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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 October 31, 1999
or
( ) Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
Commission File Number: 1-12687
IFS International Holdings, Inc.
(formerly 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, 3,845,551 shares outstanding as of December 15,
1999
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<PAGE>
IFS International Holdings, Inc. and Subsidiaries
QUARTERLY REPORT ON FORM 10-QSB
TABLE OF CONTENTS
Part I. Financial Information
Item 1. Consolidated Unaudited Financial Statements
Consolidated Balance Sheets
October 31, 1999 (unaudited) and April 30,1999...............................2-3
Consolidated Statements of Operations,
three months and six months ended October 31, 1999 and 1998 (unaudited)........4
Consolidated Statements of Cash Flows,
six months ended October 31, 1999 and 1998 (unaudited).........................5
Notes to Consolidated Financial Statements (unaudited).......................6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...............................8-11
Part II. Other Information
Item 1. Legal Proceedings....................................................12
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
<PAGE>
Part I. Financial Information
Item 1. Consolidated Unaudited Financial Statements
IFS International Holdings, Inc. and Subsidiaries
(Formerly IFS International, Inc.)
CONSOLIDATED BALANCE SHEETS
October 31, April 30,
1999 1999
(unaudited)
----------------- -----------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $1,484,802 $1,326,708
Trade accounts receivable, net 2,040,910 2,225,665
Costs and estimated earnings in excess
of billings on uncompleted contracts 1,208,855 751,616
Other current assets 598,368 553,597
Inventory 101,885 133,699
----------------- -----------------
Total current assets 5,434,820 4,991,285
----------------- -----------------
PROPERTY, EQUIPMENT AND IMPROVEMENTS, net 2,514,128 2,571,461
----------------- -----------------
OTHER ASSETS
Capitalized software costs, net 1,430,400 1,269,660
Excess of cost over fair value of net
assets of business acquired, net 1,295,467 324,260
Other 158,410 129,161
----------------- -----------------
Total other assets 2,884,277 1,723,081
================= =================
$10,833,225 $9,285,827
================= =================
See notes to consolidated financial statements.
2
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IFS International Holdings, Inc. and Subsidiaries
(Formerly IFS International, Inc.)
CONSOLIDATED BALANCE SHEETS
October 31, April 30,
1999 1999
(unaudited)
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
current liabilities
Current maturities of long term debt $376,956 $362,174
Accounts payable 560,982 682,675
Accrued compensation and related liabilities 571,941 478,635
Other accrued expenses 604,976 790,115
Billings in excess of costs and estimated
earnings on uncompleted contracts 1,617 237,089
Deferred revenue and customer deposits 591,229 774,146
-------------- --------------
Total current liabilities 2,707,701 3,324,834
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LONG-TERM DEBT, less current maturities 2,935,356 2,133,392
-------------- --------------
Shareholders' Equity
Preferred stock, $.001 par value; 25,000,000
shares authorized, no shares issued and
outstanding - -
Common Stock $.001 par value; 50,000,000 shares
Authorized, 3,845,551 and 2,780,485 shares
issued and outstanding 3,844 2,770
Additional paid-in capital 9,591,414 8,415,328
Accumulated deficit (4,398,397) (4,583,841)
Accumulated other comprehensive (loss) (6,693) (6,656)
-------------- --------------
Total shareholders' equity 5,190,168 3,827,601
-------------- --------------
$10,833,225 $9,285,827
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See notes to consolidated financial statements.
