UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ___________________ to ____________________
Commission file number 0-15187
IFX Corporation
(Exact name of registrant as specified in its charter)
Delaware 36-3399452
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
707 Skokie Blvd Ste 580, Northbrook, Illinois 60062
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 412-9411
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Securities registered pursuant to Section 12(g) of the Act:
$.02 Par Value Common Stock
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not 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-K or any
amendment to this Form 10-K.
As of August 31, 1999, the aggregate market value of the voting stock
held by non-affiliates of the registrant was approximately $56,606,700.
As of August 31, 1999, there were outstanding 7,695,377 shares of the
Registrant's common stock.
PART I
Item 1 - Business
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HISTORICAL BACKGROUND
IFX Corporation (IFX Corporation and its subsidiaries are referred to
herein as "IFX" or the "Company") was incorporated under the laws of the State
of Illinois in July 1985 and changed its state of incorporation to Delaware in
May 1994. Prior to July 1996, IFX's primary business was providing commodity
brokerage services through its principal operating subsidiary, Index Futures
Group, Inc. ("Index"). On July 1, 1996, IFX sold substantially all of its
brokerage assets (other than the assets of its U.K. subsidiary) to E.D. & F. Man
International, Inc., a unit of E.D. & F. Man Group, plc, a London-based
international trading and finance conglomerate. The purchase price for such sale
consisted of cash earn-out payments based upon the sold business' profitability
during the sixty-six months following the sale. Since July 1996, IFX's revenues
have consisted primarily of earn-out payments from such asset sale, interest
income and income from operations of the Company's U.K. subsidiary, IFX Ltd.,
which conducts foreign exchange business as a registrant of the British
Securities and Futures Authority. From July 1996 through June 30, 1999, IFX has
received approximately $10.4 million of earn-out payments from the sale of its
brokerage assets. Prior to January 1, 1999, the earn-out payments were based on
40% of the sold business' profitability. In calendar year 1999, the earn-out
payments were based on 30% of the sold business' profitability and, in calendar
years 2000 and 2001, will be based on 20% of the sold business' profitability.
In June 1999, IFX divested itself of its 50.1% interest in IFX Ltd. in
exchange for approximately $2.45 million in cash and a note receivable, and a
redeemable preference share entitling IFX to quarterly payments equal to
approximately 30% of the net profits of IFX Ltd. through June 30, 2002.
Following the sale of its U.K. subsidiary, IFX decided not to invest the sales
proceeds in the trading business but decided, rather, to continue to develop its
businesses in the Internet industry.
IFX believes that the Internet industry presents significant
opportunities for IFX's future investment and growth. In particular, IFX
believes that the market for Internet services in Latin America may present
substantial growth potential due to the increasing demand for Internet services,
relatively low market penetration and the absence of any dominant regional or
pan-regional (i.e., intercountry) service providers. Accordingly, IFX has begun
to pursue, and intends to continue to pursue, the acquisition and development of
Internet access and related services businesses, initially in South America and
Mexico. Ultimately, IFX seeks to form a Latin American pan-regional network of
ISPs, under the brand name Unete. Unete is the Spanish word for `Join Us,' which
IFX is using as a marketing term for people to join us and become members of our
Unete service and Internet community. The Unete service would enable a
subscriber traveling in major Latin American and North American cities to access
the Internet by making a local telephone call, regardless of whether or not such
subscriber was in his or her home country.
EMPLOYEES
IFX's success is dependent in part upon its ability to attract and
retain qualified, experienced employees. As of September 15, 1999, IFX employed
approximately 245 employees. IFX believes that its relationship with its
employees is good.
COMPETITION
The market for Internet connectivity and related services is extremely
competitive, characterized by rapidly changing technology and evolving standards
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which can be significantly influenced by the marketing and pricing decisions of
the largest industry participants. IFX anticipates that competition will
continue to intensify as the use of the Internet grows. Companies in this
industry compete primarily on the basis of quality and consistency of service,
price (including the free ISP business model), accessibility and geographic
coverage. IFX competes with U.S.-based and foreign-based Internet service
providers and also with government-owned or subsidized telecommunications
providers.
RECENT DEVELOPMENTS AND ACQUISITIONS
Agreement with International Technology Investments, LC. In November
1998, IFX entered into an agreement with International Technology Investments,
LC ("International Technology") with respect to the provision of Internet
services and the acquisition of existing Internet service providers (ISPs) and
related businesses, primarily in Latin America and other international markets.
IFX pursued this agreement because it believes that International Technology has
extensive experience and existing business relationships with participants in
the computer distribution industry in Latin America, which relationships should
be useful in developing IFX's Internet access and related services business in
these markets.
As part of the November 1998 agreement, International Technology
contributed an initial $1,000,000 to IFX and International Technology received
500,000 shares of common stock and the right to purchase an additional 5.5
million shares from IFX, at a price of $2.00 per share, for its contribution.
International Technology is not required to make any additional capital
contributions; however, as of the date of this report, International Technology
has contributed $1,500,000 in additional capital to IFX and International
Technology has received 750,000 shares of Common Stock from IFX, at a purchase
price of $2.00 per share, for its additional contribution. In addition, in
September 1999 International Technology contributed to IFX $1.5 million for
which 750,000 shares have not yet been issued.
The November 1998 agreement grants International Technology the right
to acquire up to 5,500,000 shares of Common Stock for $2.00 per share in
addition to the initial 500,000 shares acquired by International Technology.
International Technology's purchase option, which now covers 4,000,000 shares of
Common Stock, expires in January 2004. Joseph M. Matalon, a director of the
Company, and Michael Shalom, the Company's Chief Executive Officer, are
affiliates of International Technology.
Investment in Telcom.Net, L.P. In December 1998, IFX acquired a 25%
limited partnership interest in Telcom.Net, L.P. ("Telcom.Net"), a
telecommunications and Internet software development company based in Aventura,
Florida. Through its investment in Telcom.Net, IFX plans to offer its
subscribers various value added services, including the option to receive
voice-over Internet services, electronic-commerce merchant services and web
hosting services, provided by Telcom.Net. The general partner and co-founder of
Telcom.Net is Joel M. Eidelstein, IFX's President. IFX's limited partnership
interest entitles it to receive priority distributions of up to $200,000, which
is the amount of capital IFX invested in Telcom.Net. In addition, after all of
Telecom.Net's other partners have received priority distributions equal to their
aggregate invested capital, IFX is entitled to receive between 20 to 25% of the
profits of Telcom.Net, depending on cash flow and possible dilution of its
interest. IFX had made certain loans to Telcom.Net and guaranteed certain
liabilities owed by Telcom.Net to Qwest/LCI, International.
Argentinean License. On March 23, 1999, an affiliate of IFX was granted
a license from the government of Argentina to offer full value added
telecommunications services and data transmission throughout the country of
Argentina.
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Colombian License Lease. IFX is presently leasing, and is awaiting
approval of, a license from the government of Colombia which would permit it to
offer full value added telecommunications services and data transmission
throughout the country of Colombia.
Agreement to contract Direct U.S. Internet Connection. On March 25,
1999, IFX entered into an agreement with InterPacket Group, Inc.
("InterPacket"), a provider of high speed Internet access and telephony services
to the international wholesale market. Under the agreement, InterPacket will
provide IFX up to 50 Mbps of Internet connectivity to be allocated among IFX's
planned sites throughout Latin America.
Interweb Mexico, S.A. de C.V. On April 8, 1999, IFX purchased all of the
capital stock of Interweb Mexico, S.A. de C.V., a leading ISP in Mexico City,
Mexico. Interweb currently serves customers throughout Mexico City, providing
standard dial-up connections, dedicated Internet products and web hosting.
International Connection Service 1500, C.A. On April 15, 1999, IFX
acquired all of the capital stock of International Connection Service 1500, C.A.
("Intercon"), an ISP based in Caracas, Venezuela. Intercon currently serves
customers throughout Venezuela's nine largest cities, providing standard dial-up
connections, dedicated Internet products and web hosting.
Eldish Marketing, C.A. On April 16, 1999, through Intercon, the Company
acquired certain Internet service-related assets, including customer lists, from
Eldish Marketing, C.A., an ISP located in Caracas, Venezuela. The Company
intends to consolidate the customers acquired from Eldish into Intercon.
Yupi Internet, Inc. On April 23, 1999, IFX entered into an agreement
with Yupi Internet, Inc. ("Yupi"), a Miami, Florida based Internet company. Yupi
has developed a Spanish-language web navigation and portal site where consumers
and businesses from Latin America, Spain and the U.S. may gather, interact and
transact business with one another. Pursuant to such agreement, IFX invested
approximately $3.1 million in Yupi in exchange for convertible preferred stock,
common stock and the right to acquire up to 25,901 shares of the common stock of
Yupi at a predetermined price.
Interaccess, S.A. On May 13, 1999, IFX purchased all of the capital
stock of Interaccess, S.A., a leading ISP located in Santiago, Chile.
Interaccess currently serves customers throughout Chile, providing standard
dial-up connections, dedicated Internet products and web hosting.
Zupernet Ltda. On May 27, 1999, IFX purchased substantially all of the
capital stock of Zupernet, Ltda., an ISP located in La Paz, Bolivia. Zupernet
currently serves customers throughout Bolivia, providing standard dial-up
connections, dedicated Internet products and web hosting.
Interactiva, LTDA. On July 2, 1999, the Company acquired substantially
all of the capital stock of Interactiva, LTDA ("Interactiva"), an ISP based in
Santiago, Chile. Interactiva currently serves customers throughout Santiago,
providing standard dial-up connections. The Company intends to consolidate the
Interactiva into ENI de Chile, S.R.L.
Sistemas de Diseno y Manufactura, S.A. de C.V. On July 21, 1999, the
Company acquired substantially all of the assets of Sistemas de Diseno y
Manufactura, S.A. de C.V. ("SDM Net"), an ISP based in Monterrey, Mexico. SDM
Net currently serves customers throughout Monterrey, providing standard dial-up
connections, dedicated Internet products and web hosting.
Intermedia. On August 13, 1999, the Company acquired all of the user
base from Servicios de Informacion Electronica Limitada ("Intermedia"), an ISP
located in Santiago, Chile. The Company intends to consolidate the customers
acquired from Intermedia into ENI de Chile, S.R.L.
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E-Net Teleinformatica, Limitada. On August 20, 1999, IFX purchased all
of the capital stock of E-Net Teleinformatica, Limitada ("E-Net"), an ISP
located in Salvador, Brazil. E-Net currently serves customers in Brazil,
providing standard dial-up connections, dedicated Internet products and web
hosting.
Vianet, S.A. de C.V. On August 23, 1999, IFX purchased all of the
capital stock of Vianet, S.A. de C.V. ("Vianet"), an ISP located in San
Salvador, El Salvador. Vianet currently serves customers in El Salvador,
providing standard dial-up connections, dedicated Internet products and web
hosting.
ITS Networks, S.A. On August 24, 1999, IFX purchased all of the capital
stock of ITS Networks, S.A., an ISP located in Tegucigalpa, Honduras. ITS
currently serves customers in Honduras, providing standard dial-up connections,
dedicated Internet products and web hosting.
INTERNET BUSINESS
IFX is a pan-regional Internet Service Provider, or ISP, in Latin
America. The Company focuses on serving individuals and small businesses. Our
primary service is dial-up Internet access, which the Company offers through our
Unete service, in various price and usage plans designed to meet the needs of
our subscribers. Our business services include dedicated phone lines, web
hosting, web page design, and domain name registration.
IFX offers subscribers Internet access in English, Spanish, and
Portuguese, with user-friendly and easy to install software. The software
contains a complete set of the most popular Internet applications including
electronic mail, World Wide Web access, File Transfer Protocol and Internet
Relay Chat. Through our infrastructure of IFX owned subsidiaries and third-party
providers, our subscribers are able to access the Internet in 9 countries in
Latin America, and in most major cities in the United States and Canada via a
local telephone call and with no roaming fees. By June 30, 1999, the Company had
approximately 25,000 subscribers.
Over the past year, IFX has rapidly established a regional presence and
customer base by acquiring the stock or assets of established independent ISPs
throughout Latin America. Since January 1, 1999, the Company has established
operations in 9 countries in Latin America. The Company intends to continue its
strategy of acquiring ISPs in order to deepen and broaden its market presence in
Latin America. The Company seeks to acquire an "anchor" ISP in each of its
target countries, which can provide both local management talent and serve as
the ISP consolidator for its respective country. In addition to its team of
corporate development professionals, IFX relies upon its local management teams
to identify strategic acquisitions.
CUSTOMERS
As of June 30, 1999, the Company had approximately 25,000 customers. The
majority of the customers are dial-up residential users, with a small percentage
constituting small business users.
SERVICES
Dial-Up Internet Access. IFX's primary service offering is dial-up
Internet access through it's Unete service. The basic equipment requirements for
an individual dial-up subscriber are a Windows 3.1 or later operating system or
Macintosh computer with at least 8MB of RAM and a modem of 14.4 Kbps speed or
faster. The subscriber's connection is a direct, point-to-point protocol, or
"PPP," connection to the Internet. A direct PPP connection enables a subscriber
to use any standard Internet capable software that will run on the subscriber's
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computer.
IFX currently offers different price plans for dial-up subscription.
Each plan is adapted to the consumers of each county and the usage. The Company
tries to maintain the most competitive rates at each of the markets the Company
serves. While the plans that IFX offers are subject to change due to changes in
the market, some of the most common plans offered include:
Platinum. Individual subscribers receive unlimited access to the
entire Unete Network at all of its points of presence through a
local dial-up connection.
Local Unlimited Access. Individual subscribers get unlimited
usage at their local point of presence in their home country.
Limited. Individual subscribers get a pre-determined number of
hours for usage at their local point of presence in their home
country.
Most of our subscribers are on month-to-month subscriptions. IFX currently
offers new users 150 free hours that must be used in the first month. Billing is
monthly, with payments made by credit card, check or cash. Payments are mostly
made at the beginning of each billing cycle. Subscribers, as well as IFX, may
cancel an account at any time, with the cancellation taking effect as of the
first day of the following billing month.
A subscriber who is within local dialing range of one of the IFX points
of presence ("POPs") or a designated third-party provider POP can access the
Internet with a local telephone call. All dial-up subscribers can connect to our
network (including the third-party provider POPs) via modem at speeds up to
56.6-Kbps (kilobytes-per-second.) All dial-up subscribers also have the option
of using IFX servers to publish information on the Internet through the World
Wide Web or File Transfer Protocol (FTP).
Business Services. IFX's Latin American subsidiaries provide the
following services for small businesses:
Dedicated phone lines. Businesses can have a direct connection to
the Internet, 24 hours a day, 7 days a week, without the need to
dial an access number.
Web hosting. IFX offers web hosting accounts for customers that
wish to create their own World Wide Web sites without maintaining
their own Web servers and high-speed Internet connections.
Web page design. IFX can design Internet Web sites for its
subscribers.
Domain name registration. IFX will process all documentation
necessary to register a domain name in any of the countries in
which we operate.
Support Services. IFX's services and operations are supported (i) by its
national Network Operating Centers (NOCs), which ensure efficient network
operations, (ii) by its national Customer Service Centers, which provide
comprehensive customer support, and (iii) by its fully integrated information
systems.
Network Operating Center. The Company's NOCs monitor IFX's network,
including the Company's backbone, POPs, servers, and client co-located servers,
as well as all individual client circuits. The Company tracks network
utilization patterns, proactively adding capacity as needed to maintain
performance standards and minimize network congestion. In addition, the
Company's NOC technicians run systems and network diagnostics in order to
quickly respond to customer inquiries.
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Fully Integrated Operating and Financial Support Systems. The Company is
installing and customizing Portal software, which integrates the Company's
various back office activities including order processing, billing and customer
service, network operations and telecommunications facilities provisioning. Once
implemented, Portal software will allow IFX to readily access a current,
comprehensive database of operating and customer information.
Customer Care Center. The Customer Care Center representatives respond
to inquires from our subscribers. Representatives are available to assist
customers with such matters as dial-up software installations, e-mail box set-up
and a variety of other service-related issues. Once implemented, Portal software
will allow IFX customer service representatives to have instant access to
current, detailed customer profiles, which chronicle customer service and
account histories. Such information will allow Customer Care Center
representatives to offer timely and informed responses to customer inquires.
NETWORK AND RELATED INFRASTRUCTURE
The network infrastructure utilized by IFX consists of three primary
tiers: local POPs; a middle tier, which connects the POPs to national hubs; and
a backbone tier, which connects the national hubs to the Internet. The IFX
network currently covers 10 countries and includes approximately 25 IFX-owned
POPs and 540 POPs owned by third party network providers. Each POP is connected
to the Company's network operating center in its respective country through a
dedicated point-to-point line, typically provided by a local telecommunications
carrier. The principal backbone capacity utilized by IFX is provided by
InterPacket Inc., a U.S. based provider of high speed Internet access via
satellite, and GlobalOne. The company currently has committed capacity
agreements with InterPacket for up to 10 Mbps and the right to additional
capacity of up to 50 Mbps in total.
Geographic Coverage. Through our network of IFX-owned and third-party
provider-owned POPs, our subscribers are able to access the Internet in 10
countries via a local telephone call. The countries with IFX-operated POPs are:
Argentina, Bolivia, Brazil, Chile, Colombia, Mexico, El Salvador, Honduras,
Venezuela and the U.S.
Network Operations Center. IFX maintains a Network Operations Center at
our Aventura, Florida, office through which our technical staff monitors network
traffic, service quality, and security, as well as equipment at individual POPs,
to ensure reliable Internet access. In addition, the Company continues to invest
in improved network monitoring software and hardware systems.
IFX SOFTWARE AND LICENSES
A key component of our service offering for dial-up subscribers is the
Unete starter software. The software includes these applications:
- IFX installation program. It enables the user to input all
required information regarding user name, billing information
and passwords.
- World Wide Web Navigation Software. It allows its user to
navigate through the different multimedia presentations across
the different Web sites. Users can choose between Netscape
Navigator (R) and Microsoft Internet Explorer (R).
