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, 1999
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[ ] 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.
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(Name of small business issuer in its charter)
NEVADA 13-3442314
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(State of other jurisdiction of (I.R.S. employer identification No.)
incorporation or organization)
25 ROCKWOOD PLACE, ENGLEWOOD, NEW JERSEY 07631
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(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: $13,999,166
------------
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 $5,184,567 on the average of the high bid price $ 2.6563 and
low asked price $ 2.750 published by the National Quotation Bureau Inc. on
March 13, 2000.
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 13, 2000 -
5,643,217 shares of Common Stock, $.001 par value.
DOCUMENTS INCORPORATED BY REFERENCE
2000 definitive annual meeting proxy statement to be filed with the Commission -
incorporated by reference into Part III.
Transitional Small Business Disclosure Format: Yes: [ ] No: [X]
1
<PAGE>
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
RESULT 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, Inc.
("IEI"), a wholly-owned subsidiary (collectively, the "Company"), is engaged in
the development, sale and service of (i) currency counting systems and equipment
for fast food, grocery, department and chain stores' cash offices and bank
commercial vaults, and (ii) 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 and fast food, grocery, department 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, Inc. 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
fast food, grocery, department and chain 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 1999 were its ATS
CP-3000 Retail Cash Office Management System, ATS 601 Scale, CP-4000 Retail Cash
Office Management System, CP-2000 Deposit/Register Verification System, and
PowerEncode Check Encoding System, which products accounted for approximately
90% of the Company's 1999 equipment and systems sales and, through IEI,
StoreComm ISP and its related hardware. The Company also sells various types of
currency/document counters and dispensers.
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(R) 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(R) 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.
2
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ATS 601 SCALE
- -------------
The ATS-601, an electronic scale for weighing currency and coins,
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 601 scale will ultimately be replaced by The ATS 6000, an
electronic scale introduced in 1999.
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(R) and Windows NT(R) 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.
CP-2000 DEPOSIT/REGISTER VERIFICATION SYSTEM
- --------------------------------------------
The 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 system,
using an IBM-PC or compatible computer, interfaces with the Company's currency
counter 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 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 system is designed for operators with little or no prior 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 system, the Company can furnish all of the
necessary equipment. The system varies in price depending upon the hardware
configuration and the specific application software used.
POWERENCODE CHECK ENCODING SYSTEM
- ---------------------------------
The ATS PowerEncode check encoding system was developed to reduce the cost
of handling checks at retail store locations. The system automatically balances
checks to point-of-sale ("POS") supplied data, and pre-encodes the check amounts
prior to deposit. The system provides and maintains continuous hands free
operation that greatly reduces store labor required to complete these functions
versus present procedures. ATS also offers the system as part of its Value Added
Reseller Agreement with Unisys Corporation.
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 Microsoft Windows and Microsoft Access(R).
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 workstations 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 workstations
and the price of the total system fluctuate substantially.
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.
3
<PAGE>
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(TM) 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 IBM compatible PC with a Pentium(R)
or higher processor. Several operating environments are supported, including
UNIX and Windows NT. 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 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 1999, IEI provided a customized version of its
Windows NT based StoreComm/ISP for a major, southeast US based retail chain.
Implementation of the solution enabled the customer to extend the life of their
existing POS terminals, thereby preserving a significant POS investment.
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 terminals, such as
terminals manufactured by NCR, IBM and Fujitsu-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.
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.
4
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MAINTENANCE AND SERVICE CONTRACTS
The Company generally warrants its products for 90 days after the 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 2000 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 and
fast food, grocery, department and chain 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. In the retail industry, the Company's customers include Bergdorf-Goodman,
T.J. Maxx, Target Stores, Mervyns, The Home Depot, Lowe's Companies, Inc., Ames
Department Stores and Carson Pirie Scott & Company. In the grocery industry, the
Company's customers include ShopKo. The Company's users also include major banks
in the United States as well as national and regional armored car operators.
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.
During 1999, sales to The Home Depot accounted for approximately 23% of the
Company's total revenue. In addition, T.J. Maxx accounted for 18%, Dayton Hudson
10% and Lowes 8% with no other customer accounting for more than 5% of the
Company's total revenue. The Company's bank sales are not seasonal, but its
sales to retailers generally occur during the first three quarters of each year.
The Company markets 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 any 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 system 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 having 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.
5
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IEI has established business alliances with several major vendors within
the retail industry, namely IBM, NCR, Fujitsu-ICL and Epson, 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 over 20 industry conferences such as the
National Retail Federation ("NRF") Annual Conference, the NRF Retail Information
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 continued to develop and enhance its proprietary software systems to
automate cash processing. During 1999 and 1998, the Company spent approximately
$698,000 and $671,000, 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 13, 2000, the Company had 58 full-time employees, 14 of whom
are at IEI. Eight of the Company's employees are executive and administrative
personnel, twelve are systems software development personnel, eleven are
customer software support personnel, ten are customer hardware support personnel
and 17 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 that 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.
6
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ITEM 2 - DESCRIPTION OF PROPERTY
The Company leases approximately 10,510 square feet in a four story brick
building in Englewood, New Jersey at a current annual rental of approximately
$240,000 (subject to increases for real estate taxes and utility costs), for a
term ending February 28, 2004 which, at the option of the Company, may be
extended for an additional five years. Approximately 50% of the space is used
for executive and sales offices, approximately 10% is used for storage and
approximately 40% is used for testing and development of the Company's products.
The Company also leases two 900 square foot facilities in Englewood, New Jersey,
used for storage and depot service, at a combined current annual rental of
approximately $19,000 for terms ending November 23, 2000 and May 31, 2001.
IEI leases approximately 3,080 square feet in a contemporary office park
in Miramar, Florida at a current annual rental of $51,251 (subject to increases
for real estate taxes and utility costs), for a term ending April 30, 2004
which, at the option of the Company, may be extended for an additional five
years.
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 1999 fiscal year.
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
<TABLE>
<CAPTION>
<S> <C>
(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, 1999. The quotations reported represent prices between
dealers, do not include retail mark-ups, markdowns or commissions,
and do not necessarily represent actual transactions.
1999 CALENDAR YEAR HIGH BID LOW BID
------------------ -------- -------
1st Quarter 29/32 11/16
2nd Quarter 1-1/8 5/8
3rd Quarter 1-1/4 31/32
4th Quarter 1-1/2 1-3/32
1998 CALENDAR YEAR HIGH BID LOW BID
------------------ -------- -------
1st Quarter 1-1/16 5/8
2nd Quarter 1-5/32 29/32
3rd Quarter 1-5/32 29/32
4th Quarter 1 29/32
(B) HOLDERS. As of March 13, 2000, the Company had approximately
424 holders of record of Common Stock, including Cede & Company,
which held 1,628,677 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 13, 2000 consisted of Fahnestock
& Co., Inc.; Financial America Securities, Inc; USCC Trading
division of Fleet Securities, Inc.; Greenwood Partners LP, GVR Co.;
Herzog, Heine, Geduld, Inc; Hill Thompson Magid & Co.; Knight
Securities LP; Mayer & Schweitzer, Inc; M.H. Meyerson & Co., Inc.;
Olsen Payne & Co.; Paragon Capital Corp. ; Sharpe Capital Inc; 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 its 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.
7
</TABLE>
<PAGE>
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
Information with respect to levels of working capital and other ratios as of
December 31, 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
WORKING CAPITAL $3,042,256 $1,879,210 $1,615,469
(current assets less current liabilities)
WORKING CAPITAL RATIO 2.30 to 1 1.78 to 1 1.90 to 1
(current assets to current liabilities)
PERCENTAGE OF CURRENT LIABILITIES TO 50% 70% 59%
STOCKHOLDERS' EQUITY
PERCENTAGE OF TOTAL LIABILITIES TO 58% 79% 68%
STOCKHOLDERS' EQUITY
</TABLE>
At December 31, 1999, the Company had cash and cash equivalents (including
short-term investments) of $1,768,847 compared to $286,368 at December 31, 1998.
The Company has a $750,000 discretionary line of credit for the Company's
short-term needs, at an interest rate equal to the 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 has not utilized such
line of credit since February 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 does not believe that inflation will have a material impact on
the Company's sales or income.
In 1998, the Company commenced a program to repurchase up to 500,000
shares of common stock from time to time in the over-the-counter market. Through
December 31, 1999, the Company purchased 243,500 shares of its common stock,
under the plan, for an aggregate of $254,025. The Company is continuing such
program during 2000.
RESULTS OF OPERATIONS
1999 COMPARED WITH 1998
- -----------------------
Revenues for 1999 were $13,999,166, which was a decrease of $447,911
(3.1%) from 1998 revenues of $14,447,077. Equipment and systems sales declined
$638,826 (5.4%) to $11,142,963, primarily due to a large hardware order from a
single retail chain during 1998, which was not duplicated in 1999.
Equipment maintenance and service revenue was $2,856,203 in 1999. This
increase of $190,915 (7.2%) was a result of additional systems under contract
during 1999.
Cost of goods sold and service expense decreased from 60.3% of revenue in
1998 to 46.5% in 1999. The Company's hardware sales are less profitable than the
sale of its systems and the decrease in the cost of goods and services sold was
primarily attributable to a decrease in hardware sales in 1999, coupled with a
favorable mix of software sales in 1999.
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Selling, general and administrative expenses were $5,210,206 in 1999
compared to $4,750,338 in 1998, an increase of $459,868 (9.7%). This increase
was primarily due to increased salaries and employee incentives, as well as
increased travel costs.
Net interest income increased from $29,695 in 1998 to $65,834 in 1999.
This increase of $36,139 (121.7%) was primarily due to more cash available for
investment as well as higher interest rates on investments.
The 1999 tax provision of $1,024,767 was $587,383 (134.3%) higher than the
1998 provision of $437,384, as result of higher taxable income.
As a result of the foregoing, the Company had net income of $1,316,128 in
1999 compared to net income of $572,975 in 1998, an increase of $743,153
(129.7%).
