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
For the fiscal year ended April 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission File Number 1-12687
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
Series A Convertible Boston Stock Exchange
Preferred Stock, par value $.001 per share
Redeemable Series A Convertible Preferred Boston Stock Exchange
Stock Purchase Warrants
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
(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. $3,733,218
The aggregate market value of the Common Stock held by non-affiliates on June
30, 1997 was approximately $4,724,010.
The aggregate market value of the Series A Convertible Preferred Stock held by
non-affiliates on June 30, 1997 was approximately $12,498,970.
As of April 30, 1997, there were 1,072,945 and 1,380,000 shares of IFS
International, Inc. Common Stock and Series A Convertible Preferred Stock,
respectively, outstanding.
<PAGE>
PART I
ITEM 1. Business
INTRODUCTION
IFS International, Inc. (the "Company") is engaged in the business of
developing, marketing and supporting software products for the electronic funds
transfer ("EFT") market. The Company's family of software products, marketed
under the name TechNique Plus II ("TPII"), serves as a UNIX-based manager for
EFT systems. TPII software products are designed to operate with computers
utilizing the UNIX operating system, are written in C programming language and
incorporate Oracle relational database technology and object oriented design
concepts. As a result, TPII software products are compatible with a significant
portion of the industry standard computer platforms.
An EFT system ("EFT System") of a bank or other financial institution permits
the processing of transactions involving credit cards and debit cards (e.g., ATM
cards). An EFT System generally consists of one or more of the following in
various configurations: automatic teller machines ("ATMs"), point of sale
("POS") terminals, a host computer of the financial institution and regional,
national and international networks ("Networks"), such as CIRRUS, NYCE, MAC or
PLUS. TPII software products primarily route and authorize the processing of
transactions through an EFT System. TPII software is offered in separate modules
which perform different functions, including (i) interfacing with ATMs, POS
terminals, a financial institution's host computer and Network computers, (ii)
updating credit and debit card information, (iii) providing stand-in
authorization for transactions when the financial institution's host computer is
not operating, (iv) computing fees for transactions processed (v) generating of
reports, and (vi) the processing of Smart Card transactions including the
re-loading of the Smart Card. The TPII software products are installed generally
at the financial institution's main processing facility.
The Company's primary business objective is to become a leading world-wide
supplier of UNIX-based managers for EFT Systems. To date, the Company's TPII
software products have been primarily installed in EFT Systems of banks and
other financial institutions located primarily in emerging countries and former
Eastern Bloc nations. As of April 30, 1997, seventeen financial institutions and
three Networks were utilizing TPII software products. Certain of such financial
institutions serve up to 750 ATMs and over 2,600 POS terminals and the three
Networks serve twenty-two, eight, and four financial institutions, respectively.
In addition, agreements have been executed for the installation of TPII software
products in EFT Systems of three additional financial institutions (which
excludes the agreements relating to the smart card pilot programs referred to
below). The Company principally derives its revenues from the licensing of its
TPII software products. A substantial portion of such revenues are generated by
licensing through or to computer manufacturers, which incorporate the TPII
software products into a turnkey system installed at a financial institution.
The preparation of functional specifications, customization and installation of
TPII software products and the training by the Company of the financial
institution's personnel in the use of the TPII software products take an average
of six to twelve months, depending upon the timing of installation and final
acceptance of the EFT System by the customer. The Company generally receives
payment of a substantial portion of the license fee prior to the final
acceptance by the customer. The Company provides its customers with maintenance
services for its TPII software for a separate fee. The Company also offers other
support services, such as additional training of customer personnel and
consulting, for additional consideration.
The Company adapted its TPII software to manage EFT Systems that process
transactions involving the "loading" of value on smart cards. A smart card is a
plastic card with an electronic chip that acts as a small computer. These cards
can include a stored value feature, which enables the holder to "load" a fixed
amount of purchasing power or cash equivalent on the card as authorized. As a
result, the holder can purchase items or services without the necessity of
carrying cash or entering into a credit card transaction. The Company has
developed software for Visa International Service Association ("Visa") to manage
an EFT System that facilitates the "loading" of value on a smart card through a
bank's terminals. As a result of a successful test of the Company's TPII smart
card software, Visa entered into an agreement with the Company in July 1996 for
the licensing and installation of this software in connection with the operation
of up to seven pilot programs for the purposes of evaluating the TPII smart card
software and other aspects of the smart card system. The license for each pilot
program is for a term of 24 months commencing on the date such pilot program
goes on-line. As of April 30, 1997, Visa has selected financial institutions in
the following countries to conduct the pilot programs: the United States, the
United Kingdom, Japan, Germany and Italy. The first pilot program that became
operational was in Germany during the first calendar quarter of 1997. The
Company anticipates that the next two pilot programs will be operational in
August, 1997.
On February 28, 1997, the Company consumated a public offering (the "Public
Offering") of 1,380,000 shares of Series A Convertible Preferred Stock
(including 180,000 shares covering over-allotments) (the "Series A Preferred
Stock") and 1,955,000 Redeemable Series A Convertible Preferred Stock Purchase
Warrants (including 255,000 warrants covering over-allotments) (the "Warrants").
The Company received net proceeds of approximately $5,744,000 after deductions
of the underwriter's discounts of approximately $710,000 and offering expenses
of approximately $642,000. The Series A Preferred Stock is convertible, at the
option of the holder, into one share of the Company's common stock, subject to
adjustment, until February 20, 2002 or earlier upon the occurrence of certain
events. Each Warrant entitles the holder to purchase one share of Series A
Preferred Stock at a price of $6.25 per share, subject to adjustment, for a
period of three years commencing on February 21, 1999 or earlier upon the
occurance of certain events.
The Company was incorporated in Delaware in 1986 under the name "Wellsway
Ventures, Inc." and changed its name to "IFS International, Inc." in 1989. The
Company's principal offices are located at Rensselaer Technology Park, 185
Jordan Road, Troy, New York 12180 and its telephone number is (518) 283-7900.
BUSINESS
EFT Systems
Typically, the completion of a debit card or credit card transaction or the
"loading" of value to a smart card involves several steps through an EFT System.
First, the bank customer or a retailer inserts the customer's debit, credit or
smart card issued by the bank into an ATM, POS terminal or smart card "load"
device thereby requiring authorization of a transaction. The request is routed
to a Network or bank computer for authorization; the authorization message is
then returned to the terminal at which the transaction was originated and the
transaction then is completed. The whole process is generally accomplished
within thirty seconds or less. Most EFT Systems operate twenty-four hours a day,
seven days a week.
The routing and authorization of EFT transactions is a complex activity due
to the large number of locations and variety of devices through which
transactions can be generated, the large number of card issuers in the market,
the high transaction volumes, the geographic dispersion of the Networks, the
differing types of authorization and the varied reporting requirements. In
addition, there are many variations to an EFT System. For example, ATMs, POS
terminals or smart card "load devices" may be connected to one or several
Network computers, in which case transaction authorization can be processed by
the Network computer, with authorization and record information transmitted to
the bank computer, if appropriate. Many smaller banks utilize processing firms
for all or portion of their transactions or several banks establish a joint
venture to process credit and debit card transactions.
TPII Software Products
The TPII software products are EFT Systems managers. Such software products
primarily route and authorize the processing of transactions through an EFT
System, thereby enabling the system to interface or communicate with other
systems and Networks, as well as to provide other functions. TPII software
products generally can be configured to (i) act as a front-end to a financial
institution's host computer, (ii) perform as a switch connected to multiple
financial institutions' host computers and Networks or (iii) act as an
authorization-only system for financial transactions.
As a front-end system, TPII software products can intercept transactions from
a financial institution's terminals and route them to the institution's host
computer. This eliminates expenses that may be charged by data processing
facilities or Networks. For example, a transaction initiated by the customer of
a bank at the bank's ATM that is part of a larger shared Network generally is
initially routed to the Network computer for a fee before it is routed back to
the bank's host computer, typically referred to as an "on-us" transaction. The
TPII front-end system, however, routes the "on-us" transaction directly to the
bank for processing, thereby bypassing the Network.
As a switch, TPII software products can route transactions between multiple
host computers of financial institutions for authorization of transactions. In
this environment, ATMs, POS terminals and smart card "loading" devices of a
financial institution are on-line to such financial institution's host computer
and such host computer is on-line to the TPII software. If such financial
institution's host computer receives a transaction request from an ATM, POS
terminal or smart card "loading" device requiring an authorization from another
financial institution which is part of the Network, then the request is
transmitted to the Network utilizing the TPII software and the TPII software
routes the request to the proper financial institution's host computer for
authorization, which then transmits the authorization response back to the
Network. The TPII software then routes the authorization response to the
original requesting financial institution. In this environment, the TPII
software can also authorize the transaction if the financial institution from
which the authorization is requested is unavailable.
As an authorization-only system, TPII software products receive authorization
requests from various Network switches. In this environment, the TPII software
is installed at the financial institution's main office, but is not interfaced
with any of that institution's ATMs, POS terminals or smart card load devices.
Instead, it will authorize transactions initiated by credit cards, debit cards
and/or smart cards issued by the institution to its customers when the customers
utilize terminals and devices owned by other financial institutions. In this
environment, a transaction request originating at another financial
institution's ATM, POS terminal or smart card "loading" device by the customer
is transmitted to a Network switch and the Network switch will route the
transaction request to the TPII software. The TPII software will then route the
transaction to the host computer of the financial institution utilizing TPII
software for authorization. If such institution's host computer is unavailable,
then the TPII software will authorize the transaction and transmit the response
back to the proper Network switch.
TPII software products can be installed at the financial institution's main
office, a branch or at a data processing facility. TPII software products permit
7-day, 24-hour remote banking by storing customer balance files and
communicating with the customers' in-house computer(s) or data center(s) on a
continuous (real time) or batch (delayed) basis with no changes required to
existing host application software. TPII software products are capable of
sending or receiving messages from ATMs, POS terminals, Networks and host
computers. Such products may authorize transactions without the necessity of
interfacing with the host computer and can periodically input the transactions
into the host computer.
TPII software is offered in separate modules depending on the function to be
performed. Set forth below is a description of the various modules of the
Company's TPII software products:
ATM, POS, Smart Card, Host and Network Interfaces each provide for the
access to and messages between a financial institution's or Network's EFT System
and its associated terminals or processors.
The Card Management Module is responsible for the updating and
maintenance of a relational database of card data. This module is capable of
maintaining the day-to-day history of the existing card base and is used for
both the ordering of new cards and the replacement of lost or damaged cards.
The Stand-In Module is primarily responsible for the logging of
transactions whenever communications are not available between the EFT System
and the host due to host failure or scheduled host downtime. When communications
are re-established the Stand-In Module is responsible for sending stand-in
transactions to the host.
The Settlement Processing Module is responsible for the computation of
fees for both the Network and issuer transactions processed on an EFT System and
is responsible for generating operational and statistical reports in industry
standard format for terminals, banks and Networks.
The Authorization Module provides, if required, transaction authorization
using various methods.
The Software Distribution Module is responsible for the down-line loading
of various configuration parameters to the ATM terminals and to encrypt and
decrypt the personal identical number (PIN) portion of the message to or from
ATMs. The encryption and decryption processes are performed by the connected
Host Security Module on behalf of the Software Distribution program.
