UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31,
1998.
( ) 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._______________________
(Exact name of small business issuer as specified in its charter)
____________Nevada_____________ ___________13-3442314__________________
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
25 Rockwood Place________Englewood, New Jersey________07631______________
(Address of principal executive offices) (Zip Code)
________________________201/894-1700___________________________________
(Issuer's telephone number)
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. __X__Yes _____No
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
As of May 14, 1998, - 5,822,731 shares of common stock, $.001
par value.
Transitional Small Business Disclosure Form Yes _____ No__X__
Part I. FINANCIAL INFORMATION
Item I. Financial Statements
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ATS MONEY SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31 DECEMBER 31
ASSETS: 1998 1997
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,658,018 $ 424,168
Trade accounts receivable, less allowance for
doubtful accounts of $100,188 in both periods 2,319,288 2,281,677
Inventories 589,707 562,681
Prepaid expenses and other current assets 86,984 83,492
_________ __________
Total current assets 4,653,997 3,352,018
PROPERTY - At cost:
Office furniture 95,994 95,994
Office machinery and equipment 219,218 216,267
_________ ________
Subtotal 315,212 312,261
Less Accumulated depreciation 161,823 148,320
_________ _________
Property - net 153,389 163,941
OTHER ASSETS:
Software costs, less accumulated amortization
of $900,815 in 1998 and $788,531 in 1997 1,581,980 1,519,991
Deposits 52,280 52,280
__________ _________
Total other assets 1,634,260 1,572,271
_________ _________
TOTAL $ 6,441,646 $ 5,088,230
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 175,634 $ 664,726
Accrued expenses 1,311,693 794,519
Deferred revenue 1,399,431 206,799
Deferred income taxes 43,561 43,561
Other liabilities 153,213 126,804
__________ __________
Total current liabilities 3,083,532 1,836,409
LONG-TERM-Deferred Credit, less amortization of
$103,372 in 1998 and $96,241 in 1997 181,798 188,926
STOCKHOLDERS' EQUITY:
Common stock - $.001 par value, 25,000,000 shares
authorized, 5,922,731 shares issued at March 31,
1998 and December 31, 1997 5,923 5,923
Additional paid-in capital 2,383,033 2,383,033
Accumulated earnings 787,460 674,039
Treasury stock - 100,000 shares at par value ( 100) ( 100)
___________ ___________
Total stockholders' equity 3,176,316 3,062,895
___________ __________
TOTAL $ 6,441,646 $ 5,088,230
See notes to consolidated financial statements.
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<TABLE>
<CAPTION>
ATS MONEY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTH PERIODS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
MARCH 31 MARCH 31
1998 1997
<S> <C> <C>
REVENUE:
Equipment and systems sales $ 2,563,780 $ 1,829,942
Equipment maintenance and service revenue 640,551 573,649
__________ __________
Total revenue 3,204,331 2,403,591
COST AND EXPENSES:
Cost of goods sold and service expense:
Equipment and systems 1,635,854 751,721
Equipment maintenance and service 279,312 274,583
Selling, general and administrative
expenses 1,108,537 1,002,245
__________ __________
Total costs and expenses 3,023,703 2,028,549
___________ __________
INCOME FROM OPERATIONS 180,628 375,042
INTEREST INCOME 7,793 14,265
___________ _________
INCOME BEFORE INCOME TAXES 188,421 389,307
INCOME TAXES 75,000 156,000
___________ ___________
NET INCOME $ 113,421 $ 233,307
EARNING PER COMMON SHARE:
Basic and diluted $.02 $.04
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 5,903,809 5,970,487
See notes to consolidated financial statements.
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<TABLE>
<CAPTION>
ATS MONEY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTH PERIODS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
MARCH 31 MARCH 31
1997 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 113,421 $ 233,307
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization 118,659 71,918
Changes in current assets and liabilities:
Trade accounts receivable - net ( 37,611) 324,009
Inventories ( 27,026) ( 79,327)
Prepaid expenses and other current assets ( 3,492) 113,890
Accounts payable - trade ( 489,092) ( 44,116)
Accrued expenses 517,174 447,491
Deferred revenue 1,192,632 1,393,198
Deposits - ( 65,000)
Other liabilities 26,409 10,658
___________ __________
Net cash provided by operating activities 1,411,074 2,406,028
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalization of software development
costs ( 174,273) ( 206,497)
Additions to property ( 2,951) ( 11,614)
__________ __________
Net cash used in investing activities ( 177,224) ( 218,111)
__________ __________
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,233,850 2,187,917
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 424,168 308,138
__________ __________
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,658,018 $ 2,496,055
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 660 $ -
Income Taxes $ 250,000 $ 33,410
See notes to consolidated financial statements.
