================================================================================
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 January 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 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, 1,369,424 shares outstanding
as of March 16, 1999
Series A Convertible Preferred Stock, $.001 par value, 1,270,019
shares outstanding as of March 16, 1999
Transitional Small Business Disclosure Format: Yes___ NO (X)
================================================================================
<PAGE>
IFS 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
January 31, 1999 (unaudited) and April 30,1998...............................2-3
Consolidated Statements of Operations,
three months and nine months ended January 31, 1999 and 1998 (unaudited).......4
Consolidated Statements of Cash Flows,
nine months ended January 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 HOLDINGS, INC. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
January 31, April 30,
1999 1998
(unaudited)
----------------- ---------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $1,145,311 $2,102,807
Trade accounts receivable, net 1,838,285 1,527,865
Costs and estimated earnings in
excess of billings on
uncompleted contracts 320,017 216,280
Other current assets 897,784 566,333
Inventory 78,895 72,299
----------------- ---------------
Total current assets 4,280,292 4,485,584
----------------- ---------------
PROPERTY, EQUIPMENT AND IMPROVEMENTS, net 2,597,740 2,715,003
----------------- ---------------
OTHER ASSETS
Capitalized software costs, net 1,301,127 989,732
Excess of cost over fair value 345,898 319,541
of net assets of business acquired, net
Investments 113,204 -
Other 80,900 109,803
----------------- ---------------
Total other assets 1,841,129 1,419,076
================= ===============
$8,719,161 $8,619,663
================= ===============
See notes to consolidated financial statements.
<PAGE>
IFS HOLDINGS, INC. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
January 31, April 30,
1999 1998
(unaudited)
--------------- -----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
current liabilities
Current maturities of long term debt $267,333 $250,059
Accounts payable 364,346 538,946
Accrued salary, commissions, and taxes 538,533 574,788
Accrued expenses 398,780 502,898
Billings in excess of costs and estimated
earnings on uncompleted contracts 56,509 108,288
Deferred revenue and customer deposits 953,659 866,503
--------------- -----------------
Total current liabilities 2,579,160 2,841,482
--------------- -----------------
--------------- -----------------
LONG-TERM DEBT, less current maturities 1,297,150 1,365,078
--------------- -----------------
COMMITMENTS AND CONTINGENCIES
--------------- -----------------
MINORITY INTEREST - 45,600
--------------- -----------------
shareholders' equity
Preferred stock, $.001 par value;
25,000,000 shares authorized,
1,271,019 and 1,396,638
shares issued and outstanding 1,271 1,397
Common Stock $.001 par value;
50,000,000 shares authorized,
1,368,424 and 1,137,353
shares issued and outstanding 1,368 1,137
Additional paid-in capital 8,424,398 8,241,451
Accumulated deficit (3,583,312) (3,879,934)
Foreign currency translation adjustment (874) 3,452
--------------- -----------------
Total shareholders' equity 4,842,851 4,367,503
=============== =================
$8,719,161 $8,619,663
=============== =================
See notes to consolidated financial statements.
