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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 July 31, 2000
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.
(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, 4,078,922 shares outstanding as of September 8,
2000
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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
July 31, 2000 (unaudited) and April 30, 2000.................................2-3
Consolidated Statements of Operations,
three months ended July 31, 2000 and 1999 (unaudited)..........................4
Consolidated Statements of Cash Flows,
three months ended July 31, 2000 and 1999 (unaudited)..........................5
Notes to Consolidated Financial Statements (unaudited).......................6-8
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 holdings, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
July 31, April 30,
2000 2000
(unaudited)
----------------- ----------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $1,462,614 $2,382,279
Trade accounts receivable, net 2,603,453 2,523,753
Costs and estimated earnings
in excess of billings
on uncompleted contracts 2,794,296 961,792
License fees receivable 1,222,660 642,246
Other current assets 954,071 606,468
Inventory 62,640 84,334
----------------- ----------------
Total current assets 7,402,574 7,200,872
----------------- ----------------
PROPERTY, EQUIPMENT AND IMPROVEMENTS, net 2,444,884 2,423,796
----------------- ----------------
OTHER ASSETS
Capitalized software costs, net 1,737,002 1,627,607
Excess of cost over fair value of
net assets of business acquired, net 1,140,011 1,191,830
License fees receivable 474,500 632,672
Other 259,722 367,639
----------------- ----------------
Total other assets 3,611,235 3,819,748
----------------- ----------------
$13,458,693 $13,444,416
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See notes to consolidated financial statements.
<PAGE>
IFS International holdings, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
July 31, April 30,
2000 2000
(unaudited)
---------------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
current liabilities
Current maturities of long term debt $390,193 $387,735
Accounts payable 790,990 674,961
Accrued compensation and related liabilities 577,877 525,860
Other accrued 927,194 885,972
expenses
Billings in excess of costs and estimated
earnings on uncompleted contracts 92,880 48,457
Deferred revenue and customer deposits 895,203 710,474
---------------- -----------
Total current liabilities 3,674,336 3,233,459
---------------- -----------
LONG-TERM DEBT, less current maturities 2,980,674 2,976,164
---------------- -----------
OTHER LONG TERM LIABILITIES 305,760 -
---------------- -----------
shareholders' equity
Preferred stock, $.001 par value;
25,000,000 shares authorized, 200,000
shares Series B issued and outstanding
liquidation preference $11.50 per share 200 200
Common Stock $.001 par value; 50,000,000 shares
authorized, 4,076,825 and 4,048,451
shares issued and outstanding 4,082 4,047
Additional paid-in capital 11,891,041 11,859,424
Accumulated deficit (5,333,804) (4,547,665)
Accumulated other comprehensive loss (63,597) (81,213)
--------------- ------------
Total shareholders' equity 6,497,923 7,234,793
--------------- ------------
$13,458,693 $13,444,416
=============== ============
See notes to consolidated financial statements.
<PAGE>
IFS International holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Three
Months Months
Ended Ended
July 31, 2000 July 31, 1999
---------------- ---------------
Revenues:
Software license and
installation contract fees $1,484,986 $1,371,198
Service and maintenance revenue 945,321 871,027
Hardware sales 12,842 589,551
---------------- ---------------
2,443,150 2,831,776
---------------- ---------------
Cost of Revenues:
Software license and
installation contract fees 452,028 356,962
Service and maintenance revenue 234,177 298,197
Hardware sales 1,712 82,192
---------------- ---------------
Gross profit 1,755,232 2,094,425
---------------- ---------------
Operating expenses:
Research and development 436,000 250,125
Salaries 804,919 798,339
Rent and occupancy 146,893 147,046
Selling, general and administrative 973,343 698,799
Other 126,028 102,298
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2,487,183 1,996,607
---------------- ---------------
Income (loss) from operations (731,951) 97,818
Other income (expense):
Interest expense (75,011) (75,710)
Interest income 24,819 18,967
Other 4,714 (922)
---------------- ---------------
Income (loss) before income taxes (777,429) 40,153
Provision for income taxes 8,710 -
---------------- ---------------
Net (loss) income $(786,139) $40,153
================ ===============
---------------- ---------------
Basic income (loss) per common share $ (0.19) $ .01
---------------- ---------------
---------------- ---------------
Weighted average common shares outstanding 4,072,000 2,779,000
---------------- ---------------
---------------- ---------------
Diluted income (loss) per common share $ (0.19) $ .01
---------------- ---------------
---------------- ---------------
Weighted average common and common
equivalent shares outstanding
4,992,000 3,079,000
---------------- ---------------
See notes to consolidated financial statements.
<PAGE>
IFS International holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
Three Months Ended Three Months Ended
July 31, 2000 July 31, 1999
-------------------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $(786,139) $40,153
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization 274,184 231,787
Amortization of discount on notes payable 30,150 10,050
Changes in assets and liabilities:
Inventory 21,694 (66,275)
Trade accounts receivable, net 226,060 650,157
License fees receivable (422,242) -
Costs, estimated earnings and billings on uncompleted contracts (90,921) (304,079)
Other current assets (239,505) (133,525)
Accounts payable 116,029 35,636
Accrued expenses 93,239 (139,208)
Deferred revenue and customer deposits 184,729 (53,898)
-------------------- --------------------
Net cash provided by (used in) operating activities (592,722) 270,798
-------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Equipment purchases (116,976) (66,086)
Capitalized software and license costs (235,873) (192,648)
-------------------- --------------------
Net cash used in investing activities (352,849) (192,831)
-------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long term debt (23,182) (13,526)
Proceeds from notes payable - 965,000
Proceeds from issuance of stock 31,653 -
-------------------- --------------------
Net cash provided by financing activities 8,471 951,474
-------------------- --------------------
Effect of exchange rate changes on cash 17,435 (5,976)
-------------------- --------------------
Increase (decrease) in cash and cash equivalents (919,665) 957,562
Cash and cash equivalents:
Beginning of year 2,382,279 1,326,708
-------------------- --------------------
End of period $1,462,614 $2,284,270
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Supplemental Disclosures of Cash Flows Information
------------------------------------------------------------------------------------ -------------------- --------------------
Cash paid during the three months for:
Interest $41,124 $38,836
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</TABLE>
See notes to consolidated financial statements.
IFS International 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
International Holdings, Inc., a Delaware Corporation (IFS Holdings), and its
wholly-owned operating subsidiaries, IFS International, Inc., a New York
Corporation (IFS), Network Controls International, Inc., a North Carolina
Corporation (NCI) and Global Insight Group, LTD, a corporation organized and
existing under the laws of the United Kingdom (GIG). All significant
intercompany accounts and transactions have been eliminated. The consolidated
balance sheet as of July 31, 2000, the consolidated statements of operations for
the three months ended July 31, 2000 and 1999 and the consolidated statements of
cash flows for the three months ended July 31, 2000 and 1999 have been prepared
by IFS Holdings, without audit. In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to present fairly
the financial condition, results of operations and cash flows at July 31, 2000
and for all periods presented have been made.
IFS Holdings adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income ("SFAS No. 130") during 1999. Comprehensive
income (loss) of IFS Holdings 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
(loss) (the sum of net income (loss) and the change in foreign currency
translation adjustment amounts) was $(768,523) and $34,175 for the three months
ended July 31, 2000 and 1999, respectively.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 "Revenue
Recognition in Financial Statements," which is effective no later than the
fourth fiscