U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934: For the fiscal year
ended December 31, 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 0-17773
ATS MONEY SYSTEMS, INC.
(Name of small business issuer in its charter)
Nevada 13-3442314
(State or other jurisdiction of (I.R.S.employer
incorporation or organization) identification No.)
25 Rockwood Place, Englewood, New Jersey 07631
(Address of principal executive offices) (Zip code)
Issuer's telephone number: (201) 894-1700
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
(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 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. [ ]
State issuer's revenues for its most recent fiscal year: $9,745,416
State the aggregate market value of the voting stock
held by non-affiliates computed by reference to the price at
which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within the past 60 days:
Approximately $2,133,000 based on the average of the
high bid price $ 29/32 and low asked price $1.00 published by
the National Quotation Bureau Inc. on March 6, 1998.
State the number of shares outstanding of each of
the issuer's classes of common equity, as of the latest
practicable date: As of March 6, 1998 - 5,822,731 shares of
Common Stock, $.001 par value.
DOCUMENTS INCORPORATED BY REFERENCE
1998 definitive proxy statement to be filed with the
Commission - incorporated by reference into Part III.
Transitional Small Business Disclosure Format: Yes ; No X
This Annual Report on Form 10-KSB contains, in
addition to historical information, certain forward-looking
statements that may involve significant risks and uncertainties.
Such forward-looking statements are based on management's
belief as well as assumptions made by, and information currently
available to, management pursuant to the "safe harbor"
provisions of the Private Securities Litigation Reform Act of
1995. The Company's actual results could differ materially from
those expressed in or implied by the forward-looking statements
contained in this Annual Report. Factors that could cause or
contribute to such differences include, but are not limited to,
those discussed in Item 1 - "Description of Business", Item 6 -
"Management's Discussion and Analysis or Plan of Operations" and
elsewhere in this Annual Report, as well as general economic
conditions, economic conditions in the industries in which the
Company's customers compete, a determination by the Company's
customers to prolong the test cycles of the Company's equipment,
software and software support services and a determination by
the Company's customers to modify or change their underlying
computer and cash reporting systems. The Company undertakes no
obligation to release publicly the results of any revisions to
its forward-looking statements that may be made in this Annual
Report to reflect events or circumstances occurring after the
date of this Annual Report or to reflect the occurrence of other
unanticipated events.
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
General
ATS Money Systems, Inc. ("ATS"), with Innovative
Electronics, Incorporated ("IEI"), a wholly-owned subsidiary
(collectively, the "Company"), is engaged in the development,
sale and service (i) of currency counting systems and equipment
for department and chain stores' cash offices and bank
commercial vaults, and (ii) of specialized information
communications systems primarily used by chain stores. The
Company's customers are businesses that handle a large number of
cash, check and credit transactions on a daily basis, such as
banks, department stores and chain stores. The Company was
incorporated in 1987 under the laws of the State of Nevada and
is the successor to a similar business acquired by merger in
1988.
In August 1994, the Company, through IEI (which was
formed for such purpose), acquired the business and
substantially all of the assets of Innovative Electronics,
Incorporated. Based in Miramar, Florida, IEI is engaged in the
business of marketing hardware and software products designed by
IEI or its predecessor to permit the exchange of pricing,
product and other information among stores within a chain and
between such stores and the stores' headquarters.
Products
The Company is in the business of marketing currency
counting systems, proprietary software computer systems,
computers and peripherals for automating chain and department
stores' cash offices and bank commercial vaults. In addition,
IEI is engaged in the business of marketing point-of-sale (POS)
systems, communications hardware and software products primarily
used by chain stores to permit the internal exchange of
information.
The principal products sold by the Company during
1997 were its CP-3000 Retail Cash Office Management System, its
CP-2000 Deposit/Register Verification System and its newly
developed CP-4000 Retail Cash Office Management System, which
products accounted for approximately 58% of the Company's 1997
equipment and systems sales, and an IEI communications product,
the StoreComm ISP and its related hardware, which accounted for
approximately 15% of the Company's 1997 equipment and systems
sales. The Company also sells various types of
currency/document counters and dispensers.
ATS CP-2000 Deposit/Register Verification System
The CP-2000 System is an integrated system
consisting of a computer, a currency counter, one or more
peripherals and a proprietary software system, which provides an
alternative to performing manual record keeping of cash receipts
and transfers, and is used primarily by banks and retail
establishments. The CP-2000 System, using an IBM-PC or
compatible computer, interfaces with the Company's currency
counters to speed up counting, tally various accounts, maintain
period-to-date totals, maintain records and automatically
prepare and print various management reports as a by-product of
the counting operation. The CP-2000 System's software is
readily modifiable to fit the particular needs of a user and can
be upgraded. All information is captured on diskette or fixed
disk which assists in generating historical account analysis for
management.
The CP-2000 System is designed for operators with
little or no prior computer experience. Its appeal to
management is based on the significant labor savings which can
be achieved through the automation of the counting and reporting
functions. If the user does not have an IBM-PC or compatible
computer and the associated currency counting equipment to use
the CP-2000 System, the Company can furnish all of the necessary
equipment. The CP-2000 System varies in price depending upon
the hardware configuration and the specific application software
used.
ATS PowerVault Cash Vault Management System
The PowerVault System was developed to provide a
more comprehensive solution for the requirements of larger
banks. The PowerVault System utilizes LAN technology and
software such as Microsoftu Windowsu and Microsoft Access.
While the PowerVault System retains all of the benefits to users
of the CP-2000 System, it is designed to provide a significant
increase in control over, and accountability for, funds as they
move within the cycle of a vault. In addition, the PowerVault
System offers the capability of providing reports, in hard copy
or file, to customers as soon as their deposits have been
processed. The PowerVault System uses a combination of work
stations with application software providing different functions
for the various steps in vault processing. Because the
requirements of each vault differ to some degree, the number of
work stations and the price of the total system fluctuates
substantially.
ATS CP-3000 Retail Cash Office Management System
The CP-3000 System was developed for the retail
industry in response to the trend of using a UNIX operating
system in store operations. Application software for the
CP-3000 System is loaded into a central in-store processor (an
"ISP"), thereby eliminating the need for stand-alone computers
and, in their place, using low-cost ASCII terminals. The
software for the CP-3000 System is written in C language, which
allows it to be used in a stand-alone PC, a PC emulating a
terminal or an ASCII terminal connected to the host ISP, thereby
making the system suitable for retailers using UNIX or other
operating systems. The CP-3000 System utilizes advanced
software screen managers. It is intended to offer the user
greater flexibility and to provide the Company with the ability
to offer custom applications without extensive code writing. The
Company believes that this feature enables the CP-3000 System to
be more competitive without eroding profit margins. The selling
price of the CP-3000 System varies substantially depending upon
the specific requirements of the customer for hardware, software
and peripherals.
CP-4000 Retail Cash Office Management System
The CP-4000 System was developed in order to allow
the Company to take advantage of the significant marketing
effort being made by Microsoft Corporation to promote its
Windows 95 and Windows NT operating systems. The CP-4000
System is written in native NT code and incorporates all of the
features of the CP-3000 System with the added advantage of dual
processing capability. The dual processing capability allows two
applications to be run at the same time, with the labor expended
being no more than would have been used for a single
application. A good example of this capability is the ATS
Powerencoding application being run simultaneously with the
retail register settlement application with no additional labor
expended.
StoreComm2000
The StoreComm2000 product suite, designed for
the retail environment is a distributed processing system that
provides transaction data processing in the retail stores and at
the data center. StoreComm2000 is comprised of three
subsystems: StoreComm/Host and StoreComm/ISP, which are
interrelated components, and StoreComm/POS.
StoreComm/Host - The StoreComm/Host product is a
set of software applications that run on the retail data center
host processor, typically IBM mainframe, AS/400 or Tandem.
