Some of IFS,
Inc.'s employees and officers were issued warrants exercisable at $1.50. All of
the warrants expire May 31, 2001. The total number of shares subject to warrants
are 2,958,222.
PART II.
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
Market Information
IFS, Inc.'s Common Stock currently trades on the "Pink Sheets". Prior
to December 15, 1999, IFS, Inc.'s common stock was traded on the
Over-The-Counter Bulletin Board (OTC:BB) under the trading symbol "IFOS". IFS,
Inc.'s Common Stock was listed for trading on the OTC:BB on September 17, 1998,
at which time there was a trading market for such shares. Since such time there
has been a limited trading market for IFS, Inc.'s Common Stock. OTC Quotations
presented reflect inter-dealer prices with related retail mark-up or commission
and may not represent actual transactions. Effective November 15, 1999, IFS,
Inc. was no longer in compliance with the National Association of Securities
Dealers, Inc. (NASD(R)) filing requirements. Accordingly, the letter "E" was
appended to the trading symbol. Since the Securities and Exchange Commission had
not approved IFS, Inc.'s Form 10-SB, which was filed on November 24, 1999, by
December 15, 1999, the deadline for the approval of IFS, Inc.'s Form 10-SB, IFS,
Inc. was removed from the OTC:BB. Once the NASD receives notification that IFS,
Inc. has fully complied with the filing requirements and same has been approved
by the SEC, IFS, Inc. intends to take all necessary actions to become relisted
on the OTC:BB.
The following table sets forth the average closing prices for the
Common Stock for each calendar quarter and subsequent interim period since the
Common Stock commenced actual trading, as reported by the National Quotation
Bureau, and represent the average closing price at the end of the business day:
Fiscal 1999 Closing Price
- ----------- -------------
First Quarter $.15
Second Quarter $.25
Third Quarter $.25
Fiscal 1998 Closing Price
- ----------- -------------
Third Quarter $.75
Fourth Quarter $.29
23
<PAGE> 24
There can be no assurance that an active public market for the Common
Stock will develop or be sustained. In addition, the shares of Common Stock are
subject to various governmental or regulatory body rules which affect the
liquidity of the shares.
Holders
There were approximately 186 holders of record of IFS, Inc.'s Common
Stock as of January 19, 2000.
Dividends
IFS, Inc. has never paid cash dividends on its Common Stock and does
not intend to do so in the foreseeable future. IFS, Inc. currently intends to
retain its earnings for the operation and expansion of its business. IFS, Inc.'s
continued need to retain earnings for operations and expansion are likely to
limit IFS, Inc.'s ability to pay dividends in the future.
ITEM 2. LEGAL PROCEEDINGS
IFS, Inc. is involved in several legal proceedings as described below.
IFS, Inc. has not filed any significant lawsuits as of the date of this
filing. IFS, Inc. has been and continues to be a defendant in several lawsuits.
IFS, Inc. believes that it has accrued in its financial statements the estimated
amount of all legal settlements. Such lawsuits primarily involve (I) former
employees who allege that their agreements with IFS, Inc. entitled them to
additional compensation upon their termination which IFS, Inc. has disputed, and
(II) allegedly past due debts of IFS, Inc. Two additional matters which were
brought against IFS, Inc. involved allegations by the Plaintiffs that certain
principals of IFS, Inc. dissipated IFS, Inc.'s funds in bad faith. These two
additional matters have been stagnant for approximately one year, as neither of
the Plaintiffs have continued to prosecute their cases during such time.
IFS, Inc. believes that only two of the cases--number 1 and 4
below--have any connection with each other. Mr. Greenfield, the plaintiff in
case number 1 below, was purportedly one of the attorneys for Mr. Northcutt and
possibly others, who initially threatened litigation against IFS, Inc. In an
effort to resolve such threatened litigation, IFS, Inc. settled with Mr.
Northcutt and the other complainants. As part of the settlement, IFS, Inc.
issued stock to such complainants, who in turn directed a portion of such stock
be issued to their attorneys, in consideration for their legal fees.
Accordingly, Mr. Greenfield became a stockholder in IFS, Inc. and subsequently
sued IFS, Inc. as described below (number 1). In disregard for the settlement,
Mr. Northcutt subsequently sued IFS, Inc. in the case described below
(Number 4).
(1) Greenfield v. International Foam Solutions, Inc., et al., case no.
98-005083 in Palm Beach Circuit Court, Palm Beach County, Florida. Leo
Greenfield is an alleged Company stockholder who sued IFS, Inc. for,
among other things, breach of fiduciary duty and related causes of action.
He has also sought to appoint a receiver of the corporation. He claims
that many IFS transactions involved conflicts of interest and seeks to
void same. The matter is in the discovery phase of the litigation. No
trial dates have been set. IFS, Inc. and Mr. Greenfield have reached a
verbal agreement to fully resolve the matter, however, no written
agreements have been executed although same have been sent to Mr.
Greenfield for his signature several months ago. IFS, Inc. intends to
continue to vigorously defend this matter in the event that settlement
documents are not executed.
(2) A.L. Garey v. International Foam Solutions, Inc., et al., case no.
97-18073 COCE 53 in Broward County Court, Broward County, Florida. A.L.
Garey was a prior manufacturer of the Solution Machines. The plaintiff
claims it is owed approximately $10,000 for parts which it allegedly
purchased in connection with the fulfillment of IFS, Inc.'s order, but
which were unassembled by it because of a mutual termination of their
agreement for the plaintiff to manufacture the Solution Machines. The
Company alleges that the plaintiff caused damages in excess of $10,000
by negligently designing and constructing the machines. IFS, Inc.
recently settled this matter. This settlement does not materially affect
IFS, Inc.'s current operations.
24
<PAGE> 25
(3) Florida First Capital Finance Corporation v. International Foam Solutions,
Inc., et al., case no. C1099-371-35, Orange County Circuit Court, Orange
County, Florida. In January 1999, the plaintiff sued IFS, Inc. alleging
that it is in default of a promissory note in the principal amount of
$200,000. IFS, Inc. contends it does not owe the full amount allegedly past
due. The proceeding is in the discovery phase. No trial dates have been
set. IFS, Inc. has recorded the outstanding amount of the promissory note
on the balance sheet.
(4) Northcutt, et al. v. International Foam Solutions, Inc., et al., case
number 98-001836 AB, Palm Beach County Florida Circuit Court. The
plaintiffs are shareholders of IFS, Inc. and alleged certain causes of
action substantially similar to, and to IFS, Inc.'s belief in cooperation
with, Mr. Greenfield's litigation against IFS, Inc. (see (#1) above).
However, this case was dismissed with leave to amend and the plaintiffs
failed to amend their complaint within the time allowed by the judge.
The matter has been dismissed.
(5) Keefer v. International Foam Solutions, Inc., case no. 98-006525, Palm
Beach County Florida Circuit Court. Mr. Keefer is a former employee who has
sued IFS, Inc. for alleged breach of an employment contract. Mr. Keefer
claims he is entitled to a severance pay in the amount of approximately
$56,000.00 under the employment contract because he alleges he was
terminated without cause. However, it is IFS, Inc.'s position that Mr.
Keefer walked off the job and effectively quit, and accordingly, not
entitled to any severance under the employment agreement. IFS, Inc.
recently settled this matter. The settlement requires that IFS, Inc. issue
restricted stock to the Plaintiff and make certain payments over the course
of less than one year. The exact terms of the agreement are confidential by
agreement of the parties. This settlement does not materially affect IFS,
Inc.'s current operations.
