U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended APRIL 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the transition period from _________ to __________
Commission File Number 33-10970 N.Y.
____________IFS INTERNATIONAL, INC.___________
(Name of small business issuer in its charter)
___________DELAWARE____________ _____13-3393646____
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
RENSSELAER TECHNOLOGY PARK, 185 JORDAN RD., TROY, NY 12180
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (518)283-7900
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
______NONE_________ __________NONE___________
Securities registered under Section 12(g) of the Exchange Act:
__________________________________NONE_____________________________________
(Title of class)
__________________________________NONE_____________________________________
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes__X__ No____
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year.
___________$2,440,783____________________
The aggregate market value of the voting stock held by non-affiliates computed
(based on the closing bid price of the Registrant's common stock on June 30,
1996 which was $.25 per share) was approximately ____$1,559,868_____.
As of April 30, 1996, there were 10,093,612 shares of IFS International, Inc.
common stock, par value $.001 per share outstanding.
The exhibit page begins at page 14.
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PART I
ITEM 1. BUSINESS
GENERAL AND RECENT DEVELOPMENTS
INTRODUCTION
IFS International, Inc. (the Company or IFS), was originally incorporated in
Delaware in September 1986 under the name Wellsway Ventures, Inc. (WWV). WWV
was formed with limited assets as a blind pool to obtain proceeds from a public
offering and then to acquire an existing business entity. In October 1987 WWV
completed a public offering. Prior to April 1989 WWV had no business or
operations. In April 1989 WWV acquired IFS International, Inc. (formerly named
Avant-Garde Computer Systems, Inc.), a New York corporation engaged in the
development and marketing of computer software. IFS is an international
systems integrator, providing cost-effective solutions to the financial
industry. In a very competitive arena, IFS has established a reputation as an
international supplier of automatic teller machine (ATM) software, IBM host
applications and UNIX-based financial processing systems.
The mission of IFS is to identify, develop, market, install and support the
full range of industry standard systems required by the ever changing financial
community. As an industry innovator,
IFS is in the forefront researching and introducing new products and ideas to
meet the increasing demands of the financial industries.
HISTORY AND BACKGROUND OF IFS
The Company was initially organized to provide software, systems support and
technical backup needed by financial institutions implementing automatic teller
systems.
Initially, the major focus of the Company's product line was ATM software,
branch automation system software and applicable IBM mainframe support
applications. As the Company gained extensive experience in a wide range of
financial services environments, many new specialty areas for financial systems
were developed.
In 1988, IFS identified Open Systems, the relational database technologies, as
well as the UNIX operating system as state-of-the-art computer technology that
would be the platform to provide the future for Electronic Funds Transfer (EFT)
systems. The investment of over $4 million, together the cooperation of
various hardware companies including Digital Equipment Corporation, Hewlett
Packard, IBM and Unisys and IFS' experience of 12 years specializing in EFT,
culminated in the development of the Company's TechNique Plus II (TPII) product
in the latter part of 1991.
The Company announced in 1990 that it installed the first live VISA cash
advance transaction in the Czech Republic into Visa International, for a
project done in conjunction with Czech Savings Bank Company LTD. The system
made available cash advances from the ATMs within the Czech Savings Bank's
network utilizing the Company's UNIX-based EFT management system. The Company
designed the intercept processor/switch system to fit into any financial
processing system worldwide.
In 1992, the Company opened a sales office in London, England to serve existing
customers and aggressively prospect for new business opportunities. In 1994,
an office was opened in Singapore and a subsidiary, IFS International, Inc. (S)
Pte Ltd., was established to conduct business in the Far East. This subsidiary
is currently inactive.
The Company is currently working closely with Eurocard, (Mastercard's European
Division), VISA International and several other ATM networks on providing its
low-cost, industry-standard system to their customers.
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RELATIONSHIP WITH HARDWARE VENDORS
The Company was previously dependent to a large extent on its relationship with
NCR for the source of its hardware (ATMs and computers) and marketing of its
products. The Company's latest product, TPII, enabled it to enter into new
business relationships with other hardware vendors. The Company currently has
formed marketing relationships with IBM, UNISYS, ORACLE and Digital Equipment
Company, LTD. and is a Value Added Reseller (VAR) for each.
PRODUCTS
ATM RELATED PRODUCTS
TECHNIQUE
Presently, the primary source of revenue is from the Company's TPII product.
Prior to the development of TPII, the Company's principal source of revenue was
the installation of turnkey ATM systems under the name TechNique. The
TechNique system is marketed as a package or turnkey product for all of the
functions and components of an NCR ATM installation or upgrade. The package,
which includes ATM hardware and Company proprietary software, enables a
client's depositors to perform electronic funds transfers and interfaces with
the Bank's host computer or data center. The package also includes depositors'
access card encoding, training, support, documentation and consumer marketing.
The Company also sells individual components in addition to entire system
packages.
The TechNique software enables an ATM to perform EFT functions, including
withdrawals, deposits and recording of the transactions by the host computer.
Generally, the ATM interfaces and communicates with a host bank computer or
processing center which contains the detailed records of customer accounts. A
computer transaction recording a withdrawal is effected by the bank computer
and transmitted (in micro seconds) to the ATM through "on-line processing."
The program also has the capacity to enable the ATM to operate when the bank's
central computer is shut down ("off-line processing"). In the off-line
processing mode, the card number and credit limits of the users are stored
directly on the ATM card. Any transaction is recorded and stored on tape or
disc in the ATM. When the system is placed back on-line, these transactions
are recorded by the bank host computer or service center. The TechNique
software is offered with optional enhancements, including standardized and
custom enhancements such as voice, graphics and multilingual capability.
The Company no longer actively markets TechNique, whose primary market was
community banks, and as a result new installations and revenues are minimal.
TECHNIQUE PLUS
In 1987, the Company commenced marketing an IBM host software application
package called TechNique Plus. This package interfaces the ATM and local,
regional and national ATM/EFT networks with the IBM host computer using IBM
CICS software. CICS is a database widely used by many larger-sized banks in
connection with their IBM mainframes. The TechNique Plus software package
enabled a client to perform the same functions as the basic TechNique package
as well as some additional features. The TechNique Plus system package
incorporates an intercept processing software module which enables the ATM and
host computer to interface with local, regional, shared or national EFT
networks as well as various credit card issuers (VISA, AMEX, MASTERCARD). A
significant feature of the intercept module is that it does not route customer
transactions on the host bank's account to the network, thereby saving the host
bank the network transaction fee. (See description of TechNique Plus II).
TechNique Plus was utilized as the foundation for the Company's TPII product,
described below. The Company is no longer marketing TechNique Plus and revenues
are minimal from this product.
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TECHNIQUE PLUS II (TPII)
In 1990, the Company announced a new application software package to be
marketed under the name: TechNique Plus II. The TechNique Plus II program is
written in C language and operates on any hardware platform utilizing the UNIX
operating system and, therefore, becomes portable across systems in multi-
vendor environments. In fiscal year 1992, the Company installed its' first
beta test sites and continues to work with these initial customers on enhancing
the TechNique Plus II product which is now commercially available. The product
has been installed at over 22 locations with an additional 10 installations in
process.
Also known as the Prefix Processor, TPII is an EFT network manager designed to
"front-end" a financial institution's central processing unit acting as an
intermediary between such processing unit and the ATMs (or other transaction
source) in several possible configurations. TPII can be located at the main
office, a branch or at a data processing facility. The software package
provides for 7-day, 24-hour remote banking which utilizes customer balance
files and communicates with the clients' in-house computer or data center on a
continuous (real time) or batch basis with no changes required to existing host
application software. The Prefix Processor is designed to interface with the
host computer. It is capable of sending or receiving messages from ATMs, Point
of Sale (POS) devices and EFT networks and host processors. It processes
transactions without the necessity of interfacing with the main or host
processor and periodically inputs the transactions into the mainframe. It
contains the intercept module of TechNique Plus and, as such, eliminates
reliance on third parties for performing certain functions on a fee basis. For
example, a transaction initiated by a customer of a bank at the bank's ATM
belonging to a larger shared EFT network generally is initially routed to the
network computer for a fee before it is routed back to the bank's host computer
for an "on us" transaction. The intercept module routes the "on us"
transaction to the bank for direct processing of the bank's own customer,
thereby bypassing the network. This feature has recently become valuable with
a legal ruling preventing the networks from precluding membership unless "on
us" transactions were routed to it initially.