StoreComm/Host allows retailers to configure, manage and control
their store network, from the central host site. This system
facilitates the transfer of data between corporate headquarters
and the retail stores within the chain, PLU (price look-up)
management, credit authorization, and the ability to make
real-time inquiries on store level information.
StoreComm/ISP - The StoreComm/ISP is an in-store
processing software package that resides in each store in the
retail chain, to which all POS terminals are networked. This
software (and optional IEI communications hardware/printed
circuit board) runs on an Intel-based PC with a Pentiumu or
higher processor. Several operating environments are supported,
including UNIXu, DOS and Windows NTu which was completed in
1997. StoreComm/ISP is the in-store control point and each
store's information gateway between the POS and the data center
host. The StoreComm/ISP monitors and collects all the POS
transactions as they occur and processes this data into useful
reports. In addition, StoreComm/ISP can provide the POS
terminals and other networked devices with access to added
functionality, such as, credit verification, price look-up,
e-mail, layaway and gift certificate tracking. During 1997,
IEI completed development and installed its first Windows NT
based StoreComm/ISP in a major, mid-west US based retail chain.
This installation consists of 54 ISPs supporting over 4200 POS
terminals throughout the chain. Prior to upgrading to Windows
NT, this retail chain, since 1991, used the DOS version of the
StoreComm/ISP.
StoreComm/POS - StoreComm/POS is the point-of-sale
software transaction set that runs on the POS terminals. The
StoreComm/POS is designed to run on a variety of terminal types,
including all PC-based POS, such as NCR, IBM and Fujits-ICL,
as well as some older non-PC-based POS terminals. The
StoreComm/POS software uses a CRT as its display to provide the
cashier with a full-screen menu-driven interface and utilizes a
function key oriented keyboard. An optional feature of the
StoreComm/POS is the application and development test tool,
which allows the retailer to customize the software and automate
testing of modifications made.
Other Products
In addition to the foregoing products, the
Company markets several coin and currency/document counters, all
microprocessor controlled for accuracy.
Counters are used by banks, retail establishments,
transit authorities, currency exchanges and other commercial and
governmental agencies for accurately counting large quantities
of coins, currency, coupons, transit toll tickets, checks and
other documents. The Company offers three different models of
currency/document counters, each of which can count at least
1000 documents per minute. Two of the models can be equipped
with a counterfeit detection aid. In addition, the Company
offers a coin counter/packager and a coin counter/sorter.
In the first quarter of 1997, the Company introduced
an electronic scale, the ATS-601, for weighing currency and
coins. The ATS-601 does the work of a friction feed currency
counter and a coin counter at the approximate cost of only one
of those units. As a result, the user benefits through a
reduction in capital expenditure, as well as a reduction in
annual maintenance since the ATS-601 has no mechanical parts to
wear or be re-adjusted.
The ATS-5000 Automated Telephone Cash Ordering
System, like the CP-2000 System, is an integrated system which
allows coin and currency orders to be taken automatically over
the telephone. With the ATS-5000 System, the caller placing the
order enters all necessary information with the telephone
keypad, thereby eliminating the personnel formerly needed to
answer the telephone and write the order. After an order is
placed, the ATS-5000 System prepares all of the various reports
and documents necessary for picking, packing and shipping the
order. The document needed to charge the account placing the
order also is prepared. The ATS-5000 System answers the phone
in a friendly, natural voice, repeats the amount of each item
ordered and informs the caller of the total amount of the order
when it is completed. Upon completion, the caller is also given
an order confirmation number. The ATS-5000 System can service
multiple callers simultaneously, process standard orders
automatically and prepare a variety of management reports. As a
result, the ATS-5000 System utilizes less labor and eliminates
the possibility of transcribing errors.
Maintenance and Service Contracts
The Company warrants its products for 90 days
after sale. Warranty and after-warranty service on all hardware
products is provided through a national third-party service
company under contract to the Company. As a result, a customer
usually is able to receive a response to a service request
within four business hours and the Company does not incur the
overhead expenses which would normally be associated with
maintaining a field service department. Warranty and
after-warranty service on all software products is handled over
the telephone by the Company's help-desk personnel who are
trained on the various systems installed in customers' locations.
Pursuant to its maintenance contracts, customers
purchasing complete systems have access to a toll-free "hot
line" which allows them to call the Company directly if they
have a problem. The Company's support department determines the
nature of the problem and arranges for the dispatch of technical
service when necessary. If the problem is operator-oriented, it
is usually correctable without a visit from a field technician.
Customers purchasing stand-alone equipment have access to the
Company's third party service company in the event of a problem.
Customers who purchase StoreComm ISP or StoreComm AP systems
call IEI directly if they have a problem, where customer support
personnel are available to help resolve the problem.
The Company's maintenance contracts usually are for
a maximum of one year, generally commence at the beginning of
the calendar year and are prepaid in full at such time. The
Company retains ownership of all service contracts with its
customers, which are priced to return a profit to the Company.
Marketing
The Company believes that the immediate market
for its products are those businesses that handle large amounts
of cash on a daily basis, such as banks, retail chain stores and
department stores. The Company is an established supplier of
currency counting and control systems and equipment and, since
its acquisition of IEI, has begun to establish itself as a
supplier of hardware and software systems designed to permit the
exchange of data among stores within a chain. The Company's
users include major banks in the United States as well as
national and regional armored car operators. In the retail
industry, the Company's customers include Bergdorf-Goodman, T.J.
Maxx, Target Stores, The Home Depot, Lowe's Companies, Inc.,
Ames Department Stores, Carson Pirie Scott & Co. and Kohls
department stores.
In general, because of the nature of the Company's
products, a large potential customer will normally place a small
order for the Company's products for testing in one or several
locations. If testing meets the customer's criteria, the
customer will generally order a large quantity of product for
installation throughout its locations and, thereafter, will
order decreasing quantities to complete installation at smaller
or newly established locations. As a result, a large customer
one year may not be a significant customer the following year.
During 1997, The Home Depot, Target Stores and T.J. Maxx
accounted, in the aggregate, for approximately half of the
Company's total revenues, with no other customer accounting for
more than 9% of the Company's total revenues. The Company's
bank sales are not seasonal, but its sales to retailers
generally occur during the first three quarters of each year.
Since 1984, the Company has marketed its products on
a national basis, primarily by its own employees, supervised by
the Company's executive officers. Although the Company expects
that a high percentage of its future sales will continue to be
made by its own employees, the Company continues to review
potential strategic alliances and, should an opportunity arise,
the Company may take advantage of the sales potential available
through the formation of strategic business alliances with
larger companies engaged in the sale of complementary products
and services.
The Company's sales staff is organized into a
territory sales group, a national accounts sales group for
retail cash office systems sales, and a POS and communications
systems solutions sales group. This structure is designed to
assure coverage of the banking industry, which is comprised of
local or regional organizations, and the retail industry, which
is essentially controlled by chain organizations with
headquarters control over systems and purchasing. The territory
sales group is responsible for direct sales to banks and
independent retail operations within a specific geographical
area in which the representative is assigned. This group also
would serve to support the sales efforts of sales
representatives of those organizations with which the Company
may form a strategic business alliance. The national accounts
sales group is headquartered at the Company's offices in New
Jersey and is responsible for retail cash office systems sales
to chain stores with centralized management and purchasing. The
POS and communications systems solutions sales group is
headquartered at IEI's offices in Miramar, Florida, and is
responsible for the sale of POS and communications products to
chain stores. The Company's sales staff receives a base salary
plus commissions.
IEI has established business alliances with several
major vendors within the retail industry, namely IBM, NCR, and
Fujitsu/ICL, as well as non-industry specific vendors, including
Microsoft, Oracle, SCO and Tandem. Through these relationships,
IEI has had access to low-cost or free hardware and software for
development purposes, as well as sales and marketing programs
to strengthen market position.
The Company participates in industry conferences
such as the National Retail Federation ("NRF") Annual
Conference, the NRF Retail Informations Systems Conference, the
Retail Systems Conference and Exhibition, the National
Association of Convenience Stores, Food Service Technology and
the Food Marketing Institute's Marketechnics Conference. In
addition, the Company conducts a small number of private shows
in selected cities.