(6) D'Agostino v. International Foam Solutions, Inc., case no. 98-6523 AB, Palm
Beach County, Florida Circuit Court. Mr. D'Agostino is a former employee
who has sued IFS, Inc. for breach of an employment contract. D'Agostino
claims he is entitled to a severance pay in the amount of approximately
$42,000 under an employment contract because he alleges he was terminated
without cause. However, IFS, Inc. terminated D'Agostino with cause and
accordingly, D'Agostino was not entitled to the severance under the
employment agreement. IFS, Inc. recently settled this matter. The
settlement requires that IFS, Inc. issue restricted stock to the Plaintiff
and make certain payments over the course of less than one year. The exact
terms of the agreement are confidential by agreement of the parties. This
settlement does not materially affect IFS, Inc.'s current operations.
(7) DiChiara v. International Foam Solutions, Inc., case number CL 98-9930 AH,
in the Palm Beach County Florida Circuit Court. Mr. Dichiara is a former
employee who has sued IFS, Inc. for, among other things, alleged breach of
an employment contract. Dichiara claims he is entitled to a severance pay
in the amount of approximately $80,000 under the employment contract
because he alleges he was terminated without cause. However, IFS, Inc.
contends that it entered into a new agreement with Dichiara to be employed
in a different capacity, which was treated as a novation of the former
agreement with Dichiara, and as such Dichiara was not entitled to the
severance under the former employment agreement. A trial which was
originally scheduled for February 22, 2000, has been continued to a later
undetermined date, and will be vigorously defended by IFS, Inc.
25
<PAGE> 26
(8) Ecological Technologies, Inc. v. International Foam Solutions, Inc., case
number 98-003218 in the Palm Beach County Florida Circuit Court. The
plaintiff sued IFS, Inc. for breach of a promissory note and is attempting
to foreclose on certain Japanese patent rights of IFS, Inc. which were
pledged as collateral for the note. A judgment was entered against IFS,
Inc. in the amount of approximately $11,000. However, IFS, Inc. has
satisfied this in full and accordingly, ownership of any Japanese patent
rights are no longer in dispute. The plaintiff also sued IFS, Inc. for
damages due to its allegation that IFS, Inc. is doing business in Japan,
where the plaintiff claims it has exclusive territorial rights, a claim
which IFS, Inc. denies. No trial date has been set and the parties will
engage in discovery on this separate claim for damages. IFS, Inc. will
vigorously defend this lawsuit.
(9) Robert Kauffman v. International Foam Solutions, Inc., et al., case number
99012968, in the Broward County Florida Circuit Court. Mr. Kauffman, who
has alleged that he was the former CEO of IFS, Inc. has sued IFS, Inc. for,
among other things, breach of an employment agreement, claiming damages in
excess of $150,000 resulting from IFS, Inc.'s alleged breach of the
employment agreement. It is IFS, Inc.'s position that Mr. Kauffman,
although he executed the agreement, never activated the contract or assumed
the role of CEO and otherwise materially failed to perform under the
agreement. This case is in the discovery phase and IFS, Inc. intends to
vigorously defend this matter. In this connection, IFS, Inc. does not
believe it has any obligations to Mr. Kauffman. Accordingly, it is too
early for counsel to assess the likelihood of success, therefore no
amounts have been accrued.
(10) Sovis & Scholl v. International Foam Solutions, Inc., case number MC
99-14670 RE, in the Palm Beach County Florida Circuit Court. The Plaintiffs
claimed they were mislead by a former Company employee when they purchased
IFS, Inc.'s stock. They sought to rescind their stock purchase. The
plaintiffs and IFS, Inc. have verbally agreed to settle the case and the
parties are in the process of executing settlement agreements, whereby IFS
will pay the Plaintiffs a settlement amount over a three month period. This
settlement does not materially affect IFS, Inc.'s current operations.
(11) Waterview Resolution Corp. ("WRC"). WRC has sent IFS, Inc. a demand letter
seeking the payment of $11,166.79 which WRC claims is a deficiency balance
owed by IFS, Inc. when WRC sold certain equipment (floor cleaning
equipment) in connection with an alleged default of an equipment lease.
IFS, Inc. denies that any sums are due under any lease agreement. The
parties have not engaged in any settlement discussions and no litigation
has been filed, although WRC still claims such amount is due. Accordingly,
it is too early for counsel to assess the likelihood of success, therefore
no amounts have been accrued.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
- Not applicable -
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
IFS, Inc.'s last securities offering, which occurred between November
1998 and April 1999 and then between April 1999 and December 1999, was pursuant
to Rule 504 of Regulation D. In 1998, IFS, Inc. sold its common stock for an
aggregate amount of $73,454.00 to less than 35 non-accredited investors and to
accredited investors, thereby complying with the purchaser requirements of
Regulation D. In April 1999, when the amendments to Rule 504 became effective,
IFS, Inc. terminated its prior 504 offering which was sold to less than 35
non-accredited investors and to accredited investors, thereby complying with the
purchaser requirements of Regulation D. Subsequently, IFS, Inc. engaged in a new
504 offering, which if aggregated with the funds raised from the offering
immediately prior thereto, did not exceed $1,000,000.00. During this latter 504
offering, IFS, Inc. sold its common stock only to accredited investors. From
January, 1999 through November, 1999, IFS, Inc. sold its common stock for an
aggregate amount of $646,334.00. The following table breaks down, by month, the
cumulative number of shares sold of IFS, Inc.'s common stock and the type of
investor (accredited or non-accredited) the shares were sold:
Month # of Shares Sold Accredited (A) or Non-Accredited(N)
- ----- ----------------- -----------------------------------
11/98 140,211 A
12/98 24,000 A
1/99 400,000 A
2/99 200,000 A
3/99 500,000 A
4/99 1,133,533 A
5/99 200,167 A
6/99 75,000 A
7/99 1,099,720 A
8/99 100,000 A
9/99 64,706 A
10/99 100,000 A
From January 1997 through December 1997, IFS, Inc. sold 55,401 shares
of the common stock for $125,245. Such sales were effected to accredited
investors, pursuant to Section 4(2) and 4(6) of the Securities Act.
26
<PAGE> 27
Securities sold other than for cash are as follows:
Common
Shares Amount
----------- ----------
1997:
- ----
Compensation 447,971 $671,956
Professional Services 3,000 $ 4,500
Legal Settlement(1) 206,000 $345,188
1998:
- -------
Professional Services 370,000 $ 79,999
1999:
- -----
Compensation 600,000 $160,000
Professional Services 122,842 $ 50,454
(1) Accrued in 1996.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Florida Business Corporations Act contains provision entitling
directors and officers of IFS, Inc. to indemnification from judgements, fines,
amounts paid in settlement and reasonable expenses, including attorneys' fees,
as the result of an action or proceeding in which they may be involved by reason
of being or having been a director or officer of IFS, Inc., provided said
officers or directors acted in good faith.
In so far as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
IFS, Inc. pursuant to the foregoing provisions, or otherwise, IFS, Inc. has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment of IFS, Inc. of expenses
incurred or paid by a director, officer, or controlling person of IFS, Inc. in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
offered hereby, IFS, Inc. will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
27
<PAGE> 28
PART F/S
PART III
Item 1
Item 2
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 29, 2000 International Foam Solutions, Inc.