The Prefix Processor enables clients which have EFT transactions to achieve
significant fee savings and enhanced processing performance at both a
relatively low operating cost and capital investment, which should lower EFT
costs to users and broaden the market appeal overall. In addition, the
software is portable to other UNIX platforms.
Users with significantly larger transaction volumes presently utilize
proprietary fault tolerant dual processors and related software for their
EFT/POS needs. The overall hardware/software package addressing this end of
the market has a high initial cost as well as significant maintenance
expenditures. The Company is engaged in ongoing dialogues to establish
relationships with UNIX-based hardware fault-tolerant manufacturers. The
Company believes the cost per transaction of its Prefix Processor is estimated
to represent a material reduction over present competitive systems, taking into
account hardware/software costs and performance. Recently, the hardware leaders
in this field (Tandem Computers, Inc. and Stratus Computer, Inc.) have each
introduced UNIX-based fault-tolerant hardware which could run the TechNique
Plus II package. A recent installation was effected on a Tandem Computer.
Since its inception, TPII has proven to be a success. Banks are now using TPII
to provide an EFT solution that meets not only their timeframes and fiscal
budgets, but also their functional and support requirements. Due to its
scalability, TPII has become a proven EFT solution for small, mid-size and
large financial institutions throughout Europe, Asia, the Caribbean, South
America and in the U.S. By utilizing state-of-the-art open hardware and
software platforms, management of the Company believes that TPII will remain a
viable EFT option long after the proprietary technologies of the 1980's are
obsolete.
SPECIAL DEVELOPMENT CONTRACTS
From time to time, the Company performs specialized software modifications or
enhancements to its software for its customers. The Company generally receives
a fee for the modification and has all proprietary rights to the software
developed and may then include the modification in its standard software
packages. Revenue from this source has not been significant. The Company,
however, finds these contracts to be beneficial because of the resulting
enhancements to its base products.
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SUPPORT AND MAINTENANCE REVENUE
Twenty-four hour support is provided for the Company's customers who have
elected to purchase maintenance coverage. Maintenance fees associated with TPII
are greater than fees associated with the Company's other products. Therefore,
as more TPII sites are installed, maintenance revenue is expected to increase.
In fiscal year 1996, approximately 17% of the Company's revenues were derived
from this source.
MARKETING AND CUSTOMERS
IFS has a multi-faceted marketing approach. Mr. Charles J. Caserta, President
of the Company, directs the marketing and sales staff which includes one other
employee. This employee is the Director of the Sales and Marketing Division in
the Company's European office based in London.
In addition, leads are provided by the sales organizations of many vendors such
as Digital Equipment Corporation, Visa, MasterCard, Unisys, IBM and Sequoia.
IFS product information is broadcasted internally within these organizations
through in-house newsletters and other promotional tools. Products are also
advertised externally via user publications and at various trade shows. IFS
has established marketing programs with Digital Equipment Corporation, IBM and
Unisys and is seeking other vendors for its TechNique Plus II product. The
Company also intends to advertise extensively in publications targeted for
financial institutions.
COMPETITION
The development and marketing of software for financial institutions is highly
competitive. The Company encounters both direct and indirect competition from
several different sources which vary depending on the particular product or
services involved and the size of the customer served. Many of these
competitors have greater financial resources than the Company. In addition,
many of the larger financial institutions have developed their own systems
internally.
The Company's standardized, UNIX-portable TPII product, faces strong
competition from proprietary solutions although the Company believes the
product will continue to be competitive based on cost and technology. In the
high end of the mature financial EFT market, well established worldwide
competition includes Transaction Systems Architects, Inc., Deluxe Data Systems,
SDM and S2 Systems, whose products run on Tandem or Stratus fault-tolerant
computers with proprietary operating systems.
When acting as a VAR for hardware ATM and computer sales, the Company
encounters competition from original equipment manufacturers such as: NCR,
Interbold, Fujitsu and Omron as well as EFT software system integrators
Kirchman, Hogan, Arkansas Systems, Jack Henry, Diebold and EFT shared regional
networks such as: NYCE, MAC and HONOR. Price competition is considerable with
discounting from list used as an inducement to buy software and mainframes or
to become members of the networks. In addition, an active market exists for
used ATM hardware.
The Company believes TPII has many potential uses in the retail
chain/supermarket industry. It is presently engaged in preliminary discussions
with a number of hardware firms (mainframe, minicomputer, electronic cash
register, scanner, point of sale devices) and third party service providers
(credit card authorization and check verification-guarantee services) regarding
the possible integration of its product as part of a total EFT solution. To
date the Company has made no sales into this market sector.
To the best of the Company's knowledge, TPII was one of the first UNIX-based,
EFT solutions available in the United States. It is aware however, that a
systems integrator, Shared Financial Systems, Inc., which has been acquired by
Stratus and operates as S2 Systems, Inc., has developed its own UNIX-based
transaction processing package and Transaction Systems Architects, Inc. has
begun to market a UNIX based product, TRANS 24.
5
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In addition to in-house proprietary EFT systems, there are numerous companies
which offer outsourcing EFT services. These third party providers primarily
drive ATM's belonging to financial institutions. A significant portion of all
of ATM transactions are processed by these third party providers. The
principal companies in this area are: Electric Data Systems, Deluxe Data
Corporation, Affiliated Computer Services, FISERV, Money Access Services (MAC),
Information Services and First Data Corporation.
Although the retail/POS field is relatively small, it is rapidly growing and
numerous participants are positioning themselves to capture various segments
of the market. Most of these companies are well established, have greater
financial resources and an established customer base. There can be no
assurance that the Company can make any inroads in this highly competitive
marketplace or that its efforts will be successful.
REGULATION
The Company's applications are utilized primarily by financial institutions.
Such institutions are subject to state and/or federal regulation. Hence, it is
possible that banking regulations may have a material effect on the Company's
operations. To date, however, the Company has not experienced problems in this
regard.
EMPLOYEES
As of July 31, 1996, the Company had thirty-three employees, thirty-two of
which were full time. Two employees comprise the direct sales force; twenty-
five employees are involved in product development, technical support and
services and six employees are involved in office administration.
Additionally, the Company engages various consultants from time to time to
assist with product development and enhancements to existing products.
The Company believes it can continue to attract skilled personnel for all areas
and has been able to keep turnover to a minimum. However, the Company
acknowledges that the competition to employ skillful professionals is intense.
None of the employees are covered by a collective bargaining agreement and
there have been no work stoppages. Management believes that the Company has
very good employee relations.
SOFTWARE DEVELOPMENT AND FUTURE PRODUCTS
Competition, technological advances, changes in customer requirements,
deregulation and other regulatory changes affecting financial institutions
necessitates an ongoing enhancement and development effort to meet the
comprehensive processing needs of banks and other financial institutions. As a
result, ongoing expenditures are required for continued enhancement of the
Company's existing software products and the development of new software
products, which take advantage of technological advances and respond to the
increasingly sophisticated requirements of its customers.
The Company will continue to monitor the financial industry to be prepared to
design and develop new systems. Systems development progresses from planning
to prototypes and finally to initial marketing. The Company also enters into
development contracts with clients pursuant to which the Company develops
enhancements to its existing products. The Company typically retains rights to
such enhancements.
