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United States
Securities and Exchange Commission
Washington, D.C. 20549
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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, 1997
or
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
Commission File Number: 1-12687
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)
Rensselaer Technology Park, 300 Jordan Road
Troy, NY 12180
(Address of principal executive offices)
(518) 283-7900
(Issuer's telephone number)
Rensselaer Technology Park, 185 Jordan Road
Troy, NY 12180
(Former address of principal executive offices)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes (X) No ___
State the number of shares outstanding of each of the issuer's classes of common
equities as of the latest practicable date.
Common Stock, $.001 par value, 1,093,358 shares outstanding as of September 15,
1997
Series A Convertible Preferred Stock, $.001 par value, 1,380,000 shares
outstanding as of September 15, 1997
Transitional Small Business Disclosure Format: Yes___ NO (X)
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<PAGE>
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, 1997 (unaudited) and April 30,1997..................................2-3
Consolidated Statements of Operations,
three months ended July 31, 1997 and 1996 (unaudited)..........................4
Consolidated Statements of Cash Flows,
three months ended July 31, 1997 and 1996(unaudited)...........................5
Notes to Consolidated Financial Statements (unaudited).........................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................................7-9
Part II. Other Information
Item 1. Legal Proceedings....................................................10
Item 2. Changes in Securities................................................10
Item 3. Defaults Under Senior Securities ....................................10
Item 4. Submission of Matters to a Vote of Security Holders..................10
Item 5. Other Information....................................................10
Item 6. Exhibits and Reports on Form 8-K.....................................10
<PAGE>
Part I. Financial Information
Item 1. Consolidated Unaudited Financial Statements
IFS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
July 31, April 30,
1997 1997
(unaudited)
----------------- -----------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,350,535 $ 5,161,410
Trade accounts receivable, net 914,389 732,172
Costs and estimated earnings
in excess of billings on
uncompleted contracts 445,406 247,743
Other current assets 218,355 115,056
----------------- -----------------
Total current assets 5,928,685 6,256,381
----------------- -----------------
PROPERTY, EQUIPMENT AND IMPROVEMENTS, net 1,847,484 1,335,367
----------------- -----------------
OTHER ASSETS
Capitalized software costs, net 457,528 457,056
Other 17,961 15,620
----------------- -----------------
Total other assets 475,489 472,676
================= =================
$ 8,251,658 $ 8,064,424
================= =================
<PAGE>
IFS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
July 31, April 30,
1997 1997
(unaudited)
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long term debt 115,775 115,112
Note payable, bank 981,624 981,624
Accounts payable 426,162 359,556
Accrued expenses 417,982 493,611
Billings in excess of costs and estimated
earnings on uncompleted contracts 161,762 139,661
Deferred revenue and customer deposits 392,747 287,360
------------ -------------
Total current liabilities 2,496,052 2,376,924
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LONG-TERM LIABILITIES
Long-term debt, less current maturities 318,805 327,320
------------ -------------
Total long-term liabilities 318,805 327,320
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SHAREHOLDERS' EQUITY
Preferred stock, $.001 par value;
25,000,000 shares authorized,
1,380,000 shares issued and outstanding 1,380 1,380
Common Stock $.001 par value;
50,000,000 shares authorized, 1,093,358
and 1,072,945 issued and outstanding 1,093 1,073
Additional paid-in capital 7,990,310 7,976,188
Accumulated deficit (2,555,982) (2,618,461)
------------ --------------
Total shareholders' equity 5,436,801 5,360,180
============ ==============
$8,251,658 $8,064,424
============ ==============
See notes to consolidated financial statements.
<PAGE>
IFS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Three Months
Ended Ended
July 31, 1997 July 31, 1996
------------- -------------
Revenues:
Software license and installation contract fees $570,746 $489,731
Service and maintenance revenue 464,641 119,521
------------- -------------
1,035,387 609,252
------------- -------------
Cost of software license and installation
contract fees 147,837 56,707
Cost of service and maintenance revenue 123,454 69,918
------------- -------------
Gross profit 764,096 482,627
------------- -------------
Operating expenses:
Research & development 200,128 143,194
Salaries 260,793 137,025
Other 13,262 6,113
Rent 30,233 31,350
Selling, general & administrative 313,164 133,929
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817,580 451,611
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Income (loss) from operations (53,484) 31,016
Other income (expense):
Interest expense (3,940) (12,661)
Interest income 66,367 13
Other income 53,536 1,724
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Income before income taxes $62,479 $20,092
Provision for income taxes - -
============= =============
Net income $62,479 $20,092
============= =============
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Net income per common share $0.02 $0.00
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See notes to consolidated financial statements.
<PAGE>
IFS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Three Months
Ended Ended
July 31, 1997 July 31, 1996
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $62,479 $20,092
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 60,384 78,460
Changes in:
Trade accounts receivable, net (182,217) 30,775
Costs, estimated earnings and billings
on uncompleted contracts (175,562) 55,398
Other current assets (103,299) (1,699)
Accounts payable 66,606 (246,404)
Accrued expenses (75,629) 20,063
Deferred revenue and customer deposits 105,387 135,011
----------- -----------
Net cash provided by (used in)
operating activities (241,851) 91,696
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CASH FLOWS FROM INVESTING ACTIVITIES
Facilities acquisition expenditures
and equipment purchases (538,459) (17,875)
Capitalized software costs (36,855) (68,563)
----------- -----------
Net cash used in investing activities (575,314) (86,438)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on capital lease obligations - (1,627)
Principal payments on short term debt (7,852) (1,332)
Proceeds from issuance of stock 14,142 37,036
----------- -----------
Net cash provided by financing activities 6,290 34,077
Increase (decrease) in cash and cash equivalents (810,875) 39,335
Cash and cash equivalents:
Beginning of year 5,161,410 137,462
=========== ===========
End of period $4,350,535 $176,797
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See notes to consolidated financial statements.
<PAGE>
IFS INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Consolidated
Financial Statements (Unaudited)
Note 1
Presentation of Interim Financial Statements
The accompanying consolidated financial statements include the accounts of IFS
International, Inc., a Delaware corporation, and its wholly-owned subsidiary IFS
International, Inc., a New York Corporation (collectively the "Company"). All
significant intercompany accounts and transactions have been eliminated. The
consolidated balance sheet as of July 31, 1997, the consolidated statements of
operations for the three months ended July 31, 1997 and 1996 and the
consolidated statements of cash flows for the three months ended July 31, 1997
and 1996 have been prepared by the Company, without audit. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial condition, results of operations and
cash flows at July 31, 1997 and for all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these consolidated
financial statements be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's annual report on Form
10-KSB for the fiscal year ended April 30, 1997. The results of operations for
the period ended July 31, 1997 are not necessarily indicative of the operating
results for the full year.
Note 2
Public Offering
In February 1997, the Company sold 1,380,000 shares of Series A Convertible
Preferred Stock and 1,955,000 Series A Convertible Preferred Stock Purchase
Warrants in a Public Offering (the "Public Offering"). Proceeds of the offering
approximated $5,700,000 after deducting underwriting discounts and expenses and
have been used to retire long-term debt, facilities construction and renovation,
and for working capital purposes.
Note 3
Real Estate
In March 1997, the Company purchased a ground lease expiring on May 25, 2083 and
a building with approximately 35,000 square feet of space located at 300 Jordan
Road, Rensselaer Technology Park, Troy, New York. The purchase price of such
facility was $995,000 of which $50,000 was paid in cash and the balance of the
purchase price was funded through a promissory note entered into by the Company
with a financial institution. The promissory note is secured with a portion of
the proceeds from the Public Offering. Interest on the promissory note is
payable monthly until permanent financing is obtained. The Company has received
a commitment from the holder of the promissory note to convert the note into a
permanent loan with a term of 5 years. The permanent loan will be collateralized
by the building and the ground lease and will contain several financial
covenants. Interest on the permanent loan will be determined when such loan is
made. The Company estimates that approximately $715,000 will be necessary for
the renovation of such facility and has incurred approximately $356,000 of
renovation costs through July 31, 1997. The Company moved its principal
operations to its new facility on August 25, 1997 and has terminated its lease
on its former premises without any further obligations by the Company.
The Town of North Greenbush Industrial Development Agency ("IDA") passed a
resolution in March 1997 authorizing the IDA to provide certain Financial
Assistance ("Financial Assistance") to the Company upon the completion of
certain events, including financing of the property located at 300 Jordan Road,
Rensselaer Technology Park, Troy, New York and its renovation. Such Financial
Assistance would be in the form of (i) a New York State sales tax abatement,
(ii) a mortgage recording tax exemption and (iii) graduated payments by the
Company in lieu of real property taxes with respect to such property.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction
The Company is engaged in the business of developing, marketing, and supporting
software for the Electronic Funds Transfer ("EFT") market. Substantially all of
the Company's revenues have resulted from the licensing of its family of
TechNique Plus II ("TPII") software products. The preparation of functional
specifications, customization and installation of TPII software products and the
training by the Company of the financial institution's personnel in the use of
the TPII software products take an average of six to twelve months, depending
upon the timing of installation and final acceptance of the EFT System by the
customer. The customer pays 30% to 50% of the licensing fees upon execution of
the licensing agreement and also makes progress payments prior to acceptance.