By: /s/ Harvey Katz
--------------------------------
Harvey Katz, CEO
28
<PAGE> 29
EXHIBIT INDEX
27 Financial Data Schedule (for S.E.C. use only)
99.1 Articles of Incorporation
99.2 Company By-Laws
99.3 CMC financing agreement
99.4 Promissory Note
99.5 Warrants (form)
99.6 Japan Licensing Agreement
99.8 Form of Stock Certificate
99.9 Employment Agreement with Harvey Katz
99.10 Employment Agreement with Claudia Iovino
99.11 Employment Agreement with Tony Bianco
* Filed herewith
29
<PAGE> 30
INTERNATIONAL FOAM SOLUTIONS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Certified Public Accountants F-2
Balance Sheets at September 30, 1999 (unaudited) and December 31, 1998 F-3
Statements of Operations for the nine months ended September 30, 1999
(unaudited) and 1998 (unaudited) and for the years ended
December 31, 1998 and 1997 F-4
Statements of Stockholders' Equity (Deficit) for the nine months ended
September 30, 1999 (unaudited) and for the years ended
December 31, 1998 and 1997 F-5
Statements of Cash Flows for the nine months ended September 30, 1999
(unaudited) and 1998 (unaudited) and for the years ended
December 31, 1998 and 1997 F-6
Notes to Financial Statements F-7
</TABLE>
F-1
<PAGE> 31
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
International Foam Solutions, Inc.
We have audited the accompanying balance sheet of International Foam Solutions,
Inc. as of December 31, 1998 and the related statements of operations,
stockholders' equity (deficit), and cash flows for the years ended December 31,
1998 and 1997. These financial statements are the responsibility of IFS, Inc.'s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of International Foam Solutions,
Inc. at December 31, 1998 and the results of its operations and its cash flows
for the years ended December 31, 1998 and 1997 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming IFS, Inc. will
continue as a going concern. As discussed in Note 2 to the financial statements,
IFS, Inc. had cumulative losses since inception in 1993 and is dependent upon
outside financing to expand its operations. These factors raise substantial
doubt about its ability to continue as a going concern. Management's plans
concerning these matters are also described in Note 2. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
Miami, Florida
October 29, 1999, except for Note 13 BDO Seidman, L.L.P.
which is as of November 15, 1999
F-2
<PAGE> 32
INTERNATIONAL FOAM SOLUTIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS (NOTES 5 AND 7)
CURRENT
Cash $ 64,954 $ 1,145
Accounts receivable, less allowance for doubtful accounts
$132,000 27,228 25,605
Inventories 366,117 419,560
Prepaid expenses and other 12,159 12,159
----------- -----------
Total current assets 470,458 458,469
PROPERTY AND EQUIPMENT, net (Note 3) 193,319 205,623
PATENTS, less accumulated amortization of $92,216 and $81,881 142,055 152,390
DEPOSITS AND OTHER 18,789 18,028
----------- -----------
$ 824,621 $ 834,510
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current maturities of notes payable (Note 5) 211,119 230,204
Current maturities of notes payable to stockholders (Note 5) 90,898 96,445
Accounts payable 201,574 263,534
Accrued salaries 127,000 209,000
Accrued legal costs 83,000 83,000
Other accrued expenses 12,892 17,616
----------- -----------
Total current liabilities 726,483 899,799
----------- -----------
Notes payable, less current portion (Note 5) 77,194 86,848
Notes payable to shareholders, less current portion (Note 5) 10,746 81,553
----------- -----------
Total liabilities 814,423 1,068,200
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTES 6 AND 13)
STOCKHOLDERS' (DEFICIT) EQUITY (NOTE 8)
Common stock, par value $.01, 20,000,000
shares authorized, 13,673,390 and 8,850,264
shares issued and outstanding (Note 6) 136,734 88,503
Additional paid-in capital 5,741,379 4,856,276
Deficit (5,835,547) (5,168,311)
Stock subscriptions receivable for 80,525 and 25,000
shares of Common stock (32,210) (10,000)
Treasury stock, at cost (39,764 shares) (158) (158)
----------- -----------
Total stockholders' equity (deficit) 10,198 (233,690)
----------- -----------
$ 824,621 $ 834,510
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 33
INTERNATIONAL FOAM SOLUTIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
NINE MONTHS NINE MONTHS YEARS ENDED
ENDED ENDED DECEMBER 31,
SEPTEMBER 30, SEPTEMBER 30, ------------------------------
1999 1998 1998 1997
------------- ------------- ---------- ----------
(UNAUDITED) (UNAUDITED)
REVENUES:
<S> <C> <C> <C> <C>
Product sales $ 59,728 $ 27,107 $ 47,543 $ 718,187
Licensing fee (Note 11) -- -- -- 1,000,000
----------- ---------- ---------- ----------
59,728 27,107 47,543 1,718,187
----------- ---------- ---------- ----------
OPERATING EXPENSES:
Cost of sales (exclusive of depreciation
and amortization shown separately below)
(Note 7) 42,062 21,021 35,168 827,027
Selling, general and administrative
(Notes 6 and 8) 585,819 405,271 589,112 1,835,658
Research and development 21,222 -- -- 81,344
Depreciation and amortization 43,067 57,935 68,502 31,945
----------- ---------- ---------- ----------
692,170 484,227 692,782 2,775,974
----------- ---------- ---------- ----------
LOSS FROM OPERATIONS (632,442) (457,120) (645,239) (1,057,787)
----------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest income -- 32 32 12,622
Other income (Note 11) 548 100,000 --
Interest expense (35,342) (13,840) (30,759) (19,238)
Abandonment of leasehold improvements
and fixed assets -- (5,000) (5,000) (72,202)
----------- ---------- ---------- ----------
Total other income (expense) (34,794) (18,808) 64,273 (78,818)
----------- ---------- ---------- ----------
NET LOSS (NOTE 4) $ (667,236) (475,928) (580,966) $(1,136,605)
----------- ---------- ---------- ----------
NET LOSS PER SHARE
Basic and diluted
WEIGHTED AVERAGE NUMBER OF
OUTSTANDING SHARES $ (.06) $ (.06) $ (.07) $ (.14)
Basic and diluted 11,045,060 8,460,660 8,568,869 8,274,700
=========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 34
INTERNATIONAL FOAM SOLUTIONS, INC.
STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
(NOTE 8)
<TABLE>
<CAPTION>
Common Stock Additional Stock Total
---------------------- paid-in Subscriptions Treasury Stockholders'
Shares Amount Capital Deficit Receivable Stock Equity
--------- --------- ----------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 7,703,681 $ 77,037 $3,840,056 $(3,450,740) $ -- $ -- $ 466,353
Issuance of common stock for cash 55,401 554 124,691 -- -- -- 125,245
Compensation charges in connection
with issuance of warrants (Note 8) -- -- 71,472 -- -- -- 71,472
Issuance of common stock in
satisfaction of officers' accrued
compensation (Note 8) 447,971 4,480 667,476 -- -- -- 671,956
Issuance of common stock in
exchange for services 3,000 30 4,470 -- -- -- 4,500
Issuance of common stock in
connection with a legal
settlement agreement 206,000 2,060 -- -- -- -- 2,060
Net loss for year -- -- -- (1,136,605) -- -- (1,136,605)
---------- -------- ---------- ----------- -------- ----- --------
Balance at December 31, 1997 8,416,053 84,161 4,708,165 (4,587,345) -- -- 204,981
Issuance of common stock in
exchange for compensation and
professional services (Note 8) 270,000 2,700 76,299 -- -- -- 78,999
Issuance of common stock for cash 139,211 1,392 62,062 -- -- -- 63,454
Stock subscriptions receivable 25,000 250 9,750 -- (10,000) -- --
Treasury stock acquired -- -- -- -- -- (158) (158)
Net loss for year -- -- -- (580,966) -- -- (580,966)
---------- -------- ---------- ----------- -------- ----- --------
Balance at December 31, 1998 8,850,264 88,503 4,856,276 (5,168,311) (10,000) (158) (233,690)
Issuance of common stock for cash 3,594,759 35,948 537,722 -- -- -- 573,670
Issuance of common stock in
exchange for professional
services 122,842 1,228 49,226 -- -- -- 50,454
Exercise of options at $0.10 450,000 4,500 40,500 -- -- -- 45,000
Stock subscription receivable 55,525 555 21,655 -- (22,210) -- --
Issuance of common stock in
satisfaction of officers' accrued
compensation 600,000 6,000 154,000 -- -- -- 160,000
Compensation charges in connection
with issuance of options (Note 8) -- -- 82,000 -- -- -- 82,000
Net loss for the nine month
period -- -- -- (667,236) -- -- (667,236)
---------- -------- ---------- ----------- -------- ----- --------
Balance at September 30, 1999
(unaudited) 13,673,390 $136,734 $5,741,379 $(5,835,547) $(32,210) $(158) $ 10,198
---------- -------- ---------- ----------- -------- ----- --------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 35
INTERNATIONAL FOAM SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS
(NOTE 11)
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
NINE MONTHS NINE MONTHS YEARS ENDED
ENDED ENDED DECEMBER 31,
SEPTEMBER 30, SEPTEMBER 30, ------------------
1999 1998 1998 1997
------------- ------------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) $ (667,236) $ (475,928) $ (580,966) $ (1,136,605)
Adjustments to reconcile net loss to cash provided by
(used in) operating activities:
Depreciation and amortization 43,067 57,935 68,502 31,945
Issuance of common stock in exchange for
professional services 50,454 80,409 78,999 4,500
Stock option and warrant compensation 82,000 -- -- 71,472
Loss on disposal of fixed assets and leasehold improvements -- 5,000 5,000 72,202
Issuance of common stock in connection with a legal
settlement agreement -- -- -- 2,060
(Increase) in accounts receivable (1,623) (15,513) (18,529) (7,076)
Decrease (increase) in inventories 53,443 (82,228) (22,491) (205,470)
Decrease (increase) in prepaids and other -- 30,202 27,542 (17,053)
Decrease (increase) in deposits and other (761) 9,179 6,402 187,536
(Decrease) increase in accounts payable (61,960) 58,418 29,755 101,279
Increase in accrued expenses and other 73,276 200,595 239,365 14,936
-------------- ---------- ---------- ------------
Total adjustments 237,896 343,997 414,545 256,331
-------------- ---------- ---------- ------------
Cash used in operating activities (429,340) (131,931) (166,421) (880,274)
-------------- ---------- ---------- ------------
INVESTING ACTIVITIES:
Capital expenditures (20,428) -- -- (192,524)
Acquisition of patents -- -- -- (9,036)
-------------- ---------- ---------- ------------
Cash used in investing activities (20,428) -- -- (201,560)
-------------- ---------- ---------- ------------
FINANCING ACTIVITIES:
Proceeds from notes payable -- 208,714 208,714 408,372
Payments of notes payable (105,093) (100,579) (107,657) (14,379)
Purchase of treasury stock -- (158) (158) --
Proceeds from issuance of common stock 618,670 22,353 63,454 125,245
-------------- ---------- ---------- ------------
Cash provided by financing activities 513,577 130,330 164,353 519,238
-------------- ---------- ---------- ------------
Net increase (decrease) in cash and cash equivalents (Note 12) 63,809 (1,601) (2,068) (562,596)
Cash at beginning of period 1,145 3,213 3,213 565,809
-------------- ---------- ---------- ------------
Cash at end of period $ 64,954 1,612 $ 1,145 $ 3,213
============== ========== ========== ============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 36
INTERNATIONAL FOAM SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
1. SUMMARY OF SIGNIFICANT Organization and Business
ACCOUNTING POLICIES
International Foam Solutions, Inc, ("the
Company"), was incorporated in May of 1993
to distribute a patented recycling
technology for polystyrenes. Pursuant to the
patent, IFS, Inc. has developed a product
called "Styro Solve" which reduces
polystyrenes. Additionally, IFS, Inc. has
developed a variety of machines for the
application of Styro Solve, and methods of
recycling both the Styro Solve and the
"polygel" which results from the reduction
of polystyrenes.
Substantially all IFS, Inc.'s 1997 sales
have been to two companies located in Japan,
one of which has entered into an exclusive
distribution agreement. In addition, all of
IFS, Inc.'s 1998 sales have been to two
companies located in the U.S.
Use of Estimates
The preparation of financial statements in
conformity with generally accepted
accounting principles 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.
At September 30, 1999, a significant portion
of inventory is in excess of IFS, Inc.'s
requirements based on the recent level of
sales. Management has developed a program to
reduce this inventory to desired levels over
the near term and believes no loss will be
incurred on its disposition. No estimate can
be made of a range of amounts of loss that
are reasonably possible should the program
not be successful.
Interim Financial Statements
The financial statements for the nine months
ended September 30, 1999 and 1998 are
unaudited. In the opinion of management, such
financial statements include all adjustments
(consisting only of normal recurring
accruals) necessary for a fair presentation
of financial position and the results of
operations. The results of operations for the
nine months ended September 30, 1999 and 1998
are not necessarily indicative of the results
to be expected for the full year.
Cash and Cash Equivalents
IFS, Inc. considers all highly liquid
investments with an initial maturity of three
months or less when purchased to be cash
equivalents.
Inventories
Inventories consist principally of finished
goods and are stated at the lower of cost or
market. Cost is determined using the average
cost method.
Property and Equipment
Property and equipment is stated at cost
less accumulated depreciation and
amortization. Depreciation and amortization
are calculated on a straight line basis
based on the estimated useful lives of the
respective assets, generally 5 to 15 years.
F-7
<PAGE> 37
INTERNATIONAL FOAM SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
Patents
Patent costs consist principally of
associated legal fees and are capitalized
and amortized over their expected useful
lives not to exceed estimated legal lives of
17 years.
Fair Value of Financial Instruments
IFS, Inc.'s financial instruments consist
principally of cash, accounts and notes
payable and accrued expenses. The carrying
amounts of such financial instruments as
reflected in the accompanying balance sheets
approximate their estimated fair value. The
estimated fair value is not necessarily
indicative of the amounts IFS, Inc. could
realize in a current market exchange or of
future earnings or cash flows.
Revenue Recognition
Product sales revenue is generally
recognized when goods are shipped. License
fees are recognized over the period that the
Company is obligated to perform services, if
any.
Income Taxes
IFS, Inc. accounts for income taxes
pursuant to the provisions of Statement of
Financial Accounting Standards No. 109,
"Accounting for Income Taxes," which
requires, among other things, a liability
approach to calculating deferred income
taxes. The asset and liability approach
requires the recognition of deferred tax
liabilities and assets for the expected
future tax consequences of temporary
differences between the carrying amounts and
the tax bases of assets and liabilities.
Earnings Per Share
IFS, Inc. has adopted Statement of
Financial Accounting Standards ("SFAS") No.
128 "Earnings Per Share". Under SFAS No. 128,
primary earnings per share has been replaced
F-8
<PAGE> 38
INTERNATIONAL FOAM SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
with a presentation of basic earnings per
share and fully diluted earnings per share
has been replaced with diluted earnings per
share. Basic earnings per share excludes
dilution and is computed by dividing income
or loss available to common shares
outstanding for the period by the weighted
average of common shares outstanding.