The Device Monitor Module is responsible for supplying the ATM Network
manager with real time device status monitoring. When the device monitor module
determines the need to inform the manager of a particular condition, it will
send a warning message indicating the problem.
Visa Contract
The Company has adapted its TPII software to manage EFT Systems that process
transactions involving the "loading" of value on smart cards. A smart card is a
plastic card with an electronic chip that acts as a small computer. These cards
can include a stored value feature, which enables the holder to "load" a fixed
amount of purchasing power or cash equivalent on the card as authorized. As a
result, the holder can purchase items or services without the necessity of
carrying cash or entering into a credit card transaction. For example, the smart
card may be activated with $60.00 of purchasing power by inserting the smart
card into a smart card terminal (i.e. a "loading" device). The card holder then
uses the smart card to purchase a product for $12.00, which reduces the
purchasing power of the smart card to $48.00. The stored value on the card can
be changed at a participating ATM or other terminal.
The Company has developed software for Visa to manage an EFT System that
facilitates the "loading" of value on a smart card through a bank's terminals.
As a result of a successful test of the Company's TPII smart card software, Visa
entered into an agreement with the Company in July 1996 for the licensing and
installation of this software in connection with the operation of up to seven
pilot programs for the purposes of evaluating the TPII smart card software and
other aspects of the smart card system. The license for each pilot program is
for a term of 24 months commencing on the date such pilot program goes on-line.
As of April 30, 1997, Visa has selected financial institutions in the following
countries to conduct the pilot programs: the United States, the United Kingdom,
Japan, Germany and Italy. The first pilot program that became operational was in
Germany during the first calendar quarter of 1997. The Company anticipates that
the next two pilot programs will be operational in August, 1997.
Licensing, Services and Training
The Company licenses its TPII software products pursuant to a non-exclusive
perpetual licensing agreement. 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 financial
institution's computer requires a separate copy of the TPII software and the
license portion of the fee is incurred for each copy of the software installed.
The Company trains the financial institution's personnel in the use of the TPII
software products.
The TPII software products generally involve customization to enable the TPII
software to interface with a customer's unique host software and to meet the
particular needs of the customer. For example, each financial institution has
different software operating various ATMs or POS terminals, as well as bank and
Network computers, requiring modification to configure with the Company's TPII
software. Licenses for TPII software products generally begin at $180,000 and
average approximately $300,000 per contract depending upon the modules selected.
Payments under these types of contracts are usually made in several stages
commencing with signing of the license agreement and then as certain milestones
are completed. The Company intends to evaluate the feasibility of licensing its
TPII software products on a fee-per-transaction basis in addition to, or in lieu
of, the one-time licensing fee structure currently used.
The Company generally warrants its TPII software products for 90 days.
Subsequent to the warranty period of the TPII software products, the Company
provides maintenance services with respect to such software products. Yearly
service fees are typically 15% of the original TPII software license fee,
subject to annual increases based on changes in the Consumer Price Index in the
United States, and are generally payable annually in advance. During the period
of service, 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.
For an additional fee, the Company will provide additional training of
customer personnel. Depending on the complexity of the customer's system,
training can take from 2-4 days to 2-4 weeks.
Oracle Corporation has granted the Company, in exchange for the payment of
royalties to Oracle, a nonexclusive license to use, and grant sublicenses with
the respect to, the Oracle relational database software which is incorporated
into the TPII software products.
Special Development Contracts
The Company performs specialized software modifications or enhancements to
its TPII software for its customers, such as enhancing the TPII software to
issue postage stamps at an ATM terminal. 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 TPII software products.
The Company finds these contracts to be beneficial because of the resulting
enhancements to its base software products.
Marketing And Customers
TPII software products generally have been primarily installed in EFT Systems
of banks and other financial institutions located primarily in emerging
countries and former Eastern Bloc nations which operate or are members of
geographically-distributed EFT Systems or Networks servicing large volumes of
transactions through many types of devices. They include the following: Budapest
Bank, Budapest, Hungary; Ceska Sporitelna, Prague, Czech Republic; Baltic Card
Center, Riga, Latvia; Komercijalna Banka A.D., Skopje, Republic of Macedonia;
and Trustee's Saving Bank, Cork, Ireland. Certain of such financial institutions
serve over 750 ATMs and 2,600 POS terminals. In addition, the Company has
licensed its TPII software products to two United States financial institutions,
Standard Federal Bank, Detroit, Michigan and Lockheed Federal Credit Union,
Burbank, California.
In 1994, the Company entered into a strategic alliance with DEC, pursuant to
which such computer manufacturer agreed to market on a nonexclusive basis TPII
software products in connection with DEC's world-wide sale of its computers for
EFT Systems. In connection with DEC's sale of computers for EFT Systems, DEC,
rather than the financial institutions, is generally the licensee of the
Company's TPII software products. For the fiscal years ended April 30, 1996 and
1997, approximately 14% and 21%, respectively, of the Company's total revenues
were derived pursuant to this relationship. The Company is, therefore, dependent
upon this relationship and would be adversely affected by the loss of such
relationship. The Company has a similar agreement with Unisys for Europe and
Africa, but as of the date hereof, the Company has not derived any revenues
pursuant to its relationship with Unisys. In addition, pursuant to an informal
arrangement with IBM Thailand, the Company licensed its TPII software products,
through IBM Thailand, to two Asian financial institutions utilizing IBM
computers for their EFT Systems. Revenues from such licenses represented
approximately 3% of the Company's total revenues during the fiscal year ended
April 30, 1997. The Company is currently seeking to enter into alliances with
additional computer manufacturers.
As a result of the smart card pilot programs, Visa accounted for
approximately 39% of the Company's total revenues for the year ended April 30,
1997. IBM Thailand accounted for approximately 12% of the Company's total
revenues for the year ended April 30, 1996. No other customer accounted for more
than 10% of the Company's total revenues for the fiscal years ended April 30,
1997 and 1996.
The Company also markets its products directly through Charles J. Caserta,
President of the Company, and Simon J. Theobald, Managing Director of EMEA
(Europe, Middle East, Africa) in the Company's European office based in London.
The Company intends to hire additional sales personnel in the first quarter of
the next fiscal year.
The Company's software product information is disseminated internally within
DEC through in-house newsletters and other promotional tools. Products are also
advertised, to a limited extent, in user publications and at various trade
shows. The Company has engaged an advertising agency to implement a marketing
campaign, including advertising in publications targeted for financial
institutions.
Backlog and DeferredMaintenanceServiceRevenues
Backlog
As of April 30, 1997 and 1996, the Company had backlog of approximately
$1,372,000 and $555,000, respectively, in software license fees. The backlog was
higher as of April 30, 1997 as the Company had a greater number of license
agreements in process at an earlier stage of completion at that date as compared
to April 30, 1996. The Company includes in its backlog all license fees not
included as revenues under the percentage of completion method to the extent
that the Company contemplates recognition of the related revenues within one
year. There can be no assurance that the contracts included in backlog will
actually generate the specified revenues or that the actual revenues will be
generated within the one year period.
Deferred Maintenance Service Revenues
As of April 30, 1997 and 1996, the Company had deferred maintenance service
revenues of approximately $287,000 and $253,000, respectively. The increase in
deferred maintenance service revenues is a result of the increase in the
installed base of TPII systems. As more TPII software products are installed,
maintenance service revenues are expected to increase.
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.
However, the Company believes its TPII software products will continue to be
competitive based on cost and technology.
The Company's TPII software products face strong competition from proprietary
(legacy) and UNIX-based software. In the international EFT market, well
established worldwide competition includes Transaction Systems Architects, Inc.,
Deluxe Data Systems, Inc., SDM International, Inc., S2 Systems, Inc., a
subsidiary of Stratus, SLM Software, Inc., Consolidated Software and Oasis
Systems, whose products run on Tandem or Stratus fault-tolerant computers with
proprietary operating systems or on IBM host or industry standard computers with
UNIX operating systems.
The Company also encounters competition from original equipment manufacturers
such as NCR Corporation, Interbold, Fujitsu and Omron; EFT software system
integrators such as Kirchman Corporation, Hogan Systems, Inc., ARKSYS (formerly
known as Arkansas Systems), Jack Henry and Diebold, Incorporated; 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.
The Company is aware of only a limited number of companies primarily
marketing UNIX-based products for EFT Systems. The Company is also aware that 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.
There are numerous companies which offer EFT outsourcing services. These
third party providers primarily drive ATMs 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
(EDS), Deluxe Data Corporation, Affiliated Computer Services, Inc., Fiserv,
Inc., Money Access Services (MAC), Information Services and First Data
Corporation.
The retail POS market 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 than the
Company 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.
In the smart card market, the Company is aware of other financial
institutions attempting to develop their own smart card technology and is unable
to predict which technology, if any, will become the industry standard.
Software Development And Future Products
In an effort to license TPII software products to larger financial
institutions, the Company will test its software for use in managing EFT Systems
with a greater number of ATMs and POS terminals than in the EFT Systems
currently utilizing the Company's TPII software products. Establishing this
capability will permit the Company to market TPII software products to financial
institutions with larger EFT Systems which may be reluctant to use the Company's
TPII software without proof of its capabilities in that environment.
Competition, technological advances, changes in customer requirements,
deregulation and other regulatory changes affecting financial institutions
necessitate an ongoing enhancement and development effort to meet the
comprehensive processing needs of banks and other financial institutions. As a
result, the Company will continue ongoing expenditures for enhancement of the
Company's existing software products that take advantage of technological
advances and respond to the increasingly sophisticated requirements of its
customers. Enhancements to existing customers are delivered as add-ons to the
licensing agreements for additional license fees.
The Company will further develop products and services relating to the
"loading" of value on the smart card. Financial institutions utilizing smart
cards must provide for the personalization of the smart cards as well as a
purchase terminal system, a collection system and a clearing system. The Company
may consider developing, itself or jointly, one or all of these products and
services and may also explore the possibility of providing a turnkey or single
vendor solution for financial institutions in this area.
The Company believes that its TPII software products can be adapted for
telephone and Internet/computer banking. The Company intends to evaluate the
potential for these markets.
The Company will also attempt to market additional services to the EFT
industry. Such services will include custom services, as well as facilities
management services. Facilities management services entail the operation on a
fee-basis of an EFT System by the Company's personnel at the customer's
facility.
Proprietary Rights
The Company does not own any patents or registered copyrights. The Company
relies on a combination of trade secret and copyright laws, nondisclosure and
other contractual provisions and technical measures to protect its proprietary
rights. The Company distributes its TPII software products under software
license agreements which typically grant customers nonexclusive licenses to use
the products. Use of the software products is usually restricted to designated
computers at specified locations and is subject to terms and conditions
prohibiting unauthorized reproduction or transfer of the software products. The
Company also seeks to protect the source code of its software products as a
trade secret. The Company also obtains confidentiality agreements from its
employees, customers and others who have access to its software products.
Despite these precautions, there can be no assurance that misappropriation of
the Company's software products and technology will not occur.
Although the Company believes that its intellectual property rights do not
infringe upon the proprietary rights of third parties, there can be no assurance
that third parties will not assert infringement claims against the Company.