<PAGE>
IFS HOLDINGS, INC. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
Nine Nine Three Three
Months Months Months Months
Ended Ended Ended Ended
January 31, January 31, January 31, January 31,
1999 1998 1999 1998
---------------- --------------- ---------------- ---------------
Revenues:
<S> <C> <C> <C> <C>
Software license and installation contract fees $3,971,387 $1,801,560 $1,022,894 $472,937
Service and maintenance revenue 2,657,742 1,478,050 864,543 418,742
Hardware sales 935,407 - 303,152 -
---------------- --------------- ---------------- ---------------
7,564,536 3,279,610 2,190,589 891,679
---------------- --------------- ---------------- ---------------
Cost of Revenues:
Software license and installation contract fees 552,249 282,920 242,180 52,765
Service and maintenance revenue 721,500 355,087 285,033 88,207
Hardware sales 168,232 - 54,509 -
---------------- --------------- ---------------- ---------------
Gross profit 6,122,555 2,641,603 1,608,867 750,207
---------------- --------------- ---------------- ---------------
Operating expenses:
Research and development 1,150,398 508,778 323,330 144,060
Salaries 2,026,635 939,785 658,397 340,334
Rent 294,005 63,196 117,794 9,917
Selling, general and administrative 1,993,110 1,083,032 711,555 324,143
Other 324,965 84,075 112,383 50,021
---------------- --------------- ---------------- ---------------
5,789,113 2,678,866 1,923,459 868,475
---------------- --------------- ---------------- ---------------
Income (loss) from operations 333,443 (37,263) (314,592) (118,268)
Other income (expense):
Interest expense (109,483) (46,648) (35,245) (31,960)
Interest income 72,737 156,930 18,208 37,252
Other (78) 58,477 (21,181) 1,191
---------------- --------------- ---------------- ---------------
Income (loss) before income taxes 296,619 131,496 (352,810) (111,785)
Provision for income taxes - - - -
================ =============== ================ ===============
Net income (loss) $296,619 $131,496 $(352,810) $(111,785)
================ =============== ================ ===============
---------------- --------------- ---------------- ---------------
Basic income (loss) per common share $ .24 $ .12 $ (.26) $ (.10)
---------------- --------------- ---------------- ---------------
---------------- --------------- ---------------- ---------------
Weighted average common shares outstanding 1,247,000 1,090,000 1,339,000 1,093,000
---------------- --------------- ---------------- ---------------
---------------- --------------- ---------------- ---------------
Diluted income (loss) per common share $ .11 $ .05 $ (.13) $ (.04)
---------------- --------------- ---------------- ---------------
---------------- --------------- ---------------- ---------------
Weighted average common and common equivalent shares
outstanding 2,760,000 2,641,000 2,746,000 2,645,000
---------------- --------------- ---------------- ---------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
IFS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
Nine Months Ended Nine Months Ended
January 31, 1999 January 31, 1998
-------------------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $296,619 $131,496
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 575,898 239,202
Changes in assets and liabilities:
Inventory (6,596) -
Trade accounts receivable, net (310,420) (1,026,835)
Costs, estimated earnings and billings on uncompleted contracts (155,516) (320,722)
Other current assets (326,248) (186,894)
Accounts payable (102,600) (121,644)
Accrued expenses (140,373) (28,675)
Deferred revenue and customer deposits 87,156 236,212
-------------------- --------------------
Net cash used in operating activities (82,080) (1,077,860)
-------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Equipment purchases (137,242) (1,365,436)
Investment (113,204)
Purchase of NCI Holdings Inc., net of cash acquired - (454,728)
Acquisition of minority interest (36,661) -
Capitalized software and license costs (572,986) (353,435)
-------------------- --------------------
Net cash used in investing activities (860,093) (2,173,599)
-------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long term debt (50,654) (31,170)
Proceeds from notes payable - 208,375
Proceeds from issuance of stock and common stock warrants 39,657 14,142
-------------------- --------------------
Net cash provided by (used in) financing activities (10,997) 191,347
-------------------- --------------------
Effect of exchange rate changes on cash (4,326) -
-------------------- --------------------
Decrease in cash and cash equivalents (957,496) (3,060,112)
Cash and cash equivalents:
Beginning of year 2,102,807 5,161,410
==================== ====================
End of period $1,145,311 $2,101,298
==================== ====================
See notes to consolidated financial statements.
Supplemental disclosure of non-cash investing and financing transactions:
Common stock issued in exchange for legal services $72,000 $ -
==================== ====================
Common stock issued in connection with NCI acquisition $62,456 $ -
==================== ====================
</TABLE>
<PAGE>
IFS HOLDINGS, 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
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 ("NCI"), a North Carolina Corporation. The
name of the Company was changed from IFS International, Inc. to IFS Holdings,
Inc. on March 16, 1999 to establish a clear distinction between the parent and
the New York subsidiary. All significant intercompany accounts and transactions
have been eliminated. The consolidated balance sheet as of January 31, 1999, the
consolidated statements of operations for the three months and the nine months
ended January 31, 1999 and 1998 and the consolidated statements of cash flows
for the nine months ended January 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 January 31, 1999
and for all periods presented have been made.