- Electronic Mail. It allows subscribers to exchange messages
electronically with anyone else who has an e-mail address. The
messages can include text and attachments such as images,
computer programs, or word processing documents. Users can
choose between Outlook Express (R) and Eudora Light (R).
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- Internet Relay Chat. It allows users to participate in more
than 10,000 Internet Communities using Tribal Voice's PowWow
(R) software. The software allows the user to communicate over
the Internet using instant-voice, instant messaging, chatting,
and buddy lists.
- Winzip 7.0 (R). With this trial version, users can compress
large files into smaller zip files and decompress zipped files
to their original version.
- WS FTP LE(R). It allows users to send and retrieve files in
order to create their web sites.
The main objective of the software package is to automatically configure
the individual's Internet access programs after the initial one-time entries by
the user. Once the initial set-up is completed, the user will be able to log on
to our network with the click of a button and be able to use the different
applications that are included.
Subscribers IFX acquired from its recent ISP acquisitions connect to the
Internet using software provided to such subscribers by the acquired ISPs. Those
subscribers may switch to IFX's software at their option at any time, a
migration that IFX encourages by mailing an Unete starter software kit to these
subscribers. In addition, their e-mail address from the previous account can be
forwarded to their new Unete e-mail address.
IFX has obtained permission and, in certain cases, licenses from each
manufacturer of the software that the Company bundles in its software starter
kit.
RISK FACTORS
Lack of Operating History and Experience in the Internet Service
Business. Because IFX has recently begun to pursue the development of Internet
services and the acquisition of Internet service providers in Latin America, its
acquisition and development strategy is in the early development stages. IFX has
limited experience in providing Internet services and, accordingly, a limited
operating history upon which an evaluation of its prospects can be made. Such
prospects must be considered in light of the substantial risks, expenses and
difficulties encountered by new entrants, such as IFX, in the Internet services
industry. These risks include identification of entry opportunities, intense
competition, changing technology and evolving industry standards, changing user
demand for Internet access and other Internet services, dependence upon the
Internet and general economic conditions in the region. If IFX fails to add
significantly to its user base in Latin America, the Company may not be able to
grow revenues, implement its business plan or achieve economies of scale.
IFX's success in the ISP business will also depend upon its ability to
hire and retain qualified executive and management employees with significant
experience in managing and expanding an Internet services business in the
markets in which it seeks to operate. IFX can give no assurance that it will be
able to successfully hire, retain or motivate qualified employees. Further, IFX
can give no assurance that it will be successful in acquiring or building the
necessary Internet service network or that the services it offers over any such
network will be profitable.
Dependence upon the Creation of a Network Infrastructure. IFX's success
depends in part upon its ability to create an Internet network infrastructure
that covers significant regions or areas of Latin American countries. IFX's
success also depends upon the ability of its customers to access this network
with ease of use and to have a high quality Internet experience with consistency
of service throughout the network.
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IFX's primary strategy for creating the necessary infrastructure is to acquire
ISPs that have an existing network infrastructure, qualified personnel and an
existing subscriber base and, in certain countries, to develop new ISPs. IFX
also anticipates that expansions and adaptations of its network infrastructure
will be necessary to supplement its acquisition strategy. This will require
substantial financial, operational and managerial resources. IFX can give no
assurance that it will be able to acquire and develop the network infrastructure
in Latin America necessary to compete successfully with the industry's evolving
standards on a timely or cost-effective basis, or at all. Also, it may not be
able to deploy successfully any expanded and adapted network infrastructure.
Failure to create a successful infrastructure may materially adversely affect
its business and operating results.
The process of consolidating IFX's ISPs and integrating its regional
operations may take a significant period of time, may place a significant strain
on its resources, and could prove to be more expensive than predicted. IFX may
be required to increase current expenditures in order to accelerate the
integration and consolidation of its ISPs with the goal of achieving longer-term
cost savings and improved profitability. These expenses may include the
following, among others: the elimination of redundant staffing positions;
personnel relocation; the cancellation of overlapping Internet access contracts;
the closure of redundant points of presence; system upgrades; and the
integration of these ISPs' operations onto IFX's network, customer care,
billing, financial and other international support systems. However, IFX has
limited practical experience related to the process of consolidating ISPs and
can give no assurance that these projected long-term cost savings and
improvements in profitability can or will be realized. Further, IFX can give no
assurance that customer support or network infrastructure resources will be
sufficient to manage the growth in its business or that it will be successful in
implementing its expansion program in whole or in part.
Challenges of Growth By Acquisitions. IFX depends on its ability to
identify and acquire ISPs that meet its acquisition criteria. IFX seeks to
create a market presence internationally, to gain strength in Internet
connectivity and web hosting core service platforms, and to add additional
enhanced service capabilities. IFX faces and may continue to face significant
competition for appropriate acquisition candidates. IFX may compete with other
communications or Internet companies with similar acquisition strategies, many
of which may be larger, have greater financial and other resources and be owned
or partially-owned by foreign governments. Competition for independent ISPs is
based on a number of factors, including price, terms and conditions, size and
access to capital, ability to offer cash, stock or other forms of consideration
and other matters. IFX can give no assurance that it will be able to identify
suitable ISPs or be able to complete any acquisitions of or investments in those
targeted ISPs on acceptable terms and conditions.
Once consummated, these acquisitions will continue to present certain
risks, including:
- the difficulty of integrating the acquired operations,
technology and personnel;
- the possible inability of IFX's management to maximize its
financial and strategic position by the successful
incorporation of acquired technology and products into its
service offerings and to maintain uniform standards, controls,
procedures and policies;
- the possible acquisition of substantial contingent or
undisclosed liabilities;
- the risks of entering markets in which it has little or no
direct prior experience; and
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- the potential impairment of relationships with employees and
customers as a result of changes in management or other
business operations.
IFX may not be successful in overcoming these risks or any other
problems encountered in connection with future acquisitions. In addition, future
acquisitions could materially adversely affect its operating results as a result
of dilutive issuances of equity securities, the incurrence of additional debt or
the amortization of expenses related to acquired customer bases, goodwill or
other intangible assets. Further, IFX's ability to complete transactions with
ISPs may require significant additional financial resources.
Risks Associated With an Internet Business. IFX is new to the Internet
service provider business and, therefore, lacks operating history and experience
in the industry. In addition, IFX's business is vulnerable to risks associated
with the ISP business in general, many of which are significant. For example,
the laws relating to the regulation and liability of Internet access providers
in relation to information carried or disseminated is undergoing a process of
development in many countries. Legal decisions, laws, regulations and other
activities regarding regulation and content liability may significantly affect
the development and profitability of companies offering on-line and Internet
access services. Although IFX will implement certain network security measures,
such as limiting physical and network access to its routers, the network's
infrastructure is potentially vulnerable to computer viruses, break-ins and
similar disruptive problems caused by its customers or other Internet users,
which could lead to interruptions of, delays in or cessation of service to its
customers. Furthermore, inappropriate use of the Internet by third parties could
also potentially jeopardize the security of confidential information stored in
the computer systems of IFX's customers and, in turn, could deter potential
customers and adversely affect existing customer relationships. IFX relies on
local telephone companies and other companies to provide data communications
capacity via local telecommunications lines. IFX may experience disruptions or
capacity constraints in these telecommunications services and may have no means
of replacing these services on a timely basis, or at all.
Changes in the regulatory environment relating to the Internet
connectivity market, including regulatory changes which directly or indirectly
affect telecommunications costs or increase the likelihood or scope of
competition from telecommunications companies, could affect IFX's pricing.
Additional laws could cover issues such as content, user pricing, privacy,
libel, intellectual property protection and infringement, and technology export
and other controls. IFX can give no assurance that violations of local laws will
not be alleged or charged by foreign governments, that it might not
unintentionally violate such laws or that such laws will not be modified, or new
laws enacted in the future. Any of the foregoing developments could have a
material adverse effect on IFX's business, results of operations and financial
condition. In addition, its subscribers may discontinue their service at the end
of any month for any reason. IFX's revenue will depend on its ability to attract
and retain such subscribers.
IFX may be dependent on third parties to stimulate demand for its
products and services where it does not have a direct sales force. These channel
distributors may include computer and telecommunications resellers, value added
resellers, original equipment manufacturers, systems integrators, web designers
and advertising agencies. If IFX fails to gain commercial acceptance in certain
markets, these channel distributors may discontinue their relationships with
IFX. The loss of channel distributors, the failure of such parties to perform
under agreements with IFX, or the inability to attract other channel partners
with the expertise and industry experience required to market its products and
services could have a material adverse effect on IFX's operating results.
Risks Associated With International Operations and Expansion. IFX
focuses its Internet business on Latin American markets. It can give no
assurance that acceptance of the Internet or demand for Internet connectivity,
web hosting and other enhanced Internet services will increase significantly in
these markets.
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However, IFX believes that it will need to move quickly into international
markets in order to establish critical market presence and credibility, though
it can give no assurance that it will be able to do so.
IFX may need to enter into joint ventures or other strategic
relationships with one or more third parties in order to conduct its foreign
operations successfully. However, it can give no assurance that it will be able
to identify desirable joint venture or strategic partners in these markets or
that it will be able to obtain the permits and operating licenses required to
conduct business and offer Internet services in these markets. In addition to
the uncertainty of IFX's ability to create an international presence, IFX faces
certain additional risks inherent in doing business on an international level.
Such risks include:
- competition from government-owned or subsidized businesses,
including telecommunication companies and ISPs;
- unexpected changes in or delays resulting from regulatory,
licensing and foreign investment requirements, tariffs,
customs, duties and other trade barriers;
- difficulties in staffing and managing foreign operations;
- longer payment cycles and problems in collecting accounts
receivable;
- political instability, expropriation, nationalization, war,
insurrection and other political risks;
- high levels of inflation, fluctuations in currency exchange
rates or foreign exchange controls which restrict or prohibit
repatriation of funds;
- poor quality of telecommunications and lack of technological
advances;
- technology export and import restrictions or prohibitions; and
- potentially adverse tax consequences.
IFX can give no assurance that such factors will not have an adverse
effect on its future international operations. In addition, it can give no
assurance that laws or administrative practice relating to telecommunications,
taxation, foreign exchange or other matters of countries within which it may
operate will not change in a manner adverse to its business. Any such change
could have a material adverse effect on IFX's business, financial condition and
results of operations.
Competition; Pricing Fluctuation. The market for Internet connectivity
and related services is extremely competitive and characterized by rapidly
changing technology and evolving standards which can be significantly influenced
by the marketing and pricing decisions of the largest industry participants. IFX
anticipates that competition will continue to intensify as the use of the
Internet grows. The tremendous growth and potential market size of the Internet
access market has attracted and likely will continue to attract many new
start-ups as well as existing businesses from different industries. In addition,
new business models, such as the free internet service provider model in which
users do not pay for connectivity service, may pose a significant risk to the
Company.
In some cases, IFX will be forced to compete with and/or buy services
from government-owned or subsidized telecommunications providers. Some of these
providers may enjoy a monopoly on telecommunications services essential to IFX's
business or other competitive advantages. IFX can give no assurance that it will
-11-
be able to purchase such services at a reasonable price or at all. In addition
to the risks associated with its previously described competitors, foreign
competitors may pose an even greater risk, as they may possess a better
understanding of their local markets and customs, and enjoy better relationships
with customers and suppliers. IFX can give no assurance that it can obtain
similar levels of local knowledge, access or expertise. Failure to obtain that
knowledge could place IFX at a significant competitive disadvantage.
Our Competitors. The Company currently competes or expects to compete
with the following types of companies:
- established national Internet service providers in Latin
America, such as Universal On Line in Brazil or Prodigy in
Mexico;
- computer hardware and software and other technology companies
that will start bundling Internet access in their products,
such as IBM Corp. and Microsoft Corporation;
- numerous regional and local commercial ISPs which vary widely
in quality, service offerings, and pricing;
- national and regional Web hosting companies that focus
primarily on providing Web hosting services;
- cable operators and on-line cable services;
- local telephone companies providing ISP services; and
- free internet service providers that may enter the market.
IFX believes that new competitors, including established ISP and
telecommunications companies, will continue to enter the Internet access,
resulting in even greater competition. In addition, telecommunications companies
may be able to offer customers reduced communications costs in connection with
ISP services, reducing the overall cost of their Internet access and
significantly increasing pricing pressures on us. The ability of our competitors
to acquire other ISPs, to enter into strategic alliances or joint ventures or to
bundle other services and products with Internet access or Web hosting could
also put us at a significant competitive disadvantage.
Equipment. IFX cannot guarantee that it will be able to obtain the
necessary equipment, or the financing to acquire such equipment, to enable it to
expand its Latin American network. In addition, IFX cannot guarantee that the
equipment it maintains will be the most current and up to date equipment for its
subscribers' connectivity to the Internet, which could have an impact in the
number of subscribers it has.
Dependence on Key Personnel. Competition for qualified employees and
personnel in the Internet services industry is intense and there are a limited
number of people with knowledge of and experience in the Internet service
industry. The process of locating personnel with the combination of skills and
attributes required to carry out our strategies may often be lengthy. IFX's
success depends to a significant degree on its ability to attract and retain
qualified management, technical, marketing and sales personnel and on the
continued contributions of such people. IFX's employees may voluntarily
terminate their employment at any time. IFX can give no assurance that it will
be successful in attracting and retaining qualified executives and personnel.
The loss of the services of key personnel, or the inability to attract
additional qualified personnel, could have a material adverse effect on IFX's
business, financial condition or results of operations.
Need for Additional Financing. The Company must continue to enhance and
develop our network in order to maintain our competitive position and continue
to meet the increasing demands for service, quality, availability, and
competitive pricing.
-12-
The Company intends to expand or open POPs or make other capital
investments as dictated by subscriber demand or strategic considerations. The
Company must spend significant amounts of money for acquisitions, new equipment,
leased telecommunications facilities , compensation expenses and advertising. In
addition, to further expand our subscriber base, the company will probably have
to spend significant amounts of money on additional equipment to maintain the
high speed and reliability of our Internet access services. The Company may also
need to spend significant amounts of cash to fund growth, operating losses and
respond to unanticipated developments or competitive pressures.
Presently, the Company derives most of its funds from the earn-out
payments from the sale of assets of discontinued operations. For the E.D.& F Man
sale, the amount of the earn-outs payments will depend on the profitability (as
specifically defined) of that business and the percentage earn-out decreases,
successively, over the remainder of the payment period which ends on December
31, 2001. For the IFX Ltd. sale, the amount of the earn-out payments depends
upon the profitability (as specifically defined) of the business that was sold
over the remainder of the payment period which ends on June 30, 2002. There can
be no assurance that such payments will continue at their current levels, or
that those earn-out will be sufficient to continue to fund the majority of the
operations.
If the Company does not have enough cash on hand, cash generated from
earn-out payments from our discontinued operations, or cash available under
vendor financing agreements, the Company will need to seek alternative sources
of financing, such as borrowings or placements of debt or equity securities, to
carry out our growth and operating plans. The Company may not be able to raise
needed cash on terms acceptable to us or at all. If alternative sources of
financing are required, but are insufficient or unavailable, the Company will be
required to modify our growth and operating plans to the extent of available
funding, if any. No assurance can be given that actual cash requirements will be
met, that such requirements will not exceed IFX's budget or that anticipated
revenues will be realized.
Risk of Internet Technology Trends and Evolving Industry Standards.
IFX's products and services target users of the Internet. The number of Internet
users has experienced rapid growth. The market for Internet access and related
services is relatively new and characterized by rapidly changing technology,
evolving industry standards, changes in customer needs and frequent new product
and service introductions. IFX's future success will depend, in part, on its
ability to effectively use leading technologies, to continue to develop and
improve its technical expertise, to enhance its current services, to develop new
products and services that meet changing customer needs, and to influence and
respond to emerging industry standards and other technological changes on a
timely and cost-effective basis. IFX can give no assurance that it will be
successful in accomplishing any of these tasks or that such new technologies or
enhancements will achieve market acceptance. IFX believes that its ability to
compete successfully also depends upon the continued compatibility and
interoperability of its services with products and architectures offered by
various third party vendors. IFX can give no assurance that it will be able to
effectively address the compatibility and interoperability issues raised by
technological changes or new industry standards. In addition, IFX can give no
assurance that services or technologies developed by others will not render its
services or technology uncompetitive or obsolete. If the market for Internet
access services fails to develop, develops more slowly than expected, or becomes
saturated with competitors, or if the Internet access and services offered by
IFX through its ISPs is not broadly accepted, IFX's business, operating results
and financial condition will be materially adversely affected.
In addition, critical issues concerning the commercial use of the
Internet remain unresolved and may impact the growth of Internet use, especially
in IFX's target business market. Despite growing interest in the many commercial
uses of the Internet, many businesses have been deterred from purchasing
Internet access services for a number of reasons, including:
-13-
- inconsistent quality of service;
- lack of availability of cost-effective, high-speed
options;
- a limited number of local access points for corporate
users;
- inability to integrate business applications on the
Internet;
- the need to deal with multiple and frequently incompatible
vendors;
- inadequate protection of the confidentiality of stored
data and information moving across the Internet; and
- a lack of tools to simplify Internet access and use.
In particular, numerous published reports have indicated that a
perceived lack of security of commercial data, such as credit card numbers, has
significantly impeded commercial use of the Internet to date. There can be no
assurance that encryption or other technologies will be developed that
satisfactorily address these security concerns. Published reports have also
indicated that capacity constraints caused by growth in the use of the Internet
may, unless resolved, impede further development of the Internet to the extent
that users experience delays, transmission errors and other difficulties. The
adoption of the Internet for commerce and communications, particularly by those
individuals and enterprises which have historically relied upon alternative
means of commerce and communication, generally requires the understanding and
acceptance of a new way of conducting business and exchanging information. In
particular, enterprises that have already invested substantial resources in
other means of conducting commerce and exchanging information may be
particularly reluctant or slow to adopt a new strategy that may make their
existing personnel and infrastructure obsolete. The failure of the market for
business-related Internet solutions to continue to develop would adversely
impact IFX's business, financial condition and result of operations.
Volatility of Stock Price. IFX's Common Stock may be subject to
significant price fluctuations in response to a variety of factors, including
quarterly variations in operating results, public announcements of acquisitions,
strategic alliances and joint ventures, general conditions in the Internet
industry, and general economic and market conditions in the markets in which the
Company operates. In addition, the stock market has experienced significant
price and volume fluctuations that have adversely affected the market prices of
equity securities of some companies, including companies in the Internet service
business, and that often have been unrelated to the operating performance of
such companies.
Year 2000 Compliance. IFX is aware of the "Year 2000" problem, which
relates to whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information will generate wrong data and could fail. The Year
2000 problem is pervasive and complex, as virtually every company's computer
operations will potentially be affected in some way.
IFX is currently engaged in a process to evaluate its internal status
with respect to the Year 2000 issue, utilizing certain employees in its
evaluation of possible Year 2000 problems. The costs and expenses of such an
evaluation have not been material. To date, it has not discovered Year 2000
issues in the course of its assessment that would have a material adverse effect
on its business, results of operations or financial condition; however, IFX can
give no assurance that all Year 2000 issues were discovered during the
assessment or that it will not discover additional Year 2000 issues that could
have a material adverse effect. In addition, IFX faces Year 2000 risks with
respect to the acquisitions it makes, especially in Latin America, where Year
2000 preparedness may not be adequate.
-14-
Concurrently with the analysis of its internal systems, IFX has begun to
survey third-party entities with which it transacts significant business,
including critical vendors and financial institutions, for Year 2000 compliance.
With respect to its most critical vendors, IFX is in the process of evaluating
the Year 2000 preparedness of its telecommunications providers, on which it is
reliant for the network services crucial to web hosting and Internet
connectivity services. It is actively working to mitigate any potential impact
by maintaining diverse providers for such network services. However, failure of
any one provider may have a material adverse impact on Company operations. IFX
does rely heavily on various third party equipment and service providers, and
the Company expects to complete the survey to adequately address Year 2000
issues by October 1999. At this time, IFX cannot estimate the effect, if any,
that non-compliant systems at these entities could have on it, and IFX can give
no assurance that the impact, if any, will not be material.
-15-
Item 2 - Properties
- -------------------
The Registrant leases office space at 707 Skokie Boulevard, Northbrook,
Illinois. This location serves as the Registrant's corporate headquarters.
The company leases office space in 200 West Adams Street, Suite 1500,
Chicago, IL 60606. This space served as the Company's previous corporate
headquarters. However, this office space has been sub-leased in its entirety
until the end of the lease, and for an amount equal to the lease payments.
During fiscal year 1999, the Company entered into lease agreements for
the following locations:
- Aventura, Florida. The lease for this facility expires on
December 31, 1999. It serves as the main office for
coordinating and supporting the Company's Latin American
Operations.
- Bogota, Colombia. The lease for this facility expires on June
30, 2000. The Company has the option to extend it for
additional periods.
- Buenos Aires, Argentina. The lease for this facility expires
on July 31, 2003. The Company has the option to extend it for
additional periods.
In addition, the Company has assumed the operating leases of the
companies it acquired at the following locations:
- La Paz, Bolivia. The lease for this facility expires on June
30, 2001. The Company has the option to extend it for
additional periods.
- Santiago, Chile. The lease for this facility expires on
January 31, 2001. The Company has the option to extend it for
additional periods.
- Monterrey, Mexico. The lease for this facility expires on
December 31, 2000. The Company has the option to extend it for
additional periods.
- Mexico City, Mexico. The lease for this facility expires on
December 31, 2001. The Company has the option to extend it for
additional periods.
- Caracas, Venezuela. The lease for this facility expires on
June 30, 2002. The Company has the option to extend it for
additional periods.
-16-
Item 3 - Legal Proceedings
- --------------------------
The Company is a defendant in, and may be threatened with, various legal
proceedings arising from its regular business activities. Management, after
consultation with legal counsel, is of the opinion that the ultimate liability,
if any, resulting from any pending action or proceedings will not have a
material effect on the financial position or results of operations of the
Company.
Legal Proceedings With Respect To Discontinued Operations. On May 16,
1996, Index filed suit in the Circuit Court of Cook County--Law Division against
Doug Niemann, a former customer, for breach of contract, seeking to recover a
debit balance of $88,200 (Index Futures Group, Inc. v. Doug Niemann, case no.
96L-5506). On January 14, 1997, Niemann filed a counterclaim for $688,200. The
Company believes that the counterclaim is without merit and will defend it
vigorously.
In April 1994, Index, without admitting or denying the allegations, paid
$100,000 to the CFTC, settling an administrative action filed on September 29,
1992. In a related action, the equity receiver of a commodity pool operator
brought an action to recover losses of approximately $600,000, alleging various
theories such as constructive trust, negligence, breach of fiduciary duty and
conversion. On May 29, 1996, the district judge dismissed the complaint in its
entirety. On December 4, 1997, the Court of Appeals affirmed the district
judge's dismissal of all claims against Index. On January 13, 1998, the Court of
Appeals denied the Supplemental Plaintiffs' request for a rehearing of its
appeal. On October 2, 1998, the attorney for the equity receiver of the
commodity pool filed a class-action suit on behalf of a putative class composed
of persons who had given money to the commodity pool operator to invest, some of
which was deposited in brokerage accounts at Index by the commodity pool
operator. (Wesselhoff v. FX Chicago, Inc. et al., Circuit Court of Cook County,
Chancery Division, case number 98-CH-13396). The plaintiff seeks damages of
$600,000 plus prejudgment interest, punitive damages, and lost investment
opportunity. The Company believes that the allegations in the complaint against
FX Chicago, Inc. and the Company are without merit and will defend vigorously.
A German citizen, seeking damages of 6,403,519.19 Deutschmark
(approximately $3,420,000 given the exchange rate as of September 25, 1999),
filed a lawsuit in September 1998, in Germany, against an affiliate of MINC. The
complaint arouse out of transactions that occurred in an account introduced by
Index Futures Group, AG ("Index AG"), an introducing broker of Index, prior to
the Sale of Assets. The Plaintiff alleges that under German law, MINC's
affiliate is successor to Index AG, and thus assumed any liabilities of Index
AG. Pursuant to the Sale of Assets agreement, Index is responsible for any
liability "arising out of any state of facts with respect to such Assigned
Contract existing on or prior to the Closing Date". MINC has retained counsel in
Germany to represent its interests in this matter. As Index AG was an
introducing broker of Index and not a former subsidiary of the Company or Index,
the Company does not believe that it will ultimately be liable for damages. In
April 1999, MINC's German counsel reported that the Dusseldorf District Court
dismissed all claims against MINC. However, the plaintiff has filed an appeal
with the Dusseldorf Court of Appeals.
On December 28, 1998, John and Christina Blazina, filed an NFA
arbitration against Index and others, alleging breach of fiduciary duty, fraud,
breach of contract and negligence in the solicitation and trading of a series of
managed accounts opened at Index in 1995. Claimant seeks an award of $500,000,
composed of alleged actual damages of $262,500, punitive damages of $170,000 and
various other costs and fees. IFX believes that the allegations are without
merit and will defend vigorously.
On August 23, 1999, a lawsuit was filed in the Circuit Court of Cook
County naming Index and two individuals as defendants (Craig Bordon v. Sean S.
Mayo, et al., 99L-09368). The complaint alleges breach of contract and damages
"in excess of" $50,000. The Company has not yet been served with the complaint.
Based upon the allegations as set forth in the complaint, the Company believes
that the claim is without merit.
-17-
Settlement Of Claim Related To L. Luria & Son. On October 27, 1998, a
complaint was filed by James Feltman as liquidating agent of L. Luria & Son,
Inc. (Case No. 97-16731-BKC-RAM) seeking recovery from the Company of
$368,188.84. Starting in the winter of 1996, IFX entered into an arrangement
with the suppliers of L. Luria & Son, Inc. pursuant to which IFX advanced funds
on behalf of L. Luria & Son, Inc. in order to allow it to purchase inventory. L.
Luria & Son, Inc. reimbursed IFX for amounts that it had advanced. The complaint
alleges that IFX was an insider of L. Luria & Son, Inc. because of Joel
Eidelstein's relationship to L. Luria & Son, Inc. and that the amounts that L.
Luria & Son, Inc. paid IFX constituted preferences under the Bankruptcy laws. On
March 1, 1999, the Company reached an agreement to settle this complaint for
$92,222.
-18-
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matters were submitted to a vote of IFX's stockholders during the
fourth quarter of its fiscal year ended June 30, 1999.
-19-
PART II
Item 5 - Market for Registrant's Common Equity and Related Stockholder Matters
- ------------------------------------------------------------------------------
The Registrant's stock is traded on the NASDAQ SmallCap Market under the
symbol "FUTR."
Set forth below is the range of high and low trade prices per share of
the common stock in the over-the-counter market as reported by NASDAQ for the
periods indicated. The quotations do not include retail markups, markdowns, or
commissions. All previously disclosed data has been restated for the
one-for-five reverse split of common stock effected on January 12, 1998.
On August 31, 1999, the closing price per share of common stock, as
reported through NASDAQ, in the over-the-counter market was $19.00.
Quarter
Type of Security Ended High Trade Low Trade
- ---------------- ------- ---------- ---------
Common Stock 9/30/97 $ 1.09 $ 0.94
12/31/97 2.50 0.94
3/31/98 2.63 1.41
6/30/98 2.94 1.81
9/30/98 2.44 1.81
12/31/98 12.50 1.25
3/31/99 12.63 5.88
6/30/99 21.50 9.38
8/31/99 (1) 24.00 14.81
(1) Includes the period July 1, 1999 through August 31, 1999.
Approximate Number of Holders of Securities
As of August 31, 1998, there were 875 holders of record of the
Registrant's common stock. The Registrant believes it has a greater number of
stockholders because the Registrant believes that a substantial amount of its
common stock is held of record in street name by broker-dealers for their
customers.
Dividends
The Registrant has never paid a cash dividend on its common stock and
does not expect to pay a cash dividend in the foreseeable future, but intends to
devote all funds to the operation of its business.
-20-
Item 6 - Selected Financial Data
- --------------------------------
The following table summarizes selected historical financial information
of the Registrant and its subsidiaries for each of the last five years. All
amounts presented have been restated on a continuing operations basis.
Accordingly, the operating results of discontinued operations have been
segregated from continuing operations and reported as a separate line item on
the statement of operations. The selected financial information shown below has
been derived from the Registrant's consolidated financial statements. This table
should be read in conjunction with the other financial information of the
Registrant, including "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial results
included elsewhere herein.
HISTORICAL FINANCIAL INFORMATION FROM CONTINUING OPERATIONS
Year Ended June 30,
---------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA:
Revenues from continuing operations...... $ 725,300 $ - $ - $ - $ -
Cost and expenses from continuing
operations:
Cost of revenues...................... 445,500 - - - -
General and administrative............ 2,978,400 733,100 1,306,000 1,566,700 1,471,900
Depreciation and amortization......... 232,400 - - 62,300 69,600
---------- ---------- ---------- ----------- ----------
Total operating expenses.............. 3,656,300 733,100 1,306,000 1,629,000 1,541,500
---------- ---------- ---------- ----------- ----------
Operating loss
continuing operations................. (2,931,000) (733,100) (1,306,000) (1,629,000) (1,541,500)
Other Income (Expense):
Interest income....................... 376,100 290,100 410,600 5,028,700 5,008,600
Loss on operations of equity investee. (107,700)
Other................................. 136,200 126,500 247,100 - -
---------- ---------- ---------- ----------- ----------
Total other income.................... 404,600 416,600 657,700 5,028,700 5,008,600
---------- ---------- ---------- ----------- ----------
Income (loss) from continuing
operations before income taxes........ (2,526,400) (316,500) (648,300) 3,399,700 3,467,100
Income tax provision (benefit)........ (811,000) (108,000) (220,000) 452,800 1,349,200
---------- ---------- ---------- ----------- ----------
Income (loss) from
continuing operations................. (1,715,400) (208,500) (428,300) 2,946,900 2,117,900
Discontinued operations,
net of taxes.......................... 3,117,600 3,575,200 3,612,100 (4,080,000)(a) 293,700
---------- ---------- ---------- ----------- ----------
Net income (loss)........................ 1,402,200 3,366,700 3,183,800 (1,133,100) 2,411,600
Assumed cumulative dividend on
class A preferred stock............... - - (23,300) (40,000) (40,000)
---------- ---------- ---------- ----------- ----------
Net income (loss) available to
common shareholders................... $1,402,200 $3,366,700 $3,160,500 $(1,173,100) $2,371,600
========== ========== ========== =========== ==========
BASIC AND DILUTED INCOME (LOSS) PER SHARE:
Income (loss)from continuing operations...... $ (0.26) $ (0.03) $ (0.07) $ 0.44 $ 0.35
Income (loss) from discontinued operations... $ 0.48 $ 0.57 $ 0.55 $ (0.61) $ 0.04
---------- ---------- ---------- ----------- ----------
Net income............................... $ 0.22 $ 0.54 $ 0.48 $ (0.17) $ 0.39
========== ========== ========== =========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and Diluted........................ 6,498,204 6,246,545 6,616,893 6,744,236 6,136,105
BALANCE SHEET DATA:
Total assets............................. $18,861,500 $11,543,400 $10,030,900 $6,331,000 $7,479,100
Total debt............................... $ 316,900 $ - $ 1,586,600 $ - $ -
Total stockholders' equity............... $16,097,400 $11,335,100 $ 8,203,700 $6,216,500 $7,364,100
(a) Includes a restructuring charge in the amount of $1,556,500.
-21-
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations for the Year Ended June 30, 1999
- --------------------------------------------------------------------------------
The following discussion should be read in conjunction with our
Consolidated Financial Statements and notes that follow it. This discussion and
analysis reflects the adjustments made to segregate the discontinued operations
("discontinued operations") that resulted from the sale of the Company's
brokerage assets in July 1996 to E.D. & F. Man International, Inc., a unit of
E.D. & F. Man Group, plc, a London-based international trading and finance
conglomerate; and from divesture in June 1999 of its 50.1% interest in IFX Ltd.
Discontinued operations are shown under a separate line item on the Income
Statement for Fiscal Years 1999, 1998 and 1997; and for the balance sheet for
Fiscal Years 1999 and 1998.
Due to the discontinued operations, IFX's primary source of revenues
changed from trading revenues and from foreign exchange operations to subscriber
fees from Internet operations. IFX's revenues from 1999, 1998 and 1997 related
to discontinued operations are shown as "Income from Discontinued Operations,
net of income taxes." The revenues from the ISP acquisitions are accounted from
the date of purchase.
Due to the discontinued operations, IFX's expenses changed from
consisting mostly of interest, commissions and other related brokerage costs to
local dial-up lines, local internet connections, and depreciation and
amortization expenses. The expenses from the ISP acquisitions are accounted from
the date of purchase.
GENERAL
IFX is a pan-regional Internet Service Provider, or ISP, in Latin
America. We focus on serving individuals and small businesses. Our primary
service is dial-up Internet access, which IFX offers through our Unete service,
in various price and usage plans designed to meet the needs of our subscribers.
Our business services include dedicated phone lines, web hosting, web page
design, and domain name registration.
IFX offers subscribers complete Internet access in English, Spanish, and
Portuguese, with a user-friendly and easy to install software. The software
contains a complete set of the most popular Internet applications including
electronic mail, World Wide Web access, File Transfer Protocol and Internet
Relay Chat. Through our infrastructure of IFX owned subsidiaries and third-party
providers, our subscribers are able to access the Internet in 9 countries in
Latin America, and in most major cities in the United States via a local
telephone call and with no roaming fees. As of June 30, 1999, the Company had
approximately 25,000 subscribers.
Over the past year, IFX has established a regional presence by acquiring
the stock or assets of established independent ISPs throughout Latin America.
The Company intends to continue its strategy of acquiring ISPs in order to
deepen and broaden its market presence in Latin America. The Company seeks to
acquire an "anchor" ISP in each of its target countries, which can provide both
local management talent and serve as the ISP consolidator for its respective
country. The Company hopes that it will attain economies of scale (as the number
of subscribers increases, the costs and expenses per subscriber decrease) in
selling, general and administrative costs, particularly in the areas of numbers
of employees and salaries, operating leases, and marketing expenses. However,
there can be no assurance that the Company will achieve these anticipated cost
reductions
Prior to July 1996, the primary business of IFX was providing commodity
brokerage services. On July 1, 1996, IFX sold substantially all of its brokerage
assets (other than certain assets of its majority-owned U.K. subsidiary) to E.D.
& F. Man International, Inc., a unit of E.D. & F. Man Group, plc, a London-based
international trading and finance conglomerate, for a purchase price consisting
-22-
of cash earn-out payments based upon the sold business's profitability during
the sixty-six months following the sale. Since July 1996, IFX's revenues have
consisted primarily of earn-out payments from such asset sale, interest income
and income from operations of the Company's former majority-owned British
subsidiary, IFX Ltd., which conducts foreign exchange business as a registrant
of the British Securities and Futures Authority. In June 1999, IFX divested its
50.1% interest in IFX Ltd. in exchange for approximately $2.45 million in cash
and a note receivable, and a redeemable preference share entitling IFX to
quarterly payments equal to approximately 30% of the net profits of IFX Ltd.
through June 30, 2002.
As discussed above, in November 1998 the Company entered into an
agreement with International Technology and made the strategic decision to focus
on the Internet industry. The Company is presently in the process of developing
and acquiring ISP related businesses.
In December 1998 the Company acquired a limited partnership interest in
Telcom.Net, L.P., a domestic telecommunications and Internet software
development company that was co-founded in 1997 by Joel M. Eidelstein, the
Company's President.
During 1999 the Company has completed acquisitions and investments, and
intends to complete future acquisitions, to develop a Latin American
pan-regional network of ISPs. The following is a summary of the Company's
acquisition activities to date:
Date Acquisition Or Investment Business Country
- ---- ------------------------- -------- -------
December 1998 Telcom.net Telcom/Internet Software Regional
- --------------------------------------------------------------------------------------------------
April 1999 Interweb Mexico ISP Mexico
International Connection Service ISP Venezuela
Eldish Marketing ISP Venezuela
Yupi Internet, Inc. Spanish Language Portal Regional
- --------------------------------------------------------------------------------------------------
May 1999 Interaccess ISP Chile
Zupernet ISP Bolivia
- --------------------------------------------------------------------------------------------------
July 1999 SDM Net ISP Mexico
Interactiva ISP Chile
- --------------------------------------------------------------------------------------------------
August 1999 Intermedia ISP Chile
E-Net ISP Brazil
Via Net ISP El Salvador
ITS Network ISP Honduras
LIQUIDITY AND CAPITAL RESOURCES
For the year ended June 30, 1999, cash provided by on going and
discontinued operations was approximately $4.0 million compared to cash provided
by on going and discontinued operations of $1.2 million for the same period in
fiscal 1998, an increase of approximately 233%. The majority of cash in 1999 was
provided by the earn-out payments related to the sale of all of the brokerage
assets (other than certain assets of its majority owned U.K. subsidiary) to E.D.
& F. Man International, Inc. The cash used in operations is related to the
start-up and general operating expenses of the ISP business. In addition, the
Company invests cash not needed for operations at any of its subsidiaries in
short-term investments such as U.S. Government obligations and overnight time
deposits. As of June 30, 1999, the Company held approximately $5.5 million in
cash and short-term investments.
For the year ended June 30, 1999, cash used in investment activities was
approximately $4.8 million compared to cash used in investment activities of
$1.2 million for the same period in fiscal 1998. The majority of cash used in
1999 was related to a $3.1 million investment in Yupi Internet Inc. and $1.4
million incurred in the ISP acquisitions in Latin America.
-23-
For the year ended June 30, 1999, cash provided by financing activities
was approximately $1.0 million compared to cash used in financing activities of
$1.8 million for the same period in fiscal 1998. The majority of cash provided
in 1999 was related to a $1.0 million investment received from International
Technology Investments in exchange for 500,000 shares and stock purchase rights.
Stockholders' equity at June 30, 1999 was approximately $16.1 million.
The Company effected a one-for-five reverse split of its common stock, par value
$0.004, effective on January 12, 1998 (the "Effective Date"). Each five shares
of such common stock were reclassified and reflected as one share of common
stock having a par value of $.02, as of January 12, 1998. Outstanding shares of
the Company's common stock were reduced to 6,279,130 shares from 31,395,649
shares outstanding before the split.
Management believes existing cash and short-term investments together
with operating cash flows from the earn-out payments from the sale of assets and
access to equity capital provide adequate resources to fund ongoing operating
requirements and future capital expenditures related to the expansion of
existing businesses and development of new projects.
Subsequent Credit Agreements
On August 1999, the Company entered into an agreement with Lucent
Technologies Inc., providing the Company with the option to purchase up to $10
million of Lucent equipment. Under the agreement, Lucent will provide the
Company with up to $10 million in networking equipment to upgrade and expand the
Company's Internet operations, but the Company is under no obligation to
purchase equipment from Lucent.
On July 1999, the Company entered into an $500,000 lease agreement with
SoftBank to provide the financing for the implementation of the Portal
software(R). Under the terms of the agreement, Portal will develop a
consolidated billing and accounts receivable system that should allow the
Company to provide invoicing services to its customers across Latin America.
On August 1999, the Company signed a five-year lease for new space in
Hallandale, Florida, to commence October 1, 1999. This lease provides for
aggregate payments totaling approximately $535,873 over the next 5 years.
YEAR 2000 COMPLIANCE
IFX is aware of the "Year 2000" problem, which relates to whether
computer systems will properly recognize date sensitive information when the
year changes to 2000. Systems that do not properly recognize such information
will generate wrong data and could fail. The Year 2000 problem is pervasive and
complex, as virtually every company's computer operations will potentially be
affected in some way.
IFX is currently engaged in a process to evaluate its internal status
with respect to the Year 2000 issue, utilizing certain employees in its
evaluation of possible Year 2000 problems. The costs and expenses of such an
evaluation have not been material. To date, it has not discovered Year 2000
issues in the course of its assessment that would have a material adverse effect
on its business, results of operations or financial condition; however, IFX can
give no assurance that all Year 2000 issues were discovered during the
assessment or that it will not discover additional Year 2000 issues that could
have a material adverse effect. In addition, IFX faces Year 2000 risks with
respect to the acquisitions it makes, especially in Latin America, where Year
2000 preparedness may not be adequate.
-24-
Concurrently with the analysis of its internal systems, IFX has begun to
survey third-party entities with which it transacts significant business,
including critical vendors and financial institutions, for Year 2000 compliance.
With respect to its most critical vendors, IFX is in the process of evaluating
the Year 2000 preparedness of its telecommunications providers, on which it is
reliant for the network services crucial to web hosting and Internet
connectivity services. It is actively working to mitigate any potential impact
by maintaining diverse providers for such network services. However, failure of
any one provider may have a material adverse impact on Company operations. IFX
does rely heavily on various third party equipment and service providers, and
the Company expects to complete the survey to adequately address Year 2000
issues by October 1999. At this time, IFX cannot estimate the effect, if any,
that non-compliant systems at these entities could have on it, and IFX can give
no assurance that the impact, if any, will not be material.
RESULTS OF OPERATIONS - FISCAL 1999 COMPARED TO FISCAL 1998
- -----------------------------------------------------------
Revenues. In fiscal 1999, IFX derived $616,300, or 84% of continuing
revenues from subscriptions from individuals for dial-up access to the Internet.
Monthly subscription fees vary by billing plan. With the current pricing plans,
customers have several choices including unlimited local, unlimited pan-regional
and limited local plans.
In addition, in fiscal 1999, IFX derived $109,100, or 12% of continuing
revenues from certain small business services which include web-hosting, web
design, full-time dedicated access connections to the Internet, and other
value-added services such as domain name registration. IFX's web-hosting
services allow a business or individual to post information on the World Wide
Web through IFX's servers. IFX's Web design services offers Internet site
development services for small businesses. Full-time dedicated lines offer small
businesses direct and uninterrupted connections to the Internet without the need
to dial any number.
Revenues for fiscal 1998 from continuing operations are $0, since the
Company had not yet been involved in the Internet business. They are shown as a
segregated item in the income statement as discontinued operations.
Costs of Revenues. IFX's cost of revenues include all the costs that are
primarily related to the number of subscribers. The primary costs are the local
Internet connection fees paid to the telecommunication companies in each country
and the subscriber start-up expenses. The telecommunication expenses include the
costs of providing our subscribers with local telephone dialing numbers to our
POPs, the costs related to third-party POPs, and the costs of the connections of
IFX's hubs to the Internet backbone. Start-up expenses include the cost of
distributing the CD-Rom with our starter kit software. Cost of revenues were
$445,400 and $0 for the year ended June 30, 1999 and June 30, 1998,
respectively.
General and Administrative Expenses. General and administrative costs
are primarily for salaries, legal, accounting and consulting fees incurred
mostly in the Company's acquisitions in Latin America, and advertising and trade
show expenses which are related to the promotions of our ISP service. General
and administrative expenses were $2,978,400 and $733,100 for the years ended
June 30, 1999 and June 30, 1998, respectively. The increase of approximately
302% was due to the expenses of growth the Company experienced as it entered the
Internet service business in fiscal 1999.
IFX believes that it is necessary to purchase or install POPs in each
major country in Latin America. As IFX continues with that expansion into new
markets, both costs of sales and selling, general and administrative expenses
will increase. IFX expects that these costs will have a short-term negative
impact on our net income. However, the Company believes that over the long-term
these POPs should have a positive impact on net income. In countries where the
Company does not want to establish a presence, but wants its subscribers to have
access to the Internet, it will use third-party POPs.
-25-
Depreciation and amortization. Depreciation and amortization are related
to the depreciation of fixed assets and the amortization of the acquired
customer base from other ISPs. IFX depreciates its assets on schedules that
range from three to five years. IFX amortizes purchased customer bases using the
straight-line method over a period of three years, commencing when the purchase
is completed. This amortization has a negative effect on net income.
Depreciation and amortization expense was $232,400 and $0 for the years ended
June 30, 1999 and June 30, 1998, respectively.
The Company will continue to invest heavily in purchases of computer
equipment and acquisitions in Latin America, which will increase its
depreciation and amortization costs. These costs should have a short-term
negative impact on net income and cash flow, but the Company believes that these
increased costs will be more than offset by anticipated increases in revenue
attributable to overall subscriber growth. However, there can be no assurance
that the Company will be able to build, increase or maintain its subscriber base
in a given market to the extent necessary to generate sufficient revenues to
offset these expenses.
Interest Income. The interest income is mostly derived from the $5.0
million invested in short-term government notes. Interest income was $376,000
and $290,200 for the years ended June 30, 1999 and June 30, 1998, respectively.
Other Income and Gains from Discontinued Operations. In 1999, the
Company earned approximately $2.4 million of net earn-out payments from the 1996
sale of its brokerage asset to E.D. & F. Man International, Inc., a unit of E.D.
& F. Man Group, plc, a London-based international trading and finance
conglomerate. In addition, the Company recorded approximately $0.9 million
representing the net results from the operations of its disposed UK subsidiary.
All the proceeds of the gains were invested in the Internet operations in Latin
America.
Income tax provision. For the year ended June 30, 1999, the Company
recorded a tax benefit of approximately $811,000 from its continuing operations.
The effective tax rate for 1999 and 1998 was 32% and 34%, respectively.
Including the Company's discontinued operations, the net tax provision was $0.9
million. For the year ended June 30, 1998, the Company recorded a tax provision
of $2.2 million.
Net income (loss) and income (loss) per share. As a result of the
factors discussed above, IFX's loss from continuing operations for the year
ended June 30, 1999 was approximately $1.7 million, or $(0.26) per share,
compared to a net loss of $0.2 million, or $(0.03) per share, for the year ended
June 30, 1998. Including discontinued operations, the Company earned $1.4
million, or $0.22 per share, compared to a net income of $3.4 million, or $0.54
per share, for the year ended June 30, 1998.
RESULTS OF OPERATIONS - FISCAL 1998 COMPARED TO FISCAL 1997
- -----------------------------------------------------------
As a result of the sale in 1999 of IFX Ltd. and the prior sale in 1996
of E.D.& F. Man, all revenues and costs related to these businesses are included
in "Discontinued Operations". The Company, on a continuing operations basis, had
no revenues or cost of revenues in 1998 or 1997.
-26-
General and Administrative Expenses. General and administrative costs
are primarily for salaries, legal, accounting and consulting fees incurred
mostly in the Company's general operations. General and administrative expenses
were $733,100 and $1,306,000 for the years ended June 30, 1998 and June 30,
1997, respectively. Corporate governance costs were reduced in 1998 reflecting
the Company's decreased level of operations.
Depreciation and Amortization. Depreciation refers to the Company's
fixed assets which were all furniture related. IFX depreciates its assets on
schedules that range from three to five years. Depreciation expense was
insignificant during 1998 and 1997. There was no amortization expense during
1998 or 1997.
Income from Discontinued Operations. In 1998, the Company earned
approximately $2.3 million of net earn-out payments from the 1996 sale of its
brokerage asset to E.D. & F. Man International, Inc., a unit of E.D. & F. Man
Group, plc, a London-based international trading and finance conglomerate. In
addition, the Company recorded approximately $1.2 million representing the net
results from the operations of its disposed UK subsidiary.
Income tax provision. For the year ended June 30, 1998, the Company
reflected a tax benefit of $108,000 from its continuing operations. The
effective tax rate for 1998 and 1997 was 34% in each year.
Net income (loss) and income (loss) per share. As a result of the
factors discussed above, IFX's loss from continuing operations for the year
ended June 30, 1998 was approximately $208,500, or $(0.03) per share, compared
to a net loss of $428,300, or $(0.07) per share, for the year ended June 30,
1997. Including discontinued operations, the Company earned $3.4 million, or
$0.54 per share, compared to a net gain of $3.2 million, or $0.48 per share, for
the year ended June 30, 1998 and June 30, 1997, respectively.
Forward-Looking Statements
The statements contained herein that are not historical facts are
"forward-looking statements" (within the meaning of the Private Securities
Litigation Reform Act of 1995). The safe harbor provisions provided in Section
27A of the Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), apply to forward-looking statements the Company makes. These statements
can be identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy that involve risks and uncertainties. The Company wishes to caution you
that these forward-looking statements addressing the timing, costs and scope of
the Company's acquisition of, or investments in, existing or future ISPs, the
revenue and profitability levels of the ISPs in which the Company invests, the
anticipated reduction in operating costs resulting from the integration and
optimization of those ISPs, and other matters contained herein regarding matters
that are not historical facts, are only predictions. The Company can give no
assurance that the future results indicated, whether expressed or implied, will
be achieved. These projections and other forward-looking statements are based
upon a variety of assumptions relating to the Company's business, which,
although the Company considered reasonable, may not be realized. Because of the
number and uncertainties of the assumptions underlying the Company's projections
and forward-looking statements, some of the assumptions may not materialize and
unanticipated events and circumstances may occur subsequent to the date of this
Prospectus. These forward-looking statements are based on current expectations,
and the Company assumes no obligation to update this information. The inclusion
of projections and other forward-looking statements should not be regarded as a
representation by the Company or any person that these estimates and projections
will be realized, and actual results may vary materially.
-27-
Item 7A - Quantitative and Qualitative Disclosures About Market Risk
- --------------------------------------------------------------------
The Company's continuing operations are focused primarily in Latin
America, subjecting the Company to certain political, economic and commercial
risks and uncertainty not typically found in the U.S. The Company's exposure to
market risk is directly related to its role, through IFX/EN Inc., as a Latin
American ISP. The Company's primary market risk exposure relates to foreign
exchange rate risk. Foreign exchange rate risk arises from the possibility that
changes in foreign currency exchange rates will adversely impact the value of
the Company's assets, liabilities and/or equity. When the Company operates in a
foreign country, the value of the local currency will probably fluctuate. This
fluctuation can cause the Company to gain or lose on the translation to US
Dollars.
-28-
Item 8 - Financial Statements and Supplementary Data
- ----------------------------------------------------
For financial information, see the financial statements and notes
thereto set forth at Item 14 hereof.
-29-
Item 9 - Changes In and Disagreements With Accountants On Accounting and
Financial Disclosures
- ------------------------------------------------------------------------
On July 1, 1999, IFX filed a Current Report on Form 8-K with the
Securities and Exchange Commission to disclose that on June 28, 1999 it had
dismissed Arthur Andersen LLP and appointed Ernst & Young LLP as its independent
auditors for the fiscal year ending June 30, 1999. The decision to dismiss
Arthur Andersen LLP was not based upon any disagreement between IFX and Arthur
Andersen LLP on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure. The reports of Arthur
Andersen LLP as of and for the fiscal years ended June 30, 1998 and 1997 did not
contain an adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or application of accounting principles.
During the registrant's fiscal years ended June 30, 1998 and 1997, and during
the subsequent interim periods prior to June 28, 1999, there were no (i)
disagreements between the registrant and Arthur Andersen LLP on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure which disagreements, if not resolved to the satisfaction of
Arthur Andersen LLP, would have caused it to make reference to the subject
matter of the disagreement in connection with its reports on the registrant's
financial statements, or (ii) "reportable events" within the meaning of Item
304(a)(1)(v) of Regulation S-K promulgated under the Securities Act of 1933, as
amended.
-30-
PART III
--------
Item 10 - Directors and Executive Officers
- ------------------------------------------
The Directors and Executive Officers of IFX as of September 15, 1999
were as follows:
Name Age Office
- ------------------- --- ---------------------------------------------
Joel M. Eidelstein 32 Chairman of the Board, President and Director
Michael Shalom 28 Chief Executive Officer
Jose Leiman 39 Chief Financial Officer
Zalman Lekach 32 Vice President of Mergers and Acquisitions
and Director
Colleen M. Downes 36 Secretary, Treasurer and Director
George A. Myers 48 Director
Joseph M. Matalon 40 Director
Burton J. Meyer 52 Director
Joel M. Eidelstein has served as a director of the Company since
November 1990 and, since November 9, 1996, he has served as the President of the
Company. Mr. Eidelstein graduated from Brandeis University in May 1988. From
June 1988 until June 1996, he was an independent commodity futures trader and a
floor manager with Index Futures Group, Inc. Mr. Eidelstein also is the owner
and sole officer of Alerica, Inc., a general partner of Telcom.Net, L.P., an
Internet communications software development company in which IFX owns an
interest.
Michael Shalom was elected as IFX's Chief Executive Officer on September
8, 1999 and has served as a director of Emerging Networks, Inc., a subsidiary of
IFX, since November 1998. Prior to July 1998, Mr. Shalom was a principal of, and
was actively involved in the management of the INTCOMEX group of companies,
which group is a Latin American wholesale distributor of microcomputers,
networking products, mass storage products, multimedia products, computer
peripheral equipment and computer components. In July 1998, the INTCOMEX group
of companies was sold to CHS Electronics, a Fortune 500 company. Mr. Shalom is
also a principal at International Technology Investments.
Jose Leiman has served as Chief Financial Officer of the Company since
August 1, 1999. From March 1996 to June 1999, Mr. Leiman was a CPA and tax
attorney with Ernst & Young LLP, an international accounting firm. Prior to
joining Ernst & Young LLP, Mr. Leiman was an attorney with Dewey Ballantine LLP,
an international law firm. Mr. Leiman has also worked as a CPA with Price
Waterhouse.