1998 COMPARED WITH 1997
- -----------------------
Revenues for 1998 were $14,447,077, which was an increase of $4,701,661
(48.2%) from 1997 revenues of $9,745,416. Equipment and systems sales increased
$4,667,283 (65.6%) to $11,781,789 from $7,114,506 in 1997. This was primarily
due to sales to one major customer.
Equipment maintenance and service revenue for 1998 was $2,665,288, an
increase of $34,378 (1.3%). The increase in revenues was primarily due to
additional systems under contract from one major retailer offset somewhat by the
loss of contracts from other customers.
Cost of goods sold and service expenses increased from 45.3% of sales in
1997 to 60.3% in 1998. The increase was due to a change in product mix with more
revenue being generated by lower margin hardware sales.
Selling, general and administrative expenses were $4,750,338 in 1998
compared to $4,277,352 in 1997, an increase of $472,986 (11.1%). This increase
was primarily due to additional commissions of $283,302, resulting from
increased sales, and increased salaries of $209,493 offset by small decreases in
other expenses.
Net interest income in 1998 was $29,695 compared to $57,086 in 1997. This
was a decrease of $27,391 (48%) primarily due to lower interest rates on
investments and less cash available to invest, resulting from different payment
plans for maintenance contracts.
The tax provision of $437,384 was $6,422 less than the 1997 provision of
$443,806, resulting from less taxable income.
As a result of the foregoing, the Company had net income of $572,975
compared to net income of $665,705 in 1997, a decrease of $92,730 (13.9%).
IMPACT OF THE YEAR 2000 ISSUE
- -----------------------------
The Company has completed its Year 2000 remediation efforts and, since
January 1, 2000, has not experienced any significant problems internally or with
suppliers and customers in connection with this event. Nevertheless, there still
remain some future dates that could potentially cause computer systems problems.
The Company spent approximately $9,000 on its Year 2000 remediation
efforts. No significant future costs are anticipated.
Because the Company has not, to date, experienced any significant problems
in the Year 2000, it does not anticipate any major impact on its operations.
9
<PAGE>
ITEM 7 - FINANCIAL STATEMENTS
ATS MONEY SYSTEMS, INC.
Consolidated Financial Statements as of December 31, 1999 and 1998 and for each
of the Three Years in the Period Ended December 31, 1999 and Independent
Auditors' Report
-----------------------------------------------
ATS MONEY SYSTEMS, INC.
TABLE OF CONTENTS
--------------------------
PAGE
----
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheets F-2
Statements of Income F-3
Statements of Changes in Stockholders' Equity F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6 to F-11
10
<PAGE>
INDEPENDENT AUDITORS' REPORT
ATS Money Systems, Inc.
We have audited the accompanying consolidated balance sheets of ATS Money
Systems, Inc. (the "Company") as of December 31, 1999 and 1998, 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, 1999. 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, 1999 and 1998, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1999 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
March 21, 2000
F-1
<PAGE>
<TABLE>
<CAPTION>
ATS MONEY SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS 1999 1998
CURRENT ASSETS: ----------- -----------
<S> <C> <C>
Cash and cash equivalents $ 1,768,847 $ 286,368
Trade accounts receivable, less allowance for doubtful accounts
of $173,269 in 1999, and $140,629 in 1998 2,707,326 3,251,810
Inventories (Note 4) 719,704 598,667
Prepaid expenses and other current assets 90,921 63,513
Deferred income taxes (Note 8) 103,697 77,834
- ----------- -----------
Total current assets 5,390,495 4,278,192
----------- -----------
PROPERTY - At cost
Office furniture 69,633 96,659
Office machinery and equipment 309,129 235,158
----------- -----------
Subtotal 378,762 331,817
Less accumulated depreciation 222,512 199,388
----------- -----------
Property - net 156,250 132,429
----------- -----------
OTHER ASSETS:
Software costs, less accumulated amortization of $1,380,672 in
1999 and $1,039,667 in 1998 (Note 2) 1,796,485 1,685,381
Deposits and other long-term assets 98,018 82,562
----------- ---------
Total other assets 1,894,503 1,767,943
----------- -----------
TOTAL $ 7,441,248 $ 6,178,564
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,550,496 $ 1,629,655
Deferred revenue 542,576 677,969
Other liabilities 255,167 91,358
----------- -----------
Total current liabilities 2,348,239 2,398,982
----------- -----------
LONG-TERM:
Deferred credit, less accumulated amortization of $53,265 in
1999 and $124,753 and 1998 (Note 3) 131,902 160,414
Deferred income taxes (Note 8) 256,592 173,536
----------- -----------
Total long-term liabilities 388,494 333,950
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY (Note 7):
Common stock, non-cumulative, voting - $.001 par value, 25,000,000
shares authorized, 5,942,547 and 5,941,547 shares issued at December
31, 1999 and 1998, respectively 5,943 5,942
Additional paid-in capital 2,135,774 2,192,958
Accumulated earnings 2,563,142 1,247,014
Treasury stock - 343,500 and 281,500 shares, at par value, at
December 31, 1999 and 1998, respectively
(344) (282)
----------- -----------
Total stockholders' equity 4,704,515 3,445,632
----------- -----------
TOTAL $ 7,441,248 $ 6,178,564
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
ATS MONEY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
----------- ----------- ---------
REVENUE:
<S> <C> <C> <C>
Equipment and systems sales $11,142,963 $11,781,789 $ 7,114,506
Equipment maintenance and service revenue 2,856,203 2,665,288 2,630,910
----------- --------- ---------
Total revenue 13,999,166 14,447,077 9,745,416
----------- ----------- ------------
COSTS AND EXPENSES:
Cost of goods sold and service expense:
Equipment and systems 5,463,334 7,610,955 3,392,435
Equipment maintenance and service 1,050,565 1,105,120 1,023,204
Selling, general and administrative expenses (Note 5) 5,210,206 4,750,338 4,277,352
----------- ----------- ------------
Total costs and expenses 11,724,105 13,466,413 8,692,991
----------- ----------- ------------
INCOME FROM OPERATIONS 2,275,061 980,664 1,052,425
NET INTEREST INCOME 65,834 29,695 57,086
----------- ----------- ------------
INCOME BEFORE INCOME TAX EXPENSE 2,340,895 1,010,359 1,109,511
INCOME TAX EXPENSE (Note 8) 1,024,767 437,384 443,806
----------- ----------- ------------
NET INCOME $ 1,316,128 $ 572,975 $ 665,705
=========== =========== ============
EARNINGS PER COMMON SHARE (Note 2):
Basic and diluted $ 0.23 $ 0.10 $ 0.11
=========== =========== ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 5,627,222 5,841,531 5,872,577
=========== =========== ============
See notes to consolidated financial statements
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
<S>
ATS MONEY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- ---------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED TREASURY STOCKHOLDERS'
STOCK CAPITAL EARNINGS STOCK EQUITY
---------- ------------- -------- --------- ----------
BALANCE
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1996 $ 5,892 $ 2,374,397 $ 8,334 $ (100) $ 2,388,523
Issuance of common stock upon 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
Issuance of common stock upon the
exercise of stock options (18,816
shares) 19 5,813 - - 5,832
Purchase of common stock (181,500 - (195,888) - (182) (196,070)
shares)
Net income - 1998 - - 572,975 - 572,975
----------- ----------- --------- ------- ------------
BALANCE
DECEMBER 31, 1998 5,942 2,192,958 1,247,014 (282) 3,445,632
Issuance of common stock upon the
exercise of stock options (1,000
shares) 1 709 - - 710
Purchase of common stock (62,000
shares) - (57,893) - (62) (57,955)
Net income - 1999 - - 1,316,128 - 1,316,128
----------- ----------- --------- ------- ------------
BALANCE
DECEMBER 31, 1999 $ 5,943 $ 2,135,774 $ 2,563,142 $ (344) $ 4,704,515
=========== =========== =========== ======= ===========
See notes to consolidated financial statements
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
ATS MONEY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
----------- ----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 1,316,128 $ 572,975 $ 665,705
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 615,307 528,538 390,094
Changes in current assets and liabilities:
Trade accounts receivable - net 544,484 (970,133) (1,017,156)
Inventories (121,037) (35,986) 4,739
Prepaid expenses and other current assets (27,408) 19,979 136,430
Accounts payable and accrued expenses (79,159) 170,410 1,100,164
Deferred revenue (135,393) 471,170 (115,326)
Deferred income taxes (25,863) (21,535) (5,780)
Other liabilities 163,809 (35,446) (35,159)
Deposits and other long-term assets (15,456) (30,282) (1,603)
Deferred income taxes 83,056 73,676 44,609
----------- ----------- ----------
Net cash provided by operating activities 2,318,468 743,366 1,166,717
----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalization of software development costs (697,938) (671,372) (984,125)
Additions to property (80,806) (19,556) (75,229)
----------- ----------- ----------
Net cash used in investing activities (778,744) (690,928) (1,059,354)
----------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock 710 5,832 8,667
Purchase of common stock (57,955) (196,070) -
----------- ----------- ----------
Net cash (used in) provided by financing activities (57,245) (190,238) 8,667
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,482,479 (137,800) 116,030
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 286,368 424,168 308,138
----------- ----------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,768,847 $ 286,368 $ 424,168
=========== =========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for income taxes $ 457,251 $ 641,341 $ 87,917
=========== =========== ==========
Interest paid $ 2,129 $ 660 -
=========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ATS MONEY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 it
sells. 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 1999 were its ATS CP-3000
Retail Cash Office Management System, ATS 601 Scale, CP-4000 Retail Cash
Office Management System, CP-2000 Deposit/Register Verification System, and
PowerEncode Check Encoding System, which products accounted for
approximately 90% of the Company's 1999 equipment and systems sales and,
through IEI, StoreComm ISP and its related hardware. The Company also sells
various types of currency/document counters and dispensers.
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 consist
of 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 equipment 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, 1999, 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 and are periodically evaluated for impairment.