</TABLE>
ATS MONEY SYSTEMS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 1998
Note 1 - Unaudited Information:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and the instructions to Form 10-QSB
and Item 310(b) of Regulation S-B. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
In the opinion of management, the accompanying unaudited financial
statements reflect all adjustments (which comprise only normal
recurring accruals) necessary to present fairly the Company's
consolidated financial position as of March 31, 1998, and the results
of its operations for the three month periods ended March 31, 1998
and 1997 and its cash flows for the three month periods ended
March 31, 1998 and 1997. Information included in the consolidated
balance sheet as of December 31, 1997 has been derived from the
Company's audited financial statements contained in its Annual Report
on Form 10-KSB for the year ended December 31, 1997, to which reference
is made. Operating results for the three month period ended March 31,
1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998.
Note 2 - 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.
Note 3 - Capitalized Software Costs
The Company capitalizes computer software development costs in
accordance with the provisions of Statement of Financial Accounting
Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed". 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 estimated 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 $112,284 and $68,959 for the three month periods
ended March 31, 1998 and 1997, respectively.
Note 4 - Revenue Recognition
Revenue Recognition - Revenue from equipment and system 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. The
Company has completed its analysis of the effect of (SOP) 97-2, "Software
Revenue Recognition" and has determined that this SOP does not have a
material effect on the consolidated financial statements.
Note 5 - 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.
Note 6 - 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, after the first year, 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). Nonqualified 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.
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<CAPTION>
A summary of the details of stock options granted and
outstanding balances are presented below:
Option Options Options Outstanding
Grant Price Exercised Canceled March 31, December 31,
1998 1997
<S> <C> <C> <C> <C> <C>
1993
140,869 .28125 35,941 4,184 - -
30,820 69,924 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 - -
15,000 1.375 15,000 15,000
1996
37,626 1.03125 3,081 - -
4,640 29,905 29,905
8,375 1.1344 8,375 8,375
2,500 1.1344 2,500 - -
1997
34,000 .71 6,000 28,000 28,000
20,000 .8281 20,000 20,000
10,000 .9109 10,000 10,000
1998
19,200 .92 19,200 -
6,000 1.01 6,000 -
______ _______ _______ _______
Total 66,761 41,405 240,535 215,335
</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",
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 or the first Quarter of 1998.
Note 7 - Commitments and Contingencies
At March 31, 1998, the Company was committed under noncancelable,
operating leases for office space, automobiles and office equipment,
expiring at various dates through May 2001, requiring minimum rental
payments as follows:
<TABLE>
<CAPTION>
Year Ending December 31:
<S> <C>
1998 (Balance of year) $ 240,276
1999 157,827
2000 52,558
2001 1,998
$ 452,659
</TABLE>
Note 8 - Earnings Per Common Share
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.
Note 9 - Other
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. The Company has determined
that this Statement has no 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 is effective
for fiscal years beginning after December 15, 1997. This Statement will
not change the measurement or recognition of these costs.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
Reference is made to Item 6 - "Management's Discussion and Analysis or
Plan of Operation," contained in the Company's Annual Report on Form
10-KSB for its fiscal year ended December 31, 1997, for a discussion
of the Company's financial condition as of December 31, 1997, including
a discussion of the Company's anticipated liquidity and working capital
requirements during 1998.