Effective May 1, 1998, the Company adopted Statement of Financial Accounting
Standard No. 130, "Reporting Comprehensive Income" (SFAS 130), which was
effective for fiscal years beginning after December 15, 1997. SFAS 130
establishes standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. Comprehensive
income is the change in equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources. Other
than net income, the Company's source of comprehensive income is from foreign
currency translation adjustments which are disclosed separately in the
Shareholders' Equity section of the Consolidated Balance Sheets. Total
comprehensive income (the sum of net income and the change in foreign currency
translation adjustment amounts) was $292,293 and $131,496 for the nine months
ended January 31, 1999 and 1998, respectively.
In June, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No.131, "Disclosures about Segments of an
Enterprise and Related Information." This statement establishes standards for
the way companies are to report information about operating segments. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. The Company is currently evaluating the
impact of this standard on disclosures required in its financial statements. The
Company is required to adopt this standard for periods beginning after fiscal
1998. The reporting standards are not required for interim financial statements
in the first year of application.
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, 1998. The results of operations for
the period ended January 31, 1999 are not necessarily indicative of the
operating results for the full year.
Note 2
Acquisition
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 preferred 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.
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.
<PAGE>
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 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) continued acceptance of the Company's software products by a
significant number of new customers, (vii) the Company's continued relationship
with computer manufacturers, (viii) acceptance of NCI Business Centre (TM) by a
significant number of new customers.
Introduction
The Company is engaged in the business of developing, marketing, and supporting
software for the electronic commerce market. The Company's revenues have
resulted from the licensing of its family of software products. The preparation
of functional specifications, customization and installation of software
products and the training by the Company of the customer's personnel in the use
of software products can take anywhere from two to twelve months, depending upon
the timing of installation, final acceptance of the system by the customer, and
the type of product which is being sold. Depending on the type of product being
installed, the Company receives 30% to 100% of the licensing fees upon execution
of the licensing agreement with progress payments prior to acceptance, or
customers pay the license fees in full upon installation of the product. The
Company recognizes up to 100% of license revenue when the agreement between the
Company and the customer is signed. The service revenue portion of the agreement
is recognized either under the percentage of completion method for software
installation contracts or on a time and materials basis. The percentage of
completion method is measured by estimates of the progress towards completion as
determined by costs incurred. For projects in which the duration is reasonably
short, the Company recognizes software license revenue upon installation. The
Company recognizes hardware revenues upon shipment. The Company also derives
recurring 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. 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 $2,190,589 for the quarter ended January 31, 1999 represent an
increase of $1,298,910 or 145.7%, over total revenues of $891,679 for the
quarter ended January 31, 1998. Total revenues of $7,564,536 for the nine months
ended January 31, 1999 represent an increase of $4,284,926 or 130.7%, over total
revenues of $3,279,610 for the nine months ended January 31, 1998. This increase
in total revenues resulted primarily from revenues generated by NCI for the
three and nine months ended January 31, 1999 of $1,022,454 and $4,130,640
respectively. NCI was acquired in a purchase transaction in January, 1998. Its
revenues were only reflected in the Company's operations since that date.
Consequently, revenue for the three and nine months ended January 31, 1998,
consisted of IFS revenue only. Revenues from IFS for the three months ended
January 31, 1999 increased by $276,456 to $1,168,135 or 31.0% from total
revenues of $891,679 for the three months ended January 31, 1998. Revenues from
IFS for the nine months ended January 31, 1999 increased by $154,286 to
$3,433,896 or 4.7% from total revenues of $3,279,610 for the nine months ended
January 31, 1998. The increase in IFS' revenue is principally due to an increase
in software license and installation contract fees.
Software license and installation contract fees increased by $549,957 to
$1,022,894 or 116.3% during the three months ended January 31, 1999 as compared
to $472,937 for the three months ended January 31, 1998. Software license and
installation contract fees increased by $2,169,827 or 120.4% to $3,971,387
during the nine months ended January 31, 1999 as compared to $1,801,560 for the
nine months ended January 31, 1998. Software license and installation contract
fees increased primarily as a result of software license and installation
contract fees generated by NCI together with an increase in software license
fees generated by IFS. Software license and installation contract fees of NCI
for the three and nine months ended January 31, 1999 were $126,908 and
$1,511,750 respectively. Software license and installation contract fees of IFS
for the three and nine months ended January 31, 1999 were $895,986 and
$2,459,637 respectively as compared to $472,937 and $1,801,560 for the three and
nine months ended January 31, 1998 respectively. The increase in IFS' software
license and installation contract fees is attributable to new contracts being
signed during the three months ended January 31, 1999, and the upgrades of
existing systems to achieve "Y2K" readiness.