Diluted earnings per share is computed
similarly to fully diluted earnings per
share in accordance with the Accounting
Principles Board ("APB") Opinion No. 15. The
impact of the adoption of SFAS No. 128 has
not been material.
IFS, Inc.'s potentially issuable shares of
common stock pursuant to outstanding stock
purchase options and warrants are excluded
from IFS, Inc.'s diluted computation as
their effect would be antidilutive to the
Company's net loss.
Asset Impairment
IFS, Inc. periodically reviews the carrying
value of certain of its assets in relation to
historical results, current business
conditions and trends to identify potential
situations in which the carrying value of
assets may not be recoverable. If such
reviews indicate that the carrying value of
such assets may not be recoverable, the
Company would estimate the undiscounted sum
of the expected future cash flows of such
assets to ascertain if a permanent impairment
exists. If a permanent impairment exists, the
Company would determine the fair value using
quoted market prices, if available, for such
assets, or if quoted market prices are not
available, IFS, Inc. would discount the
expected future cash flows of such assets.
Impairments are recognized as a charge to
operations when the expected future operating
cash flows to be derived from such intangible
assets are less than their carrying values.
F-9
<PAGE> 39
INTERNATIONAL FOAM SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
Recent Accounting Pronouncements
In June 1998, the Financial Accounting
Standards Board issued Statement of
Financial Accounting Standards (SFAS) No.
133, "Accounting for Derivative Instruments
and Hedging Activities," which establishes
accounting and reporting standards for
derivative instruments and for hedging
activities. It requires that an entity
recognizes all derivatives as either assets
or liabilities in the statement of financial
position and measures those instruments at
fair value. The statement applies to all
entities and is effective for all fiscal
quarters of fiscal years beginning after
June 15, 2000. IFS, Inc. has not engaged in
derivative instruments or hedging activities
in any periods presented in the financial
statements and management does not expect
this statement to have a material impact on
IFS, Inc.'s financial position, results of
operations, or cash flows.
2. LIQUIDITY The accompanying financial statements have
been prepared assuming IFS, Inc. will
continue as a going concern. This basis of
accounting contemplates the recovery of the
Company's assets and the satisfaction of its
liabilities in the normal course of
operations.
During the latter part of 1997 and 1998 the
Company experienced protracted litigation
which diverted management's efforts from its
core business, and effectively curtailed the
Company's marketing programs. IFS, Inc.
has been in settlement negotiations to
reduce the quantity of outstanding
litigation and the threat of any potentially
adverse findings. Management believes that
resolving many of these matters through
settlements will enable it to focus much
more of its attention on sales and to spend
more of its time on sales activities.
Management believes that with the increased
time spent on marketing efforts, increased
sales will result. Since it will be mostly
an increase of time spent by management
which will be utilized in marketing and
sales activities as opposed to increased
costs for, among other things, advertising,
IFS, Inc. does not foresee the need for
substantial, additional capital to perform
such increased marketing and sales
activities. In the event that substantial,
additional capital is required, however, the
Company would be required to seek outside
funding mechanisms, of which no assurances
are given that any funding would be made
available to IFS, Inc. or if made
available, on terms satisfactory to the
Company. In summary, during 1999 certain
aspects of the previously mentioned
litigation were resolved and IFS, Inc. was
able to refocus and continue its marketing
efforts.
IFS, Inc. anticipates, based on current
plans and assumptions relating to revenues
from operations, that revenues from
operations and additional third party
funding or investment, if available, will be
sufficient to satisfy IFS, Inc.'s
estimated cash requirements to continue its
operations. In this connection, over the past
3 months IFS has responded to RFPs (Request
For Proposal) valued at over $10,000,000. IFS
has provided live demonstrations to a minimum
of 25 prospects and has received further
interest; some of which are submitting the
Styro Solve System to their budgets. The
types of potential clients that have
submitted RFPs include multiple school
districts and corporations with in-house
cafeterias. These customers are either
currently testing the Styro Solve System or
are scheduled to begin testing the Styro
Solve System.
Unlike the Internet, the market for IFS is
not relatively new and rapidly evolving. The
market is established and there is long
standing need for reductions in waste
disposal costs. New legislation in various
parts of the country have been enacted to
reduce waste disposal by a 50% volume in
landfills. This makes the Styro Solve System
even more viable. IFS believes that the
Styro Solve System is the only economical,
closed loop, polystryene recycling process
available in the world today. IFS, Inc. has
no firm current
F-10
<PAGE> 40
INTERNATIONAL FOAM SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
arrangements with respect to, or sources of,
additional financing. There can be no
assurance that any such additional financing
will be available to IFS, Inc., and if
available, will enable IFS, Inc. to attain
profitable operations or continue as a going
concern. Through September 30, 1999 and
December 31, 1998, IFS, Inc. has incurred
losses totaling $5,835,547 and $5,168,311.
Negative working capital aggregated $256,025
at September 30, 1999 and $441,330 for
December 31, 1998. In addition, IFS, Inc.
is in violation of certain of its loan
covenants.
3. PROPERTY AND EQUIPMENT Property and equipment is comprised of the
following:
<TABLE>
<CAPTION>
SEPTEMBER 30
1999 DECEMBER 31,
(UNAUDITED) 1998
------------- -----------
<S> <C> <C>
Warehouse equipment $ 111,869 $ 111,869
Office furniture 64,415 64,415
Computer hardware and equipment 50,118 47,951
Field demonstration units 63,261 45,000
Vehicles 24,353 24,353
-------------- -------------
314,016 293,588
Less accumulated depreciation (120,697) (87,965)
-------------- -------------
$ 193,319 $ 205,623
============== =============
</TABLE>
4. INCOME TAXES At September 30, 1999 and December 31, 1998,
IFS, Inc. had Federal net operating loss
carryforwards of approximately $4,790,000
and $4,137,000 respectively, for income tax
purposes. The net operating losses expire in
varying amounts to 2019. Realization of any
portion of the approximate $1,988,000 or
$1,740,000 deferred tax asset at September
30, 1999 and December 31, 1998,
respectively, resulting from the net
operating loss carryforwards, is not
considered more likely than not and,
accordingly, a valuation allowance has been
established for the full amount of such
asset.
The net deferred tax asset is comprised of the following:
September 30, December 31,
1999 1998
- ----------------------------------------------------------------------------
(Unaudited)
Deferred tax assets:
Net operating loss carryforward 1,802,000 1,557,000
Allowance for bad debts 50,000 50,000
Accrued expenses 48,000 78,000
Other 88,000 55,000
- -----------------------------------------------------------------------------
1,988,000 1,740,000
Deferred tax liability:
Depreciation (11,000) (11,000)
- -----------------------------------------------------------------------------
Net deferred tax asset 1,977,000 1,729,000
Deferred tax asset valuation allowance (1,977,000) (1,729,000)
- -----------------------------------------------------------------------------
Net deferred tax asset -- --
F-11
<PAGE> 41
INTERNATIONAL FOAM SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
5. NOTES PAYABLE IFS, Inc.'s notes payable consists of the
following:
<TABLE>
<CAPTION>
September 30,
1999
(Unaudited) December 31, 1998
----------------- -----------------
<S> <C> <C>
Equipment note payable in monthly
installments of $3,030 including
principal and interest at a fixed rate
of 6.5%, maturing July 1, 2004,
collateralized by equipment. IFS,
Inc. is in default under the terms
of this loan and in violation of certain
covenants. $ 177,800 $ 200,000
Shareholder loan payable in monthly
principal installments of $5,000 and
interest computed at prime rate
(8.25% at September 30, 1999 and
7.75% at December 31, 1998)
due on March 1, 2001. 70,746 111,553
Equipment loan payable in monthly
installments of $3,555 including
principal and interest, maturing in
June 2003. (42% at September 30, 1999
and December 31, 1998) 90,513 97,052
Shareholder loan principal and
interest due 90 days after date of
note. All loans are past due and
accrue interest at a 10% annual
fixed rate. 30,898 66,445
Related party loan, principal and
interest due 90 days after date of
note. Loan is past due and accrues
interest at a 10% annual fixed rate 20,000 20,000
------------- --------------
Total 389,957 495,050
Less current portion (302,017) (326,649)
------------- --------------
87,940 168,401
============= ==============
</TABLE>
At September 30, 1999 annual maturities of
long term debt approximates the following:
Amount
-----------
1999 $ 247,000
2000 70,000
2001 21,000
2002 29,000
2003 22,000
-----------
$ 389,000
===========
As discussed in Note 7, IFS, Inc. is a
guarantor for a shareholder's loan to the
bank. During 1999, both the shareholder and
IFS, Inc. (as guarantor) were in default.