Zalman Lekach has served as a director of the Company since February
1997 and, since May 24, 1999, has served as the Company's Vice President of
Mergers and Acquisitions. Mr. Lekach served as President and Chief Operating
Officer of Parlux Fragrances, Inc., an international designer, manufacturer and
marketer of fragrances ("Parlux") from 1995 until December 1998. He became a
director and an executive officer of Parlux, S.A., Parlux's French subsidiary,
in May 1990. Mr. Lekach received a B.A. from Cornell University.
Colleen M. Downes became Secretary of the Company in November 1998. Ms.
Downes has served as a director and as the Treasurer of the Company since
February 1997, as a Vice President of the Company since June 1998 and has been
employed by the Company or its subsidiaries since January 1985. Ms. Downes
served as acting Chief Financial Officer of the Company from November 1998
through July 1999.
George A. Myers has served as a director of the Company since November
1990. Mr. Myers has been managing general partner of MC Capital, a diversified
real estate company with offices in Chicago, Illinois, Phoenix, Arizona, and San
Diego, California since 1981.
-31-
Joseph M. Matalon has served as a director of the Company since February
1999. Since January 1998, Mr. Matalon has served as the Director of Investments
and Chairman of the Finance Committee of Mechala Group Jamaica Limited, a
diversified business enterprise primarily engaged in development and
construction, manufacturing and trading and financial services. From January
1996 to December 1997, Mr. Matalon served as Executive Vice President and Chief
Operating Officer of Mechala Group Jamaica Limited and, prior thereto, he served
for 10 years as Senior Vice President of the ICD Group. Mr. Matalon is a
graduate of the London School of Economics and also serves as a director of The
Bank of Nova Scotia Jamaica Limited; Scotiabank Jamaica Trust and Merchant Bank
Limited; the Gleaner Company Limited; and the Institute of Management and
Production. Mr. Matalon also is Chairman of Prime Life Assurance Company Limited
and British Caribbean Insurance Company Limited. Additionally, Mr. Matalon has
also served as Deputy Chairman of Cable & Wireless Jamaica. Mr. Shalom is a
principal at International Technology Investments.
Burton J. Meyer has served as a director of the Company since May 1999.
Mr. Meyer previously served as director of the Company from August 1986 until
July 1, 1996 and as President of the Company from July 1987 until July 1, 1996.
Mr. Meyer has served as an Executive Vice President of E.D. & F. Man
International, an international futures and conglomerate brokerage, since July
1996.
Directors are elected and serve until the next annual meeting or until
their successors are elected and qualified. Officers are elected annually by the
Board of Directors.
Pursuant to the agreement dated as of November 23, 1998, by which
International Technology acquired its equity interest in the Company, each of
IFX, Lee S. Casty and International Technology have agreed to use its or his
reasonable best efforts to vote all of its or his shares of Common Stock, at any
annual or special meeting of IFX stockholders, to elect to the Board of
Directors one individual nominated by International Technology and one
individual nominated by Mr. Casty. Joseph M. Matalon is International
Technology's nominee for election to IFX's Board of Directors and Joel
Eidelstein is Mr. Casty's nominee.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of the Company's Common Stock, to
file with the Securities and Exchange Commission reports of ownership and
changes in ownership and to provide copies of such reports to the Company and to
the Nasdaq Stock Market. Based solely on a review of the copies of such reports
furnished to the Company, or written representations that no reports on Form 5
were required, the Company believes that all officers, directors and 10%
beneficial owners complied with all Section 16(a) filing requirements during
fiscal year 1999, except for the following: Burton J. Meyer filed his Form 3 one
week late; Joseph M. Matalon filed his Form 3 several months late; and Joel M.
Eidelstein filed a Form 4 one week late; and Zalman Lekach filed his Form 5
several weeks late.
-32-
Item 11 - Executive Compensation
- --------------------------------
The following table sets forth all cash compensation paid by the Company
to its President, Joel Eidelstein, who in fiscal year 1999 acted in a capacity
similar to the Company's chief executive officer. There were no other executive
officers of the Company whose compensation for fiscal year 1999 exceeded
$100,000.
Annual Long Term
Compensation Compensation
------------- ------------------
Name and Principal Position Year Ended Securities
- --------------------------- June 30 Salary Bonus Underlying Options
---------- ------ ----- ------------------
Joel M. Eidelstein, President 1999 $50,000 - 300,000
1998 $24,000 - -
1997 $16,000 - -
Fiscal Year 1999 Option Grants and Exercises
The following table sets forth information with respect to options to
purchase shares of Common Stock of the Company that were granted in fiscal year
1999 to the named executive officers.
Option Grants in Fiscal Year 1999
Option Grants in Fiscal Year 1999
---------------------------------
Number of
Securities Percent of total Potential Realizable Value at
Name and Underlying Options Granted Exercise Expiration Assumed Annual Rates of Stock
Principal Options to Employees in Price Date(2) Price Appreciation for Option
Position Granted(1) Fiscal Year ($/Sh) Term(3)
--------- ---------- ---------------- -------- ----------- -----------------------------
5% 10%
-- ---
Joel M.
Eidelstein, 300,000 86.5% $3.00 11/10/08 ($44,830) $461,715
President...
- -----------------
(1) A total of 150,000 shares of Common Stock subject to the option are
currently exercisable. The remainder of the option vests on January 1, 2000 and
January 1, 2001.
(2) The option expires 10 years after the date of the grant.
(3) The potential realized value is calculated assuming that the fair market
value on the date of the grant appreciates at the indicated annual rate (set by
the Securities and Exchange Commission), compounded annually, for the 5-year or
10-year term of the option. The $3.00 exercise price of Mr. Eidelstein's option
is greater than the $1.75 closing price of the Common Stock on the date of the
grant. The Potential Realizable Value is not intended to predict the possible
future appreciation of the price of the Common Stock.
Compensation Committee Interlocks and Insider Participation
In February 1999 the Company established a standing compensation
committee of the Board of Directors. Prior to that time, all functions normally
delegated to a compensation committee were performed by the full Board of
Directors. From February 1999 until May 1999, the members of the Compensation
Committee of the Board of Directors were George Myers and Zalman Lekach. On May
17, 1999, and following his election to IFX's Board of Directors, Burton J.
Meyer was appointed to the Compensation Committee and Zalman Lekach resigned
therefrom, so that the current members of the Compensation Committee are George
Myers and Burton J. Meyer. Mr. Meyer previously served as an officer of IFX from
1987 to June 1996. On May 24, 1999, Mr. Lekach was appointed as IFX's Vice
President of Mergers and Acquisitions.
-33-
In July 1, 1996, the Company sold certain assets to E.D.& F. Man
International, Inc. As a result of the sale, E.D.& F. Man International, Inc.
made payments to the Company in the aggregate amount of approximately $4 million
for fiscal year 1999. Burton J. Meyer, a director of the Company and a member
of the Company's Compensation Committee, serves as Executive Vice President of
E.D.& F. Man International, Inc.
COMPENSATION COMMITTEE REPORT
In February 1999, the Board of Directors established a Compensation
Committee of the Board of Directors (the "Compensation Committee") to, among
other things, develop and oversee the Company's compensation policy and approve
salaries and annual bonuses for senior management of the Company. Prior to such
time, the Board of Directors performed the functions typically delegated to a
compensation committee. George Myers and Zalman Lekach served as the initial
members of the Compensation Committee until May 17, 1999, when Burton J. Meyer
was appointed to replace Mr. Lekach. The Compensation Committee currently
consists of George Myers and Burton J. Meyer.
Compensation Policy. The Company's compensation policy for senior
management historically has consisted almost exclusively of cash salaries and,
from time to time, discretionary performance bonuses. In fiscal year 1999, the
Board of Directors implemented a change in the Company's compensation policy to
add a significant long-term equity component to the compensation paid to its
senior management. The Board expects that this change will strengthen the
Company's ability to recruit, motivate and retain highly-qualified individuals.
The Compensation Committee believes that stock options and restricted stock,
which vest over time and will be subject to forfeiture, better align the
interests of the Company's senior management with the interests of the Company's
stockholders. The Committee also believes that substantial equity ownership by
individuals in leadership positions within the Company will help to ensure that
such individuals remain focused on building stockholder value. To effectuate
this change in policy, the Company's 1998 Stock Option and Incentive Plan (the
"Plan") was adopted by the Board of Directors in November 1998 and was approved
by the IFX stockholders at the 1998 annual meeting.
Joel M. Eidelstein, the President of the Company, has authority to hire
all members of senior management of the Company and, subject to the Compensation
Committee's approval, to determine the compensation to be paid to such
executives. In determining annual salary and salary increases for senior
management, Mr. Eidelstein and the Compensation Committee consider various
factors, such as the executive's contribution to the Company's operating
effectiveness and profitability; the executive's achievement of pre-established
goals and performance targets; the level of responsibility, scope and complexity
of such executive's position relative to other executive management; and the
salary levels of other companies in the same industry. Zalman Lekach, IFX's Vice
President of Mergers and Acquisitions, was issued 3,771 shares of restricted
Common Stock under the Plan and also is eligible to receive options to purchase
Common Stock if and to the extent he achieves certain performance targets and
acquisition goals, as specified in his employment agreement. Mr. Lekach has been
granted options to purchase an aggregate of 23,308 shares of Common Stock under
the Plan, which options vest on an annual basis over the four years following
the date of grant. Jose Leiman, who has served as IFX's Chief Financial Officer
since August 1999, was granted several options to purchase an aggregate of
115,000 shares of Common Stock under the Plan, which options vest primarily on
an annual basis over the four years following the date of grant.
Compensation of the President. The compensation paid to Joel
-34-
M. Eidelstein, the President of the Company, during the last three fiscal years
is listed in the Executive Compensation table located elsewhere in this report.
During fiscal years 1997 and 1998, Mr. Eidelstein accepted a significantly
reduced salary because the operations of the Company had decreased materially
following the Company's July 1996 sale of its commodities brokerage business. In
recognition of Mr. Eidelstein's pivotal role in evaluating the Company's future
business prospects and managing the Company's transition into the Internet
business, the Board of Directors authorized an increase in Mr. Eidelstein's
salary to $50,000 for fiscal year 1999 and granted him an option to purchase a
significant number of shares of Common Stock. The revision to Mr. Eidelstein's
compensation package is consistent with IFX's emphasis on equity based
compensation.
On November 10, 1998 Mr. Eidelstein was granted an option to purchase
300,000 shares of Common Stock, which is an incentive stock option to the extent
it qualifies for treatment as such. Mr. Eidelstein's option vested 25% on each
of November 10, 1998 and January 1, 1999, and will vest an additional 25% on
each of January 1, 2000 and January 1, 2001. The exercise price of the option is
$3.00 per share and the sale price of the Common Stock as reported by the Nasdaq
Stock Market as of the date of grant was $1.75 per share. The Board of Directors
approved the option grant to Mr. Eidelstein in recognition of his dedication to
the Company during the transition following the Company's July 1996 sale of its
commodities brokerage business and Mr. Eidelstein's acceptance of a below-market
salary during fiscal years 1997 and 1998.
September 25, 1999
SUBMITTED BY THE COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORES
George A. Myers
Burton J. Meyer
-35-
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG IFX CORPORATION, THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ FINANCIAL INDEX
[CHART APPEARS HERE]
CUMULATIVE TOTAL RETURN
-----------------------------------
6/94 6/95 6/96 6/97 6/98 6/99
IFX CORPORATION 100 63 63 75 153 1,480
NASDAQ STOCK MARKET (U.S) 100 133 171 208 274 393
NASDAQ FINANCIAL 100 114 149 218 283 285
* $100 INVESTED ON 6/30/94 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING JUNE 30.
-36
Item 12 - Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The following table sets forth, as of September 15, 1999, certain
information regarding the Common Stock beneficially owned by (i) each director
of the Company, (ii) the Company's President, who is the only executive officer
of the Company whose compensation is required to be disclosed in the "Executive
Compensation" table contained elsewhere herein, (iii) each person known by the
Company to own more than five percent of the Common Stock of the Company, and
(iv) the executive officers and directors of the Company, as a group.
Amount and Nature of Approximate
Name/Address (1) Beneficial Ownership Percent of Class
- ---------------- -------------------- ----------------
Joel M. Eidelstein..................... 184,945 (2) 2.4%
Zalman Lekach.......................... 4,871 *
Colleen M. Downes...................... 500 (3) *
Joseph M. Matalon...................... 6,000,000 (4) 48.2%
Michael Shalom......................... 6,006,425 (4) 48.3%
Burton J. Meyer........................ 371,812 (5) 4.8%
George A. Myers........................ 733 (6) *
Lee S. Casty........................... 3,393,282(7)(8) 44.1%
International Technology Investments, 6,000,000 (9) 48.2%
LC.....................................
All officers and directors as a group 6,579,286 51.8%
(8 persons)............................
- -----------------
(1) The address of each director and executive officer of the Company is in
care of the Company, 707 Skokie Blvd., 5th Floor, Northbrook, IL 60062.
(2) Includes 150,000 shares of Common Stock subject to an option granted to
Mr. Eidelstein pursuant to the IFX 1998 Stock Option and Incentive Plan,
which option currently is exercisable.
(3) Consists of 500 shares of Common Stock owned by Ms. Downes' spouse.
(4) Includes 1,250,000 shares of Common Stock held by International
Technology and 4,750,000 shares of Common Stock subject to an option
that is currently exercisable. See note 9 below. Each of Mr. Matalon and
Mr. Shalom may be deemed to be an affiliate of International Technology
and, accordingly, each of Mr. Matalon and Mr. Shalom may be deemed to
beneficially own the shares of Common Stock held by such entity.
(5) Includes 100,000 shares of Common Stock that Mr. Meyer may acquire upon
exercise of an option granted to him by Lee S. Casty, which option
currently is exercisable.
(6) Consists of 333 shares of Common Stock held by Mr. Myers' spouse as
custodian for Mr. Myers' minor children and 400 shares of Common Stock
held by Mr. Myers under the Uniform Gifts to Minors Act as custodian for
two of his minor children.
(7) Mr. Casty's address is in care of French-American Securities, Inc., 707
Skokie Blvd., 5th Floor, Northbrook, IL 60062.
-37-
(8) Includes 100,000 shares subject to an option granted to Burton J. Meyer.
Also includes 50,390 shares of Common Stock owned by Mr. Casty's minor
children and 250,000 shares held by a third party custodian under the
Uniform Gifts to Minors Act for the benefit of Mr. Casty's minor
children.
(9) Includes 4,750,000 shares of Common Stock subject to an option granted
by IFX that currently is exercisable. International Technology's address
is in care of Adorno & Zeder, 2801 S. Bayshore Drive, Suite 1600, Miami,
Florida 33133.
-38-
Item 13 - Certain Relationships and Related Transactions
- --------------------------------------------------------
Prior to fiscal year 1996, FX Chicago, Inc. made loans of $611,400 to C.
Adam Ltd. (successor in interest to SRC, Inc.), an entity affiliated with Mr.
Casty. The loans were evidenced by a demand note bearing interest at 8%, which
rate subsequently was amended to equal the prime rate. In October 1998, this
note was amended again to provide that (i) the interest rate will be adjusted
each month to equal the interest rate actually earned by the Company on its
short-term savings or money market account during the immediately preceding
month plus one-half percent, and (ii) amounts outstanding under the note may be
repaid by transfer to FX Chicago, Inc. of shares of Common Stock with an
aggregate fair market value equal to the amount outstanding. The fair market
value of shares tendered to repay the note will be valued at the average of the
closing bid and ask price of Common Stock as reported by the Nasdaq SmallCap
Market (or such other stock exchange on which the Common Stock may then be
listed) on each of the three trading days ending on the trading date immediately
prior to the delivery of the Common Stock to FX Chicago, Inc. The Company earned
interest income of $39,400, $52,400 and $51,700 on this note, on a consolidated
basis, during the fiscal years ended June 30, 1999, 1998, and 1997,
respectively.
In December 1998, IFX/Telcom, Inc., a wholly-owned subsidiary of the
Company, purchased a limited partnership interest in Telcom.Net, L.P., an
Internet communications software development company that was co-founded in 1997
by Joel M. Eidelstein, the Company's President. The limited partnership interest
was purchased from Alerica, Inc., a corporation that is wholly-owned by Mr.
Eidelstein and which is a general partner of Telcom.Net, L.P. The purchase price
of such limited partnership interest was $200,000. The limited partnership
interest entitles IFX/Telcom, Inc. to receive priority distributions up to
$200,000, the amount of the Company's invested capital, plus approximately 20%
to 25% of the profits of Telcom.Net, L.P., after all of its other partners have
received priority distributions equal to their aggregate invested capital. In
addition, the Company purchased from Alerica, Inc. an outstanding promissory
note of Telcom.Net in the principal amount of $50,000. The Board of Directors
(excluding Mr. Eidelstein, who abstained from discussion or voting) determined
that the purchase price for this note was fair and that the purchase was in the
best interests of the Company.
The Company has guaranteed certain liabilities owed by Telcom.Net, L.P.,
a limited partnership, to Qwest/LCI, International. One of the general partners
of Telcom.Net, L.P. is Alerica, Inc., a company that is wholly-owned by Joel
Eidelstein, the Company's President. There is no maximum amount payable under
this guarantee; however, the Company reasonably believes, based on the business
of the limited partnership, that its potential liability under this guarantee
will not exceed $100,000.
During fiscal year 1999, the Company made a short-term loan to
Telcom.Net, L.P. in the amount of $50,000 and paid expenses of approximately
$65,000 on behalf of Telcom.Net, L.P. As of June 30, 1999, $7,000 remained
outstanding under the loan and the Company had approximately $38,000 in accounts
receivable from Telcom.Net, L.P., which it expects to receive in the ordinary
course.