3
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<TABLE>
IFS International Holdings, Inc. and Subsidiaries
(Formerly IFS International, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Six Six Three Three
Months Months Months Months
Ended Ended Ended Ended
October 31, 1999 October 31, 1998 October 31, 1999 October 31, 1998
------------------ ----------------- ------------------ ------------------
Revenues:
<S> <C> <C> <C> <C>
Software license and installation contract fees $3,463,648 $2,948,493 $2,092,450 $990,561
Service and maintenance revenue 1,798,083 1,793,199 927,056 861,213
Hardware sales 958,933 632,255 369,382 440,669
------------------ ----------------- ------------------ ------------------
6,220,664 5,373,947 3,388,888 2,292,444
------------------ ----------------- ------------------ ------------------
Cost of Revenues:
Software license and installation contract fees 950,486 310,069 593,525 81,610
Service and maintenance revenue 214,687 436,467 132,494 186,802
Hardware sales 605,152 113,723 306,955 62,870
------------------ ----------------- ------------------ ------------------
Gross profit 4,450,339 4,513,688 2,355,914 1,961,161
------------------ ----------------- ------------------ ------------------
Operating expenses:
Research and development 486,913 827,068 236,788 443,453
Salaries 1,694,577 1,368,238 896,238 635,164
Rent and occupancy 307,323 176,211 160,277 88,252
Selling, general and administrative 1,471,575 1,281,555 772,140 551,197
Other 220,803 212,581 118,505 124,159
------------------ ------------------ ------------------ -----------------
4,181,191 3,865,653 2,183,948 1,842,224
------------------ ----------------- ------------------ ------------------
Income from operations 269,148 648,034 171,966 118,937
Other income (expense):
Interest expense (138,418) (74,237) (65,651) (36,777)
Interest income 37,938 54,529 21,915 31,801
Other 16,621 21,103 16,907 20,762
------------------ ----------------- ------------------ ------------------
Income before income taxes 185,289 649,429 145,137 134,723
Provision for income taxes - - - -
------------------ ----------------- ================== ==================
Net income $185,289 $649,429 $145,137 $134,723
================== ================= ================== =================
------------------ ----------------- ------------------ ------------------
Basic income per common share .06 .55 .05 .11
------------------ ------------------ ------------------ -----------------
Weighted average common shares outstanding 2,868,407 1,177,800 2,957,996 1,249,400
------------------ ------------------ ------------------ -----------------
Diluted income per common share .05 .25 .04 .05
------------------ ----------------- ------------------ ------------------
Weighted average common and common equivalent
shares outstanding 3,690,800 2,646,000 3,444,700 2,655,200
------------------ ----------------- ------------------ ------------------
See notes to consolidated financial statements.
</TABLE>
4
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IFS International Holdings, Inc. and Subsidiaries
(Formerly IFS International, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Six Months
Ended Ended
October October
31, 1999 31, 1998
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $185,289 $649,429
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 382,261 381,998
Amortization of discount on notes payable 10,050 -
Changes in assets and liabilities:
Inventory 31,814 (63,088)
Trade accounts receivable, net 184,755 32,738
Costs, estimated earnings and billings on
uncompleted contracts (692,711) (15,540)
Other current assets (64,921) (219,431)
Accounts payable (121,693) (94,704)
Accrued expenses (64,177) (204,012)
Deferred revenue and customer deposits (182,917) (141,720)
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Net cash provided by (used in)
operating activities (332,250) 325,670
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CASH FLOWS FROM INVESTING ACTIVITIES
Equipment purchases (32,405) (89,614)
Acquisition of minority interest - (33,661)
Capitalized software and license costs (423,922) (333,987)
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Net cash used in investing activities (456,327) (461,074)
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CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long term debt (27,103) (37,820)
Proceeds from notes payable 965,000 -
Proceeds from issuance of stock 8,811 9,657
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Net cash provided by (used in)
financing activities 946,708 (28,163)
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Effect of exchange rate changes on cash (37) 2,405
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Increase (decrease) in cash and cash equivalents 158,094 (161,162)
Cash and cash equivalents:
Beginning of year 1,326,708 2,102,807
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End of period $1,484,802 $1,941,645
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Supplemental Disclosures of Cash Flows Information
- --------------------------------------------------------------------------------
Cash paid during the six months for:
Interest $66,458 $66,042
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Supplemental Disclosures of Cash Flows
Information of Non-Cash Investing and Financing Activities
- --------------------------------------------------------------------------------
Common stock issued as additional consideration for acquisition
of Network Controls International, Inc. $1,009,647 -
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See notes to consolidated financial statements.
5
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IFS International Holdings, Inc. and Subsidiaries
(Formerly IFS International, Inc.)