This Quarterly Report on Form 10-QSB contains, in addition to historical
information, certain forward-looking statements that 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. Forward-looking
statements can generally be identified as such because the context of the
statement may include words such as the Company "believes," "expects" or
words of similar import. Similarly, statements that describe the Company's
future plans, objectives, estimates or goals are also forward-looking
statements. Such statements address future events and conditions concerning
capital expenditures, earnings, sales, liquidity and capital resources, and
accounting matters. The Company's actual results could differ materially
from those expressed in or implied by the forward-looking statements
contained herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in
"Financial Condition" below and in Item 1 - "Description of Business"
and elsewhere in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1997, as well as factors such as future economic
conditions and economic conditions in the industries in which the Company's
customers compete, a determination by the Company's customers to prolong
their test cycles of the Company's equipment, software and software
support services, a determination by the Company's customers to modify
or change their underlying computer and cash reporting systems, acceptance
by customers of the Company's products, changes in customer demand,
legislative, regulatory and competitive developments in markets in which
the Company operates and other circumstances affecting anticipated revenues
and costs. The Company undertakes no obligation to release publicly the
result of any revisions to these forward-looking statements that may be
made to reflect events or circumstances after the date of this Quarterly
Report on Form 10-QSB or to reflect the occurrence of other unanticipated
events.
COMPARISON OF CONSOLIDATED OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 1998 (THE "1998 QUARTER") TO THE THREE MONTHS ENDED
MARCH 31, 1997 (THE "1997 QUARTER").
Total revenues for the 1998 quarter were $3,204,331 compared to
$2,403,591 for the 1997 Quarter. This was an increase of
$800,740 (33.3%) and was attributable to a 40.1% increase in
equipment and systems sales and an 11.7% increase in maintenance
and service revenues. The increase in equipment and systems
sales was primarily attributable to sales of hardware to a major
retail customer offset by a decline of revenues from the sale of
software. Maintenance and service revenues increased as a
result of additional systems being under contract.
Cost of equipment and system sales increased from 41.1% of
revenues in the 1997 Quarter to 63.8% in the 1998 Quarter
resulting from the change in the mix of products sold during the
1998 Quarter. The margins on sales of equipment is
significantly lower then on software sales. The Company has a
third party service contract for equipment maintenance and
service and the cost of such contract is relatively constant.
Selling, general and administrative expenses for the 1998
Quarter amounted to $1,108,537 compared to $1,002,245 in the
1997 quarter. This increase of $106,292 (10.6%) was comprised
of an increase of ATS Divisional expenses of approximately
$167,000, increased corporate expenses of $54,000 offset by a
reduction of $115,000 of IEI Divisional expenses. The increase
was primarily due to increased commissions ($90,000) on
increased sales and additional in-house hardware support.
Interest income declined from $14,265 in the 1997 Quarter to
$7,793 in the 1998 Quarter, due to less available cash to be
invested.
As a result of the foregoing (primarily the change in the mix of
product sales), the income before taxes declined $200,886
(51.6%) from $389,307 in the 1997 Quarter to $188,421 in the
1998 Quarter.
The tax provision on the decreased income in the 1998 Quarter
was $75,000 compared to $156,000 in the 1997 Quarter - a
decrease of $81,000 (51.9%).
As a result of the foregoing net income for the 1998 Quarter was
$119,886 (51.4%) less than net income for the 1997 Quarter.
Financial Condition:
During the first three months of 1998, operating activities
provided $1,411,074 of net cash, primarily from customers who
prepay their annual maintenance contracts. Investing
activities used $177,224 of net cash primarily for software
development costs.
In April 1997, First Union National Bank 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.
The Company borrowed $240,000 on January 21, 1998, and repaid
it, in full, on February 3, 1998.
The Company believes that its current working capital, together
with anticipated funds from operations, will be sufficient to
meet the Company's projected operating needs and capital
expenditures for the foreseeable future.
The Company leases its facilities. As of March 31, 1998, the
Company had no material commitments for capital expenditures.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.(a) Agreement between ATS Money Systems, Inc., and
Alpha Microsystems, dated February 24, 1998.
27. Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter for
which this report is filed.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ATS Money Systems, Inc.
(Registrant)
May 14, 1998
(Date) Gerard F. Murphy
Chief Executive Officer
President
(Principal Executive Officer)
May 14, 1998
(Date) Joseph M. Burke
Vice President - Finance
(Principal Accounting and Financial
Officer)
MASTER SERVICE AGREEMENT
Master Service Agreement ("Agreement") dated as of February 24, 1998
entered into by and between ALPHA MICROSYSTEMS, a California corporation,
("Alpha Micro"), and ATS MONEY SYSTEMS, INC., a Nevada corporation
("Client").