In this connection, IFS, Inc. and its
shareholder's entered in a forbearance
agreement with the bank on June 19, 1999.
Among other things, the forbearance
agreement provides for the collaterization
of all of IFS, Inc.'s assets and a
rescheduling of the amounts due. The
attached financial statements give effect to
the forbearance agreement.
F-12
<PAGE> 42
INTERNATIONAL FOAM SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
6. COMMITMENTS AND IFS, Inc. occupies premises under a
CONTINGENCIES month-to-month lease for $1,000 a month
with HKI, Inc., a related party.
Rent expense for the nine months ended
September 30, 1999 and 1998 and the years
ended December 31, 1998 and 1997 was $34,745,
44,426, $52,188, and $214,439, respectively.
During May 1998 IFS, Inc.'s old lease for
its facility and office space was terminated,
and IFS, Inc. entered into a new
month-to-month lease of $1,000 per month. In
connection with IFS, Inc.'s lease
termination, IFS, Inc. settled with the
landlord for the balance of the rent relating
to the unexpired lease term.
On October 1, 1996, IFS, Inc. entered into
employment agreements with two officers of
IFS, Inc. Each agreement provides for a
term of five years renewable annually upon
mutual consent, with base annual salaries
for the two officers aggregating
approximately $250,000. These employment
agreements provide that the officers may
receive an incentive bonus based upon
performance. In October 1997, such agreements
were modified to reduce annual salaries to
$160,000.
On April 5, 1999, IFS, Inc. entered into
an employment agreement with its chief
operating officer. The agreement provides
for a term of three years with base annual
salary of $50,000. Under the terms of the
agreement, the chief operating officer is
entitled to a performance bonus based on
sales and earnings (as defined). In
connection with this agreement, IFS, Inc.
issued 1,150,000 options to purchase
Company's common stock over five years at
exercise prices ranging from $0.10 to $1.00
through 2004. During 1999, 450,000 options
were granted.
F-13
<PAGE> 43
INTERNATIONAL FOAM SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
In May 1997, IFS, Inc. and certain
stockholders executed a settlement agreement
with an individual. IFS, Inc. agreed to
issue the individual his proportionate share
of the 1995 stock dividend and certain
stockholders of IFS, Inc. agreed to
transfer their ownership of 230,125 shares
of IFS, Inc.'s common stock to the
individual in settlement of the lawsuit. The
$345,188 fair value of the shares of common
stock to be transferred by the stockholders
in settlement of the litigation against the
Company had been recorded in selling,
general and administrative expenses and
additional paid-in capital in the 1995
financial statements.
IFS, Inc. is involved in several legal
proceedings for which the accompanying
balance sheets as of September 30, 1999
(unaudited) and December 31, 1998, includes
accrued legal settlement cost of $83,000.
The proceedings are as described below:
(1) Greenfield v. International Foam
Solutions, Inc., et al., case no.
98-005083 in Palm Beach Circuit Court,
Palm Beach County, Florida. Leo
Greenfield is an alleged Company
stockholder who sued IFS, Inc. for,
among other things, breach of fiduciary
duty and related causes of action. He
has also sought to appoint a receiver
of the corporation. He claims that many
IFS transactions involved conflicts of
interest and seeks to void same. The
matter is in the discovery phase of the
litigation. No trial dates have been
set. IFS, Inc. and Mr. Greenfield
have reached a verbal agreement to
fully resolve the matter, however, no
written agreements have been executed
although same have been sent to Mr.
Greenfield for his signature several
months ago. IFS, Inc. intends to
continue to vigorously defend this
matter in the event that settlement
documents are not executed. No amount
of claim has been asserted, IFS, Inc.
and counsel believes that IFS will be
successful in defending this matter.
(2) A.L. Garey v. International Foam
Solutions, Inc., et al., case no.
97-18073 COCE 53 in Broward County
Court, Broward County, Florida. A.L.
Garey was a prior manufacturer of the
Solution Machines. The plaintiff claims
it is owed approximately $10,000 for
parts which it allegedly purchased in
connection with the fulfillment of the
Company's order, but which were
unassembled by it because of a mutual
termination of their agreement for the
plaintiff to manufacture the Solution
Machines. IFS, Inc. alleges that the
plaintiff caused damages in excess of
$10,000 by negligently designing and
constructing the machines. IFS, Inc.
recently settled this matter.
(3) Florida First Capital Finance
Corporation v. International Foam
Solutions, Inc., et al., case no.
C1099-371-35, Orange County Circuit
Court, Orange County, Florida. In
January 1999, the plaintiff sued the
Company alleging that it is in default
of a promissory note in the principal
amount of $200,000. IFS, Inc.
contends it does not owe the full
amount allegedly past due. The
proceeding is in the discovery phase.
No trial dates have been set. The
Company has recorded the outstanding
amount of the promissory note on the
balance sheet.
(4) Northcutt, et al. v. International Foam
Solutions, Inc., et al., case number
98-001836 AB, Palm Beach County Florida
Circuit Court. The plaintiffs are
shareholders of IFS, Inc. and alleged
certain causes of action substantially
similar to, and to IFS, Inc.'s belief
in cooperation with, Mr. Greenfield's
litigation against IFS, Inc. (see
(#1) above). However, this case was
dismissed with leave to amend and the
plaintiffs failed to amend their
complaint within the time allowed by
the judge. Accordingly, the matter is
ripe for dismissal; and IFS, Inc.
will move the court for dismissal;
accordingly no liability has been
accrued.
(5) Keefer v. International Foam Solutions,
Inc., case no. 98-006525, Palm Beach
County Florida Circuit Court. Mr.
Keefer is a former employee who has
sued IFS, Inc. for alleged breach of
an employment contract. Mr. Keefer
claims he is entitled to a severance
pay in the amount of approximately
$56,000.00 under the employment
contract because he alleges he was
terminated without cause. However, it
is IFS, Inc.'s position that Mr.
Keefer walked off the job and
effectively quit, and accordingly, not
entitled to any severance under the
employment agreement. IFS, Inc.
recently settled this matter. The
settlement requires that IFS, Inc.
issue restricted stock to the Plaintiff
and make certain payments over the
course of less than one year. The exact
terms of the agreement are confidential
by agreement of the parties.
