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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 January 31, 1998
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)
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 March 16,1998
Series A Convertible Preferred Stock, $.001 par value, 1,467,094 shares
outstanding as of March 16, 1998
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
January 31, 1998 (unaudited) and April 30,1997...............................2-3
Consolidated Statements of Operations,
three months and nine months ended January 31, 1998 and 1997 (unaudited).......4
Consolidated Statements of Cash Flows,
nine months ended January 31, 1998 and 1997 (unaudited)........................5
Notes to Consolidated Financial Statements (unaudited).......................6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...............................8-10
Part II. Other Information
Item 1. Legal Proceedings....................................................11
Item 2. Changes in Securities................................................11
Item 3. Defaults Under Senior Securities ....................................11
Item 4. Submission of Matters to a Vote of Security Holders..................11
Item 5. Other Information....................................................11
Item 6. Exhibits and Reports on Form 8-K.....................................11
<PAGE>
Part I. Financial Information
Item 1. Consolidated Unaudited Financial Statements
IFS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 31, April 30,
1998 1997
(unaudited)
----------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $2,101,298 $5,161,410
Trade accounts receivable, net 2,174,944 732,172
Costs and estimated earnings
in excess of billings on
uncompleted contracts 598,105 247,743
Inventory 207,164 -
Income taxes receivable 186,110 -
Deferred income taxes 30,000 -
Other current assets 482,432 115,056
----------- -----------
Total current assets 5,780,053 6,256,381
----------- -----------
PROPERTY, EQUIPMENT AND IMPROVEMENTS, net 2,766,961 1,335,367
----------- -----------
OTHER ASSETS
Capitalized software costs, net 770,369 457,056
Intangibles and other 677,863 15,620
----------- -----------
Total other assets 1,448,232 472,676
=========== ===========
$9,995,246 $8,064,424
=========== ===========
See notes to consolidated financial statements.
<PAGE>
IFS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 31, April 30,
1998 1997
(unaudited)
------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long term debt $167,371 $115,112
Note payable, bank - 981,624
Accounts payable 456,179 359,556
Accrued expenses 591,023 493,611
Billings in excess of costs and estimated
earnings on uncompleted contracts 169,301 139,661
Deferred revenue and customer deposits 808,572 287,360
Other current liabilities 83,633 -
------------ -----------
Total current liabilities 2,276,079 2,376,924
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LONG-TERM LIABILITIES
Deferred income taxes 125,000 -
Long-term debt, less current maturities 1,467,805 327,320
------------ -----------
Total long-term liabilities 1,592,805 327,320
SHAREHOLDERS' EQUITY
Preferred stock, $.001 par value; 25,000,000 shares
authorized, 1,467,094 and 1,380,000 shares issued
and outstanding 1,467 1,380
Common Stock $.001 par value; 50,000,000 shares
authorized, 1,093,358 and 1,072,945 shares issued
and outstanding 1,093 1,073
Additional paid-in capital 8,610,767 7,976,188
Accumulated deficit (2,486,965) (2,618,461)
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Total shareholders' equity 6,126,362 5,360,180
============ ===========
$9,995,246 $8,064,424
============ ===========
See notes to consolidated financial statements.
<PAGE>
IFS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
Nine Nine Three Three
Months Months Months Months
Ended Ended Ended Ended
January 31, January 31, January 31, January 31,
1998 1997 1998 1997
--------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
Software license and installation contract fees $1,801,560 $1,987,172 $472,937 $727,357
Service and maintenance revenue 1,478,050 671,029 418,742 343,859
--------------- --------------- -------------- ----------------
3,279,610 2,658,201 891,679 1,071,216
--------------- --------------- -------------- ----------------
Cost of software license and installation contract 282,920 463,398 52,765 186,161
fees
Cost of service and maintenance revenue 355,087 158,584 88,707 48,102
--------------- --------------- -------------- ----------------
Gross profit 2,641,603 2,036,219 750,207 836,953
--------------- --------------- -------------- ----------------
Operating expenses:
Research and development 508,778 387,924 144,060 146,790
Salaries 939,785 589,659 340,334 231,433
Other 84,075 21,836 50,021 9,609
Rent 63,196 90,410 9,917 27,975
Selling, general and administrative 1,083,032 574,211 324,143 227,410
--------------- --------------- -------------- ----------------
2,678,866 1,664,040 868,475 643,217
--------------- --------------- -------------- ----------------
Income (loss) from operations (37,263) 372,179 (118,268) 193,736
Other income (expense):
Litigation settlement costs - (100,000) - -
Interest expense (46,648) (53,312) (31,960) (25,196)
Interest income 156,930 - 37,252 -
Other income 58,477 - 1,191 (1,724)
--------------- --------------- -------------- ----------------
Income before income taxes 131,496 218,867 (111,785) 166,816
Provision for income taxes - - - -
=============== =============== ============== ================
Net income (loss) $ 131,496 $218,867 $ (111,785) $166,816
=============== =============== ============== ================
--------------- --------------- -------------- ----------------
Net income (loss) per common share $.05 $0.21 $(.04) $0.16
--------------- --------------- -------------- ----------------
See notes to consolidated financial statements.
