United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the Quarterly Period ended July 31, 1996
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
Commission File Number: 33-10970 NY
IFS International, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 13-3393646
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
185 Jordan Road
Troy, NY 12180
(Address of principal executive offices, including zip code)
(518) 283-7900
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes (X) No ___
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
Common Stock, .001 par value,
10,597,295 shares outstanding as of September 19, 1996
IFS INTERNATIONAL, INC. AND SUBSIDIARY
QUARTERLY REPORT ON FORM 10-QSB
TABLE OF CONTENTS
Part I. Financial Information
Item 1. Consolidated Unaudited Financial Statements
Consolidated Balance Sheets
July 31, 1996 (unaudited) and
April 30,1996........................................................1-3
Consolidated Statements of
Operations, three months ended
July 31, 1996 and 1995 (unaudited).....................................4
Consolidated Statements of
Cash Flows, three months ended
July 31, 1996 and 1995 (unaudited)...................................5-6
Notes to Condensed Consolidated
Financial Statements (unaudited).......................................7
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations..............8-10
<PAGE>
IFS INTERNATIONAL, INC. AND SUBSIDIARY
QUARTERLY REPORT ON FORM 10-QSB
TABLE OF CONTENTS
Part II. Other Information
Item 1. Legal Proceedings................................11
Item 2. Changes in Securities............................12
Item 3. Defaults Under Senior Securities ................12
Item 4. Submission of Matters to a Vote of Security
Holders..........................................12
Item 5. Other Information................................12
Item 6. Exhibits and Reports on Form 8-K.................12
Signatures................................................13
<PAGE>
IFS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(unaudited)
July 31, April 30,
1996 1996
___________ ___________
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 176,797 $ 137,462
Trade accounts receivable,
net of allowance for
doubtful accounts of $7,900 113,894 144,669
Other receivables 27,497 42,519
Costs and estimated earnings
in excess of billings on
uncompleted contracts 384,466 432,173
Prepaid expenses and other
current assets 44,270 27,549
___________ ___________
Total current assets 746,924 784,372
___________ ___________
PROPERTY, EQUIPMENT AND IMPROVEMENTS, net 141,142 136,231
___________ ___________
OTHER ASSETS
Software license 8,150 9,082
Capitalized software costs,net 381,482 377,482
___________ ___________
Total other assets 389,632 386,564
___________ ___________
$ 1,277,700 $ 1,307,167
</TABLE>
<PAGE>
IFS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(unaudited)
July 31, April 30,
1996 1996
___________ ___________
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES
Current maturities of long
term debt $ 44,898 $ 38,329
Current portion of capital
lease obligations 1,106 2,733
Accounts payable 340,766 587,170
Accrued salary, commissions
and other expenses 722,578 702,515
Billings in excess of costs
and estimated earnings on
uncompleted contracts 40,215 32,524
Deferred revenue and customer
deposits 354,338 219,326
___________ ___________
Total current liabilities 1,503,901 1,582,597
LONG-TERM LIABILITIES
Long-term debt, less current
maturities 431,930 439,831
Other 12,517 12,515
___________ ___________
Total long-term liabilities 444,447 452,346
___________ ___________
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock no par value;
1,000,000 shares authorized,
no shares issued or
outstanding -- --
Common Stock ($.001 par value;
25,000,000 shares
authorized, 10,093,612
issued and outstanding) 10,597 10,093
Additional paid-in capital 2,205,061 2,168,528
Accumulated deficit (2,886,306) (2,906,397)
___________ ___________
Total shareholders' deficit (670,648) (727,776)
___________ ___________
$ 1,277,700 $ 1,307,167
</TABLE>
See notes to consolidated financial statements.