(6) D'Agostino v. International Foam
Solutions, Inc., case no. 98-6523 AB,
Palm Beach County, Florida Circuit
Court. Mr. D'Agostino is a former
employee who has sued IFS, Inc. for
breach of an employment contract.
D'Agostino claims he is entitled to a
severance pay in the amount of
approximately $42,000 under an
employment contract because he alleges
he was terminated without cause.
However, IFS, Inc. terminated
D'Agostino with cause and accordingly,
D'Agostino was not entitled to the
severance under the employment
agreement. IFS, Inc. recently settled
this matter. The settlement requires
that IFS, Inc. issue restricted stock
to the Plaintiff and make certain
payments over the course of less than
one year. The exact terms of the
agreement are confidential by agreement
of the parties.
(7) DiChiara v. International Foam
Solutions, Inc., case number CL 98-9930
AH, in the Palm Beach County Florida
Circuit Court. Mr. Dichiara is a former
employee who has sued IFS, Inc. for,
among other things, alleged breach of
an employment contract. Dichiara claims
he is entitled to a severance pay in
the amount of approximately $80,000
under the employment contract because
he alleges he was terminated without
cause. However, IFS, Inc. contends
that it entered into a new agreement
with Dichiara to be employed in a
different capacity, which was treated
as a novation of the former agreement
with Dichiara, and as such Dichiara was
not entitled to the severance under the
former employment agreement. A trial
which was originally scheduled for
February 22, 2000, has been continued to
a later undetermined date, and will be
vigorously defended by IFS, Inc.
(8) Ecological Technologies, Inc. v.
International Foam Solutions, Inc.,
case number 98-003218 in the Palm Beach
County Florida Circuit Court. The
plaintiff sued IFS, Inc. for breach
of a promissory note and is attempting
to foreclose on certain Japanese patent
rights of IFS, Inc. which were
pledged as collateral for the note. A
judgment was entered against the
Company in the amount of approximately
$11,000. However, IFS, Inc. has
satisfied this in full. The plaintiff
also sued IFS, Inc. for damages due
to its allegation that IFS, Inc. is
doing business in Japan, where the
plaintiff claims it has exclusive
territorial rights, a claim which the
Company denies. No trial date has been
set and the parties will engage in
discovery on this separate claim for
damages. IFS, Inc. will vigorously
defend this lawsuit.
(9) Robert Kauffman v. International Foam
Solutions, Inc., et al., case number
99012968, in the Broward County Florida
Circuit Court. Mr. Kauffman, who has
alleged that he was the former CEO of
IFS, Inc. has sued IFS, Inc. for,
among other things, breach of an
employment agreement, claiming damages
in excess of $150,000 resulting from
IFS, Inc.'s alleged breach of the
employment agreement. It is the
Company's position that Mr. Kauffman,
although he executed the agreement,
never activated the contract or assumed
the role of CEO and otherwise materially
failed to perform under the agreement.
This case is in the discovery phase and
IFS, Inc. intends to vigorously defend
this matter. In this connection, IFS,
Inc. does not believe it has any
obligations to Mr. Kauffman.
Accordingly, it is too early for counsel
to assess the likelihood of success,
therefore no amounts have been accrued.
(10) Sovis & Scholl v. International Foam
Solutions, Inc., case number MC
99-14670 RE, in the Palm Beach County
Florida Circuit Court. The Plaintiffs
claimed they were mislead by a former
Company employee when they purchased
IFS, Inc.'s stock. They sought to
rescind their stock purchase. The
plaintiffs and IFS, Inc. have
verbally agreed to settle the case and
the parties are in the process of
executing settlement agreements. The
Company, without admitting the
allegations of the complaint, will pay
the plaintiffs a sum over a three month
period; such amount was accrued at
December 31, 1998 and September 30,
1999.
(11) Waterview Resolution Corp. ("WRC"). WRC
has sent IFS, Inc. a demand letter
seeking the payment of $11,166.79 which
WRC claims is a deficiency balance owed
by IFS, Inc. when WRC sold certain
equipment in connection with an alleged
default of an equipment lease. The
Company denies that any sums are due
under any lease agreement. The parties
have not engaged in any settlement
discussions and no litigation has been
filed, although WRC still claims such
amount is due. Accordingly, it is too
early for counsel to assess the
likelihood of success, therefore no
amounts have been accrued.
IFS, Inc. is or may become involved in
various lawsuits, claims and proceedings in
the normal course of its business, including
those pertaining to product liability,
environmental, safety and health, and
employment matters. IFS, Inc. records
liabilities when loss amounts are determined
to be probable and reasonably estimatable.
Insurance recoveries are recorded only when
claims for recovery are settled. Although
generally the outcome of litigation cannot
be predicted with certainty and some
lawsuits, claims or proceedings may be
disposed of unfavorably to IFS, Inc.,
management believes, based on facts
presently known, that the outcome of such
legal proceedings and claims, other than
those previously disclosed, will not have a
material adverse effect on IFS, Inc.'s
financial position, liquidity, or future
results of operations.
F-14
<PAGE> 44
INTERNATIONAL FOAM SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
7. RELATED PARTY TRANSACTIONS IFS, Inc. entered into an agreement with
HKI, Inc. ("HKI") in a prior year, a company
related through common ownership. Under the
agreement, HKI acquired and resold the Styro
Solve solution to IFS, Inc. In
consideration for the solution HKI received a
bottling fee of 5% to 10% of the cost of the
solution depending on the volume of the
purchases. Included in cost of sales are the
gross purchases for the nine months ended
September 30, 1999 and 1998 and the years
ended December 31, 1998 and 1997 of
approximately $0, $4,000, $4,000 and
$441,000, respectively, pursuant to this
agreement. $5,900 and $28,000 was owed to HKI
at September 30, 1999, and December 31, 1998
respectively.
IFS, Inc. has borrowed funds from two
shareholders with balances at September 30,
1999 and December 31, 1998 of $30,898 and
$66,450, respectively. The notes accrue
interest at a rate of 10% and are currently
past due. Additionally, the same shareholders
loaned IFS, Inc. money they received from a
line of credit with a commercial bank. At
September 30, 1999 and December 31, 1998, the
balance of the loan was $71,000 and $112,000,
respectively. Under the terms of the
agreement with the commercial bank, the
Company is guarantor of the amounts due to
the bank by the two shareholders. In
addition, substantially all assets of the
Company are collateral for the loan.
F-15
<PAGE> 45
INTERNATIONAL FOAM SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
8. STOCKHOLDERS' EQUITY During 1996, IFS, Inc. sold 1,548,663
(DEFICIT) units (of which 1,363,333 units were sold in
connection with a private placement)
consisting of 1 share of common stock and a
warrant to purchase 1 share of common stock
for $2.50 expiring May 31, 2001. The sales
of the units raised net proceeds of
$2,076,106. In connection with this private
placement, in January 1997, agents of the
underwriters were issued warrants to
purchase 411,333 shares of common stock,
exercisable at $1.50 per share through May
31, 2001.
During the year ended December 31, 1997, the
Company issued 447,971 shares of common stock
to the officers of IFS, Inc. in
satisfaction of accrued compensation of
$671,956 that was recorded in 1996. The
Company also granted warrants to purchase
569,504 shares of common stock between $2.50
and $3.75 per share expiring on May 31, 2001
to certain employees and consultants (of
which 86,533 were granted to consultants). In
connection with the issuance of the warrants
to consultants, IFS, Inc. recorded a charge
to consulting fees with a corresponding
credit to additional paid in capital in the
amount of $71,472. IFS, Inc. valued these
warrants using the Black-Scholes Method.