</TABLE>
<PAGE>
IFS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Nine
Months Months
Ended Ended
January 31, January 31,
1998 1997
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $131,496 $218,867
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 239,202 182,845
Changes in assets and liabilities, net of effects
from purchase of NCI Holdings,Inc.:
Trade accounts receivable, net (1,026,835) (551,104)
Costs, estimated earnings and billings on
uncompleted contracts (320,722) 629,220
Other current assets (186,894) (71,385)
Accounts payable (121,644) (386,744)
Accrued expenses (28,675) 41,884
Deferred revenue and customer deposits 236,212 158,458
----------- ----------
Net cash provided by (used in) operating activities (1,077,860) 222,041
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Facilities acquisition expenditures and
equipment purchases (1,365,436) (118,223)
Purchase of NCI Holdings, Inc., net of cash acquired (454,728) -
Capitalized license costs - (666)
Capitalized software costs (353,435) (217,911)
Deposits Advanced - (22,195)
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Net cash used in investing activities (2,173,599) (358,995)
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CASH FLOWS FROM FINANCING ACTIVITIES
Payments on capital lease obligations - (2,733)
Principal payments on long term debt (31,170) (8,160)
Proceeds from notes payable 208,375 500,000
Deferred offering costs - (128,950)
Proceeds from issuance of stock 14,142 48,822
Proceeds from issuance of warrants - 5,000
----------- ----------
Net cash provided by financing activities 191,347 413,979
Increase (decrease) in cash and cash equivalents (3,060,112) 277,025
Cash and cash equivalents:
Beginning of year 5,161,410 137,462
=========== ==========
End of period $2,101,298 $414,487
=========== ==========
Supplemental Schedule of Noncash Investing and Financing Activities
The Company purchased all of the capital stock of NCI Holdings, Inc. for
$840,000 together with the issuance of 87,094 shares of Series A Convertible
Preferred Stock in January 1998.
Fair value of assets acquired $2,332,000
Cash paid for the capital stock (840,000)
Preferred stock issued (621,000)
===========
Liabilities assumed $871,000
===========
See notes to consolidated financial statements.
<PAGE>
IFS INTERNATIONAL, INC. AND SUBSIDIARIES
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 (the "Parent Company"), and its
wholly-owned subsidiaries, IFS International, Inc., a New York Corporation, and
NCI Holdings, Inc. ("Holdings"), a North Carolina Corporation (collectively the
"Company"). All significant intercompany accounts and transactions have been
eliminated. The consolidated balance sheet as of January 31, 1998, the
consolidated statements of operations for the three and nine months ended
January 31, 1998 and 1997 and the consolidated statements of cash flows for the
nine months ended January 31, 1998 and 1997 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 January 31, 1998 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 January 31, 1998 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, for 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. In November 1997, the Company
obtained $1,190,000 in permanent financing from KeyBank National Association,
with a term of 5 years. The permanent loan is collateralized by the building and
the ground lease and contains several financial covenants. Repayment of the loan
is based on a fifteen year amortization. The interest rate for the loan was
established at an effective fixed rate of 8.98% for 5 years. The Company has
completed renovations of such facility and has incurred approximately $773,000
of renovation costs through January 31, 1998. The Company moved its principal
operations to its new facility on August 25, 1997 and terminated its lease on
its former premises without any further obligations of 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 renovation of the building. Such
Financial Assistance included a New York State sales tax abatement on renovation
costs and a mortgage recording tax exemption. Additional financial assistance
will be provided through graduated payments by the Company in lieu of real
property taxes with respect to such property.