The Company also believes that an opportunity exists to accommodate the small
users of ATMs which could justify the in-house operation of their own system by
utilizing a P.C. based UNIX product. However, it has no current plans to sell
into this market niche.
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TRADEMARKS AND LICENSES
The Company does not own any patents or copyrights and seeks to protect its
proprietary software as trade secrets by incorporating in its license
agreements restrictions which prohibit resale, transfer, disclosure or
reproduction (except for back-up) and restrict usage to a designated site. The
Company also obtains confidentiality agreements from its employees, customers
and others who have access to its' software.
In January, 1991, the Company was issued a trademark for the Company's logo
from the United States Patent and Trademark Office.
LICENSES, SUPPORT AND TRAINING
The Company licenses its software products under non-exclusive perpetual
license agreements. Under these agreements, the customer receives the non-
exclusive right to use one copy of the software product on designated equipment
upon payment of a one-time fixed license fee. Each ATM requires a separate
copy of the TechNique software and the user is charged a separate fee for each
copy.
The standard TechNique license agreement normally requires payment at the time
of signing of 50 percent of all product license fees. The remaining 50 percent
of the product license fee is due and payable upon product installation at the
customer site.
Contracts for design, installation and licensing fees for TechNique Plus II
generally begin at $180,000 and average approximately $300,000 per contract.
Payments under these types of contracts are usually in several stages
commencing with signing and then as certain milestones are completed.
The Company provides software product maintenance under contracts having a
minimum term of one year. Yearly maintenance fees are typically 15% of the
original product license fee, subject to annual increases and are payable
monthly or annually. During the period of maintenance, the customer receives
copies of the Company's latest standard releases and any software enhancements
that the Company considers to be logical improvements. These releases and
enhancements are accompanied by documentation updates as necessary.
If contracted for separately, the Company will provide on-site training of
customer personnel. Depending on the complexity of the customer's system,
training can take from 2-4 days to 2-4 weeks.
SEGMENT INFORMATION
The Company operates primarily in one industry segment, which includes the
development, marketing and support of software products and services primarily
focused on facilitating electronic payments and electronic commerce. See Note
12 to the Company's Consolidated Financial Statements for information relating
to geographic regions.
ITEM 2. PROPERTIES
The Company's headquarters, which consist of approximately 8,500 square feet of
leased office space, is located at 185 Jordan Road, Rensselaer Technology Park,
Troy, New York. The Company maintains U.S. operations at this location. The
term of the lease of the premises expires July 31, 1999. The Company has the
option to renew at a mutually agreeable rental at least 30 days prior to
expiration. The current annual base rental amount is $82,476. In addition to
base rent, the Company pays a pro-rata share of operating costs.
The Company's European Sales and Marketing office is also leased and is located
at Salamander Quay (West), Park Lane, Harefield, Uxbridge, Middlesex, UB9 6NZ,
England. This office consists of approximately 890 square feet. The term of
the lease of the premises expires June 1999. The current annual base rental
amount is approximately $23,000. At present, there are no contracted
obligations for the Singapore office.
Both of the Company's leases of office facilities are operating leases. The
Company has no options to acquire any of its' leased facilities.
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ITEM 3. LEGAL PROCEEDINGS
On June 15, 1989 the Company commenced an action against S.L.M. Software, Inc.
("SLM") in the Supreme Court of the State of New York (the "NY Action"). The
action seeks money damages from SLM for fraud and breach of contract, and
further seeks rescission of a certain contract between the parties.
Thereafter, SLM commenced a separate action against the Company in the civil
trial courts of the province of Ontario, Canada (the "Canadian Action").
Subsequently, the NY Action was dismissed on the ground that New York State is
an inconvenient forum. Accordingly, both the Company's and SLM's claims will
be litigated in Ontario, Canada.
The Company has retained the law firms of Harris Beach & Wilcox, LLP to assist
in the selection and employment of Canadian counsel to represent the Company in
the Canadian Action, and to assist the Canadian counsel with respect to the
defense of that action and the prosecution of the counterclaim contained
therein. The Company has selected and retained Canadian counsel.
The information known to the Company in the Canadian Action, SLM is seeking
$5,000,000 in general damages for breach of contract, and $300,000 in special
damages for breach on contract and negligence. Canadian Counsel advises that
the Canadian case is inactive and has been inactive for months. However, the
case has not been discontinued, and no motion has been made to dismiss the case
for lack of prosecution. It is therefore still an outstanding claim against
the Company. The Company vigorously contests the merits of the claim. The
outcome of the SLM claim might have a material adverse effect on the Company's
business, business prospects or financial position.
The Company is not aware of any other legal proceedings.
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held on April 16, 1996.
Of the 10,093,612 shares eligible to vote at the annual meeting, 5,561,223
shares were represented in person or by proxy for the election of directors and
appointment of independent auditors. The following is a summary of matters
voted upon at the meeting.
<TABLE>
<CAPTION>
Nominees for Director
for One-Year Term Expiring NUMBER OF NUMBER OF
in 1997: VOTES FOR VOTES WITHHELD BROKER NON-VOTES
<S> <C> <C> <C>
Frank A. Pascuito 5,561,223 0
Charles J. Caserta 5,561,223 0
Simon J, Theobald 5,561,223 0
Jerry Tishkoff 5,561,223 0
Arnold Wells 5,561,223 0
Seymour Pearlman 5,561,223 0
Ratification of Appointment
of Urbach Kahn & Werlin as
Independent Auditors 5,561,223 0
</TABLE>
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) MARKET INFORMATION - The principal U.S. market in which the Company's
securities are traded is the over-the-counter market on the Electronic Bulletin
Board. The aforesaid securities are traded, if at all, on a sporadic basis.
The range of reported low and high bid quotations for each quarter of the last
two fiscal years is listed below. Such over-the-counter market quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission
and may not necessarily represent actual transactions. Volume, however, has
been sporadic and not necessarily indicative of market value. Source of the
market information below is from the CAPITAL DISTRICT BUSINESS REVIEW.
IFS International, Inc.
MARKET INFORMATION
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
<S> <C> <C>
July 31, 1994 .15 .09
October 31, 1994 .15 .09
January 31, 1995 .15 .09
April 30, 1995 .15 .09
July 31, 1995 .15 .15
October 31, 1995 .15 .15
January 31, 1996 .19 .15
April 30, 1996 .63 .19
</TABLE>
(b) HOLDERS - The number of stockholders of the Company's Common Stock, as
of April 30, 1996, amounted to approximately 450 persons, and/or firms
(inclusive of brokerage firms, nominees and/or clearing houses).
(c) DIVIDENDS - The Company has not paid or declared any dividends upon its
common stock since its inception and, by reason of its present financial status
and its projected requirements, does not contemplate or anticipate paying any
dividends upon its common stock in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
INTRODUCTION
IFS International, Inc. or ("the Company") is a business corporation organized
under the laws of the State of Delaware and is a holding company for IFS
International, Inc. ("the Subsidiary"). The Company does not currently have
any independent activities apart from overseeing the operations of the
Subsidiary. Because the Company has no independent operating history, all
material information pertaining to its business and operations are of the
Subsidiary. Accordingly, the following discussion is intended to provide
information about the financial condition and results of operations of the
Company and its Subsidiary on a consolidated basis and should be read in
conjunction with the Consolidated Financial Statements and their related notes.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED APRIL 30, 1996 COMPARED TO FISCAL YEAR ENDED APRIL 30, 1995
Revenue for the fiscal year ended April 30, 1996 increased by $399,526 or
19.6%. The increase is attributable to TechNique Plus II which generated 1996
license fee revenues of $1,955,657 versus $1,638,004 in 1995. As of April 30,
1996, the backlog of contracted TPII revenues approximate $555,273 all of which
is expected to be realized in fiscal year 1997.