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 $586,834, $505,982 and $383,470 for the years ended December 31, 1999,
1998 and 1997, respectively. Fully amortized software costs of $245,829,
$254,846 and $106,729 were written off in 1999, 1998 and 1997, 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, 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 a
percentage of completion of performance, completion of performance, or by
recording a current year expense for the remaining costs associated with
completing the project.
F-6
<PAGE>
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.
EARNINGS PER COMMON SHARE - Basic earnings per common share is computed by
dividing income available to common stockholders by the weighted average
number of common shares outstanding during the period. The computation of
diluted earnings per share is similar to the computation of basic earnings
per share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the dilutive
potential common shares had been issued. For the years ended December 31,
1999, 1998 and 1997, the dilutive effect on earnings per common share was
insignificant.
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 1999 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 equipment held for sale and machine parts, as
follows:
1999 1998
---- ----
Equipment held for sale $ 676,931 $ 582,489
Parts and raw materials 115,304 70,135
Reserve for obsolescence (72,531) (53,957)
---------- ---------
$ 719,704 $ 598,667
========== =========
5. RELATED PARTY TRANSACTIONS
During 1997, the Company paid a director consulting fees and expenses of
$11,400 and $3,392, respectively.
At December 31, 1999 and 1998, all directors and executive officers, as a
group, collectively owned 42% and 40%, respectively, of the Company's common
stock.
In April 1999, the Company loaned $40,000 to one of its directors. The loan,
which bears interest at 9% per annum, is secured by 100,000 shares of the
Company's Common Stock owned by such director. The loan, which originally
was scheduled to mature on March 15, 2000, has been extended to March 15,
2001.
F-7
<PAGE>
6. COMMITMENTS AND CONTINGENCIES
At December 31, 1999, the Company was committed under non-cancellable,
operating leases for office space, automobiles and office equipment,
expiring at various dates through February 2004, requiring minimum annual
rental payments as follows:
2000 $ 332,233
2001 316,319
2002 303,940
2003 303,940
2004 94,392
----------
$1,350,824
==========
Rental expense under such leases totaled $369,888, $346,901, and $340,827
for the years ended December 31, 1999, 1998 and 1997, respectively.
7. STOCKHOLDERS' EQUITY
COMPANY REPURCHASE PROGRAM - In 1998, the Company commenced a program to
repurchase up to 500,000 shares of its common stock from time to time in the
over-the-counter market. Through December 31, 1999 the Company purchased
243,500 shares of its common stock, under the plan, for an aggregate of
$254,025. The Company is continuing such program during 2000.
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.
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, 1998, and 1999, the non-employee directors were
granted non-qualified options under this plan to purchase 30,000 shares of
common stock each year, at an exercise price of $.8281 per share, $.9531 per
share and $.7969 per share, respectively.
The estimated fair value of options granted during 1999, 1998 and 1997 was
$2.28, $0.27 and $0.56 per share, respectively. The Company applies
Accounting Principles Board Opinion No. 25 and related interpretations in
accounting for stock option plans. Accordingly, no compensation cost has
been recognized for its stock option plan. Had compensation cost for the
Company's stock option plan been determined based on the fair value at the
grant dates for awards under those plans consistent with the method of FASB
Statement 123, the Company's net income and earnings per share for the years
ended December 31, 1999, 1998 and 1997 would have been reduced to the pro
forma amounts indicated below:
Net income to common shareholders:
1999 1998 1997
As reported $1,316,128 $572,975 $665,705
Pro forma $1,219,076 $564,697 $629,725
F-8
<PAGE>
Net income per common share:
1999 1998 1997
As reported $.23 $.10 $.11
Pro forma $.22 $.10 $.11
The fair values of options granted under the Company's stock option plan during
1999, 1998 and 1997 were estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used: No
dividend yield for 1999, 1998 and 1997, expected volatility of 50%, 53% and 18%
for 1999, 1998 and 1997, respectively, and expected lives of 9.7 years for 1999
and 9.5 years for 1998 and 9 years for 1997.
A summary of the details of stock options granted and outstanding balances
are presented below:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
DECEMBER 31,
-----------
OPTION
GRANT PRICE EXERCISED CANCELED 1999 1998
----- -------- --------- -------- ---- ----
1993
----
<S> <C> <C> <C> <C> <C> <C> <C>
140,869 .28125 66,761 6,591 67,517 (1) 69,924
15,315 .28125 15,315((1) 15,315
18,816 .31 18,816 - -
50,000 .001 50,000 - -
1994
----
15,000 1.375 5,000 10,000 (1) 10,000
21,000 1.250 21,000 - -
1996
----
37,626 1.03125 10,879 26,747 (1) 27,247
10,875 1.1344 2,500 8,375 (1) 8,375
1997
----
34,500 .71 1,000 10,250 23,250 (2) 25,500
30,000 .8281 30,000 (1) 30,000
1998
----
30,000 .9531 30,000 (3) 30,000
19,200 .92 3,500 15,700 (3) 18,200
6,000 1.01 6,000 (3) 6,000
1999
----
6,750 .87 500 6,250 (5) -
2,000 .96 2,000 (5) -
30,000 .7969 30,000 (4) -
50,000 .70 12,500 37,500 (5) -
--------------- ---------------- ---------------- ---------------
136,577 72,720 308,654 240,561
=============== ================ ================ ===============
</TABLE>
F-9
<PAGE>
(1) Fully exercisable as of December 31, 1999.
(2) 15,657 of 23,250 exercisable as of December 31, 1999.
(3) 5,228 of 15,700, 2,000 of 6,000 and 20,000 of 30,000 exercisable as of
December 31, 1999.
(4) 10,000 of 30,000 exercisable as of December 31, 1999.
(5) Non exercisable as of December 31, 1999.
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 and granted 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. The balance of the contract to purchase an
additional 80,000 shares of common stock exercisable at $1.25 per share was
cancelled on April 1, 1999. 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 1999 and 1998.
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, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
Deferred tax assets:
<S> <C> <C>
Provision for bad debts $69,308 $56,252
Inventory write-downs 29,012 21,582
Bonus Accrual 5,377 -
Deferred credits - acquisition 52,761 64,166
-------- --------
Total deferred tax assets 156,458 142,000
-------- --------
Deferred tax liabilities:
Depreciation 25,564 22,421
Software amortization 283,789 215,281
------- --------
Total deferred tax liabilities 309,353 237,702
------- --------
</TABLE>
The income tax provision for the years ended December 31, 1999, 1998 and
1997 consists of the following components:
<TABLE>
<CAPTION>
1999 1998 1997
---------- -------- -------
Current:
<S> <C> <C> <C>
Federal $ 692,701 $ 244,216 $ 314,976
State 274,873 141,027 90,001
---------- ---------- ----------
Total current 967,574 385,243 404,977
---------- ---------- ----------
Deferred:
Federal 48,615 44,319 33,005
State 8,578 7,822 5,824
---------- ---------- ----------
Total deferred 57,193 52,141 38,829
---------- ---------- ----------
Income tax expense $1,024,767 $ 437,384 $ 443,806
========== ========== ==========
</TABLE>
F-10
<PAGE>
A reconciliation of the Company's statutory rate to the Company's effective
rate is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Expected statutory rate 34.0% 34.0% 34.0%
State income tax (composite rate) 8.0 9.7 5.7
Other 1.8 (0.4) 0.3
---- ---- ----
43.8% 43.3% 40.0%
==== ==== ====
</TABLE>
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:
1999 1998 1997
---- ---- ----
Major Customer 1 23% 46% 21%
Major Customer 2 18 17 15
Major Customer 3 10 5 13
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%. There
were no contributions in 1999 and 1998. The contribution for 1997 was
$27,495.
Effective January 1, 1998, the Company 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. The Company's contribution for 1999 and 1998 was
$26,811 and $24,927, respectively. Additionally, in 1999 the Board of
Directors voted on and approved an additional one time match for all
active participants in the 1999 calendar year. With this additional match,
the Company's overall contribution to the plan for 1999 was $51,991.
11. LINE OF CREDIT
The Company has a bank line of credit of $750,000 with interest at 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 had no borrowings outstanding at December 31, 1999 or
December 31, 1998.
F-11
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements No.
33-64460 and No. 333-39331 of ATS Money Systems, Inc. on Forms S-8 of our report
dated March 21, 2000, appearing in this Annual Report on Form 10-KSB of ATS
Money Systems, Inc. for the year ended December 31, 1999.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
March 29, 2000
F-12
<PAGE>
ITEM 8 - CHANGE 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 three fiscal years has been, the Company's independent
auditors. Since the beginning of such three 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
days after the close of its fiscal year ended December 31, 1999.
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-KSB 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.
(v) Amendment of Lease, dated as of, June 26, 1998 between ATS Money
Systems, Inc. and Rockwood Property Holding, LLC - incorporated
herein by reference to Exhibit 10(a)(iv) to the Annual Report on
Form 10-KSB of ATS Money Systems, Inc. for the fiscal year ended
December 31, 1998.
26
<PAGE>
(b) (i) 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).
(ii) Amendment to Profit Sharing Plan dated January 1, 1998 -
incorporated herein by reference to Exhibit 10(b)(ii) to the Annual
Report on Form 10-KSB of ATS Money Systems, Inc. for the fiscal year
ended December 31, 1998.
(c) Form of Salesman Employment Agreement - 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, 1989.
(d) Form of Maintenance Agreement - 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, 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 Money 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, of ATS Money
Systems, Inc., 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, of ATS Money Systems, Inc., 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, of ATS Money Systems, Inc., for the quarter
ended September 30, 1997.
(m) Agreement, dated, February 24, 1998, between ATS Money Systems,
Inc. and Alpha Microsystems - incorporated herein by reference to Exhibit 10(a)
to the Quarterly Report on Form 10-QSB for the quarter ended March 31, 1998.
(n) Agreement, dated August 5, 1998, between ATS Money Systems, Inc.
and Bollinger, Wells, Lett & Co. Inc. - incorporated herein by reference to
Exhibit 10(n) to the Annual Report on Form 10-KSB of ATS Money Systems, Inc. for
the fiscal year ended December 31, 1998.