Notes to Consolidated
Financial Statements (Unaudited)
Note 1
Presentation of Interim Financial Statements
The accompanying consolidated financial statements include the accounts of IFS
International Holdings, Inc., a Delaware Corporation (the "Company"), and its
wholly-owned operating subsidiaries, IFS International, Inc., a New York
Corporation ("IFS") and Network Controls International, Inc., a North Carolina
Corporation ("NCI"). All significant intercompany accounts and transactions have
been eliminated. The consolidated balance sheet as of October 31, 1999, the
consolidated statements of operations for the three months and six months ended
October 31, 1999 and 1998 and the consolidated statements of cash flows for the
six months ended October 31, 1999 and 1998 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 October 31, 1999 and for all
periods presented have been made.
On December 6, 1999, the stockholders of the Company voted in favor of the
corporate name change to IFS International Holdings, Inc.
The Company adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income ("SFAS No. 130") during 1999. Comprehensive
income (loss) of the Company includes net income (loss), adjusted for the change
in foreign currency translation adjustments. The net effect of income taxes on
comprehensive income (loss) is immaterial. Total comprehensive income (the sum
of net income and the change in foreign currency translation adjustment amounts)
was $185,252 and $651,834 for the six months ended October 31, 1999 and 1998,
respectively.
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, 1999. The results of operations for
the period ended October 31, 1999 are not necessarily indicative of the
operating results for the full year.
Note 2
Acquisitions
Global Insight Group LTD
On December 6th 1999, the Company entered into a Stock Purchase Agreement to
acquire all of the outstanding shares of Global Insight Group LTD ("GIG") and
its three operating subsidiaries. The consideration is payable entirely in
shares of the Company's common stock. The transaction is structured to provide
for a minimal payment of three shares of the Company's common stock at closing,
with substantially the entire consideration to be determined based on the future
financial performance of the companies acquired.
In addition to the three shares issued at the closing, the purchase price has
two components.
1). So-called `Buy-Out' which is measured by multiplying the net earnings of GIG
for calendar year 2000 (determined in accordance with generally accepted
accounting principles, but with certain special adjustments set forth in the
Stock Purchase Agreement) by four (4) and by issuing to the sellers (the current
shareholders of GIG) common stock of the Company equal to the amount so
computed. The agreement provides a collar (lower limit and upper limit) on the
price at which the common shares will be valued. The purpose of setting forth
the collar is to prevent undue dilution to the Company's existing shareholders
in the event of a temporary drop in the price of the common shares during the
computation period.
6
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2). For the three calendar years of 2000, 2001 and 2002, the earnings of GIG
will be computed in the same fashion. The earnings in each years will be reduced
by 50%, and the amount so calculated will then be paid (year-by-year) by issuing
additional shares of common stock of the Company. The procedures for calculating
the share price and the collar provisions likewise apply to the issuance of
shares at the completion of each of the three years after the closing.
If and when the total number of shares paid to the sellers exceeds a value of
$1.2 million, then the formula under paragraph (2) above changes from 50% of
earnings to 30% of earnings, which has the effect of reducing the number of
shares that IFS would be called upon to issue.
Network Controls International, Inc.
On January 30, 1998, the merger of a wholly owned subsidiary of IFS with and
into NCI Holdings, Inc. ("Holdings") was consummated pursuant to a Plan and
Merger Agreement, dated January 30, 1998 (the "Merger Agreement"). Holdings
owned approximately 94% of the issued and outstanding shares of capital stock of
NCI, which develops and markets software products for bank automation. On June
1, 1998 NCI was merged into Holdings and Holdings subsequently changed its name
to Network Controls International, Inc.
The Company acquired all of the outstanding shares of capital stock of Holdings
in exchange for $1.11 million, consisting of $840,000 in cash and approximately
$238,000 representing the fair market value of 87,094 shares of preferred stock.
Costs incurred in connection with the acquisition approximated $102,000. In
accordance with provisions of the acquisition agreement, the Company initially
recorded the issuance of preferred shares at an amount which considered an
allowance for equity deficiencies of NCI. Pursuant to the acquisition agreement,
additional common shares may be issued if the consolidated pre-tax profits of
NCI exceeds certain levels during each of the three years ending April 30, 1999,
2000 and 2001 and during the three year period ending April 30, 2001. These
issuances, if any will be treated as additional purchase costs. The acquisition
was accounted for as a purchase and the operating results of NCI were included
in the consolidated financial statements commencing February 1, 1998.