RECITALS:
A. Alpha Micro is in the business of providing hardware
maintenance services.
B. Client desires that Alpha Micro perform services on products
for customers designated by Client.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. SERVICES.
(a) Customers and Products to be Serviced. Alpha Micro will
provide service for products of Client's customers on a non-exclusive
basis as mutually agreed upon from time to time by Client and Alpha
Micro. The service will be performed by qualified technicians and in a
professional and workmanlike manner.
Client and Alpha Micro agree to document the products and customers
to whom Alpha Micro will provide service on Schedule "A" attached to this
Agreement, as it shall be amended from time to time. It is the intention
of Client and Alpha Micro to have a separate Schedule "A" for each
customer covered by this Agreement. In the event a customer or product
is included on a Schedule "A", Client shall be entitled to remove said
customer, a customer location and/or product from Schedule "A" if the
customer terminates its arrangement for Client to provide maintenance
services, closes a customer location and/or a product no longer requires
service.
Alpha Micro acknowledges that it has been informed by Client that it
is presently using another company (the "Vendor") to provide similar
services for Client's customers and that Client intends to transfer some
of its customers to Alpha Micro. In the event the Vendor refuses to
continue to service the Client's customers and/or terminates its
relationship with Client, Alpha Micro agrees to provide service to said
customers in accordance with the provisions of this Agreement within
forty five (45) days after requested to do so by Client. Furthermore,
the Client shall not be obligated hereunder with respect to the customer
reflected on Schedule "A" until such time as Client has terminated its
relationship with the Vendor with respect to said customer.
(b) Types of Services to be Provided. Services shall include
those designated below:
Alpha Micro will provide service and maintenance for the
products listed on Schedule "A". Such maintenance services
shall consist of repairs, when required, and routine
preventative maintenance, as determined by Alpha Micro, but
not less than once per year per site. Preventative
maintenance will include required cleaning, lubricating,
adjusting and testing for good operating results. Alpha Micro
will diagnose defective equipment, repair such equipment by
means of adjustment, if possible, or replacement of defective
parts or modules with components which are new or near
equivalent to new in performance or, if necessary, provide a
replacement unit. Alpha Micro will, when necessary, reinstall
software furnished by Client in connection with the repair or
replacement of equipment.
(c) Exclusions from Service.
Not included under this Agreement shall be warranty services
or post warranty maintenance services for (i) cosmetic damages due to
normal wear and tear; (ii) consumable items such as ribbons and paper;
(iii) damages due to abuse, neglect or shipping; (iv) software
maintenance or support (Alpha Micro will, when necessary, reinstall
software furnished by Client in connection with the repair or replacement
of equipment); (v) electrical work external to the equipment being
serviced; or (vi) damages due to any cause external to the equipment
adversely affecting its operability or serviceability which shall
include, but not limited to, fire, flood, wind and lightning.
(d) Response Time.
Alpha Micro will respond to all service requests during its
normal business hours (generally 8:00 a.m. to 6:00 p.m., local time,
Monday through Friday, excluding national holidays). The response time
for each customer covered by this Agreement is set forth in the Schedule
"A" annexed for that customer.
Requests for service shall be accepted by Alpha Micro from
Client or, if authorized by Client, directly from customer. Alpha Micro
shall not provide weekend service without Client's prior approval. If
weekend service is provided the rates listed on Schedule B shall apply.
In the event that Client's customers contact Alpha Micro directly for
service Alpha Micro will notify the Client of such request.
2. SPARE PARTS AND REPLACEMENT OF EQUIPMENT THAT CANNOT BE
REPAIRED.
(a) Client Responsibility to Provide Spare Parts and Swap Units.
Client shall provide Alpha Micro, at Client's cost, with all
parts necessary to perform the services contemplated hereunder
on currency counters and MICR encoders ("Client Equipment").
