Ideal Financial Solutions, Inc.(fka IFSL)

[Charlie48]

jrock-- from here:

http://www.otcmarkets.com/edgar/GetFilingHtml?FilingID=7422550


Dependence on a Concentrated Number of Customers


We have many thousands of customers and are not reliant upon any single customer or group of major customers. During our most recent fiscal year, no customer accounted for more than 1% of our revenue.


During the first eight months of 2009, 83% of our new client revenue was the result of customers referred to us by ALM, a marketing partner. In August 2009, this lead provider ceased providing leads to the Company. During the first quarter of 2010, over 82% of our new client revenue was the result of customers referred to us by XM Brands, a marketing partner. Our relationship with this partner was terminated in April 2010.

We have entered into agreements with other lead providers and entered into cost per acquisition arrangements, upon which we may become substantially dependent upon in the future. Our relationships with lead providers have historically been unstable and, as a result, our revenue may increase or decrease significantly for period-to-period as a result of the addition or loss of a significant lead provider. Our dependence on third-party referral sources for new customers creates a risk that the termination of such relationship will lead to a significant reduction in revenues and revenue growth.


Intellectual Property


Proprietary Intellectual Property . None of our products or services is subject to any patents, patent applications or registered copyrights. We believe that our primary software application, Cashflow Management Tool, is protected by common law copyrights; however, to protect our Cashflow Management Tool software and other innovations, we rely principally on trade secret and contract law in the United States to protect our proprietary rights. We generally enter into confidentiality agreements, “work-made-for-hire” contracts and intellectual property licenses with our employees, consultants and corporate partners, respectively, as part of our efforts to control access to and distribution of our technologies, content and other proprietary information. We also do not grant to our customers rights to access our software source code. These agreements and our policies are intended to protect our intellectual property, but we cannot assure that these agreements or the other steps we have taken to protect our intellectual property will be sufficient to prevent theft, unauthorized use or unauthorized disclosure. Despite our efforts to protect our proprietary rights from unauthorized use or disclosure, our efforts may not be sufficient or successful. It may be possible that some of our innovations may not be protectable. If third parties were to use or otherwise misappropriate our source code, other copyright materials, trademarks, service marks or other proprietary rights without our consent or approval, our competitive position could be harmed, or we could become involved in costly and distracting litigation to enforce our rights.


We have not registered any trademarks with the U.S. Patent and Trademark Office or filed any application for the registration of the trademarks.

Licensed Intellectual Property . The iBillManager component of our Cashflow Management Tool interfaces with a third-party, electronic bill-payment system licensed from Metavante; Metavante was recently acquired by Fidelity. The services agreement pursuant to which we offer iBillManager is subject to termination by either party upon 90 days advanced notice at the end of each annual renewal of the agreement. If Metavante were to terminate, or decline to renew, such agreement, we believe that we could identify a suitable replacement service; however, we may not be able to acquire and integrate such replacement service on a timely basis and such service may not including identical features and may have less favorable pricing.

Government Regulation

Other than business license requirements, laws and regulations applicable to substantially all entities in the jurisdictions in which we operate, we do not need any material government approvals in connection with our businesses and are not subject to material government regulation.


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Research and Development


The Company spent $3,000 on research and development during 2009 and $8,000 on research and development during 2008, none of which was funded by customers.


Environmental Laws


We do not used hazardous substances in our operations and have not incurred, and do not expect to incur, material costs associated with compliance with environmental laws at the federal, state and local levels.


Employees


The Company employs eight full-time employees, of which five work in management and three are administrative. The Company has one part-time, administrative employee.


Item 1A. Risk Factors


Investing in our Common Stock involves a high degree of risk. You should carefully consider the risks described below, and all of the other information set forth in this Form 10 before deciding to invest in shares of our Common Stock. In addition to historical information, the information in this Form 10 contains forward-looking statements about our future business and performance. Our actual operating results and financial performance may be different from what we expect as of the date of this Form 10. The risks described in this Form 10 represent the risks that management has identified and determined to be material to our company. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, may also materially harm our business operations and financial condition.


Our operating results have fluctuated significantly in the past and will continue to fluctuate in the future, which could cause our stock price to decline.


Our operating results have fluctuated significantly in the past, and we believe that they will continue to fluctuate in the future, due to a number of factors, many of which are beyond our control. Factors that may affect our operating results include the following:


· additions and losses of customers;

· additions or losses of marketing and referral partners , or changes in the number or quality of clients referred by continuing marketing and referral partners;

· our ability to enhance our services and products with new and better functionality;

· costs associated with obtaining new customers, improving our products and expanding our management team and number of advisors;

· new product announcements or introductions or changes in pricing by our competitors;

· technology and intellectual property issues associated with our products; and

· general economic trends, including the level of concern by the general public about debt and debt reduction.


If in future periods our operating results do not meet the expectations of investors, our Common Stock price may fall.