Each of Joseph M. Matalon, a director of the Company, and Michael
Shalom, the Company's Chief Executive Officer, is an affiliate of International
Technology Investments, LC ("International Technology"). In November 1998, IFX
entered into an agreement with International Technology in which it contributed
$1,000,000 to IFX and International Technology received 500,000 shares of Common
Stock from IFX, at a price of $2.00 per share, for its contribution and the
option to acquire 5.5 million IFX shares. As of the date of this report,
International Technology has contributed $3,000,000 in additional capital to IFX
and International Technology has received 750,000 shares of Common Stock from
IFX, at a purchase price of $2.00 per share, for its additional contribution and
is entitled to receive an additional 750,000 shares. International Technology's
purchase option expires in January 2004.
-39-
Certain information regarding Burton J. Meyer is set forth under the
caption "Compensation Committee Interlocks and Inside Participation." The
Company believes that all transactions disclosed above have been, and the
Company's board of directors intends that any future transactions with its
officers, directors, affiliates or principal stockholders will be, on terms that
are no less favorable to the Company than those that are obtainable in arm's
length transactions with unaffiliated third parties.
-40-
PART IV
-------
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K
- -------------------------------------------------------------------------
(a) The following documents are filed as a part of this report:
(1) Financial Statements:
The following financial statements are attached to this Form 10-K
commencing on page 45.
Page
----
Report of Independent Certified Public Accountants 43
Report of Independent Certified Public Accountants 44
Consolidated Balance Sheets as of June 30, 1999 and 1998 45
Consolidated Statements of Operations for the Years
Ended June 30, 1999, 1998 and 1997 46
Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended June 30, 1999, 1998 and
1997 47
Consolidated Statements of Cash Flows for the Years
Ended June 30, 1999, 1998 and 1997 48
Notes to Consolidated Financial Statements 50
(2) Schedules
Schedule II - Valuation and qualifying accounts
All other schedules called for under Regulation S-X are not submitted
because they are not applicable or not required or because the required
information is not material or is included in the financial statements or notes
thereto.
(3) Exhibits
The list of exhibits is attached to this Form 10-K on page 42.
(b) Reports on Form 8-K
1. Current Report on Form 8-K filed on July 1, 1999 pursuant to Item 4,
regarding change in the Company's certifying accountant
2. Current Report on Form 8-K filed on July 13, 1999 pursuant to Item 2,
regarding sale of the Company's shares of IFX Limited
-41-
Exhibit
No. Description
------- -----------
3.1 * Amended By-laws of IFX
3.2 * Restated Certificate of Incorporation
10.1 * Employment Agreement dated May 1999 with Zalman Lekach
10.2 IFX 1998 Stock Option and Incentive Plan, which is
incorporated by reference to Exhibit 4.1 to IFX's
Registration Statement on Form S-8 filed on April 14, 1999
10.3 Asset Sale and Purchase Agreement regarding IFX's sale of
assets of Index Futures Group to E. D. & F. Man
International, Inc., which is incorporated by reference to
Exhibit A to the Company's Definitive Information Statement
on Schedule 14C filed on June 12, 1996
10.4 Share Sale Agreement dated June 30, 1999 regarding IFX's
disposition of its shares of IFX Limited, which is
incorporated by reference to Exhibit 99.1 to the Company's
Current Report on Form 8-K filed on July 13, 1999
10.5 Subscription and Joint Venture Agreement dated November 23,
1998 with International Technology Investments, LC, which is
incorporated by reference to Exhibit 99.2 to the Company's
Current Report on Form 8-K filed on November 25, 1998
10.6 Letter from Arthur Andersen LLP regarding the change in the
registrant's certifying accountant, which is incorporated by
reference to Exhibit 16.1 to IFX's Current Report on Form 8-K
filed on July 1, 1999
21.1 List of subsidiaries of the Company
23.1a Consent of Ernst & Young LLP
23.1b Consent of Arthur Andersen LLP
27 Financial Data Schedule
--------------------------------
* Filed herewith
-42-
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Stockholders of
IFX Corporation
and Subsidiaries:
We have audited the accompanying consolidated balance sheet of IFX
Corporation (a Delaware corporation) and subsidiaries ("the Company") as of June
30, 1999, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for the year ended June 30, 1999. Our audit
also included the financial statement schedule for the year ended June 30, 1999
listed at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of IFX
Corporation and Subsidiaries as of June 30, 1999, and the consolidated results
of their operations and their cash flows for the year ended June 30, 1999, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule for the year end June 30, 1999, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Miami, Florida,
September 24, 1999
-43-
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Stockholders of
IFX Corporation
and Subsidiaries:
We have audited the accompanying consolidated balance sheet of IFX
Corporation (a Delaware corporation) and subsidiaries ("the Company") as of June
30, 1998, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for the years ended June 30, 1998 and 1997.
These 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, the financial statements referred to above present
fairly, in all material respects, the financial position of IFX Corporation and
Subsidiaries as of June 30, 1998 and 1997, and the results of their operations
and their cash flows for the years ended June 30, 1998 and 1997, in conformity
with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Chicago, Illinois,
September 24, 1999
-44-
IFX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
------
June 30,
----------------------------
1999 1998
---- ----
CURRENT ASSETS:
Cash............................................................ $ 482,800 $ 321,900
Short-term investments.......................................... 5,000,000 5,311,300
Receivables, net of allowance for doubtful accounts of
$80,100 for 1999 and $0 for 1998.............................. 458,300 104,900
Net assets of discontinued operations........................... 3,726,900 5,034,500
----------- -----------
Total current assets....................................... 9,668,000 10,772,600
LONG-TERM ASSETS:
Investment in Yupi Internet Inc................................. 3,113,500 -
Investments in and advances to affiliated partnerships.......... 241,500 120,200
Notes receivable................................................ 612,500 611,400
Furniture, equipment, and leasehold improvements................ 2,253,500 14,400
Less: accumulated depreciation and amortization................. (369,300) (1,700)
----------- -----------
Furniture, equipment, and leasehold improvements, net........... 1,884,200 12,700
Acquired customer base, net..................................... 2,686,600 -
Other assets.................................................... 655,200 26,500
----------- -----------
Total long-term assets..................................... 9,193,500 770,800
----------- -----------
TOTAL ASSETS $18,861,500 $11,543,400
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses.......................... $2,447,200 $ 208,200
LONG-TERM LIABILITIES:
Notes payable................................................... 316,900 -
STOCKHOLDERS' EQUITY:
Common stock, (restated for reverse-split)$.02 par value;
150,000,000 shares authorized, 6,830,240 and 6,155,550 shares
issued and outstanding in 1999 and 1998, respectively......... 136,600 123,100
Paid-in capital............................................... 11,299,100 7,842,700
Retained earnings............................................... 4,817,200 3,415,100
Accumulated other comprehensive income............................. (26,000) (45,700)
Deferred compensation.............................................. (129,500) -
----------- -----------
TOTAL STOCKHOLDERS' EQUITY............................................ 16,097,400 11,335,200
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................ $18,861,500 $11,543,400
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
-45-
IFX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
Year Ended June 30,
---------------------------------------------
1999 1998 1997
---- ---- ----
STATEMENT OF OPERATIONS DATA:
ISP Revenues:
Dial Up................................ $ 616,300 $ - $ -
Hosting................................ 28,200 - -
Dedicated and Design Web Services...... 80,800 - -
---------- ---------- ----------
Total revenues......................... 725,300 - -
Cost and expenses:
Cost of revenues....................... 445,500 - -
General and administrative............. 2,978,400 733,100 1,306,000
Depreciation and amortization.......... 232,400 - -
---------- ---------- ----------
Total operating expenses............... 3,656,300 733,100 1,306,000
---------- ---------- ----------
Operating loss from
continuing operations.................. (2,931,000) (733,100) (1,306,000)
Other Income (Expense):
Interest income........................ 376,100 290,100 410,600
Loss on operations of equity investee.. (107,700) - -
Other.................................. 136,200 126,500 247,100
---------- ---------- ----------
Total other income..................... 404,600 416,600 657,700
---------- ---------- ----------
Loss from continuing
operations before income taxes......... (2,526,400) (316,500) (648,300)
Benefit from income tax................ (811,000) (108,000) (220,000)
---------- ---------- ----------
Loss from continuing operations........... (1,715,400) (208,500) (428,300)
Income from discontinued
operations, net of taxes............... 3,117,600 3,575,200 3,612,100
---------- ---------- ----------
Net income................................ 1,402,200 3,366,700 3,183,800
Assumed cumulative dividend on
Class A preferred stock................ - - (23,300)
---------- ---------- ----------
Net income available to shareholders...... $1,402,200 $3,366,700 $3,160,500
========== ========== ==========
BASIC AND DILUTED INCOME (LOSS) PER SHARE:
Loss from continuing operations............... $ (0.26) $ (0.03) $ (0.07)
Income from discontinued operations........... $ 0.48 $ 0.57 $ 0.55
---------- ---------- ----------
Net Income.................................... $ 0.22 $ 0.54 $ 0.48
========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and diluted......................... 6,498,204 6,246,545 6,616,893
The accompanying notes are an integral part of the consolidated financial
statements.
-46-
IFX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
Class A Retained Accumulated
Preferred Paid in Deferred Earnings Other
Stock Shares Amount Capital Compensation (Deficit) Comprehensive Total
Costs Income
--------- --------- -------- ---------- ------------ ----------- ------------- ----------
Balance June 30,
1996.......... $400,000 6,724,906 $134,500 $8,395,300 -- $(2,698,800) (14,500) $6,216,500
Repurchase of
common stock... -- (445,776) (8,900) (319,900) -- -- -- (328,800)
Retirement of
class A
preferred stock (400,000) -- -- -- -- -- -- (400,000)
Repayment of
Preferred
stock -- -- -- -- -- (436,600) -- (436,600)
dividends......
Comprehensive
Income:
Net income..... -- -- -- -- -- 3,183,800 -- 3,183,800
Foreign
currency -- -- -- -- -- (31,200) (31,200)
translation....
-----------
Comprehensive
Income........ 3,152,600
-------------------------------------------------------------------------------------------
Balance June 30,
1997........... -- 6,279,130 125,600 8,075,400 48,400 (45,700) 8,203,700
Repurchase of
fractional
shares
pursuant -- (10) -- -- -- -- --
to one-for
five reverse
split..
Repurchase of
common stock
and odd-lots... -- (123,580) (2,500) (232,700) -- -- (235,200)
Net and
comprehensive
income......... -- -- -- -- 3,366,700 -- 3,366,700
-------------------------------------------------------------------------------------------
Balance June 30,
1998........... -- 6,155,540 123,100 7,842,700 3,415,100 (45,700) 11,335,200
Stock issued for -- 500,000 10,000 990,000 -- -- 1,000,000
cash
Stock and options
issued for
Acquisitions... -- 174,700 3,500 2,297,900 -- -- 2,301,400
Compensation
associated with
grant of stock
options and
warrants...... -- 39,000 -- -- 39,000
Deferred
compensation
associated
with
grant of stock -- -- -- 129,500 (129,500) -- -- --
options........
Comprehensive
Income:...........
Net Income........ -- -- -- -- 1,402,100 1,402,100
Foreign
currency -- -- -- -- -- 19,700 19,700
translation....
-----------
Comprehensive
income......... 1,421,800
-------------------------------------------------------------------------------------------
Balance June 30,
1999........... $ -- 6,830,240 $136,600 $11,299,100 $(129,500) $4,817,200 $(26,000) $16,097,400
===========================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
-47-
IFX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
1999 1998 1997
------------- ------------ ------------
CASH FLOWS FROM OPEARTING ACTIVITIES:
Net income..................................... $1,402,200 $3,366,700 $3,183,800
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation................................. 76,900 1,700 -
Amortization................................. 155,500 - -
Deferred taxes............................... - - -
Bad debt expense............................. 80,100 - -
Compensation associated with stock options... 39,000 - -
Equity in net (gain) loss of affiliated
partnerships................................ 107,700 (70,200) -
Change in net assets from discontinued operations 1,307,600 1,853,500 (1,184,200)
Changes in operating asset and liabilities:
Short term investments....................... 311,300 (3,784,200) (1,527,100)
Receivables.................................. (218,700) (89,500) -
Other assets................................. (129,500) 1,900 (28,400)
Accounts payable and accrued expenses........ 800,700 (32,400) 126,200
---------- ---------- ----------
Cash provided by operating activities........... 3,932,800 1,247,500 570,300
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Yupi Internet Inc.............. (3,113,500) - -
Acquisitions, primarily customer base........ (443,800) - -
(Increase) decrease in investments in and
advances to affiliated partnerships........ (229,000) 219,200 (284,600)
Increase (decrease) in notes receivable...... (1,100) 7,500 8,300
Purchase of PP&E............................. (991,200) (14,400) -
---------- ---------- ----------
Cash used in investing activities.............. (4,778,600) 212,300 (276,300)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) of notes payable......... (13,000) (1,586,600) 1,586,600
Issuance (repurchase) of common stock........ 1,000,000 (235,300) (328,800)
Redemption of preferred stock................ - - (400,000)
Payment of preferred dividends............... - - (436,600)
---------- ---------- ----------
Cash provided by (used in) financing activities 987,000 (1,821,900) 421,200
---------- ---------- ----------
Effect of exchange rate changes on cash........ 19,700 - (31,200)
---------- ---------- ----------
Increase (decrease) in cash.................... 160,900 (362,100) 684,000
Cash, beginning of period...................... 321,900 684,000 -
---------- ---------- ----------
Cash, end of period............................ $ 482,800 $ 321,900 $ 684,000
========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
-48-
IFX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 1999, 1998 and 1997
Supplemental Information of Non Cash Investing
and Financing Activities and Other Cash Flow Data
1999
During the year, the Company acquired several entities (see note 7). In
connection with those acquisitions, the Company assumed liabilities in the
amount of $1,813,500 and issued stock valued at approximately $2,301,300. The
non cash effects of the acquisitions is excluded from the accompanying
consolidated statements of cash flows.
Interest paid during the years ended June 30, 1999, 1998 and 1997 was
$1,000, $53,900 and $690,300 respectively, substantially all of which was paid
to related parties. Income taxes paid during the year ended June 30, 1999, 1998
and 1997 was $1,025,000, $750,000 and $200,000, respectively. Interest payments
to customers related to discontinued operations during the year ended June 30,
1999, 1998 and 1997 was $758,600, $1,867,100 and $2,323,300, respectively.
1998
None.
1997
In January, 1997, notes payable aggregating $5,450,000 due January 31,
1997 were extended to January 31, 1998. $4,700,000 of these notes payable were
repaid prior to June 30, 1997.
In January, 1997, a note payable for $836,600 was issued to Lee S. Casty
as payment for the redemption of preferred stock and dividends accrued thereon.
-49-
IFX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION OF IFX CORPORATION
IFX Corporation ("IFX" or the "Company") has begun to pursue, and
intends to continue to pursue, the acquisition and development of Internet
access and related services businesses, initially in Venezuela, Chile, Colombia,
Argentina, Bolivia and Mexico, with the proceeds from the sale of its brokerage
assets and private equity offerings. Ultimately, IFX seeks to form a Latin
American pan-regional network of ISPs under the brand name Unete
(http://www.unete.com), such that a subscriber traveling in Latin America would
be able to access the Internet by making a local telephone call, regardless of
whether or not such subscriber was in his or her home country.
Prior to July 1996, the primary business of IFX was providing commodity
brokerage services. On July 1, 1996, IFX sold substantially all of its brokerage
assets (other than certain assets of its majority owned U.K. subsidiary) to E.D.
& F. Man International, Inc., a unit of E.D. & F. Man Group, plc, a London-based
international trading and finance conglomerate, for a purchase price consisting
of cash earn-out payments based upon the sold business's net profit (as defined
in the sales agreement) during the sixty-six months following the sale. Since
July 1996, IFX's revenues have consisted primarily of earn-out payments from
such asset sale, interest income and income from operations of the Company's
former majority-owned British subsidiary, IFX Ltd., which conducts foreign
exchange business as a registrant of the British Securities and Futures
Authority. In June 1999, IFX divested its remaining 50.1% interest in IFX Ltd.
in exchange for approximately $2.45 million, of which approximately $1.9 million
was received subsequent to June 30, 1999 (with the remainder due under a note
receivable at prime plus three-percent on or before June 30, 2000)and a
redeemable preference share entitling IFX to quarterly payments equal to
approximately 30% of the net profits (as specifically defined)of IFX Ltd.
through June 30, 2002. Through June 30, 1999, IFX received approximately $10.4
million of earn-out payments from the July 1996 sale of its brokerage assets.
Prior to January 1, 1999, the earn-out payments were based on 40% of the sold
business' profitability. In calendar 1999, the earn-out payments were based on
30% of the sold business' profitability and, in calendar years 2000 and 2001,
will be based on 20% of the sold business' profitability. The Company has not
received any earn-out payments from the sale of IFX Ltd. As a result of the
sales, the results of operations and net assets of these disposed entities have
been segregated and reclassified as discontinued operations in the accompanying
financial statements.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of IFX
Corporation and its majority-owned subsidiaries for which it has a controlling
financial interest. All material intercompany accounts and transactions,
including those related to the Company's former subsidiaries, are eliminated in
consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
-50-
The Company recognizes revenue when services are provided. Internet
access services are generally billed at the beginning of the month services are
to be provided.
Revenues from the earn-out payments related to the discontinued
operations are recorded as they are earned.
Credit Risk
The Company's accounts receivable potentially subject the Company to
credit risk, as collateral is generally not required. The Company's risk of loss
is limited due to billings to customers for services, the use of pre-approved
charges to customer credit cards, and the ability to terminate Internet access
on delinquent accounts. In addition, the concentration of credit risk is
mitigated by the large number of customers comprising the customer base. The
carrying amount of the Company's receivables approximates their fair value.
Sources of Supplies
The Company relies on third-party networks, local telephone companies,
and other companies to provide data communications capacity. Although management
feels alternative telecommunications facilities could be found in a timely
manner, any disruption of these services could have an adverse effect on
operating results.
Short-Term Investments
Short-term investment represents the Company's investments of certain
cash balances in overnight or short-term (less than 12 months) investments,
which generally consist of U.S. Government obligations. Income related to these
investments is recorded as earned. Fair value of the investments approximates
book value.