Client shall provide Alpha Micro with an inventory of parts to
be maintained by Alpha Micro for such services in not less
than those quantities necessary to enable Alpha Micro to
provide service on a one-stop diagnose and correct basis. In
addition, Client shall provide Alpha Micro, for each agreed
upon Alpha Micro regional center, with a functioning unit of
each type of Client Equipment covered by this Agreement
("Client Swap Unit(s)"). The Client Swap Units shall be used
as provided for in Section 2(c) below. At no time shall
Alpha Micro acquire title to such inventory or Client Swap
Units, and all parts and equipment furnished by Client shall
remain the property of Client until installed on equipment
covered by this Agreement or exchanged for equipment covered
by this Agreement. Alpha Micro shall not permit any lien or
encumbrance to be asserted against such inventory or Client
Swap Units, and shall indemnify Client for all parts or
equipment damaged, lost or otherwise unrecoverable while in
Alpha Micro's possession, and shall return to Client all parts
and Client Swap Units in its possession promptly upon
termination of this Agreement.
(b) Alpha Micro Responsibility to Provide Spare Parts and Swap
Units.
Alpha Micro shall maintain, at its cost, an inventory of
sufficient spare parts to meet the intent of this Agreement as
it relates to devices other than Client Equipment ("Alpha
Micro Equipment"). In addition, Alpha Micro shall maintain,
at each agreed upon Alpha Micro regional center, a functioning
unit of each piece of Alpha Micro Equipment ("Alpha Micro Swap
Unit(s)"). The Alpha Micro Swap Units shall be used as
provided for in Section 2(d) below. All parts and equipment
and Alpha Micro Swap Units removed from Client's customers'
and replaced by Alpha Micro, other than Client Equipment or
parts thereof, shall become the property of Alpha Micro.
(c) Responsibility for Replacement of Client Equipment That Cannot
Be Repaired.
Alpha Micro shall make every reasonable effort to repair, at
the customer's location, each piece of Client Equipment
covered by this Agreement. If Alpha Micro cannot repair a
piece of Client Equipment at the customer's location within
the agreed upon time frame, Alpha Micro will arrange to
replace the customer's piece of Client Equipment with a Client
Swap Unit. Alpha Micro will then attempt to repair the Client
Equipment removed from the customer's location at Alpha
Micro's facility. If the Client Equipment can be repaired,
Alpha Micro will use the repaired Client Equipment as a Client
Swap Unit. In the event Alpha Micro cannot repair a piece of
Client Equipment covered by this Agreement ("Non Serviceable
Client Equipment"), Alpha Micro shall notify Client. In such
event Client shall supply Alpha Micro with a replacement piece
of Client Equipment and Alpha Micro will return the Non
Serviceable Client Equipment to Client. If Client determines
that the Non Serviceable Client Equipment can be repaired,
Alpha Micro shall reimburse Client for the reasonable cost of
said repair, which for purposes of this Agreement shall be an
amount equal to the annual service fee for that piece of
equipment plus shipping costs for returning the Non
Serviceable Client Equipment and delivering the replacement
piece of equipment.
(d) Responsibility for Replacement of Alpha Micro Equipment That
Cannot Be Repaired.
Alpha Micro shall make every reasonable effort to repair, at
the customer's location, each piece of Alpha Micro Equipment
covered by this Agreement. If Alpha Micro cannot repair the
Alpha Micro Equipment at the customer's location within the
agreed upon time frame, Alpha Micro will arrange to replace
the customer's piece of Alpha Micro Equipment with an Alpha
Micro Swap Unit.
3. TECHNICAL SUPPORT.
Unless otherwise noted on Schedule "B", Client will provide
technical assistance to Alpha Micro's technical support personnel for the
products covered by this Agreement as may be reasonably requested by
Alpha Micro. When necessary, and as appropriate, Client will provide
Alpha Micro with all necessary manuals, technical documentation,
bulletins, diagnostics and other materials, for performance of remedial
and preventative maintenance ("Technical Data"). All Technical Data, and
all copies thereof, shall be subject to the provisions of Section 7
below, shall remain the property of Client and will be returned to Client
upon termination of this Agreement.
4. TRAINING.
When necessary, as appropriate, and unless otherwise set forth on
Schedule "B", Client will provide Alpha Micro with training to enable
Alpha Micro to perform the services contemplated pursuant to this
Agreement. Such training will occur in a manner, time and place mutually
agreed to by Client and Alpha Micro.
In the event that Client should terminate this Agreement prior to
Alpha Micro providing services on behalf of Client under this Agreement,
Client agrees to reimburse Alpha Micro training expenses at the rates
below but in no event shall said amount exceed $20,000.00:
$20.00 per hour per person for actual training time and two hours of
travel per person trained.