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.
The Company also derives recurrent revenues from furnishing certain maintenance
services to its customers for the TPII software and may also receive additional
revenues for additional training of customer personnel and consulting services
(collectively "service revenues"). With respect to revenues for maintenance
services, the Company generally receives annual payments at the beginning of the
contract year. Such payments are reflected as deferred revenues and are
recognized ratably during such year.
Occasionally, the Company resells hardware to its customers in conjunction with
its TPII software installation contracts. Since such sales are isolated and
random the Company is unable to predict the amount of any future hardware
revenues. Revenues from these occasional hardware sales are recognized when
invoiced to the customer.
Results of Operations
Total revenues of $1,035,387 for the quarter ended July 31, 1997 represent an
increase of $426,135, or 69.9%, over total revenues of $609,252 for the quarter
ended July 31, 1996. This increase in total revenues resulted from an increase
in licensing of TPII software products and a substantial increase in service
revenues. Revenues from the licensing and installation of TPII software products
were $570,746 for the quarter ended July 31, 1997, as compared to $489,731 for
the fiscal quarter ended July 31, 1996. Service revenues for the quarter ended
July 31, 1997 increased by $345,120, or 288.8%, over service revenues for the
quarter ended July 31, 1996 primarily as a result of the increased services
provided in association with the Visa pilot programs. As of July 31, 1997, the
Company had approximately $361,000 of deferred maintenance service revenues.
Service revenue growth is expected to continue as long as the number of licenses
for TPII software products increases and the customers continue to utilize such
software products.
Revenues from licensing of TPII software products in countries outside the
United States accounted for 69.9% of total revenues for the quarter ended July
31, 1997 as compared to 62.7% for the quarter ended July 31, 1996. The increase
as a percentage of total revenues resulted primarily from an increase in
international software revenues. Such international software revenues increased
by approximately $341,668, primarily as a result of revenues recognized from the
smart card pilot programs. Domestic revenues for the quarter ended July 31, 1997
were $306,165 as compared to $227,530 for the quarter ended July 31, 1996. The
Company expects total revenues from foreign countries to continue to be a
significant portion of its revenues in the future.
Gross profit, as expressed as a percentage of total revenues, decreased to 73.8%
for the quarter ended July 31, 1997, as compared to 79.2% for the quarter ended
July 31, 1996. This decrease is primarily a result of increased costs associated
with the training of new personnel, a portion of which are included in the cost
of software license and installation contract fees.
Operating expenses of $817,580 for the quarter ended July 31, 1997 represent an
increase of $365,969, or 81.0%, from operating expenses of $451,611 for the
quarter ended July 31, 1996. This increase in operating expenses resulted
primarily from an increase in personnel. The Company expects that operating
expenses will continue to increase as a result of the planned addition of new
personnel in anticipation of new business relating to the licensing of TPII
software products, including the TPII smart card software.
The Company has incurred a loss from operations of $53,484. This is primarily a
result of the Company increasing its staff in anticipation of increased
business. Fluctuations of operating results may occur from time to time as
noted in "Quarter to Quarter Sales and Earnings Volatility" below.
Software costs capitalized for the quarter ended July 31, 1997 were $36,855, as
compared to $68,563 for the quarter ended July 31, 1996. Such capitalized costs
are being amortized on a straight line basis over the estimated five year
marketing lives of the software.
Net income was $62,479 for the quarter ended July 31, 1997, as compared to net
income of $20,092 for the quarter ended July 31, 1996. This increase is
primarily a result of interest income earned from the investment of the proceeds
from the Public Offering and other income.
The Company has net operating loss carryforwards of approximately $1,900,000 as
of April 30, 1997. The use of such net operating loss carryforwards as an offset
against future taxable income in any particular year may be limited.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased from $3,879,457 to at April 30, 1997 to
$3,432,633 at July 31, 1997. The decrease was pricipally due to the use of
working capital to fund the facilities acquisition offset by the net income and
depreciation and amortization for the quarter.
The Company's cash and cash equivalents decreased by $810,875 for the quarter
ended July 31, 1997. This decrease was primarily a result of a negative cash
flow from operating activities of $241,851 and negative cash flow from investing
activities of $575,314.
Based on recent estimates, the Company believes that it will incur an aggregate
of approximately $715,000 in renovation costs for its new facility and an
aggregate of approximately $300,000 for the purchase of office and computer
equipment for the fiscal year ending April 30, 1998. The Company has incurred
approximately $356,000 in renovation costs and approximately $246,000 for the
purchases of office and computer equipment through the quarter ended July 31,
1997. The Company will use operating revenues and proceeds from the Public
Offering to fund these expenditures. The Company also received approximately
$200,000 in additional bank financing on August 1, 1997 to fund such capital
expenditures.