International revenues accounted for 82% of revenue for fiscal year 1996 verses
91% for fiscal year 1995. The decrease in international revenue is not an
indication of any trend. The decrease is a result of an increase in revenue
domestically. The Company expects international revenues to continue to be a
significant portion of its revenue in the future.
Revenue from license fees of the Company's software product TechNique, amounted
to $103,213 in 1996 versus $153,791 in 1995. This decline is attributable to
the fact that the Company no longer sells this product which although it
retains its functionality is not profitable to market and demand is de minimus.
The Company's recurring service fee revenues increased $132,663 or 47.4% in
1996 to $412, 743 from $280,080 in 1995. The increase is as a result of the
increase in the installed base of TPII software and the attendant contracted
maintenance service revenue which commences after the warranty period expires.
This revenue is realized ratably over the life of the contract (12 months
typically). As of April 30, 1996 the Company had $252,535 in deferred
maintenance revenue on its' balance sheet since it is billed and prepaid on an
annual basis. Strong revenue growth is expected to continue in this area.
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Operating expenses in fiscal year 1996 increased by $77,023 or 4.1% to
$1,933,652 from $1,856,629 in the prior year. Research and development
expenses increased $121,950 or 44.2% from $276,026 in the prior year. The
increase in research and development is a result of the increase in staff in
the department. Salaries decreased by $91,081 or 11.8% from $770,352. This is
a result of a decrease in commissions accrued in fiscal year 1996 as compared
to 1995. Rent expense decreased $20,636 or 18.9% to $88,405 as compared to
$109,041 in fiscal year 1995. This decrease is a result of the decrease in
rent expense for the Singapore office. During this fiscal year the Company did
not rent or lease space in Singapore. Selling, general and administrative
expense increased $63,917 or 9.4% to $745,273 as compared to $681,356 in the
prior year. This is also a result of an increase in staff.
The Company incurred a net loss for fiscal year 1996 of $48,380. During 1996,
the Company increased its' staff in all departments based upon projections that
sales in fiscal year 1996 would be sufficient to meet the increase in staffing
and still allow the Company to record a profit. However, sales were less than
expected and the Company incurred a loss for the year. The Company continues
its' plan to increase staff for fiscal year 1997. The Company's projections
indicate that sales should increase sufficiently to meet costs associated with
planned staffing increases and to record a profit for fiscal year 1997.
However, there can be no assurances of this.
FISCAL YEAR ENDED APRIL 30, 1995 COMPARED TO FISCAL YEAR ENDED APRIL 30, 1994
Revenue for the fiscal year ended April 30, 1995 decreased by $125,091 or 5.8%.
The decrease was primarily attributable to a $211,803 or 57.9% decrease in
revenue from one of the Company's initial products, TechNique. Revenue from
TechNique in fiscal year 1995 was $153,791 as compared to $365,594 in the prior
fiscal year. It was expected that revenue from this product would continue to
decrease as the Company was no longer marketing the product.
Revenue from the Company's TechNique Plus II product continued to increase.
Total revenue
from this product increased $47,995 or 2.7% including a $83,953 or 127.3%
increase in maintenance revenue. Maintenance revenue from TPII will continue to
increase in association with installations. The Company projected continued
increases in TechNique Plus II revenue.
The Company's recurring service revenue increased $27,731 or 11%. The increase
was a result of the increase in TPII software maintenance revenue mentioned
above. The relatively large increase in TPII maintenance revenue was offset by
the decrease in maintenance revenue from TechNique. Service revenue is
expected to increase in fiscal year 1996.
Operating expenses in fiscal year 1995 increased $370,380 or 24.9% to
$1,856,629 compared to $1,486,249 in the prior fiscal year. All areas of
operating expenses increased in association with the overall growth of the
Company. Research and development and salaries increased as a direct result of
an increase in staff from the prior year. Rent expense increased as a result
of additional rent incurred for the Company's offices. Selling, general and
administrative expenses increased $161,505 or 31.1%. This was also
attributable to an increase in staff as well as additional travel expenses
incurred with the opening of the Singapore office. An increase in legal and
professional fees also contributed to the increase in selling, general and
administrative expenses.
Net income for the year was $172,215 as compared to the prior fiscal year net
income of $148,875. Included in fiscal year 1995's net income was an
extraordinary item, gain on debt restructuring and extinguishments of
$377,687. The extraordinary item was a result of debt restructuring and
settlements reached with several of the Company's creditors. In the cases of
debt restructuring, interest that had accrued was forgiven and repayment terms
extended. In cases where a settlement was agreed, the creditors accepted a
final payment of an amount that was less than accrued.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of funds has been operating revenue. Funds from
operating revenue have been improving as a result of increased revenues from
TPII. As a result, together with several debt restructurings, the Company had
been able to reduce working capital deficit through April 30, 1995. However, in
fiscal year April 30, 1996, the working capital deficit increased to $798,225
at April 30, 1996 from the prior year's deficit of $700,196. The increase in
the working capital deficit, is primarily attributable to the use of working
capital for capitalized software purposes.
After several years of losses due to the development of TechNique Plus II, IFS
became profitable in fiscal years 1993 and 1994 and 1995. While the Company
suffered a loss in fiscal year 1996, the Company's current projections indicate
that it will be profitable over the next several years. Prior to 1993, the
Company sustained losses from operations in several consecutive fiscal years.
This was a result of the Company's existing products becoming antiquated and
the write off ($1,040,000) of software development costs in fiscal year 1991.
The Company is actively marketing TPII to the financial industry worldwide and
has had multiple system installations in the European market place.
As a result of the Company's efforts to enter joint marketing relationships,
the Company signed a prime contracting agreement with Digital Equipment
Corporation in 1994. In September 1995, the Company, in association with
Digital Romania, secured a contract in Bucharest. In 1995, the Company entered
into a re-licensing agreement with a Digital Distributor, Prime Systems Plus,
Inc. in the Philippines. Prime Systems has several strong prospects for TPII
in fiscal 1997. The Company will continue to market to distributors of Digital
Equipment Corporation around the world.
The Company has also entered into an agreement with VISA International Service
Association to provide a software application involving Stored Value Cards.
When completed the Company and VISA International will begin to market the
application worldwide. The application will also become available for all
current customers to add to their existing systems.
The Company is aggressively establishing joint marketing relationships with
other major companies around the world. Management of the Company believes that
these relationships combined with the Companies' direct selling efforts can
provide a steady revenue flow to meet projections and debt service in 1997 and
beyond.
The Company does not forecast any material capital expenditures in the next
year.
Based on the price structure of TPII, the Company believes that future revenue
derived from its forecasted sales volume will be sufficient to meet operating
and debt service needs for the coming fiscal year, but there is no guarantee
that the Company's sales and cash collections will meet projections. As a
result of insufficient cash flow during fiscal year 1996, the Company was not
able to meet its scheduled debt service requirements nor pay its trade
creditors on a current basis. In anticipation of its' working capital and
personnel salary requirements that will be incurred should the Company's
business plan be successfully implemented, the Company has signed a letter of
intent with an underwriter to effect a firm commitment equity offering with
minimum gross proceeds of $5 million. In the interim, in anticipation of the
equity offering, the Company is nogotating to obtain a $500,000 bridge loan
which will be used to fund the upfront costs of the proposed secondary offering
as well as general working capital needs. There can be no assurances that the
proposed equity offering will be successful.
INFLATION
The Company has not experienced any meaningful impact on its sales or costs as
the result of inflation.
ITEM 7. FINANCIAL STATEMENTS
The Financial Statements required to be filed herein are included in this
report beginning on
Page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
10
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
REGISTRANT
Set forth below are the names of the Company's officers and directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Charles J. Caserta 40 President and Director
Frank A. Pascuito 40 Chairman of the Board, Chief
Executive Officer, Secretary and Director
Arnold Wells 78 Director
Seymour Pearlman 73 Director
Jerald Tishkoff 59 Director
Simon J. Theobald 33 Director, Director of Sales and
Marketing for the London office.