Further, there can be no assurance that intellectual property protection will be
available for the Company's products in certain foreign countries.
Regulations
The Company's applications are utilized primarily by financial institutions.
Such institutions are subject to state, federal or foreign regulation. Hence, it
is possible that banking regulations may have a material effect on the Company's
operations. In addition, the TPII software products are subject to export
regulations, including regulations relating to encrypted software, which require
prior approval of the licensing of the software to customers located in foreign
countries. To date, however, the Company has not experienced problems complying
with these regulations.
Employees
As of April 30, 1997, the Company had fifty-two employees, forty-nine of whom
were full time. Two employees comprise the direct sales force; forty employees
are involved in product development, technical support and services and ten
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 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 relations with its employees are good.
ITEM 2. Properties
The Company's current 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 term of this lease expires on July 31,
1999. The Company has the option to renew the lease 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.
In order to have sufficient space for its projected expanded operations, the
Company purchased on March 14, 1997 a ground lease expiring on May 25, 2083 and
a building with approximately 35,000 square feet of space located at 300 Jordan
Road, Rensselaer Technology Park, Troy, New York. The Company intends to use
approximately 23,500 square feet of this new facility for its operations. The
purchase price of such facility was $995,000 of which $50,000 was paid in cash
and the balance of the purchase price was funded through a promissory note
entered into by the Company with a financial institution. The promissory note
was due on April 14, 1997 together with interest at 6.75% and is secured with a
portion of the proceeds from the Public Offering. The interest on the initial
promissory note was paid on April 11, 1997. The promissory note has been renewed
with interest payments payable monthly until permanent financing is obtained.
The Company has received a commitment from the holder of the promissory note to
convert the note into a permanent loan with a term of 5 years. The permanent
loan will be collateralized by the building and will contain several financial
covenants. Interest on the permanent loan will be determined when such loan is
made. The Company estimates that $715,000 will be necessary for the renovation
of such facility. The landlord of the Company's current lease has agreed to
terminate such lease without any further obligations by the Company.
The Town of North Greenbush Industrial Development Agency ("IDA") passed a
resolution on March 25, 1997 authorizing the IDA to provide certain financial
assistance ("Financial Assistance") to the Company upon the completion of
certain events, including financing of the property located at 300 Jordan Road,
Rensselaer Technology Park, Troy, New York and its renovation. Such Financial
Assistance would be in the form of (i) a New York State sales tax abatement,
(ii) a mortgage recording tax exemption and (iii) graduated payments by the
Company in lieu of real property taxes with respect tosuch property.
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 this lease expires in June 1999. The current annual base rental amount
is approximately $22,000.
ITEM 3. Legal Proceedings
The Company is not a party to any pending material legal proceedings.
ITEM 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders for the three months
ended April 30, 1997.
<PAGE>
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
Prior to February 21, 1997, the Company's Common Stock had been quoted on the
OTC Bulletin Board under the symbol IFSE. Commencing on February 21, 1997, the
Common Stock has been quoted on The Nasdaq SmallCap Market under the symbol
"MNYC." Prior to February 21, 1997, the Common Stock had been traded, if at all,
on a sporadic basis; therefore, the prices quoted below prior to such date are
not necessarily indicative of market value. The following table, which is
restated to reflect a 1-for-10 reverse split of the Common Stock effectuated at
the close of business on November 8, 1996, sets forth the range of the high and
low bid quotations of the Common Stock on the OTC Bulletin Board until February
20, 1997, and The Nasdaq Small Cap Market thereafter, for the periods indicated.
The following table also sets forth the range of the high and low bid quotations
of the Series A Preferred Stock "MNYCP" and the Warrants "MYNCW" on The Nasdaq
Small Cap Market commencing on February 21, 1997.
<TABLE>
<CAPTION>
SERIES A
COMMON STOCK PREFERRED STOCK WARRANTS
Quarter Ended High* Low* High** Low** High** Low**
- ---------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
July 31, 1995 $1.50 $1.50
October 31, 1995 $1.50 $1.50
January 31, 1996 $1.88 $1.50
April 30, 1996 $2.50 $1.88
July 31, 1996 $2.50 $2.50
October 31, 1996 $4.38 $2.50
January 31, 1997 $8.13 $3.50
April 30, 1997 $10.00 $3.13 $19.75 $5.50 $12.50 $.88
* The source of such quotations is the National Quotation Bureau, Inc. and Nasdaq Trading and Market Services.
**The source of such quotations is Nasdaq Trading and Market Services.
</TABLE>
The above quotations reflect inter-dealer prices, without mark-up, mark-down
or commission, and may not represent actual transactions.
As of April 30, 1997 there were approximately 280 recordholders of the Common
Stock. The Company believes that there are more than 700 beneficial owners of
Common Stock.
As of April 30, 1997 there were approximately 2 and 4 recordholders of the
Series A Preferred Stock and the Warrants, respectively. The Company believes
that there are more than 550 and 650 beneficial owners of Series A Preferred
Stock and the Warrants, respectively.
No dividends will be paid on the Series A Preferred Stock, except that
holders of Series A Preferred Stock will be entitled to receive dividends if
dividends are declared with respect to the Common Stock and, in such event,
ratably with the holders of the Common Stock. The Company plans to retain any
future earnings for use in its business and, accordingly, the Company does not
anticipate paying dividends on its Common Stock and Series A Preferred Stock in
the foreseeable future. The payment of any dividends on the Common Stock and
Series A Preferred Stock will be at the discretion of the Company's Board of
Directors and will be dependent upon the Company's results of operations,
financial condition, capital requirements, contractual restrictions and other
factors deemed relevant by the Board of Directors.
ITEM 6. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations
Introduction
The Company is engaged in the business of developing, marketing, and
supporting software for the EFT market. Substantially all of the Company's
revenues have resulted from the licensing of its family of TPII software
products. The preparation of functional specifications, customization and
installation of TPII software products and the training by the Company of the
financial institution's personnel in the use of the TPII software products take
an average of six to twelve months, depending upon the timing of installation
and final acceptance of the EFT System by the customer. The customer pays 30% to
50% of the licensing fees upon execution of the licensing agreement and also
makes progress payments prior to acceptance. The Company recognizes revenue
under the percentage of completion method for software installation contracts.
The percentage of completion method is measured by estimates of the progress
towards completion as determined by costs incurred. The Company also derives
recurrent revenues from furnishing certain maintenance services to its customers
for the TPII software and may also receive additional revenues for additional
training of customer personnel and consulting services (collectively "service
revenues"). With respect to revenues for maintenance services, the Company
generally receives annual payments at the beginning of the contract year. Such
payments are reflected as deferred revenues and are recognized ratably during
such year.
The Company entered into an agreement with Visa in July 1996 for the
licensing and installation of its TPII smart card software in connection with
the operation of up to seven pilot programs. The license for each pilot program
is for a term of 24 months commencing on the date such pilot program goes
on-line. As of April 30, 1997, Visa has selected financial institutions in
various countries to conduct the pilot programs. Revenues from the licensing of
the TPII smart card software, except for base license fees for pilot programs,
will be recognized in the same manner as revenues from the licensing of the
other TPII software products. Revenues from base license fees for pilot programs
are recognized when pilot sites are identified.
Occasionally, the Company resells hardware to its customers in conjunction
with its TPII software installation contracts. Since such sales are isolated and
random the Company is unable to predict the amount of any future hardware
revenues. Revenues from these occasional hardware sales are recognized when
invoiced to the customer.
RESULTS OF OPERATIONS
Fiscal Year Ended April 30, 1997 Compared With Fiscal Year Ended April 30, 1996
Total revenues of $3,733,218, which includes $350,000 attributable to base
license fees for pilot programs, for the fiscal year ended April 30, 1997
represent an increase of $1,292,435, or 52.9%, over total revenues of $2,440,783
for the fiscal year ended April 30, 1996. This increase in total revenues
resulted primarily from a substantial increase in licensing of TPII software
products. Revenues from the licensing and installation of TPII software products
were $2,387,031 for the fiscal year ended April 30, 1997, as compared to
$1,955,657 for the fiscal year ended April 30,1996. Service revenues for the
fiscal year ended April 30, 1997 increased by $543,100, or 131.6%, over service
revenues for the fiscal year ended April 30, 1996. The increase in service
revenues is a result of an increase in installed TPII customers. Service
revenues also increased from additional consulting and project management
services to TPII customers. As of April 30, 1997, the Company had approximately
$287,000 of deferred maintenance service revenues. Service revenue growth is
expected to continue as long as the number of licenses for TPII software
products increases and the customers continue to utilize such software products.
Revenues from licensing of TPII software products in countries outside the
United States accounted for 53.2% of total revenues for the fiscal year ended
April 30, 1997 as compared to 81.5% for the fiscal year ended April 30, 1996.
The decline as a percentage of total revenues resulted primarily from an
increase in domestic software revenues. Such domestic software revenues
increased by approximately $1,528,000, primarily as a result of revenues
recognized from the smart card pilot programs. The Company nevertheless expects
total revenues from foreign countries to continue to be a significant portion of
its revenues in the future.
Gross profit, as expressed as a percentage of total revenues, decreased to
75.7% for the fiscal year ended April 30, 1997, as compared to 79.3% for the
fiscal year ended April 30, 1996. This decrease is associated with the increase
in hardware revenues. Hardware revenues typically have a lower gross margin than
the Company's software products. Hardware revenues were $229,463 for the fiscal
year ended April 30, 1997 as compared to $45,848 for the fiscal year ended April
30, 1996.
Operating expenses of $2,444,088 for the fiscal year ended April 30, 1997
represent an increase of $510,436, or 26.4%, from operating expenses of
$1,933,652 for the fiscal year ended April 30, 1996. This increase in operating
expenses resulted primarily from an increase in personnel. The Company expects
that operating expenses will continue to increase as a result of the planned
addition of new personnel in anticipation of new business relating to the
licensing of TPII software products, including the TPII smart card software.
Capitalized software costs for the fiscal year ended April 30, 1997 were
$252,908, as compared to $160,117 for the fiscal year ended April 30, 1996. This
increase in capitalized software costs resulted primarily from costs incurred
with respect to the TPII smart card software technology. Such capitalized costs
are being amortized on a straight line basis over the estimated five year
marketing lives of the software.
Net income was $287,936 for the fiscal year ended April 30, 1997, as compared
to a net loss of $48,380 for the fiscal year ended April 30, 1996, primarily as
a result of substantially increased licensing of TPII software products and
increased service revenues.
The Company has net operating loss carryforwards of approximately $1,900,000
as of April 30, 1997. The use of such net operating loss carryforwards as an
offset against future taxable income in any particular year may be limited.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of funds has historically been operating
revenue. The Company's working capital increased from a deficit of $798,225 at
April 30, 1996 to a $3,879,457 at April 30, 1997 principally as a result of net
proceeds from the Public Offering of $5,744,000. This increase was offset by a
negative cash flow from operating activities of $190,567. Negative cash flow
from operating activities is a result of a decrease in accounts payable, accrued
salaries, commissions, and other accrued expenses. Also as a result of the
Public Offering, the Company has been able to pay off past due amounts of
outstanding debt and trade creditors and to meet scheduled principal and
interest payments due on its outstanding debt at April 30, 1997. The Company
obtained approximately $500,000 from certain bridge financing in September 1996
(the "Bridge Financing"). Bridge Financing plus interest in the aggregate amount
of approximately $525,684 was repaid with a portion of the net proceeds of the
Public Offering.