In July 1998, the Company acquired the remaining outstanding shares of capital
stock of NCI for cash and stock valued at approximately $35,000.
In August 1998, the Board of Directors voted in favor of waiving the equity
deficiencies clause in the Merger Agreement and allowances for preferred shares
were reversed.
In October, 1999, pursuant to the terms of the merger agreement, we issued
1,051,716 shares of our common stock to Per Olof Ezelius, one of our directors
and president of our NCI subsidiary, for the financial performance of NCI during
the fiscal year ended April 30, 1999. The shares were issued as additional
contingent consideration pursuant to the terms of the plan and merger agreement
dated January 30, 1998. Mr. Ezelius may receive additional contingent shares in
future years based on the financial performance of NCI through fiscal year 2001
pursuant to the plan and merger agreement.
Note 3
Earnings Per Share
Effective April 30, 1998, the Company adopted Statement of Financial Accounting
Standards No. 128 ("SFAS 128"), Earnings Per Share ("EPS"). SFAS 128 establishes
standards for computing and presenting EPS. The statement replaced the
presentation of Primary EPS with a presentation of Basic EPS, and Fully Diluted
EPS with Diluted EPS. Primary EPS for January 31, 1998 has been restated in this
Form 10-QSB, using the new calculations for Basic EPS as established in SFAS
128. The calculation of Diluted EPS using SFAS 128 had no effect on the
Company's prior presentation of Fully Diluted EPS.
7
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Note 4
Private Placement
On July 6, 1999, the Company sold $1,000,000 of convertible promissory notes
(the "Notes") to three purchasers. The Notes are due in July 2001 and accrue
interest at 10% per year. Interest does not accrue for the first three months
and does not accrue for a given month if the value weighted average stock price
for the previous month, was at or above $3 per share or 90% of the lowest daily
value weighted average stock prices over a specified period from 15 to 30 days
prior to conversion. The purchasers received warrants to purchase an aggregate
of 100,000 shares of the Company's Common Stock at an exercise price of $3.07
per share subject to dilution. One investor and another company received $75,000
of additional convertible promissory notes and additional warrants to purchase
an aggregate of 100,000 shares of the Company's common stock in return for their
assistance with the transaction. The proceeds of the note and warrant placement,
after placement fees, were $965,000.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
The statements below 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 development of the capacity to accommodate additional and larger
contracts, (iv) adapting TPII software products to meet the demands of larger
EFT systems, (v) continued acceptance of the Company's software products by a
significant number of new customers, (vi) the Company's continued relationship
with computer manufacturers, (vii) acceptance of NCI Business Centre (TM) by a
significant number of new customers.
Introduction
The Company is engaged in the business of developing, marketing, automating and
supporting software for the EFT market. The Company's revenues have resulted
from the licensing of its family of TPII software products and from revenue from
NCI. The preparation of functional specifications, customization and
installation of TPII software products and the training by IFS of the financial
institution's personnel in the use of the TPII software products takes an
average of six to twelve months, depending upon the timing of installation and
final acceptance of the EFT System by the customer. Completion of an NCI license
agreement typically takes an average of two to six months. IFS' customers
generally pay 30% to 50% of the project costs including licensing fees upon
execution of the licensing agreement and also make progress payments prior to
acceptance. NCI customers typically pay the license fees upon installation of
the product. IFS 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. NCI recognizes software license revenue upon installation and hardware
revenues upon shipment. The Company also derives recurrent revenues from
furnishing certain maintenance services to its customers for its products. The
Company 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.
Results of Operations
Total revenues of $3,388,888 for the quarter ended October 31, 1999 represent an
increase of $1,096,444 or 47.8%, over total revenues of $2,292,444 for the
quarter ended October 31, 1998. Total revenues of $6,220,664 for the six months
ended October 31, 1999 represent an increase of $846,717 or 15.8%, over total
revenues of $5,373,947 for the six months ended October 31, 1998. The increase
in total revenues is primarily a result of an increase in software license and
installation contract fees and hardware revenue.