Product Development and Enhancement
The Company's software systems are proprietary .
Since its inception, the Company has continue to develop and
enhance its proprietary software systems to automate cash
processing. During 1997 and 1996, the Company spent
approximately $984,000 and $505,000, respectively, to enhance
its proprietary software systems.
The Company relies on the complexity of its
proprietary software systems and its licensing agreements to
protect its computer software coding.
Manufacturing, Distribution and Proprietary Rights
The Company does not manufacture any of the
equipment it sells, although some equipment and components are
manufactured exclusively for the Company. Some of the equipment
sold by the Company is distributed exclusively by the Company in
the United States. Other equipment is purchased from the
manufacturer with the Company's label and still other equipment
is distributed with the manufacturer's label on a non-exclusive
basis by the Company.
Other than the printed circuit boards used in
conjunction with the StoreComm ISP, which circuit boards are
proprietary and manufactured to the Company's specifications,
substitute equipment for use in the Company's systems is
obtainable by the Company from other sources.
Employees
As of March 1, 1998 the Company had 53 full-time
employees, 19 of whom are at IEI. Eleven of the Company's
employees are executive and administrative personnel, twelve are
systems software development personnel, eleven are customer
software support personnel, nine are customer hardware support
personnel and ten are sales and marketing personnel. The
Company's employees are covered by a comprehensive medical and
major medical plan, and receive life insurance and long-term
disability benefits. The Company is not a party to any
collective bargaining agreement and considers its employee
relations to be satisfactory.
It is the Company's practice to require its
marketing employees to sign a non-compete agreement which
restricts the employee, following the employee's termination of
employment, from competing with the Company for a six-month
period in any territory where the employee represented the
Company or with respect to any of the employee's former
accounts. It also is the Company's practice to require its
technical employees to sign a confidentiality agreement.
From time to time, the Company utilizes the services
of independent consultants to provide computer systems analysis
and software design and support. It is the Company's practice
to retain all rights to the work product created for the Company
by such consultants.
Competition
The Company's business is highly competitive.
There are other manufacturers and distributors of systems and
equipment, similar to the systems and equipment marketed by the
Company, who are larger than the Company and possess
substantially greater resources than the Company. The Company
believes that most of its competitors generally sell products
which are rigid in their application and not suitable for all
retail operations. The Company, on the other hand, generally
customizes its products to fit a customer's specific needs. As
a result, the Company believes that its products currently offer
a more flexible and comprehensive solution than its competitors'
products.
ITEM 2 - DESCRIPTION OF PROPERTY
The Company leases approximately 8,350 square feet
in a four story brick building in Englewood, New Jersey at a
current annual rental of $171,438 (subject to increases for real
estate taxes and utility costs), for a term ending December 15,
1998 which, at the option of the Company, may be extended for an
additional five years. Approximately 50 percent of the space is
used for executive and sales offices, approximately 20 percent
is used for storage and approximately 30 percent is used for
testing and development of the Company's products. The Company
also leases approximately 900 square feet of space in Englewood,
New Jersey, used for storage and depot service, at a current
annual rental of $9,000 for a term ending November 23, 2000.
IEI leases approximately 12,500 square feet in a
contemporary office park in Miramar, Florida at a current annual
rental of $129,928 (subject to increases for real estate taxes
and utility costs), for a term ending April 30, 2000.
The Company considers its facilities suitable and
adequate for its present use.
ITEM 3 - LEGAL PROCEEDINGS
There are no material pending legal proceedings
to which the Company is a party or to which any of its property
is subject.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
No matter was submitted to a vote of security
holders of the Company during the fourth quarter of its 1997
fiscal year.
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) Market Information. The following table sets
forth the quarterly high and low bid prices, as reported in the
"pink sheets" published by the National Quotation Bureau Inc.,
for the two years ended December 31, 1997. The quotations
reported represent prices between dealers, do not include retail
mark-ups, markdowns or commissions, and do not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
1997 Calendar Year High Bid Low Bid
<S> <C> <C>
1st Quarter $ 3/4 $ 15/32
2nd Quarter 13/16 11/16
3rd Quarter 15/16 3/4
4th Quarter 1-1/8 25/32
1996 Calendar Year High Bid Low Bid
1st Quarter $1-1/4 $ 7/8
2nd Quarter 1-3/8 1
3rd Quarter 1-3/8 1
4th Quarter 1 7/16
</TABLE>
(b) Holders. As of March 6, 1998, the Company
had approximately 400 holders of record of Common Stock,
including Cede & Co. which held 1,911,354 shares of Common Stock
as nominee for a number of securities brokers. Bulletin Board
Market Makers maintaining a market in the Common Stock on March
6, 1998 consisted of Financial America Securities, Inc.; Hill
Thompson Magid & Co.; Herzog, Heine, Geduld, Inc.; Knight
Securities LP; M. H. Meyerson & Company; Mayer & Schweitzer,
Inc.; Paragon Capital Corp.; Nash Weiss & Co., Inc.; Sharpe
Capital Inc. and Wein Securities Corp.
(c) Dividends. The Company has never paid any cash
dividends and does not plan to pay cash dividends in the
foreseeable future. The payment of dividends will depend upon
the Company's outstanding loan arrangements as well as it
short-term and long-term cash availability, working capital and
working capital needs and other factors, as determined by the
Company's Board of Directors.
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
IN REVIEWING MANAGEMENT'S DISCUSSION AND ANALYSIS,
REFERENCE IS MADE TO THE FINANCIAL STATEMENTS AND NOTES THERETO
INCLUDED AS ITEM 7 - "FINANCIAL STATEMENTS" IN THIS ANNUAL
REPORT ON FORM 10-KSB.
Working Capital and Liquidity
<TABLE>
<CAPTION>
Information with respect to levels of working
capital and other ratios as of December 31, 1997, 1996 and 1995
is as follows:
1997 1996 1995
<S> <C> <C> <C>
Working
Capital $1,515,609 $1,512,100 $1,413,873
(current assets
less current
liabilities)
Working Capital 1.83 to 1 2.78 to 1 2.58 to 1
Ratio (current
assets to
current liabilities)
Percentage of Current 60% 35% 46%
Liabilities to
Stockholders Equity
Percentage of Total 66% 45% 59%
Liabilities to
Stockholders Equity
</TABLE>
At December 31, 1997, cash (and cash equivalents) amounted to $424,168,
and the Company did not have any outstanding borrowings. In April 1997,
First Union National renewed a $750,000 discretionary line of credit for the
Company's short-term needs, at an interest rate equal to such
bank's base rate plus 1/2%. All advances under this line of
credit are required to be secured by a lien on substantially all
of the Company's assets. As of December 31, 1997, the Company
did not have any draw against this line of credit. On January
21, 1998, the Company borrowed $240,000 against its line of
credit and repaid the loan in full on February 3, 1998.
Management believes that economic conditions within
the two largest industries from which the Company draws its
customers, banking and retail, will continue to improve in 1998,
which may result in increased revenues for the Company.
The Company believes that its working capital and
available cash during 1998 will be adequate to maintain its
operations and pay its outstanding obligations as they become
due, and that excess cash will be used primarily to purchase
inventory, and to enhance its software. The Company does not
believe that it will be necessary to raise additional funds
during 1998, except by temporary bank borrowings in the normal
course of business.
The Company does not believe that inflation will
have a material impact on the Company's sales or income.
Results of Operations
1997 Compared with 1996
Revenues for 1997 increased $1,658,942 (20.6%) to
$9,745,416 from $8,059,474 for 1996. Product and system sales
increased $1,361,788 (23.7%) to $7,114,506 from $5,752,718 in
1996, primarily due to sales to two customers.