</TABLE>
CHARLES J. CASERTA has been the President and a director of the Company since
1989. Since 1981, he has been employed by IFS, which he co-founded and served
as its Chairman until November 1987. Mr. Caserta has over ten years of
consulting and marketing experience in electronic funds transfer systems
designs, sales and service. Mr. Caserta is a graduate of Villanova University
with a B.A. degree in English.
FRANK A. PASCUITO co-founded IFS predecessor company, Avant-Garde, in 1981 and
served as its President until November 1987. In 1989, he became the CEO of IFS
and was named Chairman. Prior to his employment with IFS, he was employed by
NCR Corporation<O~>s ATM software development team for their 1700 series ATMs.
As a consultant to NCR in 1979, he assisted in the development and performed
the installation of the first on-line/off-line ATM system for NCR in the United
States. Mr. Pascuito is a graduate of the State University of New York at
Potsdam with a B.S. degree in Computer Science. He is active in several area
organizations dealing with technology, software, and world trade.
ARNOLD WELLS has been a director of the Company since 1986. From 1976 to
present, Mr. Wells has been a private investor and consultant in the health and
communications fields. Mr. Wells organized Wells Television (subsequently
named Wells National Services). In 1978, Mr. Wells formed WellsArt Limited, a
company which is engaged in the publishing and licensing work of prominent
artists.
SEYMOUR PEARLMAN has been a director of the Company since 1989. He is a Senior
Vice President and a Director of First Albany Corporation and has been a member
of the New York Stock Exchange for 30 years. Mr. Pearlman is a graduate of
Union College and Yale University.
JERALD TISHKOFF was appointed to the board in May 1994. He graduated from
Western Reserve University of Cleveland in 1959 with a B.B.A. Degree and
attended Western Reserve University Law School. From 1957-1967 Mr. Tishkoff
was Vice President of Hostelco, providing television services for Hospitals.
In 1967 he became Director of Marketing for Wells National Services in New
York. After an acquisition in 1991 he assisted in forming Allen Technologies
of which he is Director of Marketing and Board Member. He also serves on the
Board of SCOA Corporation of Columbus, Ohio and the Advisory Board of the
Federation of Cleveland.
SIMON J. THEOBALD was appointed to the Board in December, 1994. Mr. Theobald
is a 1982 graduate from De-Havilland College with a City and Guilds 747 with
Distinction in computer studies and technology. Mr. Theobald has been the
Director of Sales and Marketing of the European Division based in London since
1992. Immediately prior thereto he was employed by ACI from 1986 to April,
1992. Mr. Theobald brings to IFS over thirteen years experience in the
Electronic Funds Transfer industry. During his tenure, Mr. Theobald has firmly
established IFS International as one of the market leaders in the EFT industry
throughout Europe, Eastern Europe and The Middle East.
11
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table summarizes all compensation paid to the Company's Chief
Executive Officer. No other executive officer had a total annual salary and
bonus exceeding $100,000 (collectively, the "Named Executive Officers"), for
services rendered in all capacities to the Company during fiscal years ended
April 30, 1996, 1995 and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Other Restricted
Name and Fiscal Salary Bonus Annual Stock
Principal Position Year (1) Compensation Award(s)
<S> <C> <C> <C> <C> <C>
Frank Pascuito 1996 157,168 $-0- $-0- $-0-
Chairman of the Board, 1995 151,463 $-0- $-0- $-0-
Chief Executive Officer, 1994 129,811 $-0- $-0- $-0-
Secretary and Director
</TABLE>
<TABLE>
<CAPTION>
Securities
Name and Fiscal Underlying LTIP All Other
Principal Position Year Option(s)(2) Payouts(3) Compensation
<S> <C> <C> <C> <C>
Frank Pascuito 1996 507,725 $507,725 $-0-
Chairman of the Board, 1995 507,725 $507,725 $-0-
Chief Executive Officer, 1994 507,725 $460,184 $-0-
Secretary and Director
</TABLE>
(1) Included in salary is deferred salary earned during 1991, 1992 and 1994.
$47,065 is the amount of deferred salary for fiscal years 1996 and 1995 and
$40,295 for fiscal year 1994.
Also, included in salary is accrued interest on the deferred salary.
Accrued interest of $22,104, $16,398 and $11,062 for fiscal years 1996,
1995 and 1994 respectively.
(2) Amounts included under Securities Underlying Options reflect options
granted to Mr. Pascuito in 1987, 1989 and 1992.
(3) On January 9, 1987, June 2, 1987, September 30, 1989 and January 14,
1992, Mr. Pascuito was granted options to purchase 49,780, 124,450, 133,495
and 200,000 shares respectively of the Company's common stock. As of
April 30, 1994 only 152,459 options from the options granted in 1992 are
vested. All of the options are vested for fiscal years 1995 and 1996.
None have been exercised.
STOCK OPTION PLAN
The Company's stock option plan provides for issuance of common stock to key
employees, officers, directors and consultants. As of April 30,1996 there are
options outstanding to purchase 2,570,765 shares of common stock under the
plan. All options are exercisable at prices ranging from $.066 to $.25 per
share and expire in various years between 1997 - 2003.
Some options are not fully vested at April 30, 1996. All options not vested
expire after termination of services to the Company by the Optionee. The
options that are vested, and exercisable, expire thirty (30) days after
termination of service.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information relating to the beneficial ownership
of Common Stock of the Company by all persons known by the Company to own
beneficially more than 5% of the Common Stock issued and outstanding as of
April 30, 1996 and all officers and directors of the Company as a group.
Except as otherwise noted, the named person owns directly and exercises sole
voting power and investment discretion over the shares listed as beneficially
owned by such person.
12
<PAGE>
<TABLE>
<CAPTION>
TITLE OF NAME AND ADDRESS OF AMOUNT AND NATURE PERCENT OF CLASS
CLASS BENEFICIAL OWNER OF BENEFICIAL OWNER
<S> <C> <C> <C>
Common Charles J. Caserta 2,250,025 17.8
Rensselaer Tech. Park
185 Jordan Road
Troy, NY 12180 (1)(2)
Common Frank Pascuito 2,299,805 18.2
Rensselaer Tech. Park
185 Jordan Road
Troy, NY 12180 (1)(2)
Common Arnold Wells 55,000 .44
1100 Madison Avenue
New York, NY 10028 (1)(2)
Common Seymour T. Pearlman 313,834 2.5
42 Homes Dale
Albany, NY 12203 (1)(2)
Common Jerald Tishkoff 215,000 1.7
2620 S. Glen
Univ. Hts Ohio 44122 (2)
Common Simon J. Theobald 269,508 2.1
Little Elms, 12 Green Lane,
Croxley Green, Rickmansworth,
Hertfordshire, WD3 3HR
England (2)
All directors and officers 5,403,172
as a group (6 persons)
</TABLE>
(1) Includes vested options as of April 30, 1996 in the amounts of 457,945,
507,725, 50,000, 264,054 and 269,508 for Messrs. Caserta, Pascuito, Wells,
Pearlman and Theobald respectively.
(2) Messrs. Caserta and Pascuito are Executive Officers and Directors of IFS.
Messrs. Wells, Pearlman, Tishkoff and Theobald are Directors of IFS.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 13. FINANCIAL STATEMENTS EXHIBITS AND REPORTS ON FORM 8-K
(1) FINANCIAL STATEMENTS AND AUDITORS' REPORTS
Independent Auditors' Report
Consolidated Balance Sheet as of April 30, 1996
Consolidated Statements of Operations for the fiscal years
ended April 30, 1996 and 1995.