The Company's increase in cash and cash equivalents of $5,023,948 for the
year ended April 30, 1997 was principally due to net proceeds received from the
sale of Series A Preferred Stock and Warrants pursuant to the Public Offering of
$5,744,000, offset principally by the purchases of office and computer
equipment, payments on long term debt, and payments for legal fees and
renovation costs associated with the Company's new facility of approximately
$161,000, $35,000, and $121,000, respectively.
The Company's increase in cash and cash equivalents of $129,379 for the year
ended April 30, 1996 was principally due to net cash from operating activities
of $469,846, offset principally by (i) an investment in equipment of $62,537 and
(ii) an investment in capitalized software costs of $160,117.
The Company estimates that it will incur approximately $715,000 in additional
renovation costs for its new facility and $300,000 for the purchase of ofiice
and computer equipment for the fiscal year ending April 30, 1998. The Company
will use its operating revenue and proceeds from the Public Offering to fund
these expenditures. The Company will also receive approximately $200,000 at the
time of the closing of the permanent loan which funds will also be used for such
capital expenditures.
The Company believes that the proceeds from the Public Offering, together
with anticipated cash flow from operations, will be sufficient to finance the
Company's working capital requirements for a period of at least the next 20
months. However, since a portion of the license fee for TPII software products
is not paid until acceptance by the customer and, as a result, the Company is
required to fund a portion of the costs of configuration and installation of
such products from available capital, any substantial increase in the number of
installations or delay in payment could create a need for additional financing.
In such event, there can be no assurance that additional financing will be
available on terms acceptable to the Company, or at all. The consent of the
underwriter of the Public Offering (the "Underwriter") is required before the
Company may complete certain types of financing. The obligation to obtain such
consent may limit the Company's ability to complete such financing.
The above statements and certain other statements contained in this annual
report on Form 10-KSB are based on current expectations. Such statements are
forward looking statements that involve a number of risks and uncertainties.
Factors that could cause actual results to differ materially include the
following (i) general economic conditions, (ii) competitive market influences,
(iii) the success of the Visa pilot programs, (iv) the development of the
capacity to accomodate additional and larger contracts, (v) establishing the
ability of TPII software products to process transactions for larger EFT
systems, and/or (vi) acceptance of TPII software products by a significant
number of new customers and the Company's continued relationship with computer
manufacturers.
QUARTER TO QUARTER SALES AND EARNING VOLATILITY
Quarterly revenues and operating results have fluctuated and will fluctuate
as a result of a variety of factors. The Company can experience long delays
(i.e., between three to twelve months) before a customer executes a software
licensing agreement. These delays are primarily due to extended periods of
software evaluation, contract review and the selection of the computer system.
In addition following execution of the agreement, the preparation of functional
specifications, customization and installation of software products and the
training by the Company of the financial institution's personnel in the use of
the TPII software products take an average of six to twelve months, depending
upon the timing of installation and final acceptance of the EFT System by the
customer. Accordingly, the Company's revenues may fluctuate dramatically from
one quarter to another, making quarterly comparisons extremely difficult and not
necessarily indicative of any trend or pattern for the year as a whole.
Additional factors effecting quarterly results include the timing of revenue
recognition of advance payments of license fees, the timing of the hiring or
loss of personnel, capital expenditures, operating expenses and other costs
relating to the expansion of operations, general economic conditions and
acceptance and use of EFT.
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
<PAGE>
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons of the
Registrant
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ------------------- ----- -----------------------------------------------------------
<S> <C> <C>
Frank A. Pascuito..........41 Chairman of the Board, Chief Executive Officer and Director
Charles J. Caserta.........41 President and Director
Simon J. Theobald .........33 Director and Managing Director of EMEA
Carmen A. Pascuito.........37 Controller and Secretary
Jerald Tishkoff ..........60 Director
Arnold Wells .............78 Director
John P. Singleton..........60 Director
DuWayne J. Peterson........65 Director
</TABLE>
Frank A. Pascuito has been the Chief Executive Officer and Chairman of the
Board of the Company since 1989. Mr. Pascuito co-founded the Company's
predecessor company, IFS International, Inc. (formerly named Avant-Garde
Computer Systems, Inc.), a New York corporation engaged in the development and
marketing of software (the "Predecessor"), in 1981 and served as its President
until November 1987 and as its Vice President of Product Planning until 1989.
Prior to 1981, he was employed by NCR Corporation's ATM software development
team. 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 has over ten years of operating and marketing
experience in EFT system design, sales and service. 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.
Charles J. Caserta has been the President and a director of the Company since
1989. Mr. Caserta co-founded the Predecessor in 1981 and served as its Chairman
until November 1987 and as its Vice President of Sales until 1989. Mr. Caserta
has over ten years of consulting and marketing experience in EFT system design,
sales and service. Mr. Caserta is a graduate of Villanova University with a B.A.
degree in English.
Simon J. Theobald has been a director of the Company since December 1994 and
was the Director of Sales and Marketing of the European Division based in London
between 1992 and July, 1997 and has been Managing Director of EMEA since July,
1997. From 1986 to April 1992, he was employed by Applied Communications Inc., a
subsidiary of Transaction Systems Architects, Inc. Mr. Theobald has more than
fifteen years experience in the electronic funds transfer industry. Mr. Theobald
is a graduate of De-Havilland College with a degree in computer studies and
technology.
Carmen A. Pascuito has been Secretary of the Company since December 1996 and
its Controller since 1989. Mr. Pascuito joined the Predecessor in 1985 as a
staff accountant and became its controller in 1988. Mr. Pascuito is a graduate
of Siena College with a B.B.A. degree in Accounting.
Jerald Tishkoff has been a director of the Company since May 1994. Mr.
Tishkoff also serves as a consultant to the Company. Since 1991, Mr. Tishkoff
has been Director of Marketing and a member of the Board of Directors of Allen
Technologies, Inc., a private company that provides interactive television
networks to schools and hospitals. Between 1967 and 1991, he was Director of
Marketing of Wells National Services, a provider of interactive television
networks to hospitals. He serves on the Advisory Board of the Jewish Federation,
a charitable organization. He is a graduate of Western Reserve University of
Cleveland with a B.B.A. degree and attended Western Reserve University Law
School.
Arnold Wells has been a director of the Company since 1986. Since 1976,
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. Mr.
Wells is a graduate of Western Reserve University with a B.A. degree.
John P. Singleton has been a director of the Company since April 1997. In
July 1997 he was appointed Chairman of its Executive Committee. Since 1992, Mr.
Singleton has been General Manager, Business Development of IBM/Integrated
Systems Solution Corporation. Between 1982-1992, he held several positions with
Security Pacific Corporation ranging from Senior Vice President Central
Information Group to Vice Chairman and Chief Operating Officer and member of the
Office of the Chairman. Mr. Singleton is a graduate of Arizona State University
with a B.S. degree in Business Management.
DuWayne J. Peterson has been a director of the Company since July 1997. Mr
Peterson is President of DuWayne Peterson Associates, a consulting firm
specializing in the effective management of information technology. Prior to
forming his firm in 1991, he held the position of Executive Vice President,
Operations, Systems and Telecommunications at Merrill Lynch. Mr. Peterson holds
a B.S. degree from M.I.T. and an MBA from UCLA.
Frank A. Pascuito and Carmen A. Pascuito are brothers.
Pursuant to the terms of the Underwriting Agreement for the Public Offering,
the Underwriter will have the right to nominate a member of the Board of
Directors and the Company will use its best efforts to have such nominee elected
to the Board. The Underwriter has nominated and the Company has elected John P.
Singleton as a member of the Board of Directors, effective April 7, 1997.
The Company has appointed an audit committee consisting of Directors Jerald
Tishkoff, John P. Singleton, and DuWayne J. Peterson. John P. Singleton is the
member who was designated by the Underwriter, and DuWayne Peterson is another
member of the audit committee who is an independent director.
The Company has also appointed an executive committee and a compensation
committee. The members of the executive committee are Charles J. Caserta, Frank
A. Pascuito, Jerald Tishkoff, DuWayne J. Peterson, and John P. Singleton. The
members of the compensation committee are Charles J. Caserta, DuWayne J.
Peterson, and John P. Singleton.
Section 16(a) of the Securities Exchange Act of 1934 ("Exchange Act")
requires the Company's officers and directors, and persons who own more than 10%
of the Company's Common Stock, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Officers, directors and
greater than 10% stockholders are required by regulations promulgated under the
Exchange Act to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that during the fiscal year
ended April 30, 1997, no officer, director or greater than 10% beneficial owner
was late with his filings other than Messrs. Frank A. Pascuito, Charles J.
Caserta, Simon J. Theobald, Carmen A. Pascuito, Jerald Tishkoff, Arnold Wells,
and John P. Singleton who were late in filing their respective Form 3.
ITEM 10. Executive Compensation
The following table sets forth information concerning compensation paid or
accrued by the Company or its subsidiary for services rendered during the fiscal
years ended April 30, 1997, 1996 and 1995 by its Chief Executive Officer and
each of its executive officers whose compensation exceeded $100,000 during its
fiscal year end April 30, 1997.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
Other All
Annual Restricted Securities Other
Name and Fiscal Compen- Stock Underlying LTIP Compen-
Principal Position Year Salary Bonus sation Award(s) Option(s) Payouts sation
----------------------- -------- ------------ -------- --------- ------------ ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Frank Pascuito........... 1997 $94,061 (1) $50,305 $-0- $-0- 87,485 -0- $-0-
Chief Executive Officer 1996 $88,000 (1) $-0- $-0- $-0- -0- -0- $-0-
1995 $88,000 (1) $-0- $-0- $-0- -0- -0- $-0-
Charles Caserta.......... 1997 $102,132 (2) $70,984 $-0- $-0- 92,463 -0- $-0-
President 1996 $90,794 (2) $-0- $-0- $-0- -0- -0- $-0-
1995 $88,000 (2) $-0- $-0- $-0- -0- -0- $-0-
Simon Theobald........... 1997 $183,790 $-0- $-0- $-0- 25,000 -0- $-0-
Managing Director 1996 $106,436 $-0- $-0- $-0- -0- -0- $-0-
of EMEA 1995 $167,356 $-0- $-0- $-0- -0- -0- $-0-
- --------
(1) Does not include accrued interest of $2,367, $5,706 and $5,336 for the fiscal years ended April 30, 1997, 1996, 1995,
respectively, for salaries earned but deferred. The interest rate on such deferred salaries was 12% per annum. See "Certain
Relationships and Related Transactions."
(2) Does not include accrued interest of $2,899, $6,862 and $6,637 for the fiscal years ended April 30, 1997, 1996, 1995,
respectively, for salaries earned but deferred. The interest rate on such deferred salaries was 12% per annum. See " Certain
Relationships and Related Transactions."