(o) Agreement, dated as of December 10, 1998, between ATS Money
Systems, Inc. and Volumatic Ltd. - incorporated herein by reference to Exhibit
10(o) to the Annual Report on Form 10-KSB of ATS Money Systems, Inc. for the
fiscal year ended December 31, 1998.
*(p) Lease agreement, dated as of April 22, 1999, between ATS Money
Systems, Inc. and Florida Offset, a division of Gannett Co., Inc.
27
<PAGE>
*(q) Promissory note, dated as of April 2, 1999, in the principal
amount of $40,000, made by Fred Den in favor of ATS Money Systems, Inc., and
extension agreement, dated March 1, 2000, between Fred Den and ATS Money
Systems, Inc.
*(r) Stock Pledge Agreement, dated as of April 2, 1999, between Fred
Den, as pledgor and ATS Money Systems, Inc., as pledgee.
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, 1999.
28
<PAGE>
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 29, 2000 ATS Money Systems, Inc.
-------------------------
By: --------------------------------
Gerard F. Murphy, President and
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 29, 2000 /s/ GERARD F. MURPHY
------------------ Gerard F. Murphy
Director
------------------------------------
Dated: March 29, 2000 /s/ FRED DEN
------------------ Fred Den
Director
------------------------------------
Dated: March 29, 2000 /s/ A. PAUL COX
------------------ A. Paul Cox
Director
------------------------------------
Dated: March 29, 2000 /s/ THOMAS J. CAREY
------------------ Thomas J. Carey
Director
------------------------------------
Date: March 29, 2000 /s/ JOSEPH M. BURKE
------------------ Joseph M. Burke
Vice President - Finance
(Principal Accounting and
Financial Officer)
PROMISSORY NOTE
$40,000.00 Englewood, New Jersey April 2, 1999
FOR VALUE RECEIVED, the undersigned, FRED DEN (the "Payee"), residing at 102
Glen Way, Syosset, New York 11791 (the "Maker"), promises to pay to the order of
ATS MONEY SYSTEMS, INC. (the "Payee"), at its offices at 25 Rockwood Place,
Englewood, New Jersey 0763 1, or at such other place as may be designated by the
holder hereof in writing, the principal sum of FORTY THOUSAND DOLLARS
($40,000.00) in one installment on March 15, 2000. Interest shall accrue on the
unpaid principal amount of this Note from time to time outstanding at the rate
of 9% per annum. Except as otherwise provided in this Note, all accrued interest
shall be payable quarter-annually in arrears and at maturity (whether by
acceleration or otherwise). All payments by the Maker on account of this Note
shall be made in lawful money of the United States of America.
The Maker shall have the right to prepay this Note in whole at any time or in
part from time to time, without penalty or premium, provided that on each
prepayment the Maker shall pay accrued interest on the principal amount so
prepaid to the date of such prepayment.
If any of the following conditions or events shall occur and be continuing: (a)
the Maker shall default in the payment of any interest on this Note when the
same becomes due and payable and such default shall continue more than 10 days;
or (b) the Maker shall die or commit an act of bankruptcy; or there shall occur
any one or more "defaults" under the Stock Pledge Agreement (as defined below);
then, and in any such event, the Payee may at any time (unless all defaults
shall theretofore have been remedied) at its option, declare this Note to be due
and payable, whereupon this Note shall forthwith mature and become due and
payable, together with interest accrued thereon, without presentment, demand,
protest or notice, all of which are hereby waived.
This Note is secured by a security interest in 100,000 shares of Common Stock of
the Payee, granted pursuant to that certain Stock Pledge Agreement dated as of
the date of this Note, between the Maker and the Payee.
No failure on the part of the holder of this Note to exercise, and no delay in
exercising any right hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise by the holder of this Note of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The rights and remedies herein provided are cumulative and not exclusive
of any remedies or rights provided by law or by any other agreement between the
Maker and the Payee.
The Maker shall reimburse the holder of this Note for all costs and expenses
incurred by it and shall pay the reasonable fees and disbursements of counsel to
the holder of this Note in connection with the enforcement of the holder's
rights hereunder.
<PAGE>
No amendment, modification or waiver of any provision of this Note nor consent
to any departure by the Maker therefrom shall be effective unless the same shall
be in writing and signed by the holder of this Note and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given. This Note shall be governed by the laws of the State of
New Jersey, without giving effect to its choice of law principles. This Note
shall be binding upon the Maker and its successors and assigns and the terms
hereof shall inure to the benefit of the Payee and its successors and assigns,
including subsequent holders hereof. The provisions of this Note are severable,
and if any provision shall be held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall not in any
manner affect such provision in any other jurisdiction or any other provision of
this Note in any jurisdiction.
The Maker hereby waives presentment, demand for payment, notice of protest and
all other demands in connection with the delivery, acceptance, performance,
default or enforcement of this Note.
In the event the holder hereof seeks to enforce its rights under this Note, the
Maker waives the right to interpose any set-off or counterclaim of any nature or
description against the holder.
/s/ Fred Den
Fred Den
102 Glen Way
Syosset, New York 11791
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT, made this 22nd day of April, 1999, is by and between
Florida Offset, a division of Gannett Co., Inc. ("Landlord"), and ATS Money
Systems, Inc. ("Tenant").
Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord,
the leased premises described below on the following terms and conditions:
1. LEASED PREMISES. The leased premises shall contain approximately 3080
square feet of rentable space as shown on the floor plan attached as EXHIBIT "A"
(the "Leased Premises"), and shall be located in Suite 100 on the ground floor
of the building ("Building") located at 10315 USA Today Way, Miramar, Florida
33025 ("Property"). Tenant shall also be entitled to access and use of 20
unreserved parking spaces for its employees and visitor parking on a first-come,
first-serve basis for its visitors. In addition, Tenant shall be entitled to
access and use of the lunch room, restrooms and conference/training facility at
no additional charge. Use of the conference/training facility is subject to
availability and with advance notice from Tenant to Landlord. The Tenant
understands that the customer lounge in the Building is not part of the Leased
Premises and is not available on a regular basis. However, the Landlord
understands that, on an infrequent and occasional basis, the Tenant may request
the use of the customer lounge for a special purpose, such as a meeting between
the Tenant's management and a customer. In the event the Tenant wants to use the
customer lounge, the Tenant must obtain the Landlord's prior approval. The
Tenant's request will include the date and time of the proposed use and the
number of people that will be involved. The Landlord reserves the right to deny
the Tenant use of the customer lounge.
2. TERM. The term of this ("Term") shall commence May 1, 1999,
("Commencement Date"), and shall terminate on April 30, 2004 ("Termination
Date").
2A. RENEWAL OPTION. Tenant is hereby granted the option to extend the
Lease term for one (1) successive period of five (5) years following the initial
Lease term (the "Renewal Term") upon the same terms, covenants and conditions
(except the clauses relative to rent and renewal), provided that at the date of
exercise of such option to renew there is no default by Tenant in the
performance of any of its obligations under this Lease as to which a notice of
default has been given to Tenant, and provided further that Tenant shall
exercise such option to renew by written notice to the Landlord not less than
six (6) months prior to the expiration of the initial Lease term. If prior to
the expiration of the initial Lease term, Tenant has not given the
<PAGE>
-7-
Landlord notice in writing of its election to renew as herein provided, then
Tenant's holding over shall be deemed to be a tenancy from month to month only
upon the same terms and conditions specified in this Lease. The rent during the
Renewal Term shall continue to escalate at five percent (5%) per annum.
2B. CANCELLATION OPTION. Tenant shall have a one-time right to cancel the
lease on May 1, 2002, provided that Tenant has given Landlord at least six (6)
months' prior notice and pays the Landlord a penalty in the amount of four (4)
month's rent at the then current rate.
3. POSSESSION. On the Commencement Date, Tenant shall enter into sole
possession of the Leased Premises and shall accept the Premises in its "as is"
condition. Upon the expiration or other termination of this Lease, Tenant shall
remove all of its personal property and quit and surrender the Leased Premises
to the Landlord, broom clean.
4. RENT.
(a) Beginning on the Commencement Date, Tenant shall pay to Landlord
as base rent (the "Base Rent") the following sums per year and per month:
ANNUAL BASE RENT MONTHLY BASE RENT
---------------- -----------------
Lease Year 1 $51,251.16 $4,270.93
Lease Year 2 $53,813.72 $4,484.48
Lease Year 3 $56,504.41 $4,708.70
Lease Year 4 $59,329.63 $4,944.14
Lease Year 5 $62,296.11 $5,191.34
Tenant shall pay the Base Rent in U.S. legal tender, at Landlord's offices at
10315 USA Today Way, Attn: Accounting, or as otherwise directed from time to
time by Landlord's written notice, without any prior demand, and without any
set-off or deduction whatsoever. The Base Rent for each Lease Year shall be paid
in monthly installments promptly on the first day of every calendar month of the
Term, and pro rata, in advance, for any partial month. As used herein the term
"Lease Year" shall mean each consecutive twelve (12) month period during the
Term so that the first Lease Year shall begin on the Commencement Date, the
second Lease Year shall begin on the first anniversary of the
<PAGE>
-8-
Commencement Date, and so on through the Term. Notwithstanding the foregoing,
the fifth Lease Year shall begin on the fourth anniversary of the Commencement
Date and shall end on the Termination Date.
(b) A late penalty shall be due and owing on any installment of Base
Rent and/or "Additional Rent" (as defined in Subsection 4(c) below) not received
by Landlord by the fifth (5th) day of the calendar month in which due and on any
monetary obligation of Tenant or charge due from Tenant not paid by Tenant when
due. Such late penalty shall equal five percent (5%) of the then unpaid monthly
Base Rent and/or Additional Rent, and shall be paid by Tenant within five (5)
days after demand therefor by Landlord.