Maintenance revenue for the Company of $402,428 for the three months ended
January 31, 1999 represents an increase of $229,013 or 132.1%, as compared to
$173,415 for the three months ended January 31, 1998. The increase in
maintenance revenue resulted primarily from maintenance revenue generated by
NCI. Maintenance revenues of NCI for the three and nine months ended January 31,
1999 were $199,343 and $535,677, respectively. Maintenance revenues of IFS for
the three and nine months ended January 31, 1999 were $203,085 and $548,465,
respectively, as compared to $173,415 and $491,887 for the three and nine months
ended January 31, 1998, respectively. As of January 31, 1999, the Company had
approximately $886,000 of deferred maintenance service revenues. Maintenance
revenue growth is expected to continue as long as the number of licenses for
software products increases and the customers continue to utilize such software
products.
Hardware revenues increased for the three and nine months ended January 31, 1999
primarily as a result of revenues generated by NCI.
Revenues from licensing of software products and hardware sales in countries
outside the United States accounted for 86.6% of total revenues for the three
months ended January 31, 1999 as compared to 62.1% for the three months ended
January 31, 1998. Revenues from licensing of software products and hardware
sales in countries outside the United States accounted for 72.8% of total
revenues for the nine months ended January 31, 1999 as compared to 69.2% for the
nine months ended January 31, 1998. The increase as a percentage of total
revenues resulted primarily from the increase in revenues outside the United
States generated by IFS. Revenues from licensing of IFS software products in
countries outside the United States accounted for 80.6% of IFS' total revenues
for the nine months ended January 31, 1999 as compared to 69.2% for the nine
months ended January 31, 1998. 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 73.5%
for the quarter ended January 31, 1999, as compared to 84.1% for the quarter
ended January 31, 1998. Gross profit decreased primarily as a result of the
increase in hardware revenues, which typically have a lower gross profit margin.
Gross profit, as expressed as a percentage of total revenues, increased slightly
to 80.9% for the nine months ended January 31, 1999, as compared to 80.5% for
the nine months ended January 31, 1998. Gross profit increased primarily as a
result of the increase in software license fees and service and maintenance
revenues, both of which typically have a higher gross profit margin.
Operating expenses of $1,923,459 for the quarter ended January 31, 1999
represent an increase of $1,054,984 or 121.5% from operating expenses of
$868,475 for the quarter ended January 31, 1998. Operating expenses of
$5,789,113 for the nine months ended January 31, 1999 represent an increase of
$3,110,247 or 116.1% from operating expenses of $2,678,866 for the quarter ended
January 31, 1998. The increase in operating expenses resulted primarily from the
inclusion of NCI's operations in the Company's consolidated statement of
operations for the three and nine months ended January 31, 1999. NCI's operating
expenses for the three and nine months ended January 31, 1999 were $713,267 and
$2,260,439 respectively. IFS' operating expenses for the three months ended
January 31, 1999 increased $329,018 or 37.9% from operating expenses of $868,475
for the three months ended January 31, 1998. IFS' operating expenses for the
nine months ended January 31, 1999 increased $813,709 or 30.4% from operating
expenses of $2,678,866 for the nine months ended January 31, 1998. The increase
in IFS' operating expenses resulted primarily from an increase in personnel
necessary to create the development and management infrastructure needed to
service anticipated growth in revenue.
The excess of cost over fair value of assets acquired in the NCI acquisition in
January 1998 approximated $405,000. This amount is being amortized on a straight
line basis over eight years. Amortization expense for the three and nine month
periods ended January 31, 1999 was $12,699 and $36,099, respectively.
Software costs capitalized for the quarter ended January 31, 1999 were $239,000,
as compared to $224,982 for the quarter ended January 31, 1998. Software costs
capitalized for the nine months ended January 31, 1999 were $572,986, as
compared to $353,435 for the nine months ended January 31, 1998. Capitalized
software costs relate to costs incurred with respect to TPII smart card software
technology and the NCI Business Centre. Such capitalized costs are being
amortized on a straight line basis over the estimated five year marketing lives
of the software.