Set forth below with respect to the executive officers set forth in the Summary Compensation Table (the "Named Officers")
is further information concerning options to purchase Common Stock under the Company's stock option plans, and employment
agreements.
</TABLE>
<TABLE>
<CAPTION>
Option Grants in Fiscal Year Ended April 30, 1997
--------------------------------------------------------------------------------------------------------------------------------
Number of
Shares % of Total
of Common Stock Options
Underlying Granted to
Options Employees in Per Share Expiration
Name Granted Fiscal Year Exercise Price Date
- ------- ----------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
Frank A. Pascu..ito..............2,776 1.2 % $3.50 12/01/06
Frank A. Pascuito...............75,000 33.3 % $5.00 1/01/07
Frank A. Pascuito................4,709 2.1 % $4.88 4/28/07
Frank A. Pascuito................5,000 2.2 % $6.75 4/07/07
Charles J. Caserta...............7,754 3.4 % $3.50 12/01/06
Charles J. Caserta...............4,709 2.1 % $4.88 4/28/07
Charles J. Caserta..............75,000 33.3 % $5.00 1/01/07
Charles J. Caserta...............5,000 2.2 % $6.75 4/07/07
Simon J. Theobald...............20,000 10.5 % $1.50 10/01/03
Simon J. Theobald................5,000 2.2 % $6.75 4/07/07
</TABLE>
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Number of Shares Underlying Unexercised In-the-Money
of Common Stock Options as of April 30, 1997 Options as of April 30, 1997(1)
Acquired on ----------------------------- --------------------------------
Name Exercise Value Realized Exercisable Unexercisable Exercisable Unexercisable
- --------------------- ---------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Frank Pascuito,
Chief Executive Officer..4,978 $14,138 133,280 0 $90,635 $0
Charles Caserta,
President................4,978 $14,138 133,280 0 $76,317 $0
Simon Theobald,
Director.................0 0 41,896 18,104 $92,302 $50,154
- --------
(1) Based on a market price of $4.27 per share at April 30, 1997.
</TABLE>
EMPLOYMENT AGREEMENTS
Frank A. Pascuito and Charles J. Caserta have entered into a three year
employment agreement with the Company, effective as of January 1, 1997, that
provide for their employment as Chairman of the Board and President,
respectively. Under their respective agreements, Messrs. Pascuito and Caserta
will each receive a base salary of $110,000 per year for each of the first two
years and an amount to be determined by the Board of Directors for the third
year. In addition, Messrs. Pascuito and Caserta each will be generally entitled
to commissions of 8% on revenues during any fiscal year in excess of $425,000
pursuant to licenses agreements generated by their respective sales efforts. The
Board of Directors may in its discretion grant bonuses to Messrs. Pascuito and
Caserta. Pursuant to these employment agreements and not pursuant to any option
plan, Messrs. Pascuito and Caserta also each received options to purchase 75,000
shares of Common Stock at an exercise price of $5.00 per share. Each agreement
contains a restrictive covenant requiring the executive not to compete with the
Company for the term of the agreement, for two years following termination for
cause or for one year if such executive's employment agreement is not renewed by
the Company. Each agreement provides for a car allowance.
STOCK OPTION PLANS
The Company has two option plans: the 1996 Stock Option Plan (the "1996
Plan") and the 1988 Stock Option Plan (the "1988 Plan").
The 1996 Plan provides for the granting of options which are intended to
qualify either as incentive stock options ("Incentive Stock Options") within the
meaning of Section 422 of the Internal Revenue Code of 1986 or as options which
are not intended to meet the requirements of such section ("Nonstatutory Stock
Options"). The total number of shares of Common Stock reserved for issuance
under the 1996 Plan is 300,000. Options to purchase shares may be granted under
the 1996 Plan to persons who, in the case of Incentive Stock Options, are key
employees (including officers) of the Company or any subsidiary of the Company,
or, in the case of Nonstatutory Stock Options, are key employees (including
officers) or nonemployee directors of, or nonemployee consultants to, the
Company or any subsidiary of the Company.
The 1996 Plan provides for its administration by the Board of Directors or a
committee chosen by the Board of Directors, which has discretionary authority,
subject to certain restrictions, to determine the number of shares issued
pursuant to Incentive Stock Options and Nonstatutory Stock Options and the
individuals to whom, the times at which and the exercise price for which options
will be granted.
The exercise price of all Incentive Stock Options granted under the 1996 Plan
must be at least equal to the fair market value of such shares on the date of
the grant or, in the case of Incentive Stock Options granted to the holder of
more than 10% of the Company's Common Stock, at least 110% of the fair market
value of such shares on the date of the grant. The maximum exercise period for
which Incentive Stock Options may be granted is ten years from the date of grant
(five years in the case of an individual owning more than 10% of the Company's
Common Stock). The aggregate fair market value (determined at the date of the
option grant) of shares with respect to which Incentive Stock Options are
exercisable for the first time by the holder of the option during any calendar
year shall not exceed $100,000.
As of April 30, 1997, 35,000 options have been granted pursuant to the 1996
Plan.
The 1988 Plan provides for the issuance of options to purchase Common Stock
to key employees, officers, directors and consultants. As of April 30, 1997,
there were options outstanding to purchase 248,542 shares of Common Stock under
the 1988 Plan. All options are exercisable at prices ranging from $.66 to $4.88
per share and expire in various years between 1997 - 2006. As of April 30, 1997,
there were no options available for grant to purchase shares of Common Stock
under the 1988 Plan.
The exercise price of all future option grants will be at least 85% of the
fair market value of the Common Stock on the date of grant.
ITEM 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding beneficial
ownership of the Common Stock and Preferred Stock as of July 1, 1997 by (i) each
stockholder known by the Company to be the beneficial owner of more than 5% of
the outstanding Common Stock and Preferred Stock, (ii) each director of the
Company, (iii) each Named Officer, (iv) and all directors and executive officers
as a group. Except as otherwise indicated, the Company believes that the
beneficial owners of the Common Stock and Preferred Stock listed below, based on
information furnished by such owners, have sole investment and voting power with
respect to such shares, subject to community property laws where applicable.
<TABLE>
<CAPTION>
Name and Address of Number Of Shares Percentage
Beneficial Owner Title of Class Beneficially Owned of Class
--------------------------------------------------- -------------- ------------------ ----------
<S> <C> <C> <C>
Frank Pascuito...................................... Common 317,466(1) 26.1%
Rensselaer Technology Park
185 Jordan Road
Troy, NY 12180
Charles J. Caserta.................................. Common 317,466(2) 26.0%
Rensselaer Technology Park
185 Jordan Road
Troy, NY 12180
Simon J. Theobald................................... Common 45,280(3) 4.0%
Little Elms, 12 Green Lane,
Croxley Green, Rickmansworth,
Hertfordshire, WD3 3HR England
Jerald Tishkoff..................................... Common 56,170(4) 5.1%
2620 S. Green
University Heights, Ohio 44122
Arnold Wells........................................ Common 10,500(5) 1.0%
1100 Madison Avenue
New York, NY 10028
John P. Singleton................................... Common 10,000(6) 0.9%
4331 Rosecliff Drive Preferred 11,000 0.8%
Charlotte, NC 28277
DuWayne J. Peterson................................. Common 10,000(7) 0.9%
225 South Lake Ave.
Pasadena, Ca. 91101
All directors and executive officers as a group (7
persons) ...............................................Common 786,794(8) 54.3%
Preferred 11,000 0.8%
- --------
(1) Includes 120,835 shares issuable upon exercise of stock options.
(2) Includes 125,813 shares issuable upon exercise of stock options.
(3) Includes 45,260 shares issuable upon exercise of stock options.
(4) Includes 14,170 shares issuable upon exercise of stock options.
(5) Includes 10,000 shares issuable upon exercise of stock options.
(6) Includes 10,000 shares issuable upon exercise of stock options.
(7) Includes 10,000 shares issuable upon exercise of stock options.
(8) Includes 355,900 shares issuable upon exercise of stock options.
</TABLE>
ITEM 12. Certain Relationships and Related Transactions
Frank Pascuito deferred salaries for the five fiscal years ended April 30,
1995 in the aggregate amount of $60,765. Such deferred salaries bore interest at
the rate of 12% per annum until September 30, 1996, which interest aggregated
$31,013 as of such date and was also deferred. As of April 30, 1997, all
deferred salaries and interest have been paid.
Charles Caserta deferred salaries for the five fiscal years ended April 30,
1995 in the aggregate amount of $62,439. Such deferred salaries bore interest at
the rate of 12% per annum until September 30, 1996, which interest aggregated
$34,464 as of such date and was also deferred. As of April 30, 1997, all
deferred salaries and interest have been paid.
Simon J. Theobald, Managing Director of EMEA, receives pursuant to an
agreement a base annual salary of $81,634 and a commission in the amount of 8%
of gross revenues of any licensing agreement for which he provides sales and
marketing services. For the fiscal year ended April 30, 1997, Mr. Theobald
earned $183,790 salaries and commissions.
In April, 1997, the Company entered into a consulting services agreement with
Jerald Tishkoff, a Director of the Company. Mr. Tishkoff provided management
consulting services and performed those duties ordinarily performed by the chief
operating officer of a software development company. Mr. Tishkoff is compensated
at a rate of $13,500 per month for services in addition to reimbursement for
personal expenses. For fiscal year 1997, Mr. Tishkoff was compensated
approximately $105,000, including services and expenses prior to the agreement.
In September 1996, the Company, as part of the Bridge Financing, sold to
unrelated third parties $500,000 principal amount of the Company's notes (the
"Notes") for $500,000 and warrants to purchase 100,000 shares of Common Stock
for $5,000. The Notes bore interest at 12% per annum and were due on the earlier
of March 24, 1998 or the closing of the Public Offering. The warrants are
exercisable at $2.50 per share, subject to adjustment, at any time until
September 24, 2001. The Bridge Financing was satisfied on February 21, 1997.
The Company believes that all transactions with officers were made on terms
no less favorable to the Company than those available from unaffiliated parties.
All future transactions between the Company and its officers, directors and 5%
shareholders will be on terms no less favorable than could be obtained by
independent third parties and will be approved by a majority of the independent
disinterested directors of the Company.
ITEM 13. Financial Statements Exhibits and Reports on Form 8-K
(1) Financial Statements and Auditor's Reports
See Index to Consolidated Financial Statements on Page F-1.