(c) All costs and expenses which Tenant assumes or agrees to pay to
Landlord pursuant to this Lease shall be deemed "Additional Rent". As used
herein, the term "Rent" shall mean, collectively, Base Rent and Additional Rent.
5. USE.
(a) Tenant shall use the Leased Premises only for Office Space &
Related Use and for no other purpose.
(b) Tenant shall, at its sole expense, comply with all applicable
laws relating to its use of the Leased Premises during the Lease term.
(c) Tenant shall not cause or permit any hazardous materials to be
released, brought upon, stored, produced, emitted, disposed of or used upon,
about or beneath the Leased Premises by Tenant, its agents, employees,
contractors or invitees except those hazardous materials customarily used in the
conduct of general administrative office activities (e.g. copier fluids and
cleaning supplies), provided that such use and storage is in full compliance
with all applicable laws. Tenant shall defend, indemnify and hold Landlord
harmless from and against any and all damage, loss, claim, obligation,
liability, cost (including attorneys' fees and expenses), expense, deficiency
and interest charges (collectively "Loss and Expense") which arise from the
presence upon, about or beneath the Premises of any hazardous materials which
are released, brought upon, stored, produced, emitted, disposed of or used upon,
about or beneath the Leased Premises by Tenant, its employees, servants,
customers, invitees, subtenants, licensees or contractors.
(d) Landlord reserves the right to prior approval, which approval
shall not be unreasonably withheld, of the actual
<PAGE>
-9-
name and/or logo signs that Tenant proposes to place on the black glass panel on
the right side of the main building entrance doors and on the entrance door to
the rental premises. Tenant shall not display, inscribe, print, paint, maintain
or affix on any other place on the Leased Premises (excepting only such part or
parts of the Leased Premises as is or are not visible from outside the Building)
any decoration, sign, notice, legend, direction, figure, or advertisement or
display materials (collectively "Signs") except in or at such place or places,
and then only such name(s) and matter, and in such color, size, style, place and
materials, as shall first have been approved by Landlord in writing. Any
approval by Landlord shall be conditioned upon Tenant obtaining any required
governmental approvals, consents or permits for the signs, at Tenant's sole
expense.
6. NO ALTERATIONS. Tenant shall not make any alterations to the Leased
Premises without obtaining the Landlord's prior consent. Tenant shall also
comply with any conditions contained in Landlord's consent.
7. REPAIRS.
(a) Tenant shall give to Landlord prompt written notice of any
damage to, or defective condition in the Building structure or in any part or
appurtenance of the Building's plumbing, electrical, heating, air-conditioning,
ventilation, sprinkler, elevator or other systems serving the Leased Premises.
Subject to the provisions of this Section 7, Tenant shall, at Tenant's own
expense, keep the Leased Premises in good order, condition and repair during the
Term, except that Landlord, at Landlord's expense (unless caused by the fault or
negligence of Tenant, its contractors, agents, or employees in which case Tenant
shall pay Landlord for any deductible and any cost which either exceeds
insurance proceeds Landlord receives or which is not covered under Landlord's
insurance policy in respect of such damage) shall keep in repair and maintain
the exterior of the Building, the electrical, heating, air-conditioning,
ventilation, sprinkler, elevator or other systems serving, located in or passing
through the Leased Premises, plumbing fixtures located in the Building outside
walls, loadbearing walls (except as to surface damage done by or attributable to
Tenant) doors and the roof.
(b) Landlord shall not be required to repair any injury or damage by
fire or other cause, or to make any repairs or replacements of any panels,
decoration, office fixtures, railing, ceiling, floor covering, partitions, or
any other property installed in the Leased Premises by Tenant unless such injury
or damage is a direct result of negligence on the part of Landlord or its
contractors, agents or employees, and Tenant is not reimbursed for such injury
or damage from insurance proceeds.
<PAGE>
-10-
8. SERVICES.
(a) Landlord shall provide to the Leased Premises HVAC, water, gas
and electric services during normal business hours of 8am - 5pm Monday-Friday;
(b) Tenant shall pay for janitorial services for the Leased
Premises and for its own telephone service.
9. LIABILITY.
(a) Landlord shall not be liable for any damage to the person or
property of Tenant by theft or from any other cause, or for any injury or damage
to persons or property or loss or interruption to business resulting from fire,
explosion, falling plaster, steam, gas, electricity, water, rain or snow, or
leaks from any part of the Building or from the pipes, appliances, or plumbing
works or from the roof, street, or subsurface, or from any other place, or
dampness or by any other cause unless caused by or due to the gross negligence
of Landlord.
(b) To the extent permitted by law, Tenant covenants and agrees to
defend, indemnify and hold Landlord harmless from and against all Loss and
Expense incurred or suffered by Landlord for personal injury, disease, death,
property damage, or otherwise arising out of (i) Tenant's failure to comply with
its obligations under this Lease and/or (ii) the occupancy by Tenant or any
person or entity claiming under Tenant of the Property or any part thereof.
Tenant's obligations pursuant to this Subsection 9(b) shall survive the
termination of this Lease.
10. INSURANCE.
(a) Landlord shall procure and maintain during the Lease term, fire
and hazard insurance and comprehensive general liability insurance policies
covering the Property in amounts deemed appropriate by Landlord.
(b) Tenant shall, at its expense, procure and maintain all risk
personal property insurance covering all personal property owned by Tenant and
located on the Leased Premises, in an amount not less than the full replacement
value of the personal property. The policy shall contain an agreed value clause,
shall have a deductible not greater than $1000.
<PAGE>
-11-
(c) To the extent permitted by law, the parties hereto waive on
behalf of the insurers of each parties' property, any and all claims or rights
of subrogation of any such insurer against the other party hereto for loss or
damage to the party so insured other than for loss or damage resulting from the
willful act of such other party. The parties agree to obtain from each of their
insurance carriers a waiver of subrogation prior to or simultaneously with the
execution of this Lease.
(d) Tenant shall maintain comprehensive general liability insurance,
including public liability and property damage, with premises, contractual and
operations coverage on an occurrence basis (and not on a "claims made" basis)
with a minimum combined single limit of liability equal to $1,000,000 per
occurrence and $3,000,000 aggregate for property damage, bodily and personal
injuries or deaths of persons occurring on or about the Property. The liability
policy shall name Landlord as additional insured and shall have no deductible
amount.
(e) Tenant's insurance policies shall (i) be issued by insurance
companies acceptable to Landlord; (ii) provide that the insurance not be
cancelled or materially changed in the scope or amount of coverage unless ten
(10) days' prior written notice is given to Landlord; and (iii) be primary
policies, and not contributing with, or in excess of, the coverage that Landlord
may carry.
(f) On or before the Commencement Date and upon each renewal of its
insurance policies, Tenant shall give copies of certificates or policies of
insurance to Landlord with proof of payment of premiums. The policies shall be
renewed or replaced and maintained by Tenant at its sole expense. If Tenant
fails to give Landlord a copy of any required certificate or policy of insurance
within ten (10) days after written notice and demand for it is given by Landlord
to Tenant, in addition to the remedies provided in Section 13, Landlord may
obtain and pay for that insurance coverage, in which event the cost of such
insurance coverage paid by Landlord shall be due and payable by Tenant as
Additional Rent immediately on demand.
<PAGE>
-12-
11. ASSIGNMENT AND SUBLETTING.
Tenant may not assign its rights or obligations under this Agreement
without the prior written consent of the Landlord, which consent shall not be
unreasonably withheld or delayed, except that Tenant may assign its rights or
obligations under this Agreement to any of its affiliates or subsidiaries
without the other party's consent, provided Tenant remains liable hereunder.
Tenant may not sublet the premises without the prior written consent of the
Landlord, which consent shall not be unreasonably withheld or delayed.
12. DESTRUCTION.
(a) If the Leased Premises is damaged in part or whole from fire or
other casualty, Landlord shall, within thirty (30) days after the date of the
damage, notify Tenant in writing as to whether the Landlord will restore the
Leased Premises ("Casualty Notice"). If Landlord determines to restore the
Leased Premises, Landlord shall, at its expense, promptly and diligently repair
and restore the Leased Premises to substantially the same condition as existed
before the damage. If Landlord determines that it will not restore the Leased
Premises, this Lease will terminate on the date specified in the Casualty
Notice.
(b) Unless the damage is caused by Tenant's negligent or willful
misconduct, the Rent shall abate in proportion to that part of the Premises that
is unfit for use in Tenant's business. The abatement shall continue from the
date the damage occurred until Landlord completes the repairs and restoration to
the Premises or the part rendered unusable.
(c) Notwithstanding anything else in this Section 12, Landlord is
not obligated to repair or restore damage to Tenant's trade fixtures, furniture,
equipment, or other personal property, or any Tenant improvements.
(d) If Landlord cancels this Lease as permitted by this Section 12,
the Rent and other charges shall be payable up to the cancellation date.
Landlord shall promptly refund to Tenant any prepaid, unaccrued Rent, accounting
for any abatement, plus security deposit, if any, less any sum then owing by
Tenant to Landlord.
12A. CONDEMNATION.
(a) If the entire Leased Premises or any portion of the Property
required for reasonable access to, or the reasonable use of, the Leased Premises
are taken by eminent domain, this
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Lease shall automatically end on the earlier of (i) the date title vests; or
(ii) the date Tenant is dispossessed by the condemning authority.
(b) If title to a part of the Property other than the Leased
Premises is condemned and, in the Landlord's opinion, the Property should be
restored in a manner that materially alters the Leased Premises, Landlord may
cancel this Lease by giving written notice to Tenant, which notice shall be
given within sixty (60) days following the date title vested. This Lease shall
end on the date specified in the cancellation notice, which date shall be at
least thirty (30) days but not more than ninety (90) days after the date notice
is given.
(c) Landlord reserves all rights to damages paid because of any
taking of the Leased Premises. Tenant assigns to Landlord any right Tenant may
have to the damages or award. Further, Tenant shall not make claims against
Landlord or the condemning authority for damages, except that Tenant may claim
and recover from the condemning authority a separate award for Tenant's moving
expenses, personal property and fixtures, and any other award that would not
reduce the award payable to Landlord.