Maintenance revenue during 1997 amounted to
$2,630,910, an increase of $324,154 (14.1%) from 1996, primarily
due to the increase in outstanding systems resulting from 1997
systems sales.
Cost of goods sold and service expenses increased
from 44.4% of sales in 1996 to 45.3% in 1997. This increase was
primarily due a minor change in the mix of hardware product
sold, resulting in an overall lower margins on total hardware
product sales.
Selling, general and administrative expenses were
$4,277,352 in 1997 compared to $4,004,115 in 1996, an increase
of $273,237 (6.8%). This increase was primarily due to
additional commissions of $169,777 resulting from increased
product and systems sales, increases of $144,452 in software
amortization costs, and increased salary expense of $255,692
resulting from an increase in personnel. These increases were
offset by a $307,828 decrease in non-recurring professional fees
which were incurred in 1996 in connection with the investigation
and negotiation of a potential acquisition which did not
materialize.
Net interest income in 1997 was $57,086, an increase
of $18,319 (47.3%) over 1996. This increase resulted from an
increase in short-term investments arising from increased cash
flow from maintenance contracts and trade receivables.
The tax provision of $443,806 was $244,546 (122.7%)
greater than the 1996 provision of $199,260, as a result of
higher taxable income.
As a result of the foregoing, the Company had net
income of $665,705 for 1997 compared to net income of $317,382
in 1996, an increase of $348,323 (109.8%).
1996 Compared with 1995
Revenues for 1996 decreased $354,042 (4.2%) to
$8,059,474 from $8,413,516 for 1995. Product and system sales
decreased $317,106 (5.2%) to $5,752,718 from $6,069,824 in 1995
due to lower sales by IEI which were only partially offset by
higher sales by ATS.
Maintenance revenue during 1996 amounted to
$2,306,756, a decline of $36,936 (1.6%) from the prior year.
This was primarily due to the loss of an equipment hardware
maintenance contract from a major customer during 1996.
Cost of goods sold and service expenses declined
from 47.9% of sales in 1995 to 44.4% in 1996. This was
primarily due to ATS sales of more profitable systems.
Maintenance costs also decreased due to a new contract with a
different third party maintenance vendor.
Selling, general and administrative expenses were
$4,004,115 in 1996 compared to $3,849,891 in 1995, an increase
of $154,224 (4.0%), primarily due to non-recurring expense of
$307,828 relating to legal and accounting fees incurred in
connection with the possible acquisition of a company that did
not materialize. Similarly, the prior year had a non-recurring
expense of $381,314 due to legal and accounting fees incurred in
connection with a Settlement Agreement which resolved a
potential proxy contest. Excluding these expenses in both years,
other expenses in 1996 increased by $227,710 (6.6%). The
largest increases were of expenses of Director's Fees and
Expenses ($65,424-105.4%); Travel ($39,408 - 32.9%) and Software
Amortization ($33,020 - 22.8%).
Interest income in 1996 was $38,767, an increase of
$13,554 (53.8%) over 1995. This was due to a larger amount of
short-term investments arising from available cash during 1996.
The tax provision of $199,260 was $11,373 (6.1%)
greater than the 1995 provision of $187,887, as a result of
higher taxable income.
As a result of the foregoing, the Company had net
income of $317,382 for 1996 compared to $369,650 in 1995, a
decrease of $52,268 (14.1%).
Impact of the Year 2000 Issue
Many computer systems currently record years in
a two-digit format. Such computer systems, if not modified,
will be unable to properly recognize dates beyond the year 1999.
This inability to recognize the year 2000 is commonly referred
to as the "Year 2000 Issue".
The Company has reviewed its internal computer
systems and has determined that such internal systems will not
have a Year 2000 issue (i.e., the Company's internal systems are
Year 2000 compliant).
Many of the stand-alone products sold by the Company
do not contain a dating mechanism and such systems, therefore,
are deemed to be Year 2000 compliant. The Company's CP-4000
Retail Cash Office Management System is designed to be Year 2000
complaint. However, several of the older systems sold by the
Company, such as its CP-2000 Deposit/Register Verification
System and CP-3000 Retail Cash Office Management System, which
contain internal dating mechanisms, are not currently Year 2000
compliant. The Company's warranties on these systems do not
require the Company to enhance such systems to resolve the Year
2000 Issue, although the Company believes that certain of its
customers who do not desire to upgrade such systems before the
Year 2000 may request that the Company supply hardware or
software to make such systems Year 2000 compliant.
The Company has identified all significant
applications that will require modification to ensure Year 2000
compliance. Some of such applications relate to standard
computer hardware supplied to the Company for resale to its
customers by third party manufacturers, and the Company
anticipates that such third party manufacturers will furnish
appropriate modifications to their computer hardware in the
normal course to ensure timely Year 2000 compliance, although there
can be no assurance that such will occur. To the extent that Year
2000 compliance requires a hardware remedy, external clock and
dating mechanisms to interface with existing computer hardware
are commercially available at the present time at minimal cost
and can be supplied by the Company if requested by its customers.
The Company has not yet prepared enhancements of the
software in its older systems to the extent that Year 2000
compliance requires a software modification; however the Company
intends to take such action if it determines that such action
will be requested by its customers. The cost to the Company of
such software enhancements is not anticipated to be material to
the Company's financial position or future results of operations
in any given year, although there can be no assurance that
presently unforeseen computer programming difficulties will not
arise. The Company believes that it will be able to recoup its
software enhancement costs from its customers who request that
their older systems be modified to be Year 2000 compliant.
New Accounting Pronouncements
In February 1997, the Financial Accounting Standards
Board (the "FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share", which is
effective for financial statements issued after December 31,
1997. The Company has adopted SFAS No. 128. SFAS No. 128 is
designed to simplify the calculation of earnings per share, in
that a calculation of "basic" earnings per share is reported in
lieu of primary earnings per share. Basic earnings per share
includes only the weighted average number of common shares
outstanding for the periods and does not consider the dilutive
effects of stock options or warrants. The effect of adopting
SFAS No. 128 did not change the Company's reporting of earnings
per share.
In June 1997, the FASB issued SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related
Information". SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997. Since SFAS No. 131 is
primarily disclosure related, the Company currently believes
that it will not have a significant effect on its consolidated
financial statements.
In February 1998, the FASB issued SFAS No. 132,
"Employer's Disclosures about Pensions and other Postretirement
Benefits". SFAS No. 132 revises and standardizes pension and
other benefit plan disclosures that are to be included in the
employer's financial statements. SFAS No. 132 is effective for
fiscal years beginning after December 15, 1997, with earlier
application encouraged. Restatement of disclosures for prior
periods would be required for comparative purposes, unless the
information is not readily available.
In October 1997, the FASB issued Statement of
Position ("SOP") 97-2, "Software Revenue Recognition". SOP 97-2
provides guidance on applying generally accepted accounting
principles in recognizing revenue on software transactions. SOP
97-2 supersedes SOP 91-1, "Software Revenue Recognition" and
provides guidance on when revenue should be recognized and in
what amounts for licensing, selling, leasing or otherwise
marketing computer software. SOP 97-2 is to be applied to the
foregoing activities by all entities that earn such revenue.
SOP 97-2 does not apply, however, to revenue earned on products
or services containing software that is incidental to the
products or services as a whole. SOP 97-2 is effective for
transactions entered into during fiscal years beginning after
December 15, 1997. Retroactive application of the provisions of
SOP 97-2 is prohibited. The Company believes that the adoption
of SOP 97-2 will not have a material effect on its consolidated
financial statements.
ITEM 7 - FINANCIAL STATEMENTS
ATS Money Systems, Inc.
Consolidated Financial Statements as of December 31, 1997 and 1996 and for
Each of the Three Years in the Period Ended December 31, 1997, and
Independent Auditors' Report
<TABLE>
<CAPTION>
ATS MONEY SYSTEMS, INC.
<S> <C>
TABLE OF CONTENTS Page
INDEPENDENT AUDITORS' REPORT F1
CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheets F2
Statements of Income F3
Statements of Changes in Stockholders' Equity F4
Statements of Cash Flows F5
Notes to Financial Statements F6-F13
</TABLE>
INDEPENDENT AUDITORS' REPORT
ATS Money Systems, Inc.
We have audited the accompanying consolidated balance sheets of ATS
Money Systems, Inc. as of December 31, 1997 and 1996, and the related
consolidated statements of income, changes in stockholders' equity and
cash flows for each of the three years in the period ended December 31,
1997. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these consolidated 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, such consolidated financial statements present fairly,
in all material respects, the consolidated financial position of ATS
Money Systems, Inc. as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the three years
in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
March 20, 1998
<TABLE>
<CAPTION>
ATS MONEY SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS 1997 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 424,168 $ 308,138
Trade accounts receivable, less allowance
for doubtful accounts of $100,118 in 1997,
and $74,183 in 1996 2,281,677 1,264,521
Inventories (Note 4) 562,681 567,420
Prepaid expenses and other current assets 83,492 219,922
Total current assets 3,352,018 2,360,001
PROPERTY - At cost:
Office furniture 95,994 91,011
Office machinery and equipment 216,267 146,021
Subtotal 312,261 237,032
Less accumulated depreciation 148,320 102,432
Property - net 163,941 134,600
OTHER ASSETS:
Software costs, less accumulated amortization
of $788,531 in 1997 and $511,790 in 1996
(Note 2) 1,519,991 908,586
Deposits 52,280 50,677
Total other assets 1,572,271 959,263
TOTAL $ 5,088,230 $ 3,453,864
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 664,726 $ 148,921
Accrued expenses 794,519 210,160
Deferred revenue 206,799 322,125
Deferred income taxes (Note 8) 43,561 4,732
Other liabilities 126,804 161,963
Total current liabilities 1,836,409 847,901
LONG-TERM - Deferred credit, less accumulated
amortization of $96,241 in 1997 and $67,727
in 1996 (Note 3) 188,926 217,440
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY (Note 7):
Common stock - $.001 par value, 25,000,000
shares authorized, 5,922,731 and 5,891,911
shares issued at December 31, 1997 and 1996,
respectively 5,923 5,892
Additional paid-in capital 2,383,033 2,374,397
Accumulated earnings 674,039 8,334
Treasury stock - 100,000 shares, at par value (100) (100)
Total stockholders' equity 3,062,895 2,388,523
TOTAL $ 5,088,230 $ 3,453,864
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
ATS MONEY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
<S> <C> <C> <C>
REVENUE:
Equipment and systems sales $7,114,506 $5,752,718 $6,069,824
Equipment maintenance and service revenue 2,630,910 2,306,756 2,343,692
Total revenue 9,745,416 8,059,474 8,413,516
COSTS AND EXPENSES:
Cost of goods sold and service expense:
Equipment and systems 3,392,435 2,633,655 3,032,235
Equipment maintenance and service 1,023,204 943,829 999,066
Selling, general and administrative
expenses (Notes 5 and 12) 4,277,352 4,004,115 3,849,891
Total costs and expenses 8,692,991 7,581,599 7,881,192
INCOME FROM OPERATIONS 1,052,425 477,875 532,324
NET INTEREST (INCOME) (57,086) (38,767) (25,213)
INCOME BEFORE INCOME TAX EXPENSE 1,109,511 516,642 557,537
INCOME TAX EXPENSE (Note 8) 443,806 199,260 187,887
NET INCOME $ 665,705 $ 317,382 $ 369,650
EARNINGS PER COMMON SHARE (Note 2):
Basic and diluted $ 0.11 $ 0.05 $ 0.06
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 5,872,577 5,878,975 5,837,605
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
ATS MONEY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Additional Accumulated Total
Common Paid-in (Deficit) Treasury Stockholders'
Stock Capital Earnings Stock Equity
<S> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1994 $5,820 $2,315,535 $ (678,698) $(100) $1,642,557
Issuance of common
stock due to
exercise of stock
options (15,653
shares) 16 4,385 - - 4,401
Net income - 1995 - - 369,650 - 369,650
BALANCE,
DECEMBER 31, 1995 5,836 2,319,920 (309,048) (100) 2,016,608
Issuance of common
stock for the issue
of stock grants
(40,000 shares)
and the exercise
of stock options
(16,117 shares) 56 54,477 - - 54,533
Net income - 1996 - - 317,382 - 317,382
BALANCE,
DECEMBER 31, 1996 5,892 2,374,397 8,334 (100) 2,388,523
Issuance of common
stock for the
exercise of stock
options (30,820
shares) 31 8,636 - - 8,667
Net income - 1997 - - 665,705 - 665,705
BALANCE,
DECEMBER 31, 1997 $5,923 $2,383,033 $ 674,039 $(100) $3,062,895
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
ATS MONEY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 665,705 $ 317,382 $ 369,650
Adjustments to reconcile net income
to cash provided by (used in)
operating activities:
Depreciation and amortization 390,094 233,398 154,478
Changes in current assets and
liabilities:
Compensation expense recorded
for common stock issued under
Director Stock Plan - 50,000 -
Trade accounts receivable - net (1,017,156) 296,105 (704,782)
Inventories 4,739 (46,424) 96,800
Prepaid expenses and other current
assets 136,430 (33,305) (54,083)
Accounts payable - trade 515,805 (6,887) (83,976)
Accrued expenses 584,359 (207,899) 189,154
Deferred revenue (115,326) 74,523 (75,939)
Deferred income taxes 38,829 4,732 -
Deposits (1,603) 40,192 (42,596)
Other liabilities (35,159) 6,136 92,531
Net cash provided by (used in)
operating activities 1,166,717 727,953 (58,763)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalization of software development
costs (984,125) (505,296) (264,350)
Additions to property (75,229) (83,600) (34,109)
Net cash used in investing
activities (1,059,354) (588,896) (298,459)
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes issued to employee (Note 5) - - (10,000)
Proceeds from the issuance of common stock 8,667 4,533 4,401
Net cash provided by (used in)
financing activities 8,667 4,533 (5,599)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 116,030 143,590 (362,821)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 308,138 164,548 527,369
CASH AND CASH EQUIVALENTS, END OF YEAR $ 424,168 $ 308,138 $ 164,548
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for
income taxes $ 87,917 $ 210,000 $ 114,499
See notes to financial statements.
</TABLE>
ATS MONEY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. DESCRIPTION OF COMPANY OPERATIONS
ATS Money Systems, Inc. (ATS), with a wholly-owned subsidiary, Innovative
Electronics, Inc., acquired in August, 1994 (collectively, the Company), is
engaged in the development, sale and service of currency counting systems
and equipment for department and chain stores cash offices and bank
commercial vaults and of communications systems primarily used by chain
stores. In addition, the Company offers maintenance and service contracts
through a national service organization on all machines and equipment they
sell. The Company's customers are businesses that handle a large
number of cash, check and credit transactions on a daily basis, such as banks,
department stores and chain stores. ATS was incorporated in 1987 under the
laws of the State of Nevada and is the successor to a similar business
acquired by merger in 1988. The principal products sold by the Company during
1997 were its CP-3000 Retail Cash Office Management Systems, CP 2000
Deposit/Register Verification System, and CP-4000 Retail Cash Office
Management System, and an IEI communications product, the StoreComm ISP, and
its related hardware.
The principal market for the Company's products has been in the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements
include the accounts of ATS Money Systems, Inc. and its wholly-owned
subsidiary. All significant intercompany transactions and account balances
have been eliminated.
Cash and Cash Equivalents - Cash and cash equivalents include investments
with original maturities of three months or less.
Inventories - Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method for machine parts and specific
identification for machines held for sale.
Property and Other Assets- Depreciation is computed using the straight-line
method over the estimated useful lives of the assets which range from five to
ten years. At December 31, 1997, there was no event or change in circumstance
that would indicate that the carrying amount of any long-lived asset was not
recoverable.