Consolidated Statements of Shareholders' Equity (Deficit)
for the fiscal years ended April 30, 1996 and 1995.
Consolidated Statements of Cash Flows for the fiscal years
ended April 30, 1996 and 1995.
Notes to Consolidated Financial Statements
13
<PAGE>
(2) EXHIBITS:
3.1 Certificate of Incorporation of Wellsway Ventures, Inc.
Incorporated herein by reference to Exhibit 2.01 to
Registrant's 1987 Registration Statement on Form
S-18, Registration No. 33-10970-NY.
3.2 Certificate of Amendment of Certificate of
Incorporation of Wellsway Ventures, Inc. (See Note 1 below)
3.3 Amended By-Laws of Wellsway Ventures, Inc.
Incorporated herein by reference to Exhibit 4.01 to
Registrant's 1987 Registration Statement on Form S-18,
Registration No. 33-10970-NY.
4.5 Credit Agreement and Note Dated July 6, 1989 between
IFS International and NYS Science and Technology
Foundation. (See Note 2 below)
22 Subsidiary of Registrant
27 Financial Data Schedule.
NOTES TO EXHIBITS
NOTE 1 Exhibit is incorporated by reference to the
exhibits to the Form 10K for the fiscal year
April 30, 1989.
NOTE 2 Exhibit is incorporated by reference to the
exhibits to the Form 10K for the fiscal year
April 30, 1990.
(3) REPORTS ON FORM 8K FILED DURING THE THREE MONTHS ENDED APRIL 30, 1996:
None.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, hereunto duly authorized.
IFS INTERNATIONAL, INC.
(Registrant)
Date:__AUGUST 30, 1996___ By:__\S\ FRANK PASCUITO___________
Frank Pascuito, Chairman of
the Board, Chief Executive
Officer, Secretary and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date:__AUGUST 30, 1996___ By: __\S\ CHARLES J. CASERTA______
Charles J. Caserta,
President and Director
Date:__AUGUST 30, 1996___ By: __\S\ ARNOLD WELLS____________
Arnold Wells, Director
Date:__AUGUST 30, 1996___ By: ___\S\ CARMEN A. PASCUITO_____
Carmen A. Pascuito, Controller
Date: ____________________ By: _____________________________
Seymour Pearlman, Director
Date:__AUGUST 30, 1996___ By: __\S\ JERALD TISHKOFF___________
Jerald Tishkoff, Director
Date:__AUGUST 30, 1996___ By: __\S\ SIMON THEOBALD__________
Simon Theobald, Director
15
<PAGE>
Exhibit 22
Subsidiary of Registrant.
IFS International, Inc.
16
<PAGE>
Exhibit 27
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of operations found
on page F-2 and F-3 of the Company's Form 10-KSB for the year and is qualified
in its entirety by reference to such financial statements.
<TABLE>
<CAPTION>
Period-Type 12 months
<S> <C>
Fiscal Year End April 30, 1996
Period Start May 1, 1995
Period End April 30, 1996
Cash 137,462
Securities 0
Receivables 195,088
Allowances 7,900
Inventory 0
Current Assets 784,372
PP&E 537,756
Depreciation 401,525
Total Assets 1,307,167
Current Liabilities 1,582,597
Bonds 0
Preferred Mandatory 0
Preferred 0
Common 10,093
Other Shareholders Equity (737,869)
Total Liability and Equity 1,307,167
Sales 2,440,783
Total Revenues 2,442,486
CGS 504,761
Total Costs 2,438,413
Other Expenses 1,933,652
Loss Provision 0
Interest Expense 52,453
Income Pretax (48,380)
Income Tax 0
Income Continuing 0
Discontinued 0
Extraordinary 0
Changes 0
Net Income (48,380)
EPS Primary 0
EPS Diluted 0
</TABLE>
17
IFS INTERNATIONAL, INC.
FINANCIAL REPORT
APRIL 30, 1996
<PAGE>
IFS INTERNATIONAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
INDEPENDENT AUDITOR'S REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS
Balance sheet F-2
Statements of operations F-3
Statements of shareholders' equity (deficit) F-4
Statements of cash flows F-5 - F-6
Notes to consolidated financial statements F-7 - F-13
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
IFS International, Inc.
We have audited the accompanying consolidated balance sheet of IFS
International, Inc. as of April 30, 1996, and the related consolidated
statements of operations, shareholders' equity (deficit), and cash flows for
each of the two years in the period ended April 30, 1996. These financial
statements are the responsibility of the Company'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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of IFS International,
Inc. at April 30, 1996, and the results of their operations and their cash
flows for each of the two years in the period ended April 30, 1996, in
conformity with generally accepted accounting principles.
The consolidated financial statements referred to above have been prepared
assuming that IFS International, Inc. will continue as a going concern. As
discussed in Note 14 to the consolidated financial statements, the Company has
a working capital deficiency and a shareholders' deficit at April 30, 1996,
that raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 14. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
URBACH KAHN & WERLIN PC
Albany, New York
July 17, 1996, except for the second paragraph of
Note 14, for which the date is August 6, 1996.
F-1
<PAGE>
IFS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
APRIL 30, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash $ 137,462
Trade accounts receivable, net of allowance
for doubtful accounts of $7,900 144,669
Other receivables 42,519
Costs and estimated earnings in excess of
billings on uncompleted contracts 432,173
Prepaid expenses and other current assets 27,549
Total current assets 784,372
PROPERTY, EQUIPMENT, AND IMPROVEMENTS, net 136,231
OTHER ASSETS
Software license 9,082
Capitalized software costs, net 377,482
Total other assets 386,564
$ 1,307,167
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<S> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ 38,329
Current portion of capital lease obligations 2,733
Accounts payable and other liabilities 587,170
Accrued salary, commissions, and other expenses 702,515
Billings in excess of costs and estimated earnings on
uncompleted contracts 32,524
Deferred revenue and customer deposits 219,326
Total current liabilities 1,582,597
LONG-TERM LIABILITIES
Long-term debt, less current maturities 439,831
Other 12,515
Total long-term liabilities 452,346
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock no par value; 1,000,000 shares authorized,
no shares issued or outstanding -
Common stock $.001 par value; 25,000,000 shares authorized,
10,093,612 issued and outstanding 10,093
Additional paid-in capital 2,168,528
Accumulated deficit (2,906,397)
Total shareholders' equity (deficit) (727,776)
$ 1,307,167
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-2
<PAGE>
IFS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED APRIL 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Product sales:
Software $1,982,192 $1,729,284
Hardware 45,848 31,893
Service revenue 412,743 280,080
2,440,783 2,041,257
Cost of product sales:
Software 238,130 213,885
Hardware 16,611 23,232
Cost of services 250,020 108,659
1,936,022 1,695,481
Operating expenses:
Research and development 397,976 276,026
Salaries 679,271 770,352
Other 22,727 19,854
Rent 88,405 109,041
Selling, general, and administrative 745,273 681,356
1,933,652 1,856,629
Income (loss) from operations 2,370 (161,148)
Other income (expense):
Interest expense (52,453) (53,608)
Other income 1,703 9,284
Loss before income taxes and extraordinary item (48,380) (205,472)
Provision for income taxes - -
Loss before extraordinary item (48,380) (205,472)
Extraordinary item - gain on debt restructuring
and extinguishments - 377,687
Net income (loss) $ (48,380) $ 172,215
Attributable to common shares:
Loss before extraordinary item $ - $ (0.02)
Extraordinary item - 0.04
Net income (loss) per common share $ - $ 0.02
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
IFS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
YEARS ENDED APRIL 30, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK
<S> <C> <C>
SHARES PAR
Outstanding Value
Balances at April 30, 1994 9,212,869 $ 9,212
Issuance of common stock 713,879 714
Net income - -
Balances at April 30, 1995 9,926,748 9,926
Issuance of common stock 166,864 167
Net loss - -
Balances at April 30, 1996 10,093,612 $10,093
</TABLE>
<TABLE>
<CAPTION>
Additional
<S> <C> <C> <C>
PAID-IN ACCUMULATED
Capital Deficit Total
Balances at April 30, 1994 $1,878,820 $(3,030,232) $(1,142,200)
Issuance of common stock 136,826 - 137,540
Net income - 172,215 172,215
Balances at April 30, 1995 2,015,646 (2,858,017) (832,445)
Issuance of common stock 152,882 - 153,049
Net loss - (48,380) (48,380)