13. DEFAULT.
(a) Any one or more of the following events shall each constitute
an "Event of Default":
(i) If Tenant fails to pay any Rent or any other sum payable
by Tenant under this Lease when and as the same shall be due and
payable, and such failure continues for five (5) days after such
payment is due; or
(ii) If Tenant fails to perform or comply with any of the
provisions of this Lease, other than those specified in paragraph
(i) above, for ten (10) days after written notice is given to
Tenant; or
(iii) If any of the foregoing Events of Default should occur,
Landlord at any time thereafter may give written notice to Tenant
specifying such Event of Default or Events of Default and stating
that this Lease shall terminate on the date specified in such
notice, which shall be at least five (5) days after the giving of
such notice, and this Lease shall terminate, on the date fixed in
such notice, and Tenant shall then quit and surrender the Premises
to Landlord, but Tenant shall remain liable as hereinafter provided.
Upon any such termination of this Lease, Landlord, may without
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-14-
further notice enter upon and re-enter and possess and repossess the
Leased Premises, by any lawful means, and may dispossess Tenant and
remove Tenant and all other persons and property from the Leased
Premises and may have, hold and enjoy the Leased Premises and the
right to receive all rental income derived therefrom.
(b) In case of any such termination, the Rent and all other charges
required to be paid up to the time of such termination, shall be paid by Tenant
and Tenant shall also pay to Landlord all expenses which Landlord may then or
thereafter incur for legal expenses and reasonable attorney's fees, brokerage
commissions and all other reasonable costs paid or incurred by Landlord.
Landlord may relet the Leased Premises, in whole or in part, for any rental then
obtainable either in its own name or as agent of Tenant, for a term or terms
which, at Landlord's option, may be for the remainder of the term of this Lease
Term or for any longer or shorter period.
(c) If this Lease is terminated as described above, Tenant covenants
and agrees to pay and be liable for as damages, on the days originally fixed
herein for the payment thereof, amounts equal to the installments of Rent and
other charges reserved as they would, under the terms of this Lease, become due
if this Lease had not been terminated. However, in the event the Leased Premises
be relet by the Landlord, Tenant shall be entitled to a credit (but not in
excess of the Rent and other charges reserved under the terms of this Lease)
equal to the net amount of rent received by Landlord in reletting the Premises,
after deduction of all expenses and costs incurred by Landlord in reletting the
Leased Premises and in collecting any rent in connection therewith.
(d) Each right and remedy provided for in this Lease shall be
cumulative and shall be in addition to every other right or remedy provided for
in this Lease or now or hereafter existing at law or in equity, or by statute or
otherwise, and the exercise or beginning of the exercise by Landlord of any one
or more of the rights or remedies provided for in this Lease, or now or
hereafter existing at law or in equity, shall not preclude the simultaneous or
later exercise by Landlord of any or all other available rights or remedies
Landlord may elect.
(e) No receipt of moneys by Landlord from Tenant after the
termination of this Lease shall reinstate, continue or extend the Lease Term, or
affect any notice given to the Tenant prior to the receipt of such money, it
being agreed that after the service of notice or the commencement of a suit, or
after final judgment for possession of the Leased Premises, Landlord may receive
and
<PAGE>
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collect any Rent due, and the payment of Rent shall not waive or affect such
notice, suit or judgment.
(f) It is mutually agreed by and between Landlord and Tenant that
they hereby do waive trial by jury in any action, proceeding or counterclaim
brought by either of the parties hereto against the other on any matters
whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, Tenant's use or occupancy of the Leased
Premises, and any emergency statutory or any other statutory remedy.
(g) No waiver of any condition or legal right or remedy shall be
implied by the failure of Landlord to declare a default, and no waiver of any
condition or covenant shall be valid unless it be in writing signed by the
Landlord, and no waiver by the Landlord in respect to one tenant shall
constitute a waiver in favor of any other tenants.
13A. WARRANTY. Landlord warrants that it is the sole owner of the Building
in which the Leased Premises are located. Landlord represents to the best of its
knowledge that the Leased Premises and the Building are in compliance with all
existing zoning laws. Landlord shall comply, at Landlord's sole expense, with
all existing and future health, safety, fire and zoning laws, rules and
regulations during the term of this Lease.
Landlord represents and warrants to the best of its knowledge that there
are no Hazardous Materials (as defined below) upon or about the Property, except
those substances customarily used for general office purposes or in the
operation of an office building in accordance with applicable law. Landlord
agrees that if any Hazardous Materials are released, discharged or disposed of
by any party, other than Tenant, on or about the Property in violation of the
foregoing provision, Landlord shall immediately, properly and in accordance with
applicable laws, cleanup and remove the Hazardous Materials from the Property at
Landlord's sole expense. For the purposes hereof, the term "Hazardous Materials"
includes any and all materials, substances or wastes which are toxic, ignitable,
corrosive or reactive and which are regulated by any federal, state or local
authorities including, without limitation, asbestos, petroleum and
petroleum-based products, polychlorinated biphenyls, and freon and other
chlorofluorocarbons.
14. SUBORDINATION TO LEASE. The rights of Tenant under this Lease shall be
subject and subordinate at all times to all ground leases, and/or underlying
leases, if any, now or hereafter in force against the Property, and to the lien
of any mortgage or
<PAGE>
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mortgages now or hereafter in force against such leases and or the Property.
15. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or three (3) days
after mailing by registered or certified mail (return receipt requested),
postage prepaid, to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice; PROVIDED, HOWEVER,
that notices of a change of address shall be effective only upon receipt
thereof):
(a) if to Landlord, to:
Florida Offset, a division
of Gannett Co., Inc.
10315 USA TODAY Way
Miramar, FL 33025
Attn: Edward A. Witte Fax: (954) 435-6353
(b) if to Tenant, to:
Innovative Electronics, Inc.
11010 USA TODAY Way
Miramar, FL 33025
Attn: _________________
Fax: __________________
With a copy to:
ATS Money Systems, Inc.
25 Rockwood Place
Englewood, NJ 07631
Attn: _________________
Fax: __________________
16. LANDLORD'S RIGHT OF ENTRY. Landlord and its authorized agents shall
have the right to enter the Leased Premises, on reasonable prior notice to
Tenant, to exhibit the Leased Premises to prospective tenants and to prospective
purchasers, mortgagees, or assignees of any mortgage on the Property and to
others having a legitimate interest during the Lease Term. At any time and
without notice in the event of an emergency, and otherwise upon reasonable
notice and at reasonable times, Landlord shall have the right to take any and
all measures, including inspections, repairs, alterations, additions and
improvements to the Leased Premises, the Building or the Property, as may be
necessary or
<PAGE>
-17-
desirable for the safety, protection or preservation of the Leased Premises, the
Building or the Property, or as may be necessary or desirable in the operation
or improvement of the Leased Premises, the Building or the Property or in order
to comply with laws.
17. SECURITY DEPOSIT. Tenant has deposited with Landlord the sum of Four
Thousand Two Hundred Seventy and 93/100 Dollars ($4,270.93) as security for the
full and faithful performance of every provision of this Lease to be performed
by Tenant. In addition, Tenant shall pay an additional security deposit in the
amount of Nine Thousand Four Hundred Sixty-Two and 27/100 Dollars ($9,462.27),
which is the first and last month's rent, upon execution of this Lease. If any
portion of the deposit is to be used or applied by Landlord, Tenant shall,
within five (5) days after written demand therefor, deposit cash with Landlord
in an amount sufficient to restore the security deposit to its original amount.
Landlord shall not be required to keep this security deposit separate from its
general funds nor pay interest to Tenant.
18. LANDLORD'S OCCUPANCY. It is understood that Landlord may occupy
portions of the Building in the conduct of Landlord's business. In such event,
all references herein to other tenants of the Building shall be deemed to
include Landlord as an occupant.
19. BROKER'S COMMISSION. Each party warrants and represents to the other
party hereto that it has not dealt with any brokers in connection with this
Lease other than Associated Realty, Inc. and Grubb & Ellis of Florida
(collectively, "Broker"). Landlord shall pay any commission owed to Broker
pursuant to a separate agreement between Landlord and Broker. Each party hereby
indemnifies and holds the other party harmless from any and all loss, damage,
claim, liability, cost or expense (including, but not limited to, reasonable
attorneys' fees, expenses and court costs) arising out of or in connection with
any breach of the foregoing warranty and representation.
20. SUCCESSORS AND ASSIGNS. Subject to the provisions of Section 11, the
covenants and agreements contained herein shall bind and inure to the benefit of
the Landlord, its successors, and assigns, and the Tenant, its successors, and
assigns subject in the case of the Tenant, to the restriction on assignment and
subletting contained in this Lease.
21. FORCE MAJEURE. In the event that either Landlord or Tenant shall be
delayed or hindered in or prevented from the performance of any act required
hereunder by reason of Act of
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God, strikes, lock-outs, labor troubles, inability to procure materials
(including energy) power, casualty, inclement weather restrictive governmental
laws, orders, or regulations, riots, insurrection, war or other reason of a like
nature not the fault of the party delayed in performing work or doing acts
required under the terms of this Lease, then performance of any such act shall
be extended for a period equivalent to the period of such delay. The provisions
of this paragraph shall not operate to excuse Tenant from prompt payment of Rent
or any other payments required by the term of this Lease.
22. QUIET ENJOYMENT. Landlord covenants that provided Tenant pays the Rent
and performs all the covenants terms, conditions and agreements of this Lease to
be performed by Tenant, Tenant shall, during the Lease Term, quietly occupy and
enjoy possession of the Leased Premises without molestation or hinderance by
Landlord, or any party claiming through or under Landlord, subject to the
provisions of this Lease, including Section 14.
23. RIGHT OF LANDLORD TO PERFORM. All covenants and agreements to be kept
or performed by Tenant under any of the terms of this Lease shall be performed
by Tenant at Tenant's sole cost and expense and without any abatement of Rent.