$70.00 per day per person trained for meals, lodging and travel
expense.
Number of Alpha Micro employees to be trained is 100.
5. FEES; TERMS OF PAYMENT.
Client shall pay to Alpha Micro for the services hereunder those
amounts set forth on Schedule "A". Alpha Micro will invoice for services
monthly, in advance. Invoices are due and payable within thirty (30)
days of issuance. Past due invoices are subject to an interest charge
equal to the lesser of one percent (1%) per month or the maximum rate
permitted by law. Charges listed on Schedule "A" do not include
applicable taxes. Applicable taxes, if any, shall be added to the
invoices and paid when due.
6. TERM.
This Agreement shall remain in effect for an initial period of two
(2) years from the date Alpha Micro first provides service to a Client
customer under this Agreement. This Agreement shall automatically renew
for additional one (1) year terms, unless either party gives notice to
the other of its intent not to renew. Alpha Micro shall give notice of
its intent not to renew six (6) months prior to the expiration of the
then current term and Client shall give notice of its intent not to renew
sixty (60) days prior to the expiration of the then current term.
Notwithstanding the foregoing, this Agreement may be terminated by
either party if the other party is in default of a material obligation
under this Agreement and said default has not been cured within thirty
(30) days after receipt of said notice. In the event Client has given
Alpha Micro two (2) prior notices that Alpha Micro was in default of its
obligation to provide service as required by this Agreement ("Service
Default"), Client shall be entitled to terminate this Agreement or delete
from this Agreement the customer involved with the Service Default
without affording Alpha Micro time to rectify a Service Default
subsequent to the two (2) initial Service Defaults.
7. PROPRIETARY INFORMATION.
In the course of performing services under this Agreement, and the
training which may take place hereunder, Alpha Micro may, from time to
time, be made aware of Client's confidential and/or proprietary
information ("Proprietary Information"), including, without limitation,
Client's products, customer lists, Technical Data, training techniques,
service techniques, and information regarding Client's business
operations. Alpha Micro will hold such Proprietary Information
confidential, will not employ same other than in fulfillment of the
purpose of this Agreement, will not disclose same to any persons other
than as necessary for Alpha Micro to discharge its duties under this
Agreement, and then only to such persons who have been advised of the
confidential nature of the information. The covenants hereunder shall
not apply to (i) information which was known to Alpha Micro prior to
receipt from Client; (ii) information which Alpha Micro receives from a
third party which has the right to convey such information; (iii)
information which is independently developed by Alpha Micro; or (iv)
information which becomes known to the public, if a breach of an
undertaking hereunder was not cause of such item becoming known to the
public.
8. NON-COMPETE.
During the term hereof and for an additional period of two (2) years
after the termination of this Agreement, Alpha Micro shall not, directly
or indirectly, for its own benefit or purposes, or for the benefit or
purposes of any other person or entity: (i) solicit or attempt to entice
away or employee any employee/consultant of Client; or (ii) solicit or
attempt to entice away or do business with any customer of Client for
whom Alpha Micro has provided services under this Agreement and/or was
introduced to by Client during the term of this Agreement ("Existing
Client Customer"). The foregoing restriction shall not prohibit Alpha
Micro from providing services to an Existing Client Customer in
connection with equipment other than (a) Client Equipment, (b) equipment
supplied by Client and used in connection with Client Equipment, or (c)
equipment serviced by Client and used in connection with Client
Equipment.
During the term hereof and for an additional period of two (2) years
after the termination of this Agreement, Client agrees that it shall not,
directly or indirectly, solicit or entice away or employee any
employee/consultant of Alpha Micro.
9. LIMITATION OF LIABILITY, INDEMNIFICATION AND INSURANCE.
(a) Except as otherwise provided herein, Alpha Micro shall not be
liable for loss of use of any of the items of equipment serviced
hereunder, or for any loss or damage occasioned by such loss of use, or
by any failure of any of the equipment to perform properly. Maintenance
service provided under this Agreement does not assure uninterrupted
operation of the equipment. In no event shall Alpha Micro be responsible
for any loss of data or information in connection with the servicing or
supporting of the equipment.