Financial Instruments
The carrying amounts for the Company's cash, short term investments,
receivables, other assets, accounts payable, accrued and expenses and notes
payable approximate fair value.
Long-Lived Assets
The Company periodically evaluates the recovery of the carrying amount
of long lived assets by determining if a permanent impairment has occurred.
Indicators of a permanent impairment include duplication of resources resulting
from acquisitions, the estimated undiscounted cash flows of the entity over the
remaining amortization period and other factors. The amount of impairment, if
any, would be measured based on comparison of the fair value and carrying vale
of the assets. The Company does not believe that any impairment has occurred at
June 30, 1999.
Investments
The Company has investments in partnerships with ownership interest of
approximately 25% and which are accounted for on the equity method. The Company
also has an interest in Yupi Internet Inc., which amounts to less than a 20%
ownership interest, and does not have the ability to exercise significant
influence over the Investee. Accordingly, the Company accounts for this
investment on the cost method.
Furniture, Equipment and Leasehold Improvements
Furniture and equipment are stated at cost. Depreciation and
amortization are provided using the straight-line method over the estimated
useful lives of the assets, commencing when assets are installed or placed in
service. Leasehold improvements are amortized using the straight-line method
over the lesser of their useful lives or the remaining terms of the leases. The
estimated useful lives generally range between 3 and 5 years.
-51-
Acquired Customer Base
The Company capitalizes specific costs incurred for the purchase of
customer bases from other Internet Service Providers ("ISPs"). The customer
acquisition costs include the actual fee paid to the selling ISP. Subscriber
acquisition costs capitalized at June 30, 1999 were approximately $2,4 million.
Amortization is provided using the straight-line method over three years
commencing when the customer base is acquired. Amortization expense for the year
ended June 30, 1999 and accumulated amortization at June 30, 1999 was
approximately $155,500 and $155,500, respectively.
Advertising and Marketing Expenses
The Company expenses all advertising and marketing expenses as they are
incurred. Advertising expenses were $247,600, $3,700 and $2,600 during 1999,
1998 and 1997, respectively.
Income Taxes
Deferred income taxes are provided to reflect the tax effects of
temporary differences between financial and tax reporting.
Risks and Uncertainties
The Company's operations are subject to certain risks and uncertainties,
including those associated with: lack of operating history and experience in the
Internet business; loss from continuing operations; negative cash flow and
fluctuations in operating results; funding expansion and acquisitions;
international expansion; dependence on key personnel; dependence on suppliers;
financing arrangement terms that may restrict operations; and pending
litigation.
Reclassification
Certain amounts previously reported have been reclassified to conform to
the current method of presentation.
Earnings per Common Share
Basic earnings per common share is based upon the weighted average
number of common shares outstanding during each year. Diluted earnings per
common share is calculated based upon the sum of the weighted average number of
shares outstanding and the weighted average number of potential common shares
outstanding. Potential common shares consist of the outstanding options.
On January 8, 1998, the Company authorized a one-for-five reverse split
of its common stock, par value $.004, effective on January 12, 1998. All
references in the financial statements and notes thereto related to number of
shares and per share amounts reflect this decrease in number of shares
outstanding.
Recent Accounting Pronouncements
Effective July 1, 1998, the Company adopted Statement of Position (SOP)
98-5, "Reporting on the Costs of Start-Up Activities", which requires that
requires costs of start-up activities and organization costs to be expensed as
incurred. The adoption of this pronouncement did not have a material effect on
the Company's financial position or results of operations.
-52-
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" which would have been effective for fiscal quarters of
fiscal years beginning after June 15, 1999. In June 1999, the FASB issues SFAS
No. 137 "Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133" which amended SFAS 133 to
change the effective date to fiscal quarters of fiscal years beginning after
June 15, 2000. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Company plans to adopt
SFAS No. 133 in fiscal 2001 and is currently assessing the impact this statement
will have on its consolidated financial statements.
Effective July 1, 1998, the Company adopted Statement of Position (SOP)
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use", which requires that certain costs for the development of internal
use software should be capitalized, including the costs of coding, software
configuration, upgrades and enhancements. The adoption of this pronouncement did
not have a material effect on the Company's financial position or results of
operations.
Foreign Currency Translation.
Foreign currency transactions and financial statements (except for those
relating to countries with highly inflationary economies) are translated into
U.S. dollars at the rate in effect on the date of the transaction or the date of
the financial statements, except that revenues, costs and expenses are
translated at average exchange rates during each reporting period. Resulting
translation adjustments and transactions gains or losses attributable to certain
intercompany transactions that are of a long-term investment nature are excluded
from results of operations and accumulated in accumulated other comprehensive
income, a separate component of consolidated stockholders' equity. Gains and
losses attributable to other intercompany transactions are included in results
of operations.
The financial statements of subsidiaries located in countries with
highly inflationary economies are remeasured as if the functional currency were
the U.S. Dollar. The remeasurement creates translation adjustments that are
reflected in net income.
Comprehensive Income
As of July 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". The adoption of this Statement had no impact on the
Company's net income or stockholders' equity. SFAS No. 130 establishes new rules
for the reporting and display of comprehensive income and its components. SFAS
No. 130 requires foreign currency translation adjustments to be included in
other comprehensive income. Prior to the adoption of SFAS No. 130, the Company
reported such adjustments in a separate component of stockholders' equity. For
the twelve months ended June 30, 1999 and June 30, 1998, comprehensive income
was $1,421,800 and $3,366,700, respectively.
Disclosure of reclassification amounts:
Foreign currency translation arising during
prior periods included in net income due to
the discontinued operations discussed in note 3 $45,700
Foreign currency translation arising during the period (26,000)
---------
Net foreign currency translations $19,700
=======
-53-
NOTE 3 - DISCONTINUED OPERATIONS
In June 1999, IFX divested itself of its 50.1% interest in IFX Ltd. in
exchange for approximately $2.45 million and a redeemable preference share
entitling IFX to quarterly payments equal to approximately 30% of the net
profits, as specifically defined, of IFX Ltd. through June 30, 2002. Following
the sale of its U.K. subsidiary, IFX decided not to invest the sales proceeds in
the trading business and, instead, decided to continue to develop businesses in
the Internet industry. Accordingly, the Company has accounted for this disposal,
and the disposal of operations related to the same business segment made in
prior years, as noted below, as discontinued operations.
On May 31, 1996, an agreement was reached to sell, transfer and assign
to MINC substantially all of the brokerage accounts maintained by Index,
together with all positions, securities and other assets held in or for such
accounts and other agreed-upon assets used in the conduct of the brokerage
activities. MINC is a unit of E.D.& F. Man Group, plc, a London-based
international trading and finance conglomerate. This sale was completed as of
July 1, 1996. During 1997, Index ceased being a clearing member at all
exchanges, and ceased being a registered futures commission merchant.
The purchase price payable by MINC in connection with this transaction
is based on a percentage of the net income (as defined in the sales agreement)
of the transferred activities during the sixty-six month period following the
sale. As the purchase price is contingent upon the future earnings of the
customer accounts sold, none of which is guaranteed, income is recognized as
earned beginning in fiscal year 1997, over the five and one-half years after the
date of the sale. The sales contract required Lee S. Casty to sign a
non-competition agreement. As compensation for providing such an agreement, a
portion of the purchase price was to be paid to Lee S. Casty. Mr. Casty
irrevocably transferred his right to receive payments under such agreement to
the Company. Accordingly, a portion of the purchase price which would otherwise
have been received by Lee S. Casty is being included in revenue by the Company.
In addition, in conjunction with the sale, the Company issued a limited
indemnification agreement to MINC. The agreement covers potential customer
claims arising from activity prior to the sale.
Given the Sale of Assets, the Company no longer has a need to own
exchange memberships or clearing corporation stock. All memberships and stock
owned were sold during fiscal 1997 at a net gain of $737,700. During the years
ended June 30, 1998 and 1997, the Company earned $4,159,600 and $2,157,900,
respectively, from the Sale of Assets. Earnings from these transactions are
included in discontinued operations.
The following table summarizes financial information related to the
discontinued trading business:
Year Ended June 30,
-----------------------------------------------
1999 1998 1997
----------- ----------- -----------
Total revenues.................................. $11,409,200 $12,244,600 $12,422,000
=========== =========== ===========
Income from discontinued
operations before income taxes.............. 4,785,500 5,852,400 6,067,600
Income tax provision on discontinued operation.. 1,667,900 2,277,200 2,455,500
----------- ----------- -----------
Income from discontinued operations, net of taxes. 3,117,600 3,575,200 3,612,100
=========== =========== ===========
The information set forth in the remaining Notes to the Financial
Statements relates to continuing operations unless otherwise specified.
-54-
NOTE 4 - FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements are summarized below:
June 30,
------------------------------------
1999 1998
----------------- ---------------
Furniture.......................... $176,600 $14,400
Equipment.......................... 1,833,100 -
Leasehold improvements............. 243,800 -
----------------- ---------------
$2,253,500 $14,400
Less: Accumulated depreciation and
amortization................. (369,300) (1,700)
----------------- ---------------
Net ............................... $1,884,200 $12,700
================= ===============
NOTE 5 - NOTES PAYABLE
In connection with certain acquisitions, the Company assumed notes
payable aggregating to a principal amount of approximately $300,000.
NOTE 6 - STOCKHOLDERS' EQUITY
Class A Preferred Stock
As of June 30, 1999, there were no Class A preferred shares outstanding.
On January 31, 1997, the Company redeemed and retired the 400,000 issued and
outstanding shares of its Class A preferred stock, all of which were owned by
Lee S. Casty. The preferred stock was redeemed at a price equal to the aggregate
par value thereof plus the cumulative but previously undeclared and unpaid
dividends thereon, totaling $836,600. As payment, the Company issued Lee S.
Casty a promissory note bearing interest at the prime rate and maturing on
January 31, 1998. This note was repaid in February, 1998.
Common Stock
On January 8, 1998, the Company authorized a one-for-five reverse split
of its common stock, par value $.004, effective on January 12, 1998 (the
"Effective Date"). Each five shares of such common stock was reclassified and
reflected as one share of common stock having a par value of $.02, as of January
12, 1998. Outstanding shares of the Company's common stock were reduced to
6,279,130 shares from 31,395,649 shares outstanding before the split.
Any holder of fractional shares resulting from this reverse split was
paid an amount equal to the mean between the bid and the offer prices for the
Company's Common Stock on the NASDAQ SmallCap market on the Effective Date
multiplied by the amount of the fractional share. The one-for-five reverse split
also resulted in certain shareholders owning "odd lots," that is, less than one
hundred shares of Common Stock. In order to reduce the disproportionately high
costs to the Company of servicing numbers of such shareholder accounts, and to
enable those shareholders to dispose of their securities without incurring the
brokerage fees that normally attend odd-lot transactions, the Company offered to
purchase from its shareholders all odd lots (i.e., holdings of less one hundred
shares). The purchase amount was based upon the number of odd-lot shares
multiplied by the mean between the bid and offer prices on the date of purchase,
without commissions. The Company maintained its offer to repurchase such odd
lots until February 26, 1998, forty-five days immediately following the
Effective Date. As a result of the odd-lot offer, the Company repurchased
approximately 3,500 shares.
The Company has issued approximately 674,700 shares in fiscal 1999. As
of June 30, 1999, there were 6,830,240 outstanding shares of common stock and
6,500,000 shares of the Company's common stock reserved for stock options and
warrants.
-55-
Sale of Stock and Right to Purchase Common Stock
The Company entered into an agreement (the "Agreement") with
International Technology Investments, LC ("ITI"), a then unrelated third party,
and another major shareholder pursuant to which the Company formed Emerging
Networks Inc., a 100% owned subsidiary, and other related companies to pursue
opportunities in providing Internet services in Latin America and other
international locales. In connection with the Agreement, the Company issued to
ITI 500,000 shares of Common Stock and the right to purchase up to 5,500,000
additional shares of Common Stock for $2.00 per share (the "Purchase Right"),
for a total price of $1,000,000, effective November 23, 1998.
STOCK BASED COMPENSATION PLANS
Employee Stock Option Plan
Under the Company's 1998 Stock Option Plan, as amended (the "Stock
Option Plan"), 900,000 shares of common stock are reserved and authorized for
issuance upon the exercise of options. The compensation committee (the
"Committee") of the Board of Directors administers the Stock Option Plan and
determines who is eligible. Options generally become exercisable as follows: (i)
25% of the options become exercisable one year after the date of grant or, in
certain cases, the commencement date of the holder's employment; (ii) an
additional 25% of the options become exercisable 2 years after the date of grant
or, in certain cases, the commencement date of the holder's employment; (iii) an
additional 25% of the options become exercisable 3 years after the date of grant
or, in certain cases, the commencement date of the holder's employment; (iv) the
remaining 25% of the options become exercisable 4 years after the date of grant
or, in certain cases, the commencement date of the holder's employment. The
Option Price may be greater than, less than, or equal to Fair Market Value on
the Option Date, as determined in the sole discretion of the Committee. In
fiscal year 1999, the Company granted approximately 372,000 options (including
Directors Stock Option Grant) to employees during fiscal 1999.
Directors Stock Option Grant
In November 1998, the Board of Directors granted to the Company's
President an option to purchase 300,000 shares of Common Stock, exercisable at
$3.00 per share (the price of the stock as reported by the NASDAQ Stock Market
as of the date of the grant was $1.75 per share), which is included in number of
options granted under the Stock Option Plan. This option vested 25% on each of
November 10, 1998 and January 1, 1999 and will vest an additional 25% on each of
January 1, 2000 and January 1, 2001.
Statement of Financial Accounting Standards No. 123
The Company has elected to account for its stock based compensation
plans under Accounting Principle Board Opinion number 25, Accounting for Stock
Issued to Employees (APB No.25); however, the Company has computed for pro forma
disclosure purposes the value of all options granted during 1999 using the
Black-Scholes option-pricing model as prescribed by SFAS No. 123 using the
following weighted average assumptions used for grants in 1999:
1999
---------
Risk-Free Interest Rate 5.50%
Expected Dividend Yield 0.00%
Expected Lives 5.0 years
Expected Volatility 1.25
-56-
The total value of options granted during 1999 was computed as
approximately $1,929,000.
1999
----------
Net Income As reported $1,402,200
Pro forma $1,288,600
Basic and diluted As reported $ 0.22
Earnings per share Pro forma $ 0.20
A summary of the status of the Company's option plan at June 30, 1999
and the changes during the year then ended are presented in the following table:
Weighted Average
Shares Exercise
(In Thousands) Price Per Share
-------------- ----------------
June 30, 1998
- -------------
Grants 372,000 $5.19
Exercised 0 0.00
Cancelled 0 0.00
Forfeitures 0 0.00
--------
June 30, 1999 372,000 $5.19
========
The weighted average fair value of options granted during 1999 was
$3.59.
The following table summarizes the number of options outstanding by year
of grant:
Weighted Weighted Average
Exercise Average Remaining Contractual
Year of Grant Number of Shares Price Range Exercise Price Life
- ------------- ---------------- -------------- -------------- ---------------------
June 30, 1999 72,000 $4.63 - $22.50 $14.30 9.9 years
June 30, 1999 300,000 $3.00 $ 3.00 9.4 years
The following table summarizes the options exercisable as of June 30,
1999:
Weighted Weighted Average
Average Remaining Contractual
Year of Grant Number of Shares Exercise Price Life
- -------------- ---------------- -------------- ----------------------
June 30, 1999 150,000 3.00 9.4 years
-57-
NOTE 7 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
YEAR ENDED JUNE 30,
1999 1998 1997
------------ ------------- ------------
Numerator for basic earnings per share
Loss from continuing operations.......................... $(1,715,400) $ (208,500) $ (428,300)
Assumed cumulative dividend on Class A Preferred Stock... - - (23,300)
----------- ----------- -----------
Loss from continuing operations available to common
shareholders.......................................... (1,715,400) (208,500) (451,600)
=========== =========== ===========
Income from discontinued operations...................... 3,117,600 3,575,200 3,612,100
=========== =========== ===========
Net income 1,402,200 3,366,700 3,183,800
Assumed cumulative dividend on Class A Preferred Stock... - - (23,300)
----------- ----------- -----------
Net income available to common shareholders.............. 1,402,200 3,366,700 3,160,500
=========== =========== ===========
Denominator
Denominator for basic and diluted per share
Weighted average shares................................ 6,498,204 6,246,545 6,616,893
=========== =========== ===========
Outstanding options and warrants to purchase shares of the Company's
Common Stock at June 30, 1999, 1998 and 1997 were excluded from the computation
of diluted earnings per share because their effect on loss per share from
continuing operations was antidilutive.
NOTE 8 - RELATED PARTY TRANSACTIONS
The Company has a note receivable in the amount of $612,500 at June 30,
1999, in connection with advances made by the Company to an affiliated entity.
This demand receivable was converted into a demand note bearing interest at 8%
and was subsequently changed to the prime rate of interest. The Company earned
$39,400, $52,400 and $51,700 of interest income on this note during the years
ended June 30, 1999, 1998 and 1997, respectively.
NOTE 9 - ACQUISITIONS
During fiscal 1999, the Company acquired Interaccess, S.A., a Chilean
corporation, International Connection Service 1500, C.A., a Venezuelan
corporation, Zupernet Ltda., a Bolivian limited liability company and Interweb
Mexico S.A. de C.V., a Mexican corporation, for total purchase prices of
approximately $2,907,700, of which approximately $488,500, which includes cash
acquired of $44,700, was paid in cash, approximately $117,800 was paid
subsequent to year end, approximately $2,061,600 was paid by issuing
approximately 174,000 shares of the Company's common stock and approximately
$239,800 was paid by issuing options to purchase 25,000 shares of the Company's
common stock for $10.00 per share for a period of 5 years.