Software license and installation contract fees increased by $1,101,889 or
111.2% to $2,092,450 during the three months ended October 31, 1999 as compared
to $990,561 for the three months ended October 31, 1998. Software license and
installation contract fees increased by $515,155 or 17.5% to $3,463,648 during
the six months ended October 31, 1999 as compared to $2,948,493 for the six
months ended October 31, 1998. The increase is primarily a result of an increase
in sales of the Company's TPII and TP-CMS products during the second quarter.
8
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Hardware revenues decreased by $71,289 or 16.2% to $369,382 for the three months
ended October 31, 1999 as compared to $440,669 for the three months ended
October 31, 1998. However, hardware revenues increased by $326,678 or 51.7% to
$958,933 during the six months ended October 31, 1999 as compared to $632,255
for the six months ended October 31, 1998. The increase is primarily a result of
an increase in sales of the NCI connectivity products.
Revenues from licensing of software products and hardware sales in countries
outside the United States accounted for 86% of total revenues for the three
months ended October 31, 1999 as compared to 80.3% for the three months ended
October 31, 1998. Revenues from licensing of software products and hardware
sales in countries outside the United States accounted for 90% of total revenues
for the six months ended October 31, 1999 as compared to 67.1% for the six
months ended October 31, 1998. The increase as a percentage of total revenues
resulted primarily from the increase in revenues outside the United States
generated by IFS. The Company expects total revenues from foreign countries to
be a significant portion of its revenues in the future.
Gross profit, as expressed as a percentage of total revenues, decreased to 69.5%
for the quarter ended October 31, 1999, as compared to 85.5% for the quarter
ended October 31, 1998. Gross profit, as expressed as a percentage of total
revenues, decreased to 71.5% for the six months ended October 31, 1999, as
compared to 84.0% for the six months ended October 31, 1998. Gross profit
expressed as a percentage of total revenues decreased primarily as a result of
royalties associated with distributors of TPII and TP-CMS products.
The excess of cost over fair value of assets acquired in the NCI acquisition is
approximately $1.3 million at October 31, 1999. This amount is being amortized
on a straight line basis over eight years. Amortization expense for the three
month periods ended October 31, 1999 and 1998 was $25,739 and $12,700
respectively. Amortization expense for the six month periods ended October 31,
1999 and 1998 was $38,439 and $23,400 respectively. The increase in amortization
expense is due to the adjustment in the purchase price of NCI to reflect the
issuance of earn out shares pursuant to the merger agreement
Software costs capitalized for the quarter ended October 31, 1999 were $192,648
as compared to $221,521 for the quarter ended October 31, 1998. Software costs
capitalized for the six months ended October 31, 1999 were $423,922, as compared
to $333,986 for the six months ended October 31, 1998. Capitalized software
costs relate to costs incurred with respect to TPII smart card software
technology and the NCI Business Centre(TM). Such capitalized costs are being
amortized on a straight line basis over the estimated five year marketing lives
of the software.
Net income was $145,137 for the quarter ended October 31, 1999, as compared to
net income of $134,723 for the quarter ended October 31, 1998. Net income was
$185,289 for the six months ended October 31, 1999, as compared to net income of
$649,429 for the six months ended October 31, 1998. The decrease resulted
primarily from an increase in our selling, general and administrative costs
coupled with a decrease in interest and other income.
The Company has net operating loss carryforwards of approximately $3,800,000 as
of April 30, 1999. Pursuant to the Tax Reform Act of 1986 and subsequent
legislation, utilization of these carryforwards may be limited due to the
ownership change provisions as enacted by the Tax Reform Act of 1986 and
subsequent legislation.
TP-CMS is IFS' newest addition to the Company's product portfolio. TP-CMS is
currently in closed release and is due for global release during the second half
of fiscal year 2000.The product is an open architecture payment card management
solution for credit, debit, electronic purse and biometric cards. Incorporating
the latest technologies available for information management, TP-CMS enables IFS
to provide a complete migration of a banks payment card systems to
state-of-the-art solutions. Presently, two financial institutions have
contracted to have TP-CMS implemented in conjunction with TPII. The Company
believes that if the product is accepted by the EFT industry it could contribute
significantly to the results of operations. However, the Company can not provide
any assurance that the product will be successful and can not estimate the
impact, if any, on earnings.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of funds has historically been its operating
revenue. The Company's working capital increased from $1,666,451, at April 30,
1999 to $2,727,119 at October 31, 1999, primarily due to the net increase in
costs and estimated earnings in excess of billings on uncompleted contracts, and
the decrease in accounts payable and accrued liabilities.