(b) In the event Alpha Micro is in breach of this Agreement, Alpha
Micro's liability for damages sustained by Client shall not exceed fifty
percent (50%) of the total annual maintenance fee provided for in this
Agreement at the time the breach occurred (e.g. if the total annual
maintenance fees at the time of a breach was $50,000, Alpha Micro's
maximum exposure for damages would be $25,000). The limitation of
damages shall not apply to a breach of Sections 7 and 8 of this Agreement
(c) Except as otherwise provided herein, ALPHA MICRO AND CLIENT
SHALL NOT BE LIABLE FOR LOSS OF PROFITS OR SAVINGS, OR ANY OTHER DIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES, EVEN IF THEY HAVE BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGE.
(d) Alpha Micro agrees to defend, hold harmless and indemnify
Client of, from and against any and all claims, liabilities, damages and
expenses (including reasonable attorneys' fees) for personal injury
and/or property damage caused by Alpha Micro or its agents or employees.
(e) Client agrees to defend, hold harmless and indemnify Alpha
Micro of, from and against any and all claims, liabilities, damages and
expenses (including reasonable attorneys' fees) for personal injury
and/or property damage caused by Client or its agents or employees.
(f) Alpha Micro, at its cost and expense, shall obtain and
maintain liability insurance for an amount of not less than $1,000,000.
The insurance policy shall designate Client as an additional named
insured. The policy shall state that the insurance company cannot cancel
or refuse to renew without at least 10 days written notice to Client.
Alpha Micro shall provide Client with evidence of the required insurance.
10. MISCELLANEOUS
(a) Relationship of Parties. Nothing contained in this
Agreement shall be construed as creating a joint venture, partnership or
employment relationship between the parties. Neither party shall have
any right or authority to create any obligation or duty, express or
implied, on behalf of the other.
(b) Entire Agreement. Except as mentioned in Section 10(p) below,
this Agreement, together with its Schedules incorporated by reference,
constitutes the entire understanding between the parties with respect to
the subject matter hereof, superseding all negotiations, prior
discussions and preliminary agreements. This Agreement may not be
changed except in writing executed by both parties.
(c) Assignment. This Agreement may be assigned by either party to
any wholly owned subsidiary and to any successor by merger, consolidation
or acquisition of a substantial part of its assets. Except as specified
hereinabove, this Agreement shall not be assigned, extended or otherwise
transferred in whole or in part, by either party, without the prior
written consent of the other party hereto, which consent shall not be
unreasonably withheld.
(d) Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
(e) Severability. If any term or provision of this Agreement,
or the application thereof to any person or circumstance, shall to any
extent be found to be invalid, void or unenforceable, such provision
shall be limited as necessary to render it valid and enforceable and the
remaining provisions and any application thereof shall continue in full
force and effect without being impaired or invalidated in any way.
(f) Notice. Except as otherwise expressly provided herein, any
notice herein required or permitted to be given shall be in writing and
shall be personally served (obtaining a signed receipt) or sent by
overnight courier, by registered mail or certified mail, postage prepaid
with a copy sent by fax and shall be deemed to have been given when such
writing is received by the intended recipient thereof. For the purposes
hereof, the addresses of each party hereto and their fax number (until
notice of a change thereof served as provided in this Section 10(f) shall
be as follows:
If to Alpha Micro: Alpha Microsystems
2722 S. Fairview Street
Santa Ana, California
Attn: President
Fax Number: 714-641-7678
If to Client: ATS Money Systems, Inc.
25 Rockwood Place
Englewood, New Jersey 06731
Attn: President
Fax Number: 201-894-0958
(g) Construction of Agreement. This Agreement shall be construed
in accordance with its plain meaning and not against either party as the
drafting party. Headings contained in this Agreement are for convenience
only and are not a part of this Agreement and do not in any way
interpret, limit or amplify the scope, extent or intent of this Agreement
or any of the provisions hereof.
(h) Governing Law. This Agreement shall be deemed to be a
contract under the laws of the state of New Jersey and for all purposes
shall be governed by and construed and enforced in accordance with the
internal laws (as opposed to conflicts of law provisions) of the State of
New Jersey.
(i) Waiver. No waiver of any term, provision or condition of
this Agreement, whether by conduct or otherwise, in any one or more
instances, shall be deemed to be or be construed as a further or
continuing waiver of any such term, provision or condition or as a waiver
of any other term, provision or condition of this Agreement.