During 1997, IFS, Inc. issued an
additional 55,401 shares of common stock
raising proceeds of $125,245, in connection
with this issuance, IFS, Inc. granted
warrants to purchase 13,000 shares of common
stock at $2.50 per share, expiring on May
31, 2001.
During 1998, IFS, Inc. issued 139,211
shares of common stock raising proceeds of
$63,454. IFS, Inc. issued 270,000 shares of
stock to individual and consultants for
services rendered. In connection with the
issuance of the stocks, IFS, Inc. rendered
a charge to consulting fees with a
corresponding credit to paid in capital in
the amount of $78,999. Additionally, 25,000
shares of common stock were issued at $0.40
per share; such amount is recorded as a
subscription receivable of $10,000.
During the nine month period ended September
30, 1999, IFS, Inc. issued 3,594,759
shares of common stock raising proceeds of
$573,670. Additionally, 600,000 shares of
stock were issued to two officers for
services rendered aggregating $160,000.
Between April 1, 1999 and July 31, 1999, the
Company issued to an officer, options to
purchase 1,150,000 shares of IFS, Inc.'s
common stock at prices ranging from $.10 to
$1.00. The options vest from April 1999 to
April 2000 and have expiration dates ranging
from July 1999 to April 2002. IFS, Inc.
valued these options using the Black-Scholes
Method. 450,000 options were exercised
during the nine month period ended September
30, 1999.
F-16
<PAGE> 46
9. STOCK BASED COMPENSATION IFS, Inc. applies Accounting Principles
Board ("APB") Opinion No. 25, Accounting for
Stock Issued to Employees, and related
interpretations in accounting for warrants
issued to employees. Under APB Opinion 25,
because the exercise price of IFS, Inc.'s
employee warrants was equal to or greater
than the market price of the underlying
stock on the date of grant, no compensation
cost was recognized.
SFAS No. 123, Accounting for Stock-Based
Compensation, requires IFS, Inc. to
provide pro forma information regarding net
income (loss) as if compensation costs for
the warrants issued to employees had been
determined in accordance with the fair value
based method prescribed in SFAS No. 123. The
Company estimates the fair value of each
warrant issued at the grant date by using
the Black-Scholes option-pricing model with
the following weighted-average assumptions
used for grants for the periods below:
<TABLE>
<CAPTION>
For the years
For the nine ended
months ended December 31,
September 30, ----------------------
1999 1998 1997
---------------- -----------------------
(Unaudited)
<S> <C> <C> <C>
Dividend yield None not applicable None
Expected volatility 46.10% not applicable 46.10%
Risk-free interest rates 5.58% not applicable 6.25%
</TABLE>
Under the accounting provisions of FASB
Statement No. 123, IFS, Inc.'s net loss
and loss per share would have been as
follows:
<TABLE>
<CAPTION>
For the years
ended
For the nine December 31,
months ended -------------------------------
September 30, 1999 1998 1997
------------------------- -------------------------------
(Unaudited)
<S> <C> <C> <C>
Pro forma net loss
As reported $ (667,236) $(580,966) $(1,136,605)
Pro forma (715,236) (580,966) (1,352,050)
---------- -------- -----------
Pro forma net loss per
common share - basic and
dilutive
As reported $ (.06) $ (.07) $ (.14)
Pro forma (.06) (.07) (.16)
========== ======== ===========
</TABLE>
F-17
<PAGE> 47
INTERNATIONAL FOAM SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
A summary of the status of IFS, Inc.'s warrants
as of September 30, 1999 (unaudited) and December
31, 1998 and 1997, and changes during the periods
ending on those dates, is presented below:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998 December 31, 1997
(Unaudited)
--------------------- --------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------ ---------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of the
period 2,993,154 $ 2.37 2,993,154 $ 2.37 2,103,317 $ 2.44
Granted -- -- -- -- 993,837 2.10
Exercised -- -- -- -- (4,000) 2.50
Forfeited -- -- -- -- (100,000) 1.25
---------- --------- --------- ---------- -------- ---------
Outstanding at the
end of the period 2,993,154 $ 2.37 2,993,154 $ 2.37 2,993,154 $ 2.37
---------- --------- --------- - --------- -------- ---------
Warrants exercisable
at the end of the 2,993,154 $ 2.37 2,993,154 $ 2.37 2,993,154 $ 2.37
period
Weighted average fair
value of warrants
granted during the
period -- -- -- -- $ .59 --
========== ========= ========= ========== ======== =========
</TABLE>
F-18
<PAGE> 48
INTERNATIONAL FOAM SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
The following table summarizes information
about the warrants outstanding at September
30, 1999 (unaudited) and December 31, 1998.
<TABLE>
<CAPTION>
Warrants Outstanding Warrants Exercisable
---------------------------- ------------------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Contractual Exercise Number Exercise
Prices Life Price Exercisable Price
-------------- ----------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
September 30, 1999 $1.50 - $3.75 1.67 $ 2.37 2,993,154 $ 2.37
December 31, 1998 $1.50 - $3.75 2.33 $ 2.37 2,993,154 $ 2.37
</TABLE>
11. LICENSING FEE On or about January 11, 1997, IFS, Inc.
entered into an agreement with Styro Japan
Co., Ltd., a Japanese corporation ("SJC"),
whereby IFS, Inc. sold SJC an exclusive
license to utilize and develop IFS, Inc.'s
patented process for polystyrenes in Japan.
Under the terms of the agreement, among
other things, IFS, Inc. was paid an
initial nonrefundable fee of $1,000,000, of
which IFS, Inc. paid a commission totaling
$250,000 to a sales representative. The
license differs from a distribution
agreement, that was entered into in May 1998
as the former grants the use of the patented
recycling process, whereas the latter grants
the right to sell IFS, Inc.'s products,
such as the Solution Machines and Styro
Solve. The distribution agreement expires in
2008. In addition, pursuant to the
distribution agreement, SJC is obligated to
purchase a minimum of $500,000 in product by
December 31, 1998. SJC is in default with
respect to the minimum order provision of
its distribution agreement with IFS, Inc..
According to the distribution agreement, in
the event that SJC does not order a minimum
of $500,000, IFS, Inc. is entitled to a
$100,000 premium from SJC. During 1998, the
Company recorded the $100,000 premium as
other income. No other sales occurred in
1997, 1998 or 1999 between IFS, Inc. and
SJC.
F-19
<PAGE> 49
INTERNATIONAL FOAM SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
WITH RESPECT TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
12. NON-CASH FINANCING During the year ended December 31, 1997, IFS,
Inc. issued 447,971 shares of common
stock in satisfaction of accrued 1996
officers' compensation of approximately
$672,000. Cash paid for interest aggregated
$19,238 and $30,759 in December 31, 1997 and
1998, respectively and $23,070 and $35,342
for the nine months ended September 30, 1998
(unaudited) and 1999 (unaudited),
respectively.
During the nine month period ended September
30, 1999, IFS, Inc. issued 600,000 shares
of common stock as satisfaction of accrued
1998 officers' compensation of approximately
$160,000.
13. Subsequent Event Effective November 15, 1999, IFS, Inc. was
no longer in compliance with the National
Association of Securities Dealers, Inc.
(NASD(R)) filing requirements. Accordingly,
the letter "E" was appended to the trading
symbol. Once the NASD receives notification
that IFS, Inc. complies with the filing
requirement, the fifth character "E" will be
removed. IFS, Inc.'s common stock
currently trades on the "Pink Sheets". The
Company expects to be compliant in the near
future.
F-20