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We may be unable to raise capital needed to pay current liabilities or for operations going forward or may be required to pay a high price for capital. Due to our large working capital deficit of $1,170,845, we may not have enough capital to fund operations.

As of June 30, 2010, our current liabilities exceeded our current assets by $1,170,845. We may need as much as $1 million from operations or financing in order to pay obligations and continue operations. We also expect our general and operating expenses to increase by approximately $150,000 in 2010 as we become subject to the public company reporting requirements, and we expect that amount to increase significantly in 2011 as we become subject to certain internal control requirements.

If cash generated from operations does not increase as expected, or we experience unexpected increases in expenses, we will likely need to raise additional capital. We may not be able to raise the additional capital needed or may be required to pay a high price for capital. Factors affecting the availability and price of capital may include the following:


· the availability and cost of capital generally;

· our financial results;

· the experience and reputation of our management team;

· market interest, or lack of interest, in our industry and business plan;

· the price and trading volume of, and volatility in, the market for our Common Stock;

· our ongoing success, or failure, in executing our business plan;

· the amount of our capital needs; and

· the amount of debt, options, warrants and convertible securities we have outstanding.



We may be unable to meet our current or future obligations or to adequately exploit existing or future opportunities if we cannot raise sufficient capital, which in the long run may lead to a contraction of our business and losses.

We are dependent on a concentrated number of referral sources, and a material reduction of new referrals from any of our significant referral sources would harm our financial results. The relationship with our biggest lead provider, which accounted for 83% of our new client revenue during the first eight months of 2009, was terminated in 2009, as was a separate relationship that accounted for over 90% of our revenue in the first quarter of 2010.

Historically, a significant portion of our revenues has been referred through a limited number of lead providers. In August 2009, our relationship with a lead provider that had referred to us customers accounting for 83% of our new client revenue during the first eight months of 2009 terminated. In April, 2010, our relationship with a lead provider that had referred to us customers accounting for over 90% of our new client revenue in the first quarter of 2010 was terminated. On average, we lose approximately 20% of our new customers per month and retain only about 20% of new customers longer than five months. As a result, the termination of this relationship is expected to lead to a decline in the growth rate, and possible a decline in revenue in 2010.


We have entered into agreements with other lead providers and entered into cost per acquisition arrangements, upon which we may become substantially dependent upon in the future. Our relationships with lead providers have historically been unstable and, as a result, our revenue may increase or decrease significantly for period-to-period as a result of the addition or loss of a significant lead provider. Our dependence on third-party referral sources for new customers creates a risk that the termination of such relationship will lead to a significant reduction in revenues and revenue growth.

In addition, we have recently received a demand that we reimburse a credit card processing company for a $707,500 fine arising from new customer relationships that were inappropriately generated by a lead provider. We have implemented steps to ensure that subscriber agreements we enter into with new customers are knowingly consented to by the customers and otherwise genuine; nevertheless, there remains a risk that we will again have relationships with lead providers who generate customers relationships using inappropriate means. This would lead to a large number of chargebacks and likely harm our reputation in the market place, relationship with credit card processors and other and lead to substantial write-offs and fines.

We may be required to reimburse credit card processors for fines imposed by VISA and other companies.

Historically, most of our revenues come from online subscriptions involving monthly credit card payments. To process these payments, we are dependent upon a number of credit card processing companies, who in turn, have relationships with VISA, MasterCard and other credit card companies. Following the first quarter of 2010, as a result of a high volume of chargebacks on credit card transactions, we determined that a high percentage of the leads provided the lead provider responsible for a large number of our new customers in 2010 contained poor data or were improperly referred or signed up. We immediately terminated the relationship. As a result of the high number of chargebacks, a key credit card processor increased minimum merchant reserve levels in the second quarter of 2010 and eventually terminated its processing relationship with us. Following the second quarter of 2010, we learned that Visa had charged the credit card processor with a $707,500 fine associated with these chargebacks, which fine the credit card processor allegedly paid and for which it is seeking indemnification from us. Our agreements with this processor and other processors may be read to require us to reimburse the credit card processor for such fines, without any opportunity to intercede with VISA or otherwise defend against the claims. The $707,500 fine already imposed has significantly harmed our profitability and liquidity in the near term. Additional fines, particularly if substantial in size, would limit our ability to continue as a going concern.

Our capacity to process revenue has been constrained as a result of the loss of a credit card processor relationship and may be subject to additional constraints.

Historically, most of our revenues come from online subscriptions involving monthly credit card payments. To process these payments, we are dependent upon a number of credit card processing companies, who in turn, have relationships with VISA, MasterCard and other credit card companies. For reasons described in the previous paragraph, a credit card processor on which we were substantially dependent terminated its relationship with us. As a result of the loss of a major processor, we have experienced a reduction in our capacity to process credit card transactions, which will limit our ability to maintain and expand revenues in the near future. For this and other reasons the we have been forced to use alternative forms of electronic transactions suitable for online business such as eCheck. Such transactions, if unavailable, will limit our ability to maintain and expand revenues and meet our obligations.