(j) Force Majeure. Except for Client's obligation to make
payment hereunder, neither party shall be liable to the other for any
delay or inability to perform its obligations under this Agreement or
otherwise if such delay or inability arises from any act of God, fire,
natural disaster, act of government, or any other cause beyond the
reasonable control of such party ("Force Majeure Event"). If a Force
Majeure Event occurs, the party who cannot perform shall give immediate
notice to the other party and the notice shall include the reason for the
delay or inability to perform and the estimated length of the delay.
Furthermore, if a Force Majeure Event occurs that prevents Alpha Micro
from performing the service obligations as required by this Agreement and
the delay is estimated to last or actually lasts ten (10) business days
(if the Force Majeure Event is limited to only one (1) state the time
period shall be extended to twenty (20) days) Client shall have the
right to terminate this Agreement.
(k) Arbitration. Any dispute or controversy related to this
Agreement shall be submitted to JAMS/Endispute ("JAMS") for binding
arbitration by the complaining party providing written notice to JAMS and
the other party. The arbitration shall take place in a location mutually
agreed upon by the parties and, if they cannot agree upon a location, the
arbitration shall take place in Chicago, Illinois. The parties may agree
on a retired judge from the JAMS panel for the binding arbitration. If
they are unable to agree, JAMS will provide a list of three available
judges in close proximity to the location where the arbitration will take
place and each party may strike one. The remaining judge will serve as
the arbitrator. Judgment on the decision of the arbitrator may be
entered in the highest court of any forum, federal or state, having
jurisdiction. The cost for JAMS shall initially be shared equally by the
parties, with the prevailing party being entitled to recover its share of
said cost from the other party as provided for in Section 10(l). The
arbitrator shall set the guidelines for discovery.
(l) Attorneys' Fees and Costs. In the event of the bringing of
any proceeding, including under the provisions of Section 10(k), by a
party hereto against the other party by reason of a breach of any of the
covenants, conditions, agreements or provisions of this Agreement, the
prevailing party shall be entitled to recover from the other party costs
and expenses of suit or arbitration, including reasonable attorneys' fees
and the cost of JAMS.
(m) Further Actions. Each of the parties hereto agrees to take any
and all actions reasonably necessary in order to carry out the provisions
of this Agreement.
(n) Counterparts. This Agreement may be executed in one or more
counterparts and counterparts signed in the aggregate by the parties
shall constitute a single original instrument.
(o) Survival. Any termination, cancellation or expiration of this
Agreement notwithstanding, provisions of this Agreement and obligations
which are intended to survive and continue shall so survive and continue.
(p) Canadian Maintenance Agreement. Client and Alpha Micro are
parties to a Maintenance Agreement dated January 12, 1998 that pertains
to the servicing of products at Home Depot stores in Canada ("Canadian
Maintenance Agreement"). Upon the Effective Service Date for Home Depot
as reflected on Schedule "A", the Canadian Maintenance Agreement will be
deemed terminated and the products at the Home Depot stores in Canada
covered by the Canadian Maintenance Agreement will be included in this
Agreement.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date written above.
ALPHA MICROSYSTEMS ATS MONEY SYSTEMS, INC.
By:_____________________ By:_____________________
Its:____________________ Its:___________________
<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 March 31, 1998, and the Consolidated
Statement of Operations for the three months ended March 31, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,658,018
<SECURITIES> 0
<RECEIVABLES> 2,319,288
<ALLOWANCES> 100,118
<INVENTORY> 589,707
<CURRENT-ASSETS> 4,653,997
<PP&E> 315,212
<DEPRECIATION> 161,823
<TOTAL-ASSETS> 6,441,646
<CURRENT-LIABILITIES> 3,083,532
<BONDS> 0
<COMMON> 5,923
0
0
<OTHER-SE> 3,170,393
<TOTAL-LIABILITY-AND-EQUITY> 6,441,646
<SALES> 2,563,780
<TOTAL-REVENUES> 3,204,331
<CGS> 1,635,854
<TOTAL-COSTS> 1,915,166
<OTHER-EXPENSES> 1,108,537
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,793
<INCOME-PRETAX> 188,421
<INCOME-TAX> 75,000
<INCOME-CONTINUING> 113,421
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 113,421
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