If Tenant shall fail to pay any sum of money other than Rent required to be paid
by it hereunder, or shall fail to perform any other act in its part to be
performed hereunder, and such failure should continue to ten (10) days after
notice thereof by Landlord, then without waiving any default of Tenant or
releasing Tenant from any obligations of Tenant hereunder, Landlord may make,
but shall not be obliged to make, any such payment or perform any such other act
on Tenant's part to be made or performed hereunder. All sums so paid by Landlord
and all necessary incidental costs together with interest thereon at the maximum
rate allowable by law from the date of such payment by Landlord shall be deemed
additional Rent.
24. ATTORNEYS' FEES. If either Landlord or Tenant shall bring an action
against the other by reason of the breach of any provision of this Lease, the
unsuccessful party shall pay to the prevailing party its costs and reasonable
attorneys' fees.
25. HOLDING OVER. If Tenant fails to vacate the Leased Premises at the
expiration of this Lease, then Tenant shall pay Landlord Rent at two times the
monthly rate specified in Section 4 for the time Tenant remains in possession
and, in addition thereto, shall be responsible for and reimburse Landlord for
all direct and consequential damages sustained by Landlord by reason of Tenant's
retention of possession. The provisions of this
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Section do not exclude Landlord's rights of re-entry or any other right or
remedy of Landlord hereunder.
26. SALE BY LANDLORD. In the event of a sale or conveyance by Landlord of
the Property, the same shall operate to release Landlord from any future
liability upon any of the covenants or conditions herein contained in favor of
Tenant, and in such event Tenant agrees to look solely to the successor in
interest of Landlord in and to this Lease for the performance of the covenants
and conditions herein contained in favor of Tenant. Landlord may transfer and/or
deliver the security deposit described in Section 17, to the successor in
interest of Landlord, and thereupon Landlord shall be discharged from any
further liability with respect thereto.
27. ESTOPPEL CERTIFICATES. Tenant agrees that at any time and from time to
time upon ten (10) days prior written request by Landlord, Tenant will execute,
acknowledge and deliver to Landlord a statement in writing, on Landlord's
standard form, stating that this Lease is unmodified and in full force and
effect (or, if there have been modifications, stating the modifications, and
that this Lease as so modified is in full force and effect), the dates to which
the Rent has been paid and whether Landlord has defaulted in the performance of
any of its obligations under the terms of this Lease.
28. ENTIRE AGREEMENT. Upon the execution and delivery hereof, this
instrument shall constitute the entire agreement between the Landlord and Tenant
for the Leased Premises. This Lease cannot be changed orally, but only by an
agreement in writing and signed by the party against whom enforcement of any
waiver, change, modification, or discharge is sought.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the
day and year above first written.
LANDLORD:
FLORIDA OFFSET, A DIVISION OF GANNETT CO., INC.
By: _____________________________
Title: __________________________
TENANT:
ATS MONEY SYSTEMS, INC.
By: _____________________________
Title: __________________________
<PAGE>
EXHIBIT A
Leased Premises
Approximately 3,080 +/- square feet located on the ground floor of the Office
Warehouse Building at 10315 USA Today way, Miramar, Fl in the Miramar Park of
Commerce.
ATS Money Systems, Inc.
25 Rockwood Place
Englewood, New Jersey 07631
March 1, 2000
Mr. Fred Den
102Glen Way
Syosset, New York 11791
Dear Mr. Den
This letter will confirm the approval by the Board of
Directors of our Company to extend the stated maturity date of your $40,000 loan
by our Company, which currently is scheduled to become due on March 15, 2000,
for a period of one year to March 15, 2001. All other terms of your loan, as
represented by your promissory note, dated April 2, 1999, will remain in effect.
As a condition to such extension, the pledge by you of 100,000
shares of our Company's Common Stock owned by you, as set forth in a Stock
Pledge Agreement executed by you at the inception of your loan, will continue in
effect until such time as your loan, with all interest accrued thereon, is
repaid in full.
If you are in agreement with the foregoing, please countersign
and return to the undersigned a copy of this loan extension letter.
Very truly yours,
Gerard F. Murphy, President
The foregoing is agreed and accepted:
Fred Den
STOCK PLEDGE AGREEMENT
THIS AGREEMENT is entered into this 2nd of April 1999, by and
between Fred DEN, residing at 102 Glen Way, Syosset, New York 11791 (the
"Pledgor") and ATS MONEY SYSTEMS, INC., a Nevada corporation having its
principal address at 25 Rockwood Place, Englewood, New Jersey 07631 (the
"Pledgee").
RECITALS
A. The Pledgor is the owner of 100,000 issued and outstanding
shares of common stock of the Pledgee (the "Shares") represented by certificate
No. 10041 (the "Certificate").
B. The Pledgor has delivered to the Pledgee his note in the
principal amount of $40,000 (the "Note"), a copy of which is attached hereto. As
a condition to acceptance of the Note by the Pledgee, the Pledgor has agreed to
pledge the Shares to the Pledgee as security for the payment of the Note.
NOW, THEREFORE, in consideration of the foregoing and other
good and valuable consideration, the Pledgor and the Pledgee agree as follows:
TERMS
I. PLEDGE. The Pledgor hereby pledges, grants a security
interest in, mortgages, assigns, transfers, delivers, deposits, sets over and
confirms unto the Pledgee and its successors and assigns as collateral security
for the payment in full when due and payable of the Note and for the due and
punctual performance and observance by the Pledgor of the terms, covenants and
agreements on its part to be per- formed and observed under the Note the Shares
(all of the Shares and the Certificate, together with all other certificates,
shares, securities, property or monies as may from time to time be pledged
hereunder pursuant to the terms of Section 7 being hereinafter collectively
called the "Pledged Stock"). This is a bona-fide pledge to secure the Note,
which Note is with full recourse to the Pledgor.
II. DELIVERY OF THE SHARES. The Certificate representing the
Shares, duly endorsed in blank for transfer, has been delivered to the Pledgee.
The Pledgee shall not encumber or dispose of the Pledged Stock in any manner
whatsoever, except as stated herein.
III. WARRANTY. The Pledgor represents and warrants that the
Pledged Stock has been validly issued and is fully paid and nonassessable and
that the Pledgor owns the Pledged Stock free and clear of all equities, pledges,
liens, charges and encumbrances (except the pledge provided for herein), that
the Pledged Stock has been wholly owned for more than 2 years and that the
Pledgor has the right TO pledge the Pledged Stock as herein provided.
IV. WAIVER. This pledge shall not be affected by and the
Pledgor is hereby not to be released from its obligations to the Pledgee herein
created on account of any indulgence, extension, or change in the form,
maturity, rate of interest, or otherwise, of the Note, nor by want of
presentment, notice, protest or suit on the Note. No failure on the part of the
Pledgee to exercise, and no delay on the part of the Pledgee in exercising, any
right, power or remedy hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise by the Pledgee or any right, power or remedy
hereunder preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies herein provided are cumulative and
are not exclusive of any remedies provided by law.
<PAGE>
V. ACCELERATION. Upon failure of the Pledgor to keep and
perform its agreement to pay the Note when due, immediately after notice thereof
("Event of Default"), the Pledgee may, at its option, at once exercise its
rights hereunder.
VI. TERMINATION OF PLEDGE. When the Note has been paid and the
terms and covenants hereof and agreements of the Pledgor hereunder have been
performed in full, this Pledge Agreement shall terminate, and the Pledgee shall
forthwith assign, transfer and deliver to the Pledgor or its designees, without
representation, warranty or recourse, against appropriate receipts, all the
Pledged Stock, if any, then held by it in pledge hereunder.
VII. INCREMENTS AND ACCRUALS. In addition to the Certificates
and Shares pledged hereunder pursuant to Section 1, the Pledgor also pledges
hereunder, as additional collateral security, and agrees to forthwith deliver to
the Pledgee all shares, securities, moneys or property representing a dividend
on the Pledged Stock or representing a distribution or return of capital upon or
in respect of the Pledged Stock or any part thereof, or resulting from a
split-up, revision reclassification or other like change of the Pledged Stock,
or otherwise received in exchange therefor, and any subscription, warrants,
rights or options issued to the holders, or otherwise in respect, of the Pledged
Stock.
VIII. VOTING POWER, DIVIDENDS, ETC.
A. Unless and until an Event of Default has occurred the
Pledgor shall have the right to exercise all voting, consensual and other powers
of ownership pertaining to the Pledged Stock for all purposes not inconsistent
with the terms of this Pledge Agreement; PROVIDED, HOWEVER that the Pledgor
agrees that it will not vote the Pledged Stock in any manner that is
inconsistent with the terms of this Pledge Agreement; and
B. If any Event of Default shall have occurred, and whether or
not any holder of any of the Note exercises any available option to declare any
of the Note due and payable or seeks or pursues any other relief or remedy
available to such holder under this Pledge Agreement or the Note, the Pledgee
shall forthwith, without further act on the part of any person, have the sole
and exclusive right to exercise ALL voting, consensual and other powers of
ownership pertaining to the Pledged Stock and shall exercise such powers in such
manner as it, in its sole discretion, shall determine to be necessary,
appropriate or advisable, and, if the Pledgee shall so request in writing, the
Pledgor agrees to execute and deliver to the Pledgee such other and additional
powers, authorizations, proxies, dividends and other orders, and such other
documents, as the Pledgee may reasonably request to secure to the Pledgee the
rights, powers and authorities intended to be conferred upon the Pledgee by this
Subsection B.