9
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The Company believes that anticipated cash flow from operations and the
availability of a $600,000 line of credit will be sufficient to finance the
Company's working capital requirements for the foreseeable future. The Company's
estimate is based upon its ability to obtain licensing agreements through our
IFS subsidiary as currently projected. The Company may need additional financing
if these revenues are not received. However, since a portion of TPII software
contracts are 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.
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.
INFLATION
The Company has not experienced any meaningful impact on its sales or costs as
the result of inflation.
YEAR 2000
State of Readiness
In March 1998 the Company assigned project teams to insure that its base code
for TPII would be year 2000 and beyond ("Y2K") ready. The project teams were
also dedicated to prepare the Company's computer systems, applications, current
installed customers and future products for the year 2000. In October 1998 IFS
completed Y2K testing of its base code. All of the Company's customers have
received Y2K ready systems, an upgrade to a Y2K ready system, have had a Y2K
patch installed, or have conducted enterprise wide re-certifications to conform
to the standards set by the regulatory bodies of the banking industry such as
the FFIEC (Federal Financial Institutions Examination Council) and the OCC
(Office of the Comptroller of the Currency). The Company has one customer who
has chosen not to proceed with theirY2K patch before year end. As described
below, the Company is prepared to address any problems that may occur. The
customer plans to proceed with the implemenatation of the Y2K patch after year
end.
The Company's Y2K state of readiness has been evaluated by an independent firm.
Results of the evaluation have been received and several recommendations were
given. These recommendations have either been or will be addressed and satisfied
by year end using a Y2K readiness project plan covering all areas of the
company.
Costs
Management expects to incur internal costs to prepare its computer systems,
applications and customers for Y2K. Management also expects to incur external
costs associated with the Y2K state of readiness evaluation to be provided by an
independent firm. These costs are being expensed and are not expected to have a
material impact on the future results of operations. As of October 31, 1999, the
Company has incurred approximately $100,000 of internal costs, primarily in the
form of employee compensation, associated with Y2K readiness.
10
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Risks
There could be a material adverse effect on the results of operations if the
system enhancements and modifications for Y2K prove not to be effective. In this
event, installed customers would have non-working systems and could possibly
seek out other Y2K ready systems. This would eliminate future maintenance
revenues from these customers. A system that is not Y2K ready would impact new
sales until such time that a Y2K ready system is completed. There are also many
external environments that are associated with the operation of the Company's
systems. The operations of installed systems are dependent upon software and
infrastructure provided by third parties, such as networks, host systems, phone
lines, hardware and other software. The Company has no responsibility to insure
that the third party software and infrastructure is Y2K ready. However, failure
by the customer to make sure that these are Y2K ready may effect the operations
of the Company's products and the customer.
Contingency Plans
If the system enhancements, modifications or patches for Y2K prove not to be
effective, IFS is prepared to correct the situation via dial up communications
to the customer location. The Company has established four support teams for
twenty four hour Y2K support starting December 31, 1999. If technical
difficulties were to occur, IFS believes that it would not be significant enough
to cause an adverse effect on operations.
11
<PAGE>
IFS International Holdings, Inc. and Subsidiaries
(Formerly IFS International, Inc.)
Part II - Other Information
Item 1 - Legal Proceedings
The Company is not a party to any pending material legal proceedings.
Item 2 - Changes in Securities
In October, 1999, the Company issued 13,350 shares of common stock to a director
and officer of the Company pursuant to the 1988 Stock Option Plan.
In October, 1999, the Company issued 1,051,716 shares of common stock to a
director of the Company and an officer of a subsidiary pursuant to the merger
agreement between IFS and NCI dated January 30, 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
None
12
<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: December 15, 1999 IFS International Holdings, Inc.
(Formerly IFS International, Inc.)
By:
/s/ David L. Hodge
-----------------------------
David L. Hodge
President and Chief Executive Officer
/s/ John P. Singleton
-----------------------------
John P. Singleton
Chairman
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