(2) Exhibits
3.1 Certificate of Incorporation and amendments thereto of the
Company (1)
3.2 By-laws, as amended, of the Company (1)
4.1 Certificate of Designation of the Series A Convertible
Preferred Stock (2)
4.2 Form of certificate evidencing shares of Preferred Stock (1)
4.3 Form of certificate evidencing Warrants (1)
4.4 Form of certificate evidencing shares of Common Stock (1)
4.5 Warrant Agreement between the Company and the Underwriter (2)
4.6 Form of Warrant Agreement between the Company and American
Stock Transfer and Trust Company, as Warrant agent (1)
4.7 Debenture Investment Agreement, dated July 6, 1989, between
the Company and New York State Science and Technology
Foundation, and amendments thereto (1)
4.8 Loan Agreement, dated January 11, 1989, between the
Company and North Greenbush Industrial Development Agency
and amendments thereto (1)
10.1 * 1996 Stock Option Plan (1)
10.2 * 1988 Stock Option Plan (1)
10.3 Lease Agreement, dated October 1, 1986 between the
Company and Renssalaer Polytechnic Institute and amendments
thereto (the "Lease Agreement") (1)
10.4 Addendum A to the Lease Agreement, dated January 7, 1997. (1)
10.5 Digital Prime Contracting Agreement, dated June 6, 1994,
between the Company and Digital Equipment International BV(1)
10.6 Software Development and License Agreement, dated July 8,
1996, between the Company and Visa International Service
Association (1)
10.7 * Employment Agreement, dated as of January 1, 1997, between
the Company and Frank A. Pascuito. (2)
10.8 * Employment Agreement, dated as of January 1, 1997, between
the Company and Charles J. Caserta. (2)
10.9 Purchase and Sale Agreement, dated as of December 17, 1996,
between the Company and Trustco Bank, National
Association.(1)
10.10 Form of Consulting and Investment Banking Agreement between
the Company and the Underwriter. (1)
10.11 Promissory Note, dated March 14, 1997, between the Company
and Key Bank of New York. (3)
10.12 * Consulting agreement, dated April 9, 1997, between the
Company and Jerald Tishkoff.
21.1 Subsidiaries of the Company (1)
27 Financial Data Schedule
* Management contract or compensatory plan or arrangement.
1 Denotes document filed as an exhibit to the Company's
Registration Statement on Form SB-2 (File No. 333-11653) and
incorporated herein by reference.
2 Denotes document filed as an exhibit to the Company's
Quarterly Report on Form 10- QSB for the quarter ended January
31, 1997 and incorporated herein by reference.
3 Denotes document filed as an exhibit to the Company's Current
Report, dated , March 14, 1997 and incorporated herein by
reference.
(3) Reports on Form 8-K filed during the three months ended April 30, 1997:
A current report was filed to disclose information under Item 2,
Acquisition or Disposition of Assets, and Item 7, Financial Statements and
Exhibits. The Company acquired a ground lease and a building. The Company also
entered into a promissory note with Key Bank.
<PAGE>
IFS International, Inc.
Index to Consolidated Financial Statements
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT F-2
CONSOLIDATED FINANCIAL STATEMENTS
Balance sheet F-3
Statements of operations F-4
Statements of shareholders' equity (deficit) F-5
Statements of cash flows F-6 - F-7
Notes to consolidated financial statements F-8 - F-16
F-1
<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. and subsidiary as of April 30, 1997, 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, 1997. 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. and subsidiary at April 30, 1997, and the results of their operations and
their cash flows for each of the two years in the period ended April 30, 1997,
in conformity with generally accepted accounting principles.
/s/ URBACH KAHN & WERLIN PC
Albany, New York
June 26, 1997
F-2
<PAGE>
<TABLE>
<CAPTION>
IFS International, Inc.
and Subsidiary
Consolidated Balance Sheet
April 30, 1997
===================================================================================================================
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $5,161,410
Trade accounts receivable, net 732,172
Costs and estimated earnings in excess of billings on uncompleted
contracts 247,743
Other current assets 115,056
- -------------------------------------------------------------------------------------------------------------------
Total current assets 6,256,381
- -------------------------------------------------------------------------------------------------------------------
PROPERTY, EQUIPMENT AND IMPROVEMENTS, net 1,335,367
- -------------------------------------------------------------------------------------------------------------------
OTHER ASSETS
Capitalized software costs, net 457,056
Other 15,620
- -------------------------------------------------------------------------------------------------------------------
Total other assets 472,676
- -------------------------------------------------------------------------------------------------------------------
$8,064,424
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 115,112
Note payable, bank 981,624
Accounts payable 359,556
Accrued expenses 493,611
Billings in excess of costs and estimated earnings on uncompleted
contracts 139,661
Deferred revenue and customer deposits 287,360
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 2,376,924
- -------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT, less current maturities 327,320
- -------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
- -------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock $.001 par value; 25,000,000 shares authorized,
1,380,000 shares issued and outstanding 1,380
Common stock $.001 par value; 50,000,000 shares authorized,
1,072,945 issued and outstanding 1,073
Additional paid-in capital 7,976,188
Accumulated deficit (2,618,461)
- -------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 5,360,180
- -------------------------------------------------------------------------------------------------------------------
$8,064,424
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
IFS International, Inc.
and Subsidiary
Consolidated Statements of Operations
Years Ended April 30, 1997 and 1996
===================================================================================================================
1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Software license and installation contract fees $2,547,912 $1,982,192
Hardware sales 229,463 45,848
Service and maintenance revenue 955,843 412,743
- -------------------------------------------------------------------------------------------------------------------
3,733,218 2,440,783
- -------------------------------------------------------------------------------------------------------------------
Cost of software license and installation contract fees 531,996 238,130
Cost of hardware sales 181,581 16,611
Cost of service and maintenance revenue 193,136 250,020
- -------------------------------------------------------------------------------------------------------------------
Gross profit 2,826,505 1,936,022
- -------------------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 514,882 397,976
Salaries 967,245 679,271
Other 34,247 22,727
Rent 120,136 88,405
Selling, general and administrative 807,578 745,273
- -------------------------------------------------------------------------------------------------------------------
2,444,088 1,933,652
- -------------------------------------------------------------------------------------------------------------------
Income from operations 382,417 2,370
Other income (expense):
Litigation settlement costs (100,000) -
Interest expense (85,111) (52,453)
Other income 90,630 1,703
- -------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 287,936 (48,380)
Provision for income taxes - -
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 287,936 $ (48,380)
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) per common share $ .18 $ (.05)
- -------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IFS International, Inc.
and Subsidiary
Consolidated Statements of Shareholders' Equity (Deficit)
Years Ended April 30, 1997 and 1996
====================================================================================================================================
Preferred Stock Common Stock Additional
Shares Par Shares Par Paid-In Accumulated
Outstanding Value Outstanding Value Capital Deficit Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at April 30, 1995 - $ - 992,675 $ 993 $2,024,579 $(2,858,017) $(832,445)
Issuance of common stock - - 16,686 17 153,032 - 153,049
Net loss - - - - - (48,380) (48,380)
- ------------------------------------------------------------------------------------------------------------------------------------
Balances at April 30, 1996 - - 1,009,361 1,010 2,177,611 (2,906,397) (727,776)
Issuance of preferred stock and
warrants, net of related offer-
ing costs 1,380,000 1,380 - - 5,743,075 - 5,744,455
Issuance of common stock and
warrants - - 63,584 63 55,502 - 55,565
Net income - - - - - 287,936 287,936
- ------------------------------------------------------------------------------------------------------------------------------------
Balances at April 30, 1997 1,380,000 $1,380 1,072,945 $1,073 $7,976,188 $(2,618,461) $5,360,180
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
IFS International, Inc.
and Subsidiary
Consolidated Statements of Cash Flows
Years Ended April 30, 1997 and 1996
===================================================================================================================
1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 287,936 $ (48,380)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 243,420 205,015
Changes in:
Trade accounts receivable, net (587,503) 202,530
Costs, estimated earnings and billings on uncompleted
contracts 291,567 (179,770)
Other current assets (44,988) (13,102)
Accounts payable (227,614) 143,790
Accrued expenses (208,904) 112,475
Deferred revenue and customer deposits 68,034 47,288
Other liabilities (12,515) -
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (190,567) 469,846
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Facilities acquisition expenditures and equipment purchases (1,264,352) (62,537)
Capitalized license costs (11,408) (2,157)
Capitalized software costs (252,908) (160,117)
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,528,668) (224,811)
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on capital lease obligations (2,733) (15,081)
Payments on long-term debt (35,728) (103,624)
Proceeds from short-term notes 1,481,624 -
Principal payments on notes payable (500,000) -
Proceeds from issuance of common and preferred stock 5,800,020 3,049
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 6,743,183 (115,656)
- -------------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 5,023,948 129,379
Cash and cash equivalents:
Beginning of year 137,462 8,083
- -------------------------------------------------------------------------------------------------------------------
End of year $5,161,410 $137,462
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
IFS International, Inc.
and Subsidiary
Consolidated Statements of Cash Flows, Continued
Years Ended April 30, 1997 and 1996
===================================================================================================================
1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for:
Interest, net of capitalized amounts in 1997 $ 135,975 $ 29,042
Income taxes $ 1,213 $ 7,476
- -------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND
FINANCING TRANSACTIONS
Capitalized interest $ 11,227 $ -
Long-term debt converted to common stock (15,000 shares
in 1996) $ - $ 150,000
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
IFS International, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
April 30, 1997
- --------------------------------------------------------------------------------
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 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.
A significant portion of the Company's sales and revenues are
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. (a Delaware Corporation) and its
wholly-owned subsidiary, IFS International, Inc. (a New York
Corporation). 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, except for the
portion attributable to base license fees for pilot programs
which are recognized when pilot sites are identified, 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 deferred and recognized as revenue upon
installation and acceptance of the system. 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.
F-8
<PAGE>
IFS International, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
April 30, 1997
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Cash and cash equivalents:
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Cash
equivalents consist of money market funds which focus on high
quality, short-term money market instruments of all types. The
Company has pledged the funds as collateral for borrowings under
a promissory note (Note 5).
Allowance for doubtful accounts:
Accounts receivable are stated net of an 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. 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. Interest incurred on obligations
incurred to finance construction of building improvements is
capitalized in the cost of such improvements.
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.
F-9
<PAGE>
IFS International, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
April 30, 1997
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Net income (loss) attributable to common shares:
Net income (loss) attributable to common shares and common share
equivalents (primarily preferred stock) is based on the weighted
average number of shares, as adjusted to reflect a 1 for 10
reverse split (Note 13), outstanding during the respective years
(1,613,380 in 1997 and 1,018,355 in 1996). The effect of the
assumed exercise of outstanding warrants (except for certain
underwriter warrants -Note 13) is anti-dilutive in 1997. The
effect of the assumed exercise of options and outstanding
warrants is anti-dilutive or not material in 1996.
Stock-based compensation:
The Company follows Accounting Principals Board Opinion No. 25
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options.
Under APB 25, because the exercise price of the Company's
employee stock options is at least equal to the market price of
the underlying stock on the date of grant, no compensation
expense is recognized.
NOTE 2. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings on uncompleted contracts are summarized
as follows:
- --------------------------------------------------------------------------------
Expenditures on uncompleted contracts $ 242,725
Estimated earnings thereon 1,292,372
- --------------------------------------------------------------------------------
1,535,097
Less billings to date 1,427,015
- --------------------------------------------------------------------------------
$ 108,082
- --------------------------------------------------------------------------------
Included in the accompanying balance sheet under the following
captions:
- --------------------------------------------------------------------------------
Cost and estimated earnings in excess of billings on
uncompleted contracts $247,743
Billings in excess of costs and estimated earnings on
uncompleted contracts 139,661
- --------------------------------------------------------------------------------
$108,082
- --------------------------------------------------------------------------------
F-10
<PAGE>
IFS International, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
April 30, 1997
- --------------------------------------------------------------------------------
NOTE 3. PROPERTY, EQUIPMENT AND IMPROVEMENTS
Property, equipment and improvements consist of the following:
- -------------------------------------------------------------------------------
Construction in progress $1,102,820
Machinery and equipment 514,627
Equipment under capital leases 54,103
Furniture and fixtures 111,278
Leasehold improvements 19,280
- --------------------------------------------------------------------------------
1,802,108
Less accumulated depreciation 466,741
- --------------------------------------------------------------------------------
Property, equipment and improvements, net $1,335,367
- --------------------------------------------------------------------------------
Construction in progress relates to the Company's acquisition and
renovation of a new facility (Note 10). Interest capitalized
amounted to $11,227 for the year ended April 30, 1997.