Balances at April 30, 1996 $2,168,528 $(2,906,397) $ (727,776)
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
IFS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (48,380) $ 172,215
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 205,015 164,969
Extraordinary gain on debt restructuring - (377,687)
Changes in:
Trade accounts receivable, net 202,530 (105,169)
Other receivables (7,226) (27,553)
Costs, estimated earnings and billings
on uncompleted contracts (179,770) 17,973
Other current assets (5,876) 1,057
Accounts payable and other liabilities 143,790 64,497
Accrued salary, commissions, and expenses 112,475 199,342
Deferred revenue and customer deposits 47,288 58,078
Other liabilities - (4,210)
Net cash provided by operating activities 469,846 163,512
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (62,537) (42,534)
Capitalized license costs (2,157) (2,635)
Capitalized software costs (160,117) (151,662)
Net cash used in investing activities (224,811) (196,831)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on capital lease obligations (15,081) (14,056)
Payments on long-term debt (103,624) (63,228)
Proceeds from issuance of stock 3,049 65,666
Net cash used in financing activities (115,656) (11,618)
Increase/(decrease) in cash 129,379 (44,937)
Cash:
Beginning of year 8,083 53,020
End of year $ 137,462 $ 8,083
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
IFS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
YEARS ENDED APRIL 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 29,042 $ 50,167
Income taxes $ 7,476 $ -
SUPPLEMENTAL DISCLOSURES OF NON-CASH
INVESTING AND FINANCING TRANSACTIONS
Notes payable, salary obligations, and accounts
payable restructured and/or extinguished $ - $ 377,687
Long-term debt converted to common stock (150,000
shares in 1996, 259,673 in 1995) $ 150,000 $ 71,875
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
IFS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND DESCRIPTION OF BUSINESS
IFS International, Inc. was incorporated in Delaware in September 1986
under the name Wellsway Ventures, Inc. The Company was formed with
limited assets as a blind pool to obtain proceeds from a public
offering and then to acquire an existing business entity. The Company
utilized proceeds from the blind pool to acquire its operating
subsidiary, IFS International, Inc., a New York corporation.
IFS International, Inc. is engaged in the design and development of
computer software for use with automatic teller machines (ATMs),
electronic fund transfers (EFTs), and point of sale (POS) systems used
by financial institutions and retailers. The Company also provides its
customers with support and maintenance services for such systems.
Commencing in 1993, a significant portion of the Company's sales and
revenues were derived from financial institutions and other customers
located outside of the United States (see Note 12). The Company
extends credit to its customers and generally requires deposits upon
execution of software development contracts. With respect to foreign
customers, collection may be more difficult upon default.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation:
The consolidated financial statements include the accounts of IFS
International, Inc. (formerly Wellsway Ventures, Inc.) and its
wholly-owned subsidiary, IFS International, Inc. (formerly Avant-
Garde Computer Systems, Inc.). All significant intercompany accounts
and transactions have been eliminated.
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 reported amounts of revenue
and expenses during the reporting period. Actual results could
differ from those estimates.
Revenue recognition:
Revenue from software installation contracts is recognized on the
percentage-of-completion method, measured by the ratio of costs
incurred to date to management's estimates of total anticipated
costs. This method is used because management considers costs
incurred to be the best available measure of progress on software
installation contracts. Because of the inherent uncertainties in
estimating contracts, it is at least reasonably possible that the
Company's estimates of costs and revenues will change in the near
term. Uncertainty inherent in initial estimates is reduced
progressively as work on the contract nears completion. Deposits
received in advance for hardware sales are
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Revenue recognition, continued:
deferred and recognized as revenue upon installation and acceptance
of the system. Revenue derived from "license to use" software is
recognized upon shipment of the software to customers. Amounts
received on service contracts are initially deferred and recognized
ratably over the life of the contract, generally one year. All
revenues derived outside of the United States are denominated in U.S.
dollars.
Allowance for doubtful accounts:
Bad debts are provided for on the allowance method based upon
historical experience and management's estimation of collection
losses on outstanding accounts receivable.
Property, equipment and improvements:
Property, equipment and improvements are stated at cost, with related
depreciation provided by the declining-balance and straight-line
methods over the estimated useful lives of the related assets,
generally five years. For income tax purposes, the accelerated cost
recovery system and the modified accelerated cost recovery system are
utilized. Assets recorded under capital leases are depreciated over
the terms of the lease under methods which are consistent with the
Company's depreciation policy for owned assets.
Capitalized software costs:
The cost of adding new functions and features (i.e., enhancements) to
existing systems and the cost of development of new systems, for
which technological feasibility has been established and which are
not covered by outside funding, are capitalized. Costs incurred in
the establishment of technological feasibility of new systems are
expensed as incurred.
Capitalized software costs are reported at the lower of unamortized
cost or net realizable value. Amortization is recorded over the
estimated five-year marketing lives of the software and is computed
on the greater of the percent-of-revenue method, based on the total
estimated future revenues expected to be derived from sales of the
software, or the straight-line method.
Income taxes:
Current or deferred tax liabilities are recognized for the tax
consequences of all events recognized in the financial statements.
Deferred taxes are computed on the differences between the financial
reporting and the tax reporting basis of assets and liabilities. The
Company has not recognized the benefit of any net operating loss
carryforwards due to the uncertainty of the realizability of such
carryforwards.
Net income (loss) attributable to common shares:
Net income (loss) attributable to common shares is based on the
weighted average number of shares outstanding during the respective
years (10,018,355 in 1996 and 9,569,809 in 1995). The effect of the
assumed exercise of options and warrants outstanding is anti-dilutive
or not material.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
Costs and estimated earnings on uncompleted contracts are
summarized as follows:
<S> <C>
Expenditures on uncompleted contracts $ 245,285
Estimated earnings thereon 1,546,947
1,792,232
Less billings to date 1,392,583
$ 399,649
</TABLE>
<TABLE>
<CAPTION>
Included in the accompanying balance sheet under the
following captions:
<S> <C>
Cost and estimated earnings in excess of billings on
uncompleted contracts $ 432,173
Billings in excess of costs and estimated earnings on
uncompleted contracts (32,524)
$ 399,649
</TABLE>
NOTE 3. PROPERTY, EQUIPMENT AND IMPROVEMENTS
<TABLE>
<CAPTION>
Property, equipment and improvements consist of the following:
<S> <C>
Machinery and equipment $ 391,827
Equipment under capital leases 54,103
Furniture and fixtures 74,780
Leasehold improvements 17,046
537,756
Less accumulated depreciation 401,525
Property, equipment and improvements, net $136,231
</TABLE>
Amortization related to equipment under capital leases was
$10,821 for the years ended April 30, 1996 and 1995, respectively.
Depreciation related to property, equipment, and improvements
was $36,917 and $28,528 for the years ended April 30, 1996 and
1995, respectively.