Capitalized Software Costs - The Company capitalizes computer software
development costs in accordance with the provisions of Statement of Financial
Accounting Standards No. 86. Costs incurred to establish the technological
feasibility of computer software are expensed as incurred. Costs incurred
for product enhancements, subsequent to establishing technological
feasibility, are capitalized and stated at the lower of cost or net realizable
value. Capitalized costs are amortized using the straight-line method over
five years, which approximates the estimated remaining useful life of the
product. It is possible that the estimate of the economic life of the
products and related carrying values could be reduced in the near term due to
competitive pressures. Amortization of computer software costs amounted to
$276,741, $228,275 and $162,765 for the years ended December 31, 1997, 1996
and 1995, respectively. Fully depreciated software costs of $106,729,
$77,700 and $69,950 were written off in 1997, 1996 and 1995, respectively.
Revenue Recognition - Revenue from equipment and systems sales is recognized
upon shipment to the buyer and satisfaction of related obligations by the
Company. Revenue from software licensing is recognized on either delivery of
the software if collectibility is probable or upon completion of the
majority of the product, which equates to reaching a milestone in accordance
with the contract agreement, and any remaining insignificant obligations of
the Company are accounted for by deferring a pro rata portion of revenue and
recognizing it either ratably as the obligations are fulfilled or on
completion of performance or by recording a current year expense for the
remaining costs associated with completing the project.
Equipment Maintenance and Service Revenue - Equipment maintenance and service
revenue is recognized as earned over the term of the contract, which is
generally a maximum of one year in length. Deferred revenue represents the
unearned portion of equipment maintenance and service fees.
Use of Estimates - The Company's financial statements include the use of
estimates and assumptions which have been developed by management based on
available facts and information. Actual results could differ from those
estimates.
New Accounting Pronouncements - The Company has adopted Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share", which was effective
for financial statements issued after December 31, 1997. The pronouncement
simplifies the calculation of earnings per share in that a calculation of
"basic" earnings per share is reported in lieu of primary earnings per share.
Basic earnings per share includes only the weighted average number of common
shares outstanding for the periods and does not consider the dilutive effect
of stock options or warrants. The effects of dilutive stock options and
warrants, and the adoption of SFAS No. 128 did not change earnings per share.
In June 1997, SFAS No. 131, "Disclosure About Segments of an Enterprise and
Related Information" was issued. This Statement is effective for fiscal years
beginning after December 15, 1997. Since this Statement is primarily
disclosure related, the Company currently believes that it will not have a
significant effect on the consolidated financial statements.
In February 1998, SFAS No. 132, "Employer's Disclosures about Pensions and
Other Postretirement Benefits" was issued. This Statement revises and
standardizes pension and other benefit plan disclosures that are to be
included in the employer's financial statements. SFAS No. 132 will be
effective for fiscal years beginning after December 15, 1997, with earlier
application encouraged. Restatement of disclosures for prior periods for
comparative purposes would be required unless the information is not readily
available.
In October 1997, Statement of Position (SOP) 97-2, "Software Revenue
Recognition" was issued. This SOP provides guidance on applying generally
accepted accounting principles in recognizing revenue on software
transactions. This SOP supersedes SOP 91-1, "Software Revenue Recognition"
and provides guidance on when revenue should be recognized and in what
amounts for licensing, selling, leasing, or otherwise marketing computer
software. It should be applied to those activities by all entities that earn
such revenue. It does not apply, however, to revenue earned on products or
services containing software that is incidental to the products or services
as a whole. This SOP is effective for transactions entered into in fiscal
years beginning after December 15, 1997. Retroactive application of the
provisions of this SOP is prohibited. The Company believes that the adoption
of this SOP will not have a material effect on the consolidated financial
statements.
Income Taxes - The Company files a consolidated Federal tax return. Deferred
income taxes are provided for temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes.
Reclassifications - Certain prior year amounts have been reclassified in
order to conform with the 1997 presentation.
3. ACQUISITION
In 1994, the Company acquired Innovative Electronics, Inc., which is
in the business of marketing hardware and software products designed to
permit the exchange of pricing, product and other data among stores within a
chain. The acquisition was accounted for by the purchase method of
accounting. The purchase price was allocated to the assets acquired and
liabilities assumed based on the fair values at the date of acquisition.
The excess of the estimated fair values of the assets acquired over the
purchase price ($285,167) was recorded as a deferred credit, and is being
amortized on a straight-line basis over ten (10) years.
4. INVENTORIES
Inventories consist of machines held for sale and machine parts, as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Machines held for sale $ 529,658 $ 504,935
Parts and raw materials 73,652 105,085
Reserve for obsolescence (40,629) (42,600)
Total $ 562,681 $ 567,420
</TABLE>
5. RELATED PARTY TRANSACTIONS
During 1995, the Company engaged one of its directors to oversee its
accounting policies and activities, particularly of its newly acquired
subsidiary. During 1995, a salary was paid to the director of $15,937,
fees of $12,704 and expenses of $1,337.
During 1994, the Company loaned $45,000, bearing an interest rate of 1% above
the prime rate, to one of its employees who is not an executive officer. The
loan was evidenced by two notes of equal principal amounts. The first of
these two notes was due and payable on March 1, 1995 and the second
was due and payable on March 1, 1996 provided that if the employee was
employed by the Company on the due date the principal and accrued interest
would be forgiven. The Company amortized these notes on a straight-line basis
over the 24-month contract period beginning March 1, 1994. The
employee is currently employed and the $45,000 (a noncash transaction) was
forgiven as of March 1, 1996.
During 1995, the Company loaned $10,000, bearing an interest rate of 1% above
the prime rate, to an executive officer of the Company. The loan was paid in
December 1996.
During 1996, the Company engaged three members of the Board of Directors as
consultants on a potential acquisition which did not materialize. The
directors were paid fees and expenses of $326, $1,013 and $11,879,
respectively. Other expenses for legal, accounting and consulting services
(not paid to related parties) in connection with this potential acquisition
aggregated $294,610.
During 1997, the Company paid a director consulting fees and expenses of
$11,400 and $3,392, respectively.
At December 31, 1997 and 1996, all directors and executive officers, as a
group, collectively owned 41% and 41%, respectively, of the Company's common
stock.
6. COMMITMENTS AND CONTINGENCIES
At December 31, 1997, the Company was committed under noncancellable,
operating leases for office space, automobiles and office equipment, expiring
at various dates through April 2000, requiring minimum annual rental payments
as follows:
<TABLE>
<S> <C>
1998 $ 300,447
1999 142,699
2000 43,114
$ 486,260
</TABLE>
Rental expense under such leases totaled $340,827, $343,434 and $322,081 for
the years ended December 31, 1997, 1996 and 1995, respectively.
7. STOCKHOLDERS' EQUITY
Common Stock - The authorized capital stock of the Company consists of
25,000,000 shares of noncumulative, voting, common stock, with a par value of
$.001 per share.
Common Stock Incentive Plan - In 1993, the Company adopted a common stock
incentive plan (the "Plan"), which, as amended, authorizes the issuance,
within ten years, of options covering up to 480,000 shares of common stock to
certain employees and other individuals of importance to the Company. The
Plan is intended to provide incentive to continued employment of certain
employees and other individuals by enabling them to acquire a proprietary
interest in the Company. Options granted under the Plan may be either
"incentive stock options" or "non-qualified stock options."
Incentive stock options, granted only to certain employees of the Company,
expire within ten years (five years for a 10% beneficial owner of the
Company's securities) from the date granted and are exercisable from time to
time in accordance with the terms of such options. The exercise price of an
incentive stock option must be at least equal to the fair market value of the
common stock on the date of grant (110% for a 10% beneficial owner of the
Company's securities). Non-qualified stock options can be granted to certain
employees of the Company and advisors and consultants to the Company. Such
stock options are exercisable on or after the date of grant and the exercise
price is not limited and may be below fair market value.