<PAGE>
IFS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
July 31, 1996 July 31, 1995
<S> <C> <C>
____________ ____________
Revenue
Product sales $ 489,731 $ 204,793
Service revenue 119,521 80,223
____________ ____________
Total revenue 609,252 285,016
Cost of product sales 56,707 28,690
Cost of services 69,918 33,930
____________ ____________
Gross profit 482,627 222,396
Operating expenses
Salaries 137,025 158,622
Selling, general & administrative 133,929 155,435
Research & development 143,194 119,675
Rent 31,350 21,279
Depreciation & amortization 6,113 5,439
____________ ____________
Total operating expenses 451,611 460,450
____________ ____________
Income (Loss) from operations 31,016 (238,054)
Other income (expense):
Interest expense (12,661) (13,910)
Interest income 13 79
Other income 1,724 272
____________ ____________
Income (Loss) before income taxes 20,092 (251,613)
Provision for income taxes - -
____________ ____________
Net Income (Loss) $20,092 $(251,613)
____________ ____________
____________ ____________
Attributable to common shares:
Net Income (Loss) $ 0.00 $ (0.02)
____________ ____________
____________ ____________
</TABLE>
<PAGE>
IFS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
July 31, 1996 July 31, 1995
<S> <C> <C>
____________ ____________
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ 20,092 $ (251,613)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and amortization 78,460 48,557
Changes in:
Trade accounts receivable, net 30,775 165,733
Costs, estimated earnings and
billings on uncompleted
contracts 55,398 127,881
Other receivables 15,022 14,306
Prepaid expenses and other
current assets (16,721) 1,918
Accounts payable (246,404) 38,124
Accrued salary, commissions and
other expenses 20,063 44,476
Deferred revenue and customer
deposits 135,011 (30,433)
____________ ____________
Net cash provided by operating
activities 91,696 158,949
________________________ ________________________
CASH FLOWS FROM INVESTING ACTIVITIES
Capitalized software costs (68,563) (49,088)
Purchase of equipment (17,875) (11,173)
____________ ____________
Net cash used in investing
activities (86,438) (60,261)
____________ ____________
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on capital lease obligations (1,627) (2,268)
Principal payments on long-term debt - (92,128)
Principal payments on short-term debt (1,332) -
Proceeds from sale of common stock 37,036 -
____________ ____________
Net cash provided by (used in)
financing activities 34,077 (94,396)
____________ ____________
Increase in cash 39,335 4,292
Cash at beginning of period 137,462 8,083
____________ ____________
Cash at end of period $ 176,797 $ 12,375
</TABLE>
See notes to consolidated financial statements.
<PAGE>
IFS INTERNATIONAL, INC.
Notes to Consolidated
Financial Statements (Unaudited)
Note 1
Presentation of Interim Financial Statements
The accompanying unaudited consolidated financial statements of IFS
International, Inc. and Subsidiary ("IFS" or the "Company") include all
adjustments which management believes necessary for a fair presentation
of the Company's financial position at July 31, 1996, and the results of
its operations and its cash flows for the three months ended July 31,
1996 and 1995. All adjustments are of a normal recurring nature. These
interim financial statements should be read in conjunction with the
audited financial statements and footnote disclosures in the Company's
1996 Form 10-KSB.
<PAGE>
IFS INTERNATIONAL, INC.
Part 1 - Financial Information
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Three Months Ended July 31, 1996 Compared to
Three Months Ended July 31, 1995 (unaudited).
Sales
The Company's product sales and service revenues increased 113.8% during
the three month period ending July 31, 1996 over the comparable period in
1995. The $324,235 increase is attributed to the increase in software
revenue from the Company's TechNique Plus II (TPII) product. The Company
recognized product sales and service revenues of $590,374 and $254,646
from this product for the three months ended July 31, 1996 and 1995
respectively. The increase in TPII revenue was offset by a decrease in
revenues from the Company's initial product, TechNique. Revenue from
TechNique's product sales and service revenues decreased by $10,043
compared to the three months ended July 31, 1995. The Company recognizes
revenue under the percentage of completion method for software
installation contracts. The percentage of completion method is measured
by estimates of the progress towards completion as determined by costs
incurred.
Service revenue increased $38,298 from the comparable quarter. The
increase is a result of additional maintenance revenue from TPII. TPII
maintenance revenue increased $48,181. TPII maintenance revenues were
$99,499 at July 31, 1996 as compared to $51,318 at July 31, 1995. It is
expected that maintenance revenue will continue to increase in accordance
with new TPII installations.
Gross Profit
Gross profit as expressed as a percentage of total revenues increased to
79.2% in the first quarter of fiscal year 1997 from 78.0% in the first
quarter of fiscal year 1996. The increase is associated with decreased
development costs on TPII contracts, along with increased license and
service revenue from TPII maintenance contracts.
Expenses
Operating expenses decreased slightly by $8,839 in the first quarter over
the comparable period last year. However, all operating expenses for the
Company are increasing as a result of the Company increasing its staff in
all departments in anticipation of new business relating to TPII. The
increases in operating expenses are being offset by a decrease in
operating expenses from the Company's Singapore office. The Company has
temporarily suspended operations of the Singapore office.