NOTE 4. CAPITALIZED SOFTWARE COSTS
<TABLE>
<CAPTION>
Capitalized software costs consist of the following:
<S> <C>
Capitalized software costs $ 848,878
Less accumulated amortization (471,396)
$ 377,482
</TABLE>
Amortization expense approximated $154,000 and $123,000 for
the years ended April 30, 1996 and 1995, respectively.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consists of the following:
<S> <C>
Restructured note payable, government agency, interest only
payments of $1,375 per month through April 1996 and principal and
interest payments of $3,804 per month, thereafter, including
interest at 7.5%, due April 2002. This note is unsecured and
subordinated to all other debt. $220,000
Restructured convertible subordinated debentures payable to a
governmental agency due in installments of $80,000, $80,000, and
$90,000 in April 1998, 1999, and 2000, respectively. The
debentures are convertible into shares of common stock at rates
ranging from $.42 per share to $.57 per share through July, 1997.
At April 30, 1996, approximately 500,000 shares of common stock
were issuable under this conversion feature. 250,000
Other 8,160
478,160
Less current portion 38,329
$439,831
</TABLE>
Certain of the Company's long-term debt obligations require compliance
with financial and non-financial covenants. As of April 30, 1996, the
Company was not in compliance with several of these requirements,
however, covenant violation waivers have been received.
Aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING APRIL 30
<S> <C>
1997 $ 38,329
1998 112,511
1999 115,035
2000 127,755
Thereafter 84,530
$478,160
</TABLE>
NOTE 6. CAPITAL LEASE OBLIGATIONS
The Company is the lessee of computer equipment and a telephone system
under capital leases expiring in various years through 1997. The
assets and liabilities under capital leases are recorded at the lower
of the present value of the minimum lease payment or the fair value of
the asset. The assets are depreciated/amortized over the lower of
their related lease terms or their estimated productive lives.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. CAPITAL LEASE OBLIGATIONS, CONTINUED
<TABLE>
<CAPTION>
Assets recorded under capital leases include the following:
<S> <C>
Computer and telephone equipment $ 54,103
Accumulated depreciation 43,589
Net capitalized computer and telephone equipment $ 10,514
</TABLE>
Minimum future lease payments under capital leases as of April 30,
1996, are not material.
NOTE 7. OPERATING LEASE COMMITMENTS
The Company has operating lease agreements, which begin to expire
October 1997, for the rental of its operating facilities and an
automobile. Future minimum lease payments on these noncancellable
operating lease arrangements with terms in excess of one year are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING APRIL 30
<S> <C>
1997 $ 138,403
1998 90,180
1999 85,935
2000 21,548
$ 336,066
</TABLE>
NOTE 8. INCOME TAXES
The provision for income taxes for the years ended April 30, 1996 and
1995 differs from the amount obtained by applying the U.S. federal
income tax to pretax income due to the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Federal income tax benefit at statutory rates $ (23,000) $ (80,100)
State income tax benefit, net of federal benefits (3,400) (10,200)
Change in valuation allowance for net operating losses 26,400 90,300
Provision for income taxes $ - $ -
</TABLE>
At April 30, 1996, the Company has net operating loss carryforwards of
approximately $2,400,000, which begin to expire in 2004 to offset
future federal taxable income.
Because of the uncertainty as to realizability, the deferred tax
benefit attributable to net operating loss carryforwards at April 30,
1996 and 1995 of approximately $816,000 and $790,000, respectively,
has been offset by an equivalent valuation allowance.
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. STOCK OPTION PLAN
The Company has a stock option plan which provides for the granting of
either options intended to qualify as "incentive stock options" under
the Internal Revenue Code or "supplemental stock options" not intended
to qualify. An aggregate of 3,327,793 shares of common stock have
been reserved in this connection. The Board of Directors determines
the exercise and expiration dates of the options which may not be
later than 10 years from the date of the grant. The purchase prices
of the shares under option must be at least equal to the fair market
value of the common stock at the date of grant. Options outstanding
at April 30, 1996, may be exercised at prices ranging from $.07 to
$.25 per share. At April 30, 1996, options to acquire 508,958 common
shares were available for future issuance.
The following table summarizes option activity during 1996 and 1995:
<TABLE>
<CAPTION>
SHARES UNDER OPTION
YEAR ENDED APRIL 30
<S> <C> <C>
1996 1995
Outstanding beginning of year 2,692,121 2,601,151
Granted 181,000 235,000
Exercised ($.10 to $.25 per share) (16,864) (54,206)
Canceled (37,422) (89,824)
Outstanding end of year 2,818,835 2,692,121
Exercisable 2,570,765 2,461,284
</TABLE>
NOTE 10. CONTINGENCIES
In June 1989, the Company commenced an action against a software
manufacturer, seeking various remedies in connection with an agreement
which gave the Company certain rights to produce and market an
application software package developed by the manufacturer. In July
1989, subsequent to the commencement of the action, the Company was
named defendant in a lawsuit filed by the manufacturer alleging breach
of contract and claiming approximately $5,000,000 in damages,
interest, and costs and a permanent injunction, which, if granted,
would restrain the Company from marketing certain computer
applications. The Company vigorously contests the merits of the claim
and, in the opinion of Counsel, the likelihood of a materially adverse
outcome is neither probable nor remote.
NOTE 11. RELATED PARTIES
Included in accrued salary, commissions and other expenses is
approximately $197,000 due to officers/directors and a former
officer/director for accrued salary and commissions, including amounts
earned in prior years, and related interest, calculated at 12%. Other
long-term liabilities represent amounts due to officers/directors
under a previous compensation plan. These balances earn interest at
12% which is included in accrued expenses. Included in accounts
payable is approximately $73,000 due to officers/directors.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. EXPORT SALES AND MAJOR CUSTOMERS
One foreign customer accounted for approximately 12% of total product
sales and service revenues for the year ended April 30, 1996. There
were no outstanding amounts due from this customer at April 30, 1996.
Another foreign customer accounted for approximately 12% of total
sales and service revenue for the year ended April 30, 1995.
Product sales and service revenue considered export sales approximated
$2,008,000 and $1,862,000, or 82% and 91% of total revenues, for the
years ended April 30, 1996 and 1995, respectively. Such sales and
revenues were derived primarily from customers located in eastern
Europe and the Far East.
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments consisting
principally of accounts receivable, long-term debt, accounts payable
and accrued expenses has been estimated to approximate their carrying
amounts.
NOTE 14. MANAGEMENT PLANS
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern and do not include any
adjustments relating to the recoverability and classification of
reported asset amounts or the amounts and classification of
liabilities that might be necessary should the Company be unable to
continue as a going concern. A substantial portion of the accumulated
deficit at April 30, 1996 is attributable to losses from operations in
several consecutive fiscal years prior to 1993. These losses were
principally attributable to the Company's then existing products
becoming antiquated, the write off ($1,040,000) of software
development costs in fiscal year 1991, and incurring the research and
development costs associated with its latest software product, TPII.
Management believes that cash flows from operations will be sufficient
to meet debt service requirements and to maintain a current status
with its trade creditors during 1997. Operating cash flows for fiscal
year 1997 are expected to be principally attributable to the
anticipated revenues to be derived from sales of TPII and similar
products. Further, in August 1996 the Company signed a letter of
intent with an underwriter to effect a firm commitment equity offering
with minimum gross proceeds of $5 million. In anticipation of this
offering, the Company is negotiating to obtain a $500,000 bridge loan
which will be used to fund costs associated with the offering as well
as general working capital needs. There can be no assurances that the
proposed secondary offering will be successful.
In September 1995, the Company fully converted a note payable to
common stock. Terms of other notes have been modified to delay or
extend the repayment periods and in some cases forgive accrued
interest.
As a result of the Company's efforts to enter joint marketing
relationships, the Company signed a prime contracting agreement with
Digital Equipment Corporation in 1994. This agreement has led to
several sales and many prospects for TPII. The Company has and will
continue to market to distributors of Digital Equipment Corporation
around the world. The Company has also entered into a re-licensing
agreement with a Digital distributor, Prime Systems Plus, Inc. in the
Philippines. Management believes that Prime Systems Plus, Inc. has
several strong prospects for TPII in 1997.
F-13