The Company believes that the proceeds from the Public Offering, together with
anticipated cash flow from operations, will be sufficient to finance the
Company's working capital requirements for a period of 24 months from the
receipt of the proceeds. However, since a portion of the license fee for TPII
software products is not paid until acceptance by the customer and, as a result,
the Company is required to fund a portion of the costs of configuration and
installation of such products from available capital, any substantial increase
in the number of installations or delay in payment could create a need for
additional financing. In such event, there can be no assurance that additional
financing will be available on terms acceptable to the Company, or at all. The
consent of the underwriter of the Public Offering (the "Underwriter") is
required before the Company may complete certain types of financing. The
obligation to obtain such consent may limit the Company's ability to complete
such financing.
The above statements and certain other statements contained in this quarterly
report on Form 10-QSB are based on current expectations. Such statements are
forward looking statements that involve a number of risks and uncertainties.
Factors that could cause actual results to differ materially include the
following (i) general economic conditions, (ii) competitive market influences,
(iii) the success of the Visa pilot programs, (iv) the development of the
capacity to accommodate additional and larger contracts, (v) establishing the
ability of TPII software products to process transactions for larger EFT
systems, and/or (vi) acceptance of TPII software products by a significant
number of new customers and the Company's continued relationship with computer
manufacturers.
QUARTER TO QUARTER SALES AND EARNING VOLATILITY
Quarterly revenues and operating results have fluctuated and will fluctuate as a
result of a variety of factors. The Company can experience long delays (i.e.,
between three to twelve months) before a customer executes a software licensing
agreement. These delays are primarily due to extended periods of software
evaluation, contract review and the selection of the computer system. In
addition following execution of the agreement, the preparation of functional
specifications, customization and installation of software products and the
training by the Company of the financial institution's personnel in the use of
the TPII software products take an average of six to twelve months, depending
upon the timing of installation and final acceptance of the EFT System by the
customer. Accordingly, the Company's revenues 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.
Additional factors effecting quarterly results include the timing of revenue
recognition of advance payments of license fees, the timing of the hiring or
loss of personnel, capital expenditures, operating expenses and other costs
relating to the expansion of operations, general economic conditions and
acceptance and use of EFT. For example, for the quarter ended July 31, 1997, the
Company hired additional personnel in anticipation of increased business in
subsequent quarters.
INFLATION
The Company has not experienced any meaningful impact on its sales or costs as
the result of inflation.
<PAGE>
IFS INTERNATIONAL, INC.
Part II - Other Information
Item 1 - Legal Proceeding
The Company is not a party to any pending material legal proceedings.
Item 2 - Changes in Securities
The following sets forth information relating to all securities which have
changed during the quarter ended July 31, 1997:
On June 19, 1997, the Company issued 500 shares of Common Stock to a current
employee pursuant to the exercise of options at $2.00 per share, or an aggregate
of $1,000.
On June 23, 1997, the Company issued 12,445 shares of Common Stock to Frank A.
Pascuito, Chairman of the Board, and 7,467 shares of Common Stock to Charles J.
Caserta, President of the Company pursuant to the exercise of options at $.66
per share, or an aggregate of $13,142.
Exemption from registration under the Securities Act of 1933 is claimed for the
sale of Common Stock referred to above in reliance upon the exemption afforded
by Section 4(2) of such Act for transactions not involving a public offering.
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
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - None
<PAGE>
Signature
In accordance with 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 19, 1997 IFS International, Inc.
By:
\s\ Frank Pascuito
- -----------------------------
Frank Pascuito
Chairman of the Board
(Principal Executive and Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-1-1997
<PERIOD-END> JUL-31-1997
<CASH> 4,350,535
<SECURITIES> 0
<RECEIVABLES> 922,289
<ALLOWANCES> 7,900
<INVENTORY> 0
<CURRENT-ASSETS> 5,928,685
<PP&E> 2,336,309
<DEPRECIATION> 488,825
<TOTAL-ASSETS> 8,251,658
<CURRENT-LIABILITIES> 2,496,052
<BONDS> 0
0
1,380
<COMMON> 1,093
<OTHER-SE> 5,434,328
<TOTAL-LIABILITY-AND-EQUITY> 8,251,658
<SALES> 1,035,387
<TOTAL-REVENUES> 1,088,923
<CGS> 271,291
<TOTAL-COSTS> 1,088,871
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,940
<INCOME-PRETAX> 62,479
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62,479
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