Interest Expense
Interest expense decreased by $1,249. Interest expense decreased
slightly as a result of scheduled paydowns on several leases and loans.
Capitalization
Software costs of $68,563 were capitalized in the first quarter of 1997.
Software costs of $49,089 were capitalized in the first quarter of the
prior fiscal year. Capitalized costs are being amortized on a straight
line basis over the estimated five year marketing lives of the software.
Net Income (Loss)
Increased revenues from TPII license and service agreements, resulted in
the Company incurring a slight gain for the quarter.
Financial Condition
The Company's net working capital deficit on July 31, 1996 decreased to
$756,977 from $798,225 on April 30, 1996. Funds have improved in the
first quarter of fiscal year 1997. This resulted in the slight decrease
in the working capital deficit. Management of the Company believes that
progress billings from current contracts and progress billings from
projected new contracts will be sufficient to meet current debt service
requirements and operating costs of the Company through April 30, 1997.
Management also anticipates that the net working capital deficit will
reflect an overall decrease from the prior year end. There can be no
assurance of this happening. As noted in the Company's April 30, 1996
Form 10-KSB, in anticipation of its' working capital and personnel salary
requirements that will be incurred should the Company's business plan be
successfully implemented, the Company has signed a letter of intent with
an underwriter to effect a firm commitment equity offering with minimum
gross proceeds of $5 million. In the interim, in anticipation of the
equity offering, the Company is negotiating to obtain a $500,000 bridge
loan which will be used to fund the upfront costs of the proposed
secondary offering as well as general working capital needs. There can
be no assurances that the proposed equity offering will be successful.
Quarter to Quarter Sales and Earning Volatility
The Company can experience long delays with respect to the acceptance and
execution of software installation agreements. These delays are
primarily due to extended periods of software evaluation, contract review
and the selection of other peripherals. This period can reach more than
three months. The Company does not believe, however, that this
represents an adverse trend, but rather it has been the Company's
experience that customer contract review time varies greatly by customer
and generally increases with the dollar value of the contemplated sale.
Accordingly, the Company's sales and earnings may fluctuate dramatically
from one quarter to another, making quarterly comparisons extremely
difficult and not necessarily indicative of any trend or pattern for the
year as a whole.
<PAGE>
IFS INTERNATIONAL, INC.
Part II - Other Information
Item 1 - Legal Proceeding
The Company previously reported (Form 10-KSB April 30, 1996) litigation
involving the Company and:
1. SLM - On June 15, 1989 the Company commenced an action against
S.L.M. Software, Inc. ("SLM") in the Supreme Court of the State of New
York (the "NY Action"). The action seeks money damages from SLM for
fraud and breach of contract, and further seeks rescission of a certain
contract between the parties. Thereafter, SLM commenced a separate
action against the Company in the civil trial courts of the province of
Ontario, Canada (the "Canadian Action"). Subsequently, the NY Action was
dismissed on the ground that New York State is an inconvenient forum.
Accordingly, both the Company's and SLM's claims will be litigated in
Ontario, Canada.
The Company has retained the law firms of Harris Beach & Wilcox, LLP to
assist in the selection and employment of Canadian counsel to represent
the Company in the Canadian Action, and to assist Canadian counsel with
respect to the defense of that action and the prosecution of the
counterclaim contained therein. The Company has selected and retained
Canadian counsel.
The information known to the Company in the Canadian Action, SLM is
seeking $5,000,000 in general damages for breach of contract, and
$300,000 in special damages for breach on contract and negligence.
Canadian Counsel advises that the Canadian case is inactive and has been
inactive for months. However, the case has not been discontinued, and no
motion has been made to dismiss the case for lack of prosecution. It is
therefore still an outstanding claim against the Company. The Company
vigorously contests the merits of the claim. The outcome of the SLM
claim might have a material adverse effect on the Company's business,
business prospects or financial position.
The Company is not aware of any other legal proceedings.
Item 2 - Changes in Securities
None
Item 3 - Defaults Under Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
None
<PAGE>
Signatures
Pursuant to the requirements 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.
Date: September 20, 1996 IFS International, Inc.
By:
\s\ Charles J. Caserta
_____________________________
Charles J. Caserta
President and Director
By:
\s\ Frank Pascuito
_____________________________
Frank Pascuito
Chairman of the Board and Director