Amortization related to equipment under capital leases was $7,742
and $10,821 for the years ended April 30, 1997 and 1996,
respectively.
Depreciation related to property, equipment, and improvements was
$65,216 and $36,917 for the years ended April 30, 1997 and 1996,
respectively.
NOTE 4. CAPITALIZED SOFTWARE COSTS
Capitalized software costs consist of the following:
- --------------------------------------------------------------------------------
Capitalized software costs $716,573
Less accumulated amortization 259,517
- --------------------------------------------------------------------------------
Capitalized software costs, net $457,056
- --------------------------------------------------------------------------------
Amortization expense approximated $173,000 and $154,000 for the
years ended April 30, 1997 and 1996, respectively.
NOTE 5. NOTE PAYABLE, BANK
During 1997, the Company utilized proceeds from a promissory note to
finance the acquisition of a new facility (Note 10). This note bears
interest at 6.75%, payable monthly, and is due in July 1997. The
note is collateralized by cash equivalents of the Company.
Subsequent to April 30, 1997, the Company received a commitment from
the holder of the promissory note to convert the note into a
permanent loan with a term of 5 years. The permanent loan will be
collateralized by the building and will contain several financial
covenants. Interest on the permanent loan will be determined at
closing.
F-11
<PAGE>
IFS International, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
April 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NOTE 6. LONG-TERM DEBT
Long-term debt consists of the following:
- -------------------------------------------------------------------------------------------------------
<S> <C>
Restructured note payable, government agency, principal and interest payments of
$3,804 per month, including interest at 7.5%, due April
2002. This note is unsecured and subordinated to all other debt. $192,432
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. Interest is payable quarterly at 7.5%. The debentures
are convertible into shares of common stock at rates ranging from $4.20 per
share to $5.70 per share through July, 1997. At April 30, 1997, approximately
59,500
shares of common stock were issuable under this conversion feature. 250,000
- -------------------------------------------------------------------------------------------------------
442,432
Less current portion 115,112
- -------------------------------------------------------------------------------------------------------
$327,320
- -------------------------------------------------------------------------------------------------------
</TABLE>
The Company's long-term debt obligations require compliance with
financial and non-financial covenants. As of April 30, 1997, the
Company was not in compliance with one of these requirements,
however, a covenant violation waiver has been received.
Aggregate maturities of long-term debt are as follows:
- --------------------------------------------------------------------------------
Year Ending April 30
- --------------------------------------------------------------------------------
1998 $115,112
1999 115,035
2000 127,755
2001 40,686
Thereafter 43,844
- --------------------------------------------------------------------------------
$442,432
- --------------------------------------------------------------------------------
NOTE 7. INCOME TAXES
The provision for income taxes for the years ended April 30, 1997
and 1996 differs from the amount obtained by applying the U.S.
federal income tax to pretax income due to the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
Federal income tax (benefit) at statutory rates $ 87,750 $ (23,000)
State income tax (benefit), net of federal benefits 11,000 (3,400)
Change in valuation allowance for net operating losses (98,750) 26,400
- -------------------------------------------------------------------------------------
Provision for income taxes $ - $ -
- -------------------------------------------------------------------------------------
</TABLE>
F-12
<PAGE>
IFS International, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
April 30, 1997
- --------------------------------------------------------------------------------
NOTE 7. INCOME TAXES, CONTINUED
At April 30, 1997, the Company has net operating loss carryforwards of
approximately $1,900,000, which begin to expire in 2004 to offset future federal
taxable income. Utilization of these carryforwards may be limited due to the
ownership change provisions as enacted by the Tax Reform Act of 1986 and
subsequent legislation.
Because of the uncertainty as to realizability, the deferred tax benefit
attributable to net operating loss carryforwards at April 30, 1997 and 1996 of
approximately $720,000 and $816,000, respectively, has been offset by an
equivalent valuation allowance.
NOTE 8. STOCK OPTION PLANS
The Company has two stock option plans (the 1988 Plan and the 1996 Plan) which
provide 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. Under both plans, 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
incentive stock options must be at least equal to the fair market value of the
common stock at the date of grant. Options outstanding at April 30, 1997 under
the 1988 Plan, may be exercised at prices ranging from $.66 to $4.88 per share.
At April 30, 1997, no options were available for future issuance under this
Plan. An aggregate of 332,779 shares of common stock were originally reserved
in connection with the 1988 Plan.
The following table summarizes option activity during 1997 and 1996 under the
1988 Stock Option Plan:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Shares Under Option
- - - - - - - - - - - - Year Ended April 30 - - - - - - - - - - - -
Weighted Weighted
Average Average
1997 Exercise Price 1996 Exercise Price
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding beginning of
year 281,884 .85 269,212 .82
Granted 39,948 2.82 18,100 1.56
Exercised ($.67 to $2.50
per share) (63,004) (.77) (1,686) (1.80)
Canceled (10,286) (1.23) (3,742) (3.54)
- -----------------------------------------------------------------------------------------------------
Outstanding end of year 248,542 1.37 281,884 .85
- -----------------------------------------------------------------------------------------------------
Exercisable 224,760 1.36 257,007 .80
- -----------------------------------------------------------------------------------------------------
</TABLE>
The weighted-average remaining contractual life of outstanding options under
the 1988 Plan is 6.23 years.
F-13
<PAGE>
IFS International, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
April 30, 1997
- --------------------------------------------------------------------------------
NOTE 8. STOCK OPTION PLANS, CONTINUED
An aggregate of 300,000 shares of common stock have been reserved
in connection with the 1996 Plan. During the year ended April 30,
1997, options to purchase 35,000 shares of common stock were
granted at an exercise price of $6.75 per share under the 1996
Plan. The weighted-average remaining contractual life of
outstanding options under the 1996 Plan is 9.9 years.
In accordance with APB 25, no employee compensation cost has been
recognized in accounting for the stock option plans in 1997 or
1996. Had compensation costs and fair values been determined
pursuant to Financial Accounting Standard No. 123 ("FAS 123"),
"Accounting for Stock-Based Compensation," net income for 1997
would have decreased by approximately $326,000 and net loss for
1996 would have increased by approximately $9,000. Net loss per
share would have approximated $.02 and $.06 in 1997 and 1996,
respectively, under FAS 123. The weighted average fair value of
options granted during 1997 and 1996, for the purpose of FAS 123,
is $4.62 and $1.53 per share, respectively.
In accordance with FAS 123, the fair value of each option is
estimated on the grant date using the Black-Scholes Single Option
Model, assuming no dividend yield, and with the following
weighted-average assumptions for 1997 and 1996, respectively:
risk-free interest rates of 6.5% and 6.1%; volatility factors of
the expected market price of the Company's common stock of 111.7%
and 129.0%.
NOTE 9. LITIGATION SETTLEMENT EXPENSE
In 1997, the Company settled an outstanding litigation matter
alleging breach of contract by the Company, by the payment of
$100,000 in settlement costs.
NOTE 10. COMMITMENTS AND CONTINGENCIES
Employee Benefit Plan
Effective May 1, 1997, the Company adopted a qualified profit
sharing plan with a 401(k) deferred compensation provision.
Substantially all employees are eligible to participate in the
plan. The plan provides for contributions by the Company at the
Board of Director's discretion.
New Facility and Renovation
In December 1996, the Company entered into an agreement for the
purchase of a new facility, at an initial purchase cost
approximating $900,000, intended to house its main operations
upon completion of renovation. In connection therewith,
approximately $200,000 in renovation costs have been incurred
through April 30, 1997. The total purchase and renovation costs
and are expected to approximate $1,700,000. Through April 30,
1997, purchase costs have been principally financed through bank
debt.
The underlying land is subject to a long-term ground lease
arrangement with no annual rental commitments.
F-14
<PAGE>
IFS International, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
April 30, 1997
- --------------------------------------------------------------------------------
NOTE 11. RELATED PARTY TRANSACTIONS
Certain Officers/Directors receive commissions based upon a
percentage of software license fees generated by their respective
sales efforts. Approximately $118,000 and $49,000 were earned under
the commission agreements during 1997 and 1996, respectively.
The Company has a consulting agreement with a Director to provide
consulting services for an indefinite term. The agreement calls for
the payment of monthly compensation and monthly travel and housing
expenses. Consulting fees under this arrangement, which are
exclusive expense reimbursements, were approximately $68,000 and
$35,000 in 1997 and 1996, respectively.
Accounts payable and accrued expenses include approximately $53,200
and $197,000 as of April 30, 1997 and 1996, respectively, due to
these Officers/Directors.
NOTE 12. EXPORT REVENUES, MAJOR CUSTOMERS, CERTAIN CONCENTRATIONS
One domestic customer accounted for approximately 39% of total
revenues for the year ended April 30, 1997. Amounts due from this
customer at April 30, 1997 were $160,912. A foreign customer
accounted for approximately 12% of total sales and service revenue
for the year ended April 30, 1996.
Total revenues considered export revenues approximated $2,013,000
and $2,008,000, or 54% and 82% of total revenues, for the years
ended April 30, 1997 and 1996, respectively. Such revenues were
derived primarily from customers located in eastern Europe and the
Far East.
Approximately 21% and 14% of the Company's total revenues for the
years ended April 30, 1997 and 1996, respectively, were derived
pursuant to a relationship with one computer manufacturer.
NOTE 13. PUBLIC OFFERING
In October and November 1996, in connection with a proposed public
offering, the Company approved a 1 for 10 reverse common stock
split, increased the number of preferred shares authorized to
25,000,000, and designated 20,000,000 of the preferred shares as
Series A Convertible. All share related and per share amounts have
been restated to give retroactive effect to the split.
In February 1997, the Company sold 1,380,000 shares of preferred
stock and 1,955,000 warrants to purchase preferred stock in a
public offering. Proceeds of the offering approximated $5,700,000
after deducting underwriting discounts and expenses. Proceeds of
the public offering were used to retire long-term debt, facilities
construction and renovation, and for working capital purposes.
F-15
<PAGE>
IFS International, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
April 30, 1997
- --------------------------------------------------------------------------------
NOTE 13. PUBLIC OFFERING, CONTINUED
The preferred stock is convertible, at the option of the holder,
into one share of the Company's common stock, subject to
adjustment, until February 2002 or earlier upon the occurrence of
certain events. Each warrant entitles the holder to purchase one
share of preferred stock at a price of $6.25 per share, subject to
adjustment, for a three year period beginning in February 1999, or
earlier upon the occurrence of certain events.