IX. SALE OF PLEDIZED STOCK AFTER AN EVENT OF DEFAULT. If any
Event of Default shall have occurred, and the principal amount of any then
outstanding Note shall have been declared forthwith due and payable, then,
unless such Note at the time outstanding shall have been paid in full at the
time the notice provided for in Subsection A of this Section 9 shall be given or
at the time the suit provided for in Subsection B of this Section 9 shall be
begun, the Pledgee may, in its sole discretion, without any further demand,
advertisement or notice, except as expressly provided for in Subsection A of
this Section 9:
A. Sell the Pledged Stock, or any part thereof, in one or more
sales, (i) at public or private sale, conducted by any officer or agent of, or
auctioneer or attorney for, the Pledgee, at the Pledgee's place of business or
elsewhere, for cash, upon credit or for future delivery, and at such price or
prices as the Pledgee shall, in its sole discretion, determine, and the Pledgee
or any other holder of any of the Note may be the purchaser of any or all of the
Pledged Stock so sold; or (ii) in "brokers' transactions" (as such term in
defined in Rule 144 promulgated under the Securities Act of 1933) through the
Pledgee's then broker, in which event, the Pledgor agrees to execute and deliver
to the Pledgee and file with the Securities and Exchange Commission one or more
appropriate Forms 144. The Pledgee may, in its sole discretion, at any
2
<PAGE>
such sale reasonably restrict the prospective bidders or purchasers as to their
number, nature of business and investment intention, including, without
limitation, a requirement that the persons making such purchases represent and
agree, to the satisfaction of the Pledgee, that they are purchasing the Pledged
Stock for their own account, for investment, and not with a view to the
distribution or resale of any thereof. Upon any such sale, the Pledgee shall
have the right to deliver, assign and transfer to the purchaser thereof the
Pledged Stock so sold. Each purchaser (including the Pledgee and any other
holder of any of the Note) at any such sale shall hold the Pledged Stock so
sold, absolutely free from any claim or right of whatsoever kind, including,
without limitation, any equity or right of redemption, of the Pledgor, which the
Pledgor hereby specifically waives, to the extent it may lawfully do so, all
rights of redemption, stay or appraisal which it has or may have under any rule
of law or statute now existing or hereafter adopted. The Pledgee shall give the
Pledgor at least ten (10) days' written notice of any such public or private
sale. Such notice, in case of public sale, shall state the time and place fixed
for such sale. Any such public sale shall be held at such time or times within
ordinary business hours as the Pledgee shall fix in the notice of such sale. At
any such sale, the Pledged Stock may be sold in one lot as an entirety or in
separate parcels. The Pledgee shall not be obligated to make any sale pursuant
to any such notice. The Pledgee may, without notice or publication, adjourn any
public or private sale from time to time by announcement at the time and place
fixed for such sale, or any adjournment thereof, and any such sale may be made
at any time or place to which the same may be so adjourned without further
notice or publication. In case of any sale of all or any part of the Pledged
Stock on credit or for future delivery, the Pledged Stock so sold may be
retained by the Pledgee until the selling price is paid by the purchaser
thereof, but neither the Pledgee nor any other holder of any of the Note shall
incur any liability in case of the failure of such purchaser to take up and pay
for the Pledged Stock so sold, and, in case of any such failure, such Pledged
Stock may again be sold under and pursuant to the provisions hereof; or
B. Proceed by a suit or suits at law or in equity to foreclose
this Pledge Agreement and sell the Pledged Stock, or any portion thereof, under
a judgment or decree of a court or courts of competent jurisdiction.
The Pledgee as attorney-in-fact pursuant to Section I I hereof
may, in the name and stead of the Pledgor, make and execute ALL conveyances,
assignments and transfers of the Pledged Stock sold pursuant to this Section 9,
and the Pledgor hereby ratifies and confirms all that the Pledgee as said
attorney-in-fact, shall do by virtue hereof. Nevertheless, the Pledgor shall, if
so requested by the Pledgee, ratify and confirm any sale or sales by executing
and delivering to the Pledgee, or to such purchaser or purchasers, all such
instruments as may, in the judgment of the Pledgee, be advisable for the
purpose.
The receipt by the Pledgee for the purchase money paid at any
such sale made by it shall be a sufficient discharge therefor to any purchaser
of the Pledged Stock, or any portion thereof, sold as aforesaid; and no such
purchaser (or his or its representatives or assigns), after paying such purchase
money and receiving such receipt, shall be bound to see to the application of
such purchase money or any part thereof or in any manner whatsoever be
answerable for any loss, misapplication or nonapplication of any such purchase
money, or any part thereof, or be bound to inquire as to the authorization,
necessity, expediency or regularity of any such sale.
X. APPLICATION OF PROCEEDS. The proceeds of any sale, or of
collection, of all or any part of the Pledged Stock shall be applied by the
Pledgee, without any marshalling of assets, in the following order:
A. To the payment of ALL of the costs and expenses of such
sale, including, without limitation, reasonable compensation to the Pledgee and
its agents, attorneys and counsel, and all other expenses, liabilities and
advances made or incurred by the Pledgee in connection therewith;
3
<PAGE>
B. To the payment in full of the principal of and premium, if
any, and interest on the Note and all obligations of the Pledgor under the Note
and this Pledge Agreement;
C. To the payment to the Pledgor, its successors or assigns,
or to whomsoever may be lawfully entitled to receive the same or as a court of
competent jurisdiction may direct, or any surplus remaining from such proceeds
after all payments of the character referred to in Subsections A and B of this
Section 10 shall have been made.
XI. PLEDGEE APPOINTED ATTORNEY-IN-FACT . The Pledgee, its
successors and assigns, upon the occurrence of an Event of Default, is hereby
appointed the attorney-in-fact, with full power of substitution, of the Pledgor
for the purpose of carrying out the provisions of this Pledge Agreement and
taking any action and executing any instruments which such attorney-in-fact may
deem necessary or advisable to accomplish the purposes hereof, which appointment
as attorney-in-fact is irrevocable and coupled with an interest. The Pledgor
will indemnify and save harmless the Pledgee from and against any liability or
damage which it MAY incur, in good faith and without negligence, in the exercise
and per- formance of any of the Pledgee's powers and duties specifically set
forth herein.
XII. ADDITIONAL INSTRUMENTS AND Assurances. The Pledgor hereby
agrees, at its own expense, to execute and deliver, from time to time, any and
all further, or other, instruments, and to perform such acts, as the Pledgee may
reasonably request to effect the purposes of this Pledge Agreement and to secure
to the Pledgee, and to all persons who may from time to time be a holder of the
Note, the benefits of all rights, authorities and remedies conferred upon the
Pledgee by the terms of this Pledge Agreement. In the event that at any time
hereafter, due to any change in circumstances, including without limitation any
change in any applicable law, or any decision hereafter made by a court
construing any applicable law, it is, in the opinion of counsel for the Pledgee,
necessary or desirable to file or record this Pledge Agreement or any financing
statement respecting this Pledge Agreement or the pledge made hereunder, the
Pledgor agrees to execute and deliver any instruments that may be necessary or
appropriate to make such filing or recording effective.
XIII. BENEFIT. This Pledge Agreement shall be binding upon the
Pledgor and its respective successors and assigns. This Pledge Agreement is for
the benefit of ALL future holders of the Note, any of whom shall, without
further act, become a party hereto by becoming a holder of any portion of the
Note.
XIV. WAIVER, MODIFICATION OR CANCELLATION. Any waiver,
alteration or modification of any of the provisions of this Pledge Agreement or
cancellation or replacement of this Pledge Agreement shall not be valid unless
in writing and signed by the parties hereto.
XV. NEW Jersey Law to Govern. This Pledge Agreement shall be
interpreted and construed pursuant to and in accordance with the laws of the
State of New Jersey.
XVI. NOTICE. Any notice required to be given hereunder
pursuant to the provisions of this Pledge Agreement shall be in writing by
certified mail and mailed to the parties at the addresses stated in this Pledge
Agreement. Any change in the foregoing addresses of any of the parties hereto
shall be given to the other parties in writing in the manner provided
hereinabove.
XVII. ENTIRE AGREEMENT. This Pledge Agreement supersedes any
and all other agreements, either oral or in writing, between the parties hereto
with respect to the subject matter hereof and contains all of the covenants,
agreements, representations and other valid statements between the parties with
respect to such matter. Each party to this Pledge Agreement acknowledges that no
representations, inducements, promises or statements, orally or otherwise, have
been made by any party hereto or anyone acting on behalf of any party hereto
which are not embodied herein and agrees that no other agreement, covenant,
4
<PAGE>
representation, inducement, promise or statement with respect to the subject
matter hereof not set forth in writing in this Pledge Agreement shall be valid
or binding.
XVIII. TIME of Essence. Time is of the essence in all matters
herein.
IN WITNESS WHEREOF, this Pledge Agreement has been executed on
the date above written.
"Pledgor" "Pledgee"
FRED Den ATS Money Systems
By: Gerard F. Murphy
STATE OF NEW JERSEY )
COUNTY OF Morris ) : Ss.:
On this 2nd day of April, 1999, who, being by me duly sworn,
did say to me personally known who, being by me duly sworn, did say that he
signed the above Stock Pledge Ag reement.
/s/
--------------------------------
Notary Public
5
<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, 1999 and the Consolidated
Statement of Operations for the twelve months ended December 31, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000828509
<NAME> ATS MONEY SYSTEMS, INC.
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 1,768,847
<SECURITIES> 0
<RECEIVABLES> 2,880,595
<ALLOWANCES> 173,269
<INVENTORY> 719,704
<CURRENT-ASSETS> 5,390,495
<PP&E> 378,762
<DEPRECIATION> 222,512
<TOTAL-ASSETS> 7,441,248
<CURRENT-LIABILITIES> 2,348,239
<BONDS> 0
<COMMON> 5,943
0
0
<OTHER-SE> 4,698,572
<TOTAL-LIABILITY-AND-EQUITY> 7,441,248
<SALES> 11,142,963
<TOTAL-REVENUES> 13,999,166
<CGS> 5,463,334
<TOTAL-COSTS> 6,513,899
<OTHER-EXPENSES> 5,210,206
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,129
<INCOME-PRETAX> 2,340,895
<INCOME-TAX> 1,024,767
<INCOME-CONTINUING> 1,316,128
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,316,128
<EPS-BASIC> .23
<EPS-DILUTED> .23
</TABLE>