<PAGE>
Note 4
Acquisition
On January 30, 1998, the merger of a wholly owned subsidiary (the "Subsidiary")
of IFS International, Inc., a Delaware corporation, with and into Holdings, was
consummated pursuant to a Plan and Merger Agreement, dated January 30, 1998 (the
"Merger Agreement"). Holdings owns approximately 94% of the issued and
outstanding shares of capital stock of Network Controls International, Inc.
("NCI"), which develops and markets software products for bank automation.
Pursuant to the terms of the Merger Agreement, the outstanding shares of capital
stock of Holdings were converted into shares of Series A Convertible Preferred
Stock of the Company (the "Preferred Stock"). Per Olof Ezelius ("Ezelius"), the
sole beneficial owner of Holdings' capital stock, received 87,094 shares (the
"Base Consideration") of Preferred Stock valued at $620,545. The Company is
obligated to register all of these shares of Preferred Stock under the
Securities Act of 1933. Twenty eight thousand seventy (28,070) shares of the
Base Consideration are being held in escrow to secure certain warranties,
representations, covenants and indemnifications made by Ezelius (the
"Indemnification Obligations"). The Base Consideration may be reduced if the
stockholder's equity of Holdings is less than specified minimums as of January
30, 1998. Ezelius may receive additional shares of Preferred Stock (the
"Additional Shares") if the consolidated pre-tax profits of NCI exceeds certain
levels during each of the years ending April 30, 1999, 2000 and 2001 and during
the three years ending April 30, 2001. Any Additional Shares issued to Ezelius
up to a value of $200,000 will be held in escrow to further secure the
Indemnification Obligations. The Merger Agreement required Holdings to satisfy
indebtedness to former stockholders of Holdings and NCI arising pursuant to
agreements for the purchase of shares entered into in 1993 and 1995. Pursuant to
the terms of the Merger Agreement, Ezelius entered into a separate employment
agreement with NCI to serve as Chief Executive Officer of NCI for a period of 39
months, commencing January 30, 1998, at a base salary of $150,000 per year.
Ezelius also was granted options to purchase 18,000 shares of the Company's
Common Stock at $5.00 per share.
Immediately prior to the merger, the Company advanced $840,000 to Holdings,
which was utilized to satisfy existing indebtedness of Holdings as required by
the Merger Agreement.
The acquisition was accounted for as a purchase. The total consideration for the
purchase approximated $1.6 million. The purchase price was allocated based on
the estimated fair values at the date of acquisition and resulted in an excess
of purchase price over assets and liabilities acquired of approximately
$650,000, which is being amortized over 8 years. The purchase price allocation
has been completed on a preliminary basis, and as a result, adjustments to the
carrying value of assets and liabilities may occur.
The unaudited pro forma information for the periods set forth below give effect
to the acquisition as if it had occurred on May 1,1997 and May 1, 1996. The pro
forma information is presented for informational purposes only and is not
necessarily indicative of the results of operations that actually would have
been achieved had the acquisition occurred at the beginning of the periods
presented.
Nine Months Ended January 31,
1998 1997
-------------------- -------------------
Revenues $6,612,792 $5,612,680
==================== ===================
Income (loss) from continuing
operations and net income (loss) $109,002 $(250,086)
==================== ===================
Net income (loss) per common share $.04 $(.22)
==================== ===================
<PAGE>
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 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.
As a result of its acquisition of Holdings, the Company is now also engaged in
providing bank teller/platform and networking solutions to large financial
institutions and major suppliers of branch automation equipment worldwide. A
project, the NCI Business Centre, is being developed as an advanced retail
banking delivery solution. This product is approximately 60% complete. When
anticipated development is completed, the NCI Business Centre will provide a
server-centric and enterprise-wide retail banking solution designed to automate
all delivery channels, such as teller, platform, Internet banking, call center
and kiosks.
The Company entered into an agreement with Visa in July 1996 for the licensing
and installation of its TPII smart card software in connection with the
operation of up to seven pilot programs. The license for each pilot program is
for a term of 24 months commencing on the date such pilot program goes on-line.
Visa has selected financial institutions in various countries to conduct the
pilot programs. Revenues from the licensing of the TPII smart card software,
except for base license fees for pilot programs, will be recognized in the same
manner as revenues from the licensing of the other TPII software products.
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.
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, (vi) acceptance of TPII software products by a significant number of
new customers and the Company's continued relationship with computer
manufacturers, and/or (vii) the integration of its recently completed
acquisition as well as revenues and income or loss derived from this
acquisition.
<PAGE>
Results of Operations
Total revenues of $891,679 for the quarter ended January 31, 1998 represent a
decrease of $179,537, or 16.8%, over total revenues of $1,071,216 for the
quarter ended January 31,1997. Total revenues of $3,279,610 for the nine months
ended January 31,1998 represent an increase of $621,409 or 23.4% over total
revenues of $2,658,201 for the nine months ended January 31,1997. The decrease
for the quarter in total revenues resulted from a substantial decrease in
software license and installation contract fees. The increase in total revenues
for the nine months ended January 31, 1998 resulted from a substantial increase
in revenue from service and maintenance revenue. Total software license and
installation contract fees of $472,937 for the quarter ended January 31, 1998
represent a decrease of $254,420 or 35.0% over total software license and
installation contract fees for the quarter ended January 31, 1997. Total
software license and installation contract fees of $1,801,560 for the nine
months ended January 31, 1998 decreased $185,612 or 9.3% for the nine months
ended January 31, 1997. Software license and installation contract fees
decreased in the third quarter and did not increase significantly overall
because some potential customers canceled plans for licenses as a result of the
Asian monetary crisis.
The decrease in software license and installation contract fees was offset by an
increase in service and maintenance revenue. Service and maintenance revenue of
$418,742 for the quarter ended January 31, 1998 represent an increase of $74,883
or 21.8% over total service and maintenance revenue of $343,859 for the quarter
ended January 31, 1997. Service and maintenance revenue of $1,478,050 for the
nine months ended January 31, 1998 represent an increase of $807,021 or 120.3%
over total service and maintenance revenue of $671,029 for the nine months ended
January 31, 1997. This increase is primarily a result of the increased services
provided in association with the Visa pilot programs, as well as an increase in
maintenance revenue from the Company's customer base. As of January 31, 1998,
the Company had approximately $808,500 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 62.1% of total revenues for the quarter ended
January 31, 1998 as compared to 59.2% for the quarter ended January 31, 1997.
Revenues from licensing of TPII software products in countries outside the
United States accounted for 69.2% of total revenues for the nine months ended
January 31, 1998, as compared to 53.3% for the nine months ended January 31,
1997. The increase as a percentage of total revenues resulted primarily from an
increase in international TPII software installation contracts. This increase
occurred despite the fact that some Asian customers canceled plans for licenses
as a result of the Asian monetary crisis. 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, increased to 84.1%
for the quarter ended January 31, 1998, as compared to 78.1% for the quarter
ended January 31, 1997. Gross profit, as expressed as a percentage of total
revenues, increased to 80.5% for the nine months ended January 31, 1998 as
compared to 76.6% for the nine months ended January 31, 1997. Gross profit in
each case, increased as a result of an increase in the proportion of service and
maintenance revenues which typically has a higher gross profit margin.
Operating expenses of $868,475 for the quarter ended January 31, 1998 represent
an increase of $225,258, or 35.0%, from operating expenses of $643,217 for the
quarter ended January 31, 1997. Operating expenses of $2,678,866 for the nine
months ended January 31, 1998 represent an increase of $1,014,826 or 61.0%, from
operating expenses of $1,664,040 for the nine months ended January 31, 1997. The
increases in operating expenses resulted primarily from an increase in personnel
necessary to create the development and management infrastructure needed to
service anticipated growth in the number of TPII and smart card projects, as
well as an increase in operating expenses to establish an Asian office.
Software costs capitalized for the quarter ended January 31, 1998 were $224,982,
as compared to $63,928 for the quarter ended January 31, 1997. Software costs
capitalized for the nine months ended January 31, 1998 were $353,435, as
compared to $217,911 for the nine months ended January 31, 1997. Capitalized
software costs have increased as a result of software development relating to
the smart card product. Such capitalized costs are being amortized on a straight
line basis over the estimated five year marketing lives of the software.