-58-
In addition, the Company is obligated to pay the sellers additional purchase
price based on the number of users, as defined by the respective agreements,
existing at the end of a period ranging from 6 to 18 months times a per user
amount ranging from $175 to $285. The additional amounts are to be paid in cash,
issuing shares of the Company's common stock or a combination of cash and common
stock. The Company did not record any of the additional purchase price due to an
estimate of the number of users that exists at the end of the contingency period
not being known beyond a reasonable doubt. Each of the acquisitions was
accounted for under the purchase method of accounting. The purchase price in
excess of the net tangible assets aggregated approximately $2,125,000 and was
allocated to Acquired Customer Base. This allocation is preliminary and is
subject to finalization of the Company's valuation analysis. The Acquired
Customer Base is being amortized using the straight-line method over an
estimated life of 3 years. The consolidated financial statements include the
accounts of these acquisitions since the date of purchase.
The following unaudited pro forma data summarize the results of
operations for the periods indicated as if these acquisitions had been completed
on July 1, 1997, the beginning of the 1998 fiscal year. The pro forma data gives
effect to actual operating results prior to the acquisitions and adjustments to
goodwill amortization and income taxes. These pro forma amounts do not purport
to be indicative of the results that would have actually been obtained if the
acquisitions had occurred on July 1, 1997 or that may be obtained in the future.
The pro forma data does not give effect to acquisitions completed subsequent to
June 30, 1999.
Year ended June 30
-------------------------
1999 1998
---------- ----------
(Unaudited)
Total revenues.............................. $2,557,800 $1,853,100
Net income.................................. 394,900 2,189,200
Basic and diluted net income per common
share................................... $0.06 $0.35
NOTE 10 - GEOGRAPHIC INFORMATION
In fiscal 1999, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosure About Segments of an Enterprise and Related
Information". The new standard changes the information the Company reports about
its operating segments. Operating segment information for prior years has been
restated to conform to the 1999 presentation.
The Company is structured primarily around the geographic markets it
serves and operates three reportable segments in Mexico, Venezuela and Chile.
All of the segments provide internet connectivity services. The accounting
policies of the segments are the same as those described in the Significant
Accounting Policies footnote. The Company evaluates performance based on profit
or loss from operations before income taxes excluding interest income and
expense, equity income, and gains or losses from securities and other
investments.
The Company does not derive more than 10% of its revenue from any
individual customer.
-59-
Selected financial information for the year ended June 30, 1999 by
segment is presented below:
United States Mexico Venezuela Chile Other Total
Revenues....... $ - $ 137,600 $ 335,000 $ 200,200 $ 52,500 $ 725,300
Income (loss)
from
continuing
operations
before taxes.. $(1,394,700) $(104,400) $ (16,000) $ (77,800) $ (933,500) $(2,526,400)
Assets......... $ 6,580,900 $ 990,600 $1,785,400 $1,623,300 $7,881,300 $18,861,500
Information by product lines is presented on the Consolidated Statement
of Operations. The Company does not allocate long lived assets to those product
lines.
NOTE 11 - INCOME TAXES
The benefit for Federal income taxes for each of the years
ended June 30, is as follows:
1999 1998 1997
--------- --------- ---------
Current $ 811,000 $ 108,000 $ 220,000
Deferred 0 0 0
--------- --------- ---------
Total provision $ 811,000 $ 108,000 $ 220,000
========= ========= =========
State income tax expense is immaterial for the years ended June 30,
1999, 1998 and 1997.
Reconciliation of the total provision for income taxes to the Federal
statutory rate for the years ended June 30, is as follows:
1999 1998 1997
------ ------ ------
Income tax provision (benefit)
at statutory rate (34)% (34)% (34)%
State Income Tax and other 2 % 0 0
----- ----- -----
Total income tax provision (benefit) (32)% (34)% (34)%
===== ===== =====
The Company has no material deferred tax assets or liabilities related
to continuing operations for the years ended June 30, 1999, 1998 or 1997
NOTE 12 - COMMITMENTS AND CONTINGENCIES
The Company maintains facilities and offices at various locations
throughout the United States and Latin America for general corporate purposes,
including technology centers, customer call centers, office space and
headquarters. At June 30, 1999, the operating lease commitments for these
facilities represented approximately $2,182,000 through the year 2004.
The majority of this commitment is related to office space leased in
Chicago. While the Company remains legally committed under terms of that lease,
subsequent to August 28, 1998, the Company subleased all of that space, through
-60-
the end of the lease term.
Lease expenses related to continuing operations, amounted to $60,400,
$28,800 and $28,800 in 1999, 1998 and 1997 , respectively.
In 1999, the Company entered into lease agreements in the United States
for offices in Aventura, Florida and Northbrook, Illinois; and internationally,
for offices in Argentina, Bolivia, Chile, Colombia, Mexico and Venezuela.
A list of the operating lease commitments as of June 30, 1999 is as
follows:
Operating Leases
----------------
2000 $ 776,700
2001 657,100
2002 546,900
2003 134,600
2004 67,100
-----------
Total Lease Obligations 2,182,400
Sublease Income (Chicago Office) (1,223,900)
-----------
Net Lease Obligations $ 958,500
===========
Consulting Agreements
At June 30, 1999, the Company had entered into several consulting agreements.
The terms of the consulting agreements are from one to three years and the
Company is obligated to pay approximately $198,000 in cash and issue a minimum
of 44,000 and a maximum of 69,000 options to purchase shares of the Company's
common stock the number of which is based on certain performance criteria. The
exercise prices of the options ranges from approximately $2 per share to $13 per
share, the options are exercisable over periods ranging from 3 to 10 years,
vesting over periods ranging from 1 to 4 years. For the grants for which the
quantity and terms are unknown at the date of grant and there is not significant
disincentive for nonperformance, the Company records expense associated with the
grants, based fair value of options issuable as of June 30, 1999, using Black
Scholes pricing model. Compensation expense associated with these grants was
approximately $17,000 for the year ended June 30, 1999. These grants will be
revalued at the end of each quarter based on the fair value of the options at
that date. For the grants for which the quantity and terms are known at the date
of grant and there is significant disincentive for nonperformance compensation
expense is recorded based on the value of the options, using the Black Scholes
model, at the date of grant. The amount of related expense amounted to
approximately $19,000.
Acquisition Agreements
The Company may be obligated to pay cash or issue shares of its common
stock for additional purchase price as discussed in Note 7, however, the
additional purchase price to be paid, if any, and the amount of such additional
purchase price are not known.
Other
A limited indemnification agreement was issued to MINC related to the
Sale of Assets. This agreement covers potential customer claims arising from
activity prior to the sale.
The Company has guaranteed certain liabilities of a limited partnership
to Qwest/LCI, International. The general partner of this limited partnership is
-61-
owned by an officer of the Company. There is no maximum amount payable under
this guarantee. However, the Company does not expect that the potential
liability will exceed $100,000 based on the business of the limited partnership.
NOTE 13 - LITIGATION
The Company is a defendant in, and may be threatened with, various legal
proceedings arising from its regular business activities. Management, after
consultation with legal counsel, is of the opinion that the ultimate liability,
if any, resulting from any pending action or proceedings will not have a
material effect on the financial position or results of operations of the
Company.
Legal Proceedings With Respect to Discontinued Operations. On May 16,
1996, Index filed suit in the Circuit Court of Cook County--Law Division against
Doug Niemann, a former customer, for breach of contract, seeking to recover a
debit balance of $88,200 (Index Futures Group, Inc. v. Doug Niemann, case no.
96L-5506). On January 14, 1997, Niemann filed a counterclaim for $688,200. The
Company believes that the counterclaim is without merit and will defend
vigorously.
In April 1994, Index, without admitting or denying the allegations, paid
$100,000 to the CFTC, settling an administrative action filed on September 29,
1992. In a related action, the equity receiver of a commodity pool operator
brought an action to recover losses of approximately $600,000, alleging various
theories such as constructive trust, negligence, breach of fiduciary duty and
conversion. On May 29, 1996, the district judge dismissed the complaint in its
entirety. On December 4, 1997, the Court of Appeals affirmed the district
judge's dismissal of all claims against Index. On January 13, 1998, the Court of
Appeals denied the Supplemental Plaintiffs' request for a rehearing of its
appeal. On October 2, 1998, the attorney for the equity receiver of the
commodity pool filed a class-action suit on behalf of a putative class composed
of persons who had given money to the commodity pool operator to invest, some of
which was deposited in brokerage accounts at Index by the commodity pool
operator. (Wesselhoff v. FX Chicago, Inc. et al., Circuit Court of Cook County,
Chancery Division, case number 98-CH-13396). The plaintiff seeks damages of
$600,000 plus prejudgment interest, punitive damages, and lost investment
opportunity. The Company believes that the allegations in the complaint against
FX Chicago, Inc. and the Company are without merit and will defend vigorously.
A German citizen, seeking damages of 6,403,519.19 Deutschmark
(approximately $3,420,000 given the exchange rate as of September 25, 1990),
filed a lawsuit in September 1998, in Germany, against an affiliate of MINC. The
complaint arouse out of transactions that occurred in an account introduced by
Index Futures Group, AG ("Index AG"), an introducing broker of Index, prior to
the Sale of Assets. The Plaintiff alleges that under German law, MINC's
affiliate is successor to Index AG, and thus assumed any liabilities of Index
AG. Pursuant to the Sale of Assets agreement, Index is responsible for any
liability "arising out of any state of facts with respect to such Assigned
Contract existing on or prior to the Closing Date". MINC has retained counsel in
Germany to represent its interests in this matter. As Index AG was an
introducing broker of Index and not a former subsidiary of the Company or Index,
the Company does not believe that it will ultimately be liable for damages. In
April 1999, MINC's German counsel reported that the Dusseldorf District Court
dismissed all claims against MINC. However, the plaintiff has filed an appeal
with the Dusseldorf Court of Appeals.
On October 27, 1998, a complaint was filed by James Feltman as
liquidating agent of L. Luria & Son, Inc. (Case No. 97-16731-BKC-RAM) seeking
recovery from the Company of $368,188.84. Starting in the winter of 1996, the
Company entered into an arrangement with the suppliers of L. Luria & Son, Inc.
pursuant to which the Company advanced funds on behalf of L. Luria & Son, Inc.
in order to allow it to purchase inventory. L. Luria & Son, Inc. reimbursed the
Company for amounts that it had advanced. The complaint alleges that the Company
was an insider of L. Luria & Son, Inc. because of Joel Eidelstein's relationship
to L. Luria & Son, Inc. and that the amounts that L. Luria & Son, Inc. paid the
Company constituted preferences under the Bankruptcy laws. On March 1, 1999, the
Company reached an agreement to settle this complaint for $92,222.
-62-
On December 28, 1998, John and Christina Blazina, filed an NFA
arbitration against Index and others, alleging breach of fiduciary duty, fraud,
breach of contract and negligence in the solicitation and trading of a series of
managed accounts opened at Index in 1995. Claimant seeks an award of $500,000,
composed of alleged actual damages of $262,500, punitive damages of $170,000 and
various other costs and fees. The Company believes that the allegations are
without merit and will defend vigorously.
On August 23, 1999, a lawsuit was filed in the Circuit Court of Cook
County naming Index and two individuals as defendants (Craig Bordon v. Sean S.
Mayo, et al., 99L-09368). The complaint alleges breach of contract and damages
"in excess of" $50,000. The Company has not yet been served with the complaint.
Based upon the allegations as set forth in the complaint, the Company believes
that the claim is without merit.
NOTE 14 -SUBSEQUENT EVENTS
Acquisitions and Recent Developments
On July 2, 1999, the Company, through a wholly owned subsidiary,
purchased all of the capital stock of Interactiva, SA. ("Interactiva"), an ISP
based in Santiago, Chile. The aggregate purchase price was approximately
$420,000 to be paid in cash.
On July 21, 1999, the Company, through a wholly owned subsidiary,
purchased all of the capital stock of Sistema de Diseno y Manufactura S.A. de
C.V. ("SDM Net"), an ISP based in Monterrey, Mexico. The Company intends to
consolidate the operations acquired from SDM Net into Interweb de Mexico in
Mexico City. The aggregate purchase price was approximately $646,000, 50% of
which was paid or payable in cash and 50% to be paid by issuing shares of the
Company's common stock.
On August 20, 1999, the Company, through a wholly owned subsidiary,
purchased all of the capital stock of e-Net Teleinformatica Ltda ("e-Net"), an
ISP operating in Salvador, Brazil. The aggregate purchase price was
approximately $3.1 million, 20% of which is to be paid in cash and 80% to be
paid by issuing shares of the Company's common stock.
On August 23, 1999, the Company, through a wholly owned subsidiary,
purchased all of the capital stock of Vianet S.A. de C.V. ("Vianet"), an ISP
located in San Salvador, El Salvador. The aggregate purchase price was
approximately $1 million, to be paid by issuing shares of the Company's common
stock.
On August 24, 1999, the Company, through a wholly owned subsidiary,
purchased all of the capital stock of ITS Networks S.A. ("ITS Networks"), an ISP
located in Tegucigalpa, Honduras. The aggregate purchase price was approximately
$200,000, to be paid by issuing shares of the Company's common stock.
During August and September 1999, International Technology exercised its
right to purchase 1,500,000 share of the Company's common stock for $3.0
million, 750,000 shares have been issued, the Company is committed to release
the remaining 750,000 shares.
Credit Facility
On August 1999, the Company entered into an agreement with Lucent
Technologies Inc., providing the Company with the option to purchase up to $10
million of Lucent equipment. Under the agreement, Lucent will provide the
Company with up to $10 million in networking equipment to upgrade and expand the
Company's Internet operations, but the Company is under no obligation to
purchase equipment from Lucent.
-63-
On July 1999, the Company entered into an $500,000 lease agreement with
SoftBank to provide the financing of the implementation of the Portal
software(R). Under the terms of the agreement, Portal will develop a
consolidated billing and accounts receivable system that will allow the Company
to provide invoicing services to it's customers across all Latin America.
On August 1999 the Company signed a five-year lease for new space in
Hallandale, Florida, to commence October 1, 1999. This lease provides for
aggregate payments totaling approximately $535,873 over the next 5 years.
NOTE 15 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarters ended
----------------------------------------------------------------
9/30/98 12/31/98 3/31/99 6/30/99 Total
------- -------- ------- ------- -------
Revenue - - - $ 725,300 $ 725,300
========== ==========
Loss from continuing operations $(123,500) (135,700) (542,000) (914,200) (1,715,400)
Income from discontinued operations
946,700 784,800 1,036,000 350,100 3,117,600
Net income (loss) 823,200 649,100 494,000 (564,100) 1,402,200
Per share - basic and diluted:
Continuing operations $(0.02) $(0.02) $(0.08) $(0.13) $(0.26)
Discontinued operations $ 0.15 $ 0.12 $ 0.16 $ 0.05 0.48
Net income $ 0.13 $ 0.10 $ 0.07 $(0.08) 0.22
Weighted average numbers of shares 6,155,539 6,367,496 6,655,539 6,778,108 6,498,204
Quarters ended
----------------------------------------------------------------
9/30/97 12/31/97 3/31/98 6/30/98 Total
------- -------- ------- ------- -------
Revenue - - - - -
Income (loss) from continuing
operations $ (87,300) $ (126,400) $ (32,100) $ 37,300 $ (208,500)
Income from discontinued
operations 974,900 899,800 796,800 903,700 3,575,200
Net income (loss) 887,600 773,400 764,700 941,000 3,366,700
Per share - basic and diluted:
Continuing operations $(0.01) $(0.02) $(0.01) $0.01 $(0.03)
Discontinued operations $ 0.16 $ 0.14 $ 0.13 $0.14 0.57
Net income $ 0.15 $ 0.12 $ 0.12 $0.15 0.54
Weighted average numbers of shares 6,279,130 6,279,130 6,278,584 6,215,579 6,246,545
The Quarterly information presented above, except for net income and
basic net income per share, differs from amounts previously reported due to the
reclassification of certain revenues and operating expenses to discontinued
operations, reflecting the disposition of the Company's trading business.
-64-
SCHEDULE II
IFX CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
(For Continuing Operations)
Additions
---------------------
Charged to
(Benefits Charged
Balance at Against) to Other Balance
Beginning Costs and Accounts Deductions at End of
Description of Period Expenses (Describe) (Describe) Period
- ----------- ---------- ---------- ---------- ---------- ---------
Allowance for doubtful accounts
For the year ended June 30, 1999(a) $ -0- $ 80,100 -0- $ -0- $ 80,100
For the year ended June 30, 1998(a) $ -0- -0- -0- -0- $ -0-
For the year ended June 30, 1997(a) $ -0- -0- -0- -0- $ -0-
- -------------------------------
(a) Activity for 1997 and 1998 reclassified to net assets of discontinued
operations.
-65-
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IFX CORPORATION
- -----------------------------------------------------------------------------
By: /S/JOSE LEIMAN
--------------------------------------------------------------------------
Jose Leiman, Chief Financial Officer
Date: September 28, 1999
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints Jose Leiman his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution for him or her in his or her name,
place and stead, in any and all capacities, to sign this Form 10-K and all
amendments thereto and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission
under the Securities Exchange Act of 1934.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Form 10-K has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/S/JOSE LEIMAN Chief Financial Officer September 28, 1999
- --------------------- (Principal Financial and
Jose Leiman Accounting Officer)
/S/MICHAEL SHALOM Chief Executive Officer September 28, 1999
- --------------------- (Principal Executive Officer)
Michael Shalom
/S/JOEL M. EIDELSTEIN President and Director September 28, 1999
- ---------------------
Joel M. Eidelstein
/S/GEORGE A. MYERS Director September 28, 1999
- ---------------------
George A. Myers
/S/COLLEEN M. DOWNES Vice President and Director September 28, 1999
- ---------------------
Colleen M. Downes
/S/ZALMAN LEKACH Vice President and Director September 28, 1999
- ---------------------
Zalman Lekach
/S/JOSEPH M. MATALON Director September 28, 1999
- ---------------------
Joseph M. Matalon
/S/BURTON J. MEYER Director September 28, 1999
- ---------------------
Burton J. Meyer