Net loss was $352,810 for the quarter ended January 31, 1999, as compared to net
loss of $111,785 for the quarter ended January 31, 1998. Net income was $296,619
for the nine months ended January 31, 1999, as compared to net income of
$131,496 for the nine months ended January 31, 1998.
The Company has net operating loss carryforwards of approximately $3,200,000 as
of April 30, 1998. 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased from $1,644,102 at April 30, 1998 to
$1,701,132 at January 31, 1999. The Company's cash and cash equivalents
decreased by $957,496 for the nine months ended January 31, 1999. This decrease
was primarily a result of working capital used to fund investing activities of
$860,093 for equipment purchases, the acquisition of minority interest in NCI,
other investments, and capitalized software and license costs.
The Company believes that anticipated cash flow from operations along with the
remaining proceeds from the public offering in 1997 will be sufficient to
finance the Company's working capital requirements for the foreseeable future.
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.
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
The Company has assigned project teams dedicated to prepare the Company's
computer systems, applications, current installed customers and future products
for the year 2000. As of January 31, 1999, the Company believes it has
successfully completed system modifications to its products to be year 2000 and
beyond ("Y2K") ready. The Company has either negotiated or is under negotiations
with its installed customer base for a complete system upgrade to be Y2K ready.
Those customers who do not contract for a system upgrade will receive Y2K
patches for their system. The Company will receive additional consideration for
work performed for most system patches. Systems currently in production will be
tested for Y2K readiness prior to installation.
During the next several months, the Company's Y2K state of readiness will be
evaluated by an independent firm. The Company anticipates that the independent
firm will be selected and an agreement will be negotiated during the fourth
quarter of fiscal year 1999.
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 January 31, 1999 the
Company has incurred approximately $83,000 of internal costs, primarily in the
form of employee compensation, associated with Y2K readiness.
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 Company's systems in which
the Company may be unaware of being Y2K ready. 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 make the third party software and
infrastructure 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. This has been conveyed to the Company's customers.
Contingency Plans
If the system enhancements, modifications or patches for Y2K prove not to be
effective, the Company is prepared to correct the situation via dial up
communications to the customer location. If this were to occur, the Company
currently believes that it would not be significant enough to cause an adverse
effect on operations.
<PAGE>
IFS Holdings, Inc. AND SUBSIDIARIES
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 February 1999, the Company approved the issuance of 32,000 shares of Common
Stock to counsel of the Company in exchange for professional services rendered.
Item 3 - Defaults Under Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
On March 16, 1999, the stockholders of the Company approved an amendment to the
Certificate of Designation regarding the Company's Series A Convertible
Preferred Stock. The amendment provides for the automatic conversion of each
share of Preferred Stock to 1.1 shares of Common Stock on April 1, 1999.
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: March 17, 1999 IFS Holdings, Inc.
By:
\s\ David L. Hodge
-----------------------------
David L. Hodge
President and Chief Executive Officer
\s\ John Singleton
-----------------------------
John Singleton
Chairman
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
Exhibit 27
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-1-1998
<PERIOD-END> JAN-31-1999
<CASH> 1,145,311
<SECURITIES> 0
<RECEIVABLES> 1,992,171
<ALLOWANCES> 45,010
<INVENTORY> 78,895
<CURRENT-ASSETS> 4,280,292
<PP&E> 4,121,751
<DEPRECIATION> 1,524,010
<TOTAL-ASSETS> 8,719,161
<CURRENT-LIABILITIES> 2,579,160
<BONDS> 0
0
1,271
<COMMON> 1,368
<OTHER-SE> 4,840,212
<TOTAL-LIABILITY-AND-EQUITY> 8,719,161
<SALES> 7,564,536
<TOTAL-REVENUES> 7,527,712
<CGS> 1,441,981
<TOTAL-COSTS> 7,231,094
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 109,483
<INCOME-PRETAX> 296,619
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 296,619
<EPS-PRIMARY> .24
<EPS-DILUTED> .11
</TABLE>