The Company also sold warrants to the underwriter to purchase
120,000 shares of preferred stock at $6.25 per share and 170,000
warrants to purchase an equivalent number of preferred shares at an
exercise price of $1.6875 per warrant, exercisable over a period of
four years commencing in February 1998.
In September 1996, also in connection with the public offering, the
Company obtained bridge financing and issued warrants to purchase
100,000 shares of common stock. The warrants are exercisable at
$2.50 per share, subject to adjustment, through September 2001.
NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments, consisting
principally of cash equivalents, and notes payable and long-term
debt, has been estimated to approximate their carrying amounts,
based on their short-term maturity and current interest rates.
F-16
<PAGE>
SIGNATURES
In accordance with 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:__July 29, 1997___ By:\s\ Frank A. Pascuito
Frank Pascuito, Chairman of
the Board, Chief Executive
Officer, and Director
In accordance with 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:__ July 29, 1997___ By:\s\ Frank A. Pascuito
Frank A. Pascuito,
Chairman of the Board, Chief
Executive Officer, and Director
Date:__ July 29, 1997___ By:\s\ Charles J. Caserta
Charles J. Caserta,
President and Director
Date:__ July 29, 1997___ By:\s\ Simon Theobald
Simon Theobald, Director
Date:__ July 29, 1997___ By:\s\ Carmen A. Pascuito
Carmen A. Pascuito,
Controller and Secretary
Date:__ July 29, 1997___ By:\s\ Jerald Tishkoff
Jerald Tishkoff, Director
Date:__ July 29, 1997___ By:\s\ Arnold Wells
Arnold Wells, Director
Date:__ July 29, 1997___ By:\s\ John P. Singleton
John P. Singleton, Director
Date:__ July 29, 1997___ By:\s\ DuWayne J. Peterson
DuWayne J. Peterson, Director
Exhibit 10.12
CONSULTING SERVICES AGREEMENT
Agreement made April 9, 1997 between IFS International, Inc., a
Delaware corporation ("IFS" or the "Company") and Jerry Tishkoff
("Tishkoff").
The parties agree as follows:
1. Duties. Tishkoff shall provide management consulting services and
shall perform those duties ordinarily performed by the chief operating officer
of a software development company. It is understood and agreed that Tishkoff
shall provide substantially full time services to IFS, except that Tishkoff may
continue to provide consulting services to ATI (an existing consulting client)
for not more than one day per week without IFS' consent. Tishkoff may also have
daily telephone contract with ATI, so long as this does not adversely impact his
duties at IFS.
2. Term and Termination.
(a) This Agreement shall commence upon completion of IFS'
public offering (targeted for January 15, 1997) and shall run for an indefinite
term, until terminated by either party as provided below.
(b) Termination by Tishkoff. Tishkoff shall have the right to
terminate this Agreement, without regard to the existence or lack of "cause",
upon written notice to IFS. Upon receipt of such notice, IFS shall have the
right to specify the date at which Tishkoff shall terminate services to IFS,
which shall be not more than sixty (60) days after the date of Tishkoff's
initial notice. IFS agrees to pay Tishkoff for the period that Tishkoff provides
services. In addition, if Tishkoff terminates within twelve months after the
Effective Date (defined below) of this Agreement, IFS shall pay him two (2)
month's fees after termination of services.
(c) Termination by IFS. IFS may terminate this Agreement,
without the regard to the existence or lack of "cause", by majority vote of the
remaining Board of Directors (with Tishkoff to abstain from the vote). If the
Board so votes to terminate Tishkoff's employment, IFS shall give written notice
given to Tishkoff, which notice shall specify the period during which Tishkoff
is to continue to provide services, such period not to exceed sixty (60) days.
If notice of termination comes within the first twelve months after the
effective date, then Tishkoff shall be paid fees for the time period during
which Tishkoff continues to provide services, plus four (4) additional months.
3. Compensation. As consideration for his services, Tishkoff shall be
paid Thirteen Thousand Five Hundred Dollars ($13,500) per month. In addition,
IFS agrees to reimburse Tishkoff's reasonable expenses of travel and housing in
the Troy, New York area, such travel and housing expenses not to exceed the sum
of Two Thousand Five Hundred Dollars ($2,500) per month. Tishkoff shall have use
of the company van while performing services at IFS' Troy, New York offices.
4. Scope of Authority. Tishkoff shall make recommendations to the
Company's board of directors and management concerning the matters for which he
has responsibility as set forth herein and on Exhibit "A". General
responsibilities of Tishkoff are as follows: (i) develop IFS organization for
rapid growth; (ii) assist in the management of IFS finances; (iii) recommend new
products and services to the Company's management; (iv) assist in connection
with acquisitions, mergers and other business combinations; (v) assist in
establishing sales alliances and joint ventures; (vi) supervise day to day
operations and production; (vii) oversee shareholder and marketmaker/broker
relations; and (viii) assist in the search for a permanent chief operating
officer, when so directed by the board. The specific objectives for the first
twelve months are set forth on Exhibit "A" which is attached hereto and
incorporated by reference. Tishkoff is not authorized to borrow funds without
the express approval of the Company's board of directors. Likewise, Tishkoff may
not sign contracts on behalf of the Company nor commit to the expenditure of
Company funds without board authority. However, the board may hereafter
authorize Tishkoff to borrow funds or to borrow up to a limited amount, sign
contracts or a particular class of contracts or contracts not exceeding a
certain amount, or otherwise authorize him to expend Company funds. In such
event, the minutes of the board proceedings containing such authorization shall
be deemed a supplement to this Agreement.
5. Directorship. It is acknowledged that Tishkoff is an existing member
of the board of directors of IFS. This Agreement relates to Tishkoff's duties as
a management consultant, and nothing contained herein shall enlarge, abridge,
negate or alter his duties as a member of the board of directors, nor effect his
obligations and fiduciary responsibilities as a board member. This Agreement
does not constitute a contract to continue Mr. Tishkoff on the board, nor does
it obligate Mr. Tishkoff to continue on the board, and provisions of the
Company's by-laws and Delaware corporate law shall continue to govern such
matters. Upon request, Tishkoff agrees to serve as a member of the executive
committee of the board if such committee is formed.
6. No Assignment. Tishkoff may not delegate any of his duties or
obligations under this Agreement. The rights and obligations of IFS under
this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of IFS.
7. Modification or Waiver. This Agreement may only be changed, modified
or rescinded by written instrument signed by both parties. Any waiver of the
provisions of this Agreement shall not be effective unless made in writing
signed by the person against whom enforcement is sought. A waiver given in any
case shall only apply with respect to that particular act or omission, and shall
not be effective as to further acts or omissions, regardless of whether they be
of the same or similar nature.
8. Independent Contractor Status. The parties agree that Tishkoff is an
independent contractor and that Tishkoff is not an employee of IFS. Accordingly,
IFS shall not be required or authorized to withhold FICA, federal or state
withholding taxes or any other sums which the law requires be deducted from
employees wages from Tishkoff's compensation under this Agreement. IFS will not
provide any employee fringe benefits to Tishkoff, nor will IFS provide workers'
compensation insurance, disability benefits insurance or any other insurance or
benefits mandated by law for employees. Tishkoff is responsible for payment of
all required payroll taxes, federal, state or local, including income taxes,
social security taxes, federal unemployment compensation taxes and other
payments required by law. If any court or administrative agency determines that
Tishkoff constitutes an employee of IFS, Tishkoff shall indemnify and hold IFS
harmless from all taxes, penalties, interest or assessments that IFS may incur
by reason of any such finding. Notwithstanding the foregoing, if Tishkoff so
requests, IFS shall make its group medical insurance coverage available to him,
provided that Tishkoff reimburses the Company for all premiums paid on
Tishkoff's behalf.
9. Notices. All notices, requests, demands and other communications (a
"Notice") required or permitted pursuant to this Agreement shall be in writing,
and shall be deemed to be properly served if either (i) sent via Federal Express
or other nationally recognized courier service providing written evidence of
delivery, or (ii) sent by certified or registered mail, postage pre-paid return
receipt requested, or (iii) sent by facsimile and confirmed by first class mail.
All Notices shall be addressed as follows:
IFS International, Inc. Jerry Tishkoff
Rensselaer Technology Park 24300 Chagrin Boulevard, Suite 317
185 Jordan Road Beachwood, Ohio 44122
Troy, New York 12180
Any party may change address for receipt of notice by written notice to
the other party.
10. Construction and Miscellaneous. This Agreement contains the entire
agreement and understanding of the parties concerning Tishkoff's consulting
services. There are no other understandings, terms, or conditions, oral or
written, express or implied, not contained therein. All prior understandings,
terms, conditions, or agreements are deemed superseded and merged in this
Agreement. This Agreement shall bind and inure to the benefit of the parties,
their respective heirs, personal representatives and legal successors. If any
parts of this Agreement are found to be void or unenforceable, the remaining
provisions shall nevertheless be binding with the same effect as though the void
parts were deleted. This Agreement shall be governed by the laws of the State of
New York. In construing this Agreement, feminine pronouns shall be substituted
for those masculine in form (and vice versa), and plural terms shall be
substituted for singular and singular for plural, in any place where the context
so requires. This Agreement may be executed in several counterparts, each of
which shall be considered a legal original for all purposes. Any fully signed
counterpart may be introduced into evidence in any action or proceeding without
having to produce the others.
IN WITNESS WHEREOF, the parties have executed this Agreement.
IFS INTERNATIONAL, INC.
By: \s\ Frank Pascuito \s\ Jerry Tishkoff
--------------------------- ---------------------------
Frank Pascuito Jerry Tishkoff
By: \s\ Charles Caserta
---------------------------
Charles Caserta
<PAGE>
EXHIBIT "A"
The specific objectives for the first 3-6 months are:
1. Increase programmers and project supervision to 25.
2. Establish a Human Resources Department.
3. Hire a Vice President of Operations to oversee and coordinate
production, O&A, hardware and installation.
4. Establish monthly P&L reports with finance and project
tracking program.
5. Resolve building space.
6. Establish sales reports, expense format and pricing for new
sales representatives.
7. Establish joint ventures in processing centers with TP II.
8. Investment of funds.
9. Develop a five (5) year business plan.
The specific objectives for months 6-12 are:
1. Add fifteen more programs and project supervisors.
2. Establish technology department for R&D and Development.
3. Hire sales manager.
4. Hire three new sales people.
5. Initiate search for potential acquisitions using stock.
6. Establish consulting division to place programmers in field.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> APR-30-1997
<CASH> 5,161,410
<SECURITIES> 0
<RECEIVABLES> 740,072
<ALLOWANCES> 7,900
<INVENTORY> 0
<CURRENT-ASSETS> 6,256,381
<PP&E> 1,802,108
<DEPRECIATION> 466,741
<TOTAL-ASSETS> 8,064,424
<CURRENT-LIABILITIES> 2,376,924
<BONDS> 0
0
1,380
<COMMON> 1,073
<OTHER-SE> 5,357,727
<TOTAL-LIABILITY-AND-EQUITY> 8,064,424
<SALES> 3,733,218
<TOTAL-REVENUES> 3,823,848
<CGS> 906,713
<TOTAL-COSTS> 3,350,801
<OTHER-EXPENSES> 100,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 85,111
<INCOME-PRETAX> 287,936
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 287,936
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