A summary of the details of stock options granted and outstanding balances
are presented below:
<TABLE>
<CAPTION>
Options Outstanding
Grant Option Options December 31,
Price Exercised Canceled 1997 1996
<S> <C> <C> <C> <C> <C> <C>
1993 140,869 .28125 35,941 4,184 - 100,744
30,820 69,924 -
18,816 .31 18,816 18,816
15,315 .28125 15,315 15,315
1994 21,000 1.25 9,000 - 12,000
12,000 - -
15,000 1.375 15,000 15,000
1996 37,626 1.03125 3,081 - 34,545
4,640 29,905 -
8,375 1.1344 8,375 8,375
2,500 1.1344 2,500 - 2,500
1997 34,000 .71 6,000 28,000 -
20,000 .8281 20,000 -
10,000 .9109 10,000 -
Total 66,761 41,405 215,335 207,295
</TABLE>
Director Stock Plan - In 1995, the Company adopted the 1995 Director Stock
Plan pursuant to which, as amended, the Company's non-employee directors,
upon first being elected to the Board, are granted 10,000 shares of the
Company's common stock, and thereafter, on each reelection, are granted
non-qualified stock options to purchase 10,000 shares of the Company's common
stock with an exercise price equal to the then fair market value of such
shares. In 1995, the non-employee directors were granted an aggregate of
40,000 shares of common stock under this plan, all of which were issued
during 1996. In 1997, the non-employee directors were granted non-qualified
options under this plan to purchase 20,000 shares of common stock at an
exercise price of $.8281 per share and 10,000 shares of common stock at an
exercise price of $.9109 per share.
In connection with the adoption of SFAS 123, "Accounting for Stock-Based
Compensation," which was effective in 1996, the Company elected to continue
to account for its stock options using the method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees",
and provide proforma disclosure of the effect of adopting SFAS 123. The
effect of accounting for options under SFAS 123 would not affect earnings per
share. The proforma effect would have reduced net income by approximately
$21,600 and $2,500 in 1997 and 1996, respectively.
Common Stock Warrants - In connection with services to be rendered by an
investment banker, as of April 7, 1997, the Company granted to the investment
banker warrants to purchase 80,000 shares of common stock exercisable at $.75
per share; agreed to grant to the investment banker on April 8 1998,
warrants to purchase an additional 80,000 shares of common stock exercisable
at $1.25 per share and, unless the agreement is canceled by the Company before
April 8, 1999, agreed to grant to the investment banker on such date warrants
to purchase an additional 80,000 shares of common stock
exercisable at $1.25 per share. All of the warrants will expire on
April 7, 2001, unless exercised prior thereto. Based upon the fair value of
the warrants at the grant date, no expense was recognized in 1997.
8. INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
The significant items comprising the Company's net deferred taxes as of
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Deferred tax assets:
Provision for bad debts $ 40,047 $ 29,674
Inventory write-downs 16,252 12,000
Payroll - 8,845
Deferred credits - acquisition 75,570 85,749
Total deferred tax assets 131,869 136,268
Deferred tax liabilities:
Depreciation 22,055 11,627
Software amortization 153,375 129,373
Total deferred tax liabilities 175,430 141,000
Net deferred tax liability $ (43,561) $ (4,732)
</TABLE>
The income tax provision for the years ended December 31, 1997, 1996 and 1995
consists of the following components:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Current:
Federal $ 314,976 $ 123,850 $ 176,887
State 90,001 70,678 11,000
Total current 404,977 194,528 187,887
Deferred:
Federal 33,005 4,022 20,566
State 5,824 710 5,971
Change in valuation allowance - (26,537)
Total deferred 38,829 4,732 -
Income tax expense $ 443,806 $ 199,260 $ 187,887
</TABLE>
<TABLE>
<CAPTION>
A reconciliation of the Company's statutory rate to the Company's effective
rate is as follows:
1997 1996 1995
<S> <C> <C> <C>
Expected statutory rate 34.0 % 34.0 % 34.0 %
State income tax (composite rate) 5.7 4.7 2.0
Other 0.3 - -
Change in valuation allowance resulting
from the utilization of net operating loss
carry forwardsand use of tax credits - - (2.3)
40.0 % 38.7 % 33.7 %
</TABLE>
For the year ended December 31, 1995, the Company used its remaining
investment tax credits, research credits and alternative minimum tax credits,
totaling $38,300 to reduce current taxes payable.
At December 31, 1997, the Company had no available net operating loss
carryforwards for Federal or State tax purposes.
9. MAJOR CUSTOMERS
Sales to each of the Company's three major customers, which are subject to
change annually, as a percentage of consolidated revenue, for the years ended
December 31 approximated:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Major Customer 1 21% 19% 16%
Major Customer 2 15 15 13
Major Customer 3 13 9 9
</TABLE>
10. RETIREMENT PLAN
The Company has a defined contribution plan covering substantially all of its
employees. Company contributions to the plan, which are discretionary, are
made from its profits. Contributions are based upon a percentage of eligible
employees salaries ranging from -0-% to a maximum of 15%. The contributions
for 1997, 1996 and 1995 were $27,495, $0 and $0, respectively.
Effective January 1, 1998, the Company has adopted provisions under the plan
to provide a 401k feature. Eligibility occurs after one year of service
(with 1,000 hours of service) and attainment of age 21. The characteristics
of the 401k plan are that the Company will match 25% of the participant's
contribution up to 6% of compensation. Employee contributions, which are
voluntary, can range up to 20% of compensation. Vesting of the Company's
matching contribution, at the rate of 20% per annum begins after the second
year of service until year six when the employee becomes fully vested.
Forfeitures will reduce the Company matching contributions.
11. LINE OF CREDIT
The Company has a bank line of credit of $750,000 available. Interest rates
will be the bank's base rate plus 0.5%. All advances under this line of
credit are required to be secured by a lien on substantially all
of the Company's assets. The Company has no borrowings outstanding at
December 31, 1997.
12. SETTLEMENT AGREEMENTS
On August 30, 1995, the Company, Michael M. Smith, Gerard F. Murphy, Fred Den
and Louis Z. Weitz entered into a Settlement Agreement which resolved a
potential proxy contest threatened by Messrs. Smith and Murphy in connection
with the election of directors at the 1995 Annual Meeting of Stockholders.
As part of the Settlement Agreement, the Company agreed to pay all legal and
accounting expenses related thereto. Legal expenses amounted to $361,794 and
accounting fees were $19,520. Such expenses are included in Selling, General
and Administrative expenses in 1995.
On October 25, 1996, the Company, Michael M. Smith, and counsel to Mr. Smith,
which law firm also had acted as securities counsel to the Company until its
termination by the Company effective May 31, 1996 ("Counsel"), entered into
an agreement to settle all disputes relating to amounts claimed by Mr.
Smith and Counsel to be owed to them by the Company. Pursuant to such
agreements, the Company paid Counsel $50,000 in satisfaction of all
outstanding legal bills rendered by Counsel to the Company,
and reimbursed Mr. Smith $13,034 for out-of-pocket expenses incurred by him
in connection with his Company duties.
******
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Deloitte & Touche LLP, independent accountants,
currently is, and for more than the Company's last two fiscal
years has been, the Company's independent auditors. Since the
beginning of such two fiscal year period, (i) Deloitte & Touche
LLP has not expressed reliance, in its audit report, on the
audit services of any other accounting firm, and (ii) there have
been no reported disagreements between the Company and Deloitte
& Touche LLP on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or
procedure.
PART III
Except for information required by Item 13 (Exhibits
and Reports on Form 8-K), the information called for by Part III
of Form 10-KSB (Items 9, 10, 11 and 12) is incorporated by
reference herein from the Company's definitive proxy statement
to be filed with the Securities and Exchange Commission within
120 after the close of its fiscal year ended December 31, 1997.