Net loss was $(111,785) for the quarter ended January 31, 1998, as compared to
net income of $166,816 for the quarter ended January 31, 1997. Net income was
$131,496 for the nine months ended January 31, 1998 as compared to a net income
of $218,867 for the nine months ended January 31, 1997. Both decreases result
primarily from the higher expenses of the internal development and management
infrastructure to handle anticipated orders, some of which did not materialize
during these time periods because of the Asian monetary crisis.
<PAGE>
As a result of the acquisition of NCI Holdings, Inc., the Company anticipates
that revenue and net income will increase for the next fiscal year.
The Company has net operating loss carryforwards of approximately $1,900,000 as
of April 30, 1997. Pursuant to the Tax Reform Act of 1986 and subsequent
legislation, utilization of these carryforwards may be limited due to the change
in ownership of the Company's securities.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased from $3,879,457 at April 30, 1997 to
$3,503,974 at January 31, 1998. The decrease was principally due to the use of
working capital to fund the acquisition and renovation of the Company's facility
and the acquisition of Holdings as described below, in excess of the income and
depreciation and amortization for the nine months ended January 31, 1998. The
Company's working capital takes into effect the increase in capital from
Holdings
The Company's cash and cash equivalents decreased by $3,060,112 for the nine
months ended January 31, 1998. This decrease was primarily a result of cash
flows used in operating activities of $1,077,860 and cash flows used in
investing activities of $2,173,599.
The Company has incurred approximately $773,000 in renovation costs for it's new
facility and approximately $463,000 for the purchases of office and computer
equipment through the nine months ended January 31, 1998. Additionally,
immediately prior to the acquisition of Holdings, the Company advanced $840,000
to Holdings which was utilized to satisfy existing indebtedness of Holdings as
required by the Merger Agreement.
The Company believes that its existing capital resources together with
anticipated cash flow from operations, will be sufficient to finance the
Company's working capital requirements for the current fiscal year. 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.
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 January 31, 1998,
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. AND SUBSIDIARY
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 January 31, 1998:
On January 30, 1998, the Company issued pursuant to Section 4(2)
under the Securities Act of 1933, 87,094 shares of Series A Convertible
Preferred Stock to Per Olof Ezelius, Chief Executive Officer of NCI, a
subsidiary of the Company, pursuant to the Plan and Merger Agreement, (the
"Merger Agreement") having a value of $7.125 per share, or an aggregate value of
$620,545. See Note 4 to Consolidated Financial Statements.
After the merger with NCI, the Company granted to the employees of
NCI, options to purchase an aggregate of 105,000 shares of common stock at a
price of $5.00 per share as of January 30, 1998. In addition, the Company
granted options to purchase an aggregate of 5,000 shares of common stock at an
exercise price of $6.50 to an employee of the Company during the three months
ended January 31, 1998.
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
A current report, dated January 30, 1998, was filed to disclose
information under Item 2, Acquisition or Disposition of Assets, relating to
the acquisition of NCI Holdings, Inc. The financial statements with respect
thereto will be filed within 75 days of the date of the transaction.
<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: March 17, 1998 IFS International, Inc.
By:
\s\ Frank A. Pascuito
- -----------------------------
Frank Pascuito
Principal Financial Officer
\s\ David L. Hodge
- -----------------------------
David L. Hodge
President and Chief Executive Officer
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-1-1997
<PERIOD-END> JAN-31-1998
<CASH> 2,101,298
<SECURITIES> 0
<RECEIVABLES> 2,182,844
<ALLOWANCES> 7,900
<INVENTORY> 207,164
<CURRENT-ASSETS> 5,780,053
<PP&E> 3,339,006
<DEPRECIATION> 572,045
<TOTAL-ASSETS> 9,995,246
<CURRENT-LIABILITIES> 2,276,079
<BONDS> 0
0
1,467
<COMMON> 1,093
<OTHER-SE> 6,123,802
<TOTAL-LIABILITY-AND-EQUITY> 9,995,246
<SALES> 3,279,610
<TOTAL-REVENUES> 3,448,369
<CGS> 638,007
<TOTAL-COSTS> 3,316,873
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,648
<INCOME-PRETAX> 131,496
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 131,496
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
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