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following is a listing of
Exhibits required by Item 601 of Regulation S-B. Except for
those exhibits indicated by an asterisk * (which exhibits are
filed herewith), the remaining exhibits listed below are
incorporated by the reference to an exhibit previously filed by
the Company.
3. Articles of incorporation and by-laws.
(a) Articles of Incorporation of ATS Money Systems,
Inc. (formerly known as More Creative Mergers, Inc.), as filed
with the Secretary of State of the State of Nevada on August 28,
1987- incorporated herein by reference to Exhibit 8 to
Registration Statement on Form S-18 (No. 33-19657-NY).
(b) Agreement of Merger of ATS Money Systems, Inc.
into More Creative Mergers, Inc., dated July 25, 1988, as filed
with the Secretary of State of the State of Nevada on September
6, 1988 - incorporated herein by reference to Exhibit 12 to
Post-Effective Amendment No. 1 dated September 26, 1988 to
Registration Statement on Form S-18 (No. 33-19657-NY).
(c) By-Laws of ATS Money Systems, Inc. -
incorporated herein by reference to Exhibit 9 to Registration
Statement on Form S-18 (No. 33-19657-NY).
4. Instruments defining the rights of security
holders, including indentures.
(a) Form of Common Stock certificate of ATS Money
Systems, Inc. - incorporated herein by reference to Exhibit 5 to
Amendment No. 1 dated March 11, 1988 to Registration Statement
on Form S-18 (No. 33-19657-NY).
10. Material contracts.
(a) (i) Lease, dated November 30, 1989, between
ATS Money Systems, Inc. and Rockwood Four Limited Partnership -
incorporated herein by reference to Exhibit 10(a) to the Annual
Report on Form 10-K of ATS Money Systems, Inc. for the fiscal
year ended December 31, 1989.
(ii) Amendment of Lease, dated as of December 1,
1992, between ATS Money Systems, Inc. and Rockwood Limited
Partnership - incorporated herein by reference to Exhibit
10(a)(ii) to the Annual Report on Form 10-KSB of ATS Money
Systems, Inc. for the fiscal year ended December 31, 1992.
(iii) Amendment of Lease, dated as of September 15,
1995, between ATS Money Systems, Inc. and Rockwood Four Limited
Partnership - incorporated herein by reference to Exhibit
10(a)(iii) to the Annual Report on Form 10-KSB of ATS Money
Systems, Inc. for the fiscal year ended December 31, 1995.
(b) Profit Sharing Plan of ATS Money Systems, Inc.,
dated January 1, 1987 - incorporated herein by reference to
Exhibit 19 to Post-Effective Amendment No. 1 dated September 26,
1988 to Registration Statement on Form S-18 (No. 33-19657-NY).
(c) Form of Salesman Employment Agreement -
incorporated herein by reference to Exhibit 10(j) to the Annual
Report on Form 10-K of ATS Money Systems, Inc. for the fiscal
year ended December 31, 1989.
(d) Form of Maintenance Agreement - incorporated
herein by reference to Exhibit 10(k) to the Annual Report on
Form 10-K of ATS Money Systems, Inc. for the fiscal year ended
December 31, 1989.
(e) Common Stock Incentive Plan - incorporated
herein by reference to Exhibit 10(l) to the Annual Report on
Form 10-KSB of ATS Money Systems, Inc. for the fiscal year ended
December 31, 1992.
(f) Purchase Agreement, dated August 24, 1994,
between ATS Money Systems, Inc., IEI Acquisition Corp., Dynatech
Corporation and Innovative Electronics, Inc. - incorporated
herein by reference to Exhibit 10(j) to the Annual Report on
Form 10-KSB of ATS Money Systems, Inc. for the fiscal year ended
December 31, 1994.
(g) ATS Moneys Systems, Inc. 1995 Director Stock
Plan - incorporated herein by reference to Exhibit 10(i) to the
Annual Report on Form 10-KSB of ATS Money Systems, Inc. for the
fiscal year ended December 31, 1996.
(h) Employment Agreement, dated May 23, 1996,
between Gerard F. Murphy and ATS Money Systems, Inc. -
incorporated herein by reference to Exhibit 10(j) to the Annual
Report on Form 10-KSB of ATS Money Systems, Inc. for the fiscal
year ended December 31, 1996.
(i) Technical Support Agreement, dated January 30,
1996, between Technology Service Solutions and ATS Money
Systems, Inc. - incorporated herein by reference to Exhibit
10(k) to the Annual Report on Form 10-KSB of ATS Money Systems,
Inc. for the fiscal year ended December 31, 1996.
(j) Agreement for Software License, dated April 15,
1997, between ATS Money Systems, Inc. and Dayton Hudson
Corporation - incorporated herein by reference to Exhibit 10(a)
to the Quarterly Report on Form 10-QSB for the quarter ended
June 30, 1997.
(k) Agreement, dated April 7, 1997, between ATS
Money Systems, Inc. and M.H. Meyerson & Co., Inc - incorporated
herein by reference to Exhibit 10(b) to the Quarterly Report on
Form 10-QSB for the quarter ended June 30, 1997.
(l) Agreement, dated September 1, 1997, between ATS
Money Systems, Inc. and Vanstar Corporation - incorporated
herein by reference to Exhibit 10(a) to the Quarterly Report on
Form 10-QSB for the quarter ended September 30, 1997.
11. Statement re computation of per share earnings
- - Not required since such computation can be clearly determined
from the material contained in this report on Form 10-KSB.
13. Annual report to security holders for the last
fiscal year, Form 10-Q or 10-QSB or quarterly report to security
holders, if incorporated by reference in the filing - Not
applicable.
21. Subsidiaries of the small business issuer:
Innovative Electronics, Inc. - incorporated under the laws of
the State of Florida.
*23. Consent of independent accountants.
*27. Financial Data Schedule.
(b) No reports on Form 8-K were filed with the
Commission during the fourth quarter of the fiscal year ended
December 31, 1997.
SIGNATURES
In accordance with Section 13 or 15(d) of the
Exchange Act, the registrant caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 24, 1998 ATS Money Systems, Inc.
By: /s/ GERARD F. MURPHY
Gerard F. Murphy, President
(Chief Executive Officer)
In accordance with the Exchange Act, this report has
been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Dated:
March 24, 1998 /s/ GERARD F. MURPHY
Gerard F. Murphy
Director
March 24, 1998 /s/ FRED DEN
Fred Den
Director
March 24, 1998 /s/ A. PAUL COX
A. Paul Cox
Director
March 24, 1998 /s/ THOMAS J. CAREY
Thomas J. Carey
Director
March 24, 1998 /s/ JOSEPH M. BURKE
Joseph M. Burke
Vice President - Finance
(Principal Accounting and
Financial Officer
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the
Registration Statements of ATS Money Systems, Inc. on Form S-8
(33-64460 and 333-39331) of our report dated March 20, 1998,
appearing in this Annual Report on Form 10-KSB of ATS Money
Systems, Inc. for the year ended December 31, 1997.
Deloitte & Touche LLP
Parsippany, New Jersey
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet as of December, 31, 1997 and the Consolidated
Statement of Operations for the twelve months ended December 31, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 424,168
<SECURITIES> 0
<RECEIVABLES> 2,381,795
<ALLOWANCES> 100,118
<INVENTORY> 562,681
<CURRENT-ASSETS> 3,352,018
<PP&E> 312,261
<DEPRECIATION> 148,320
<TOTAL-ASSETS> 5,088,230
<CURRENT-LIABILITIES> 1,836,409
<BONDS> 0
<COMMON> 5,923
0
0
<OTHER-SE> 3,057,072
<TOTAL-LIABILITY-AND-EQUITY> 5,088,230
<SALES> 7,114,506
<TOTAL-REVENUES> 9,745,416
<CGS> 3,392,435
<TOTAL-COSTS> 5,300,556
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (57,086)
<INCOME-PRETAX> 1,109,511
<INCOME-TAX> 443,806
<INCOME-CONTINUING> 665,705
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 665,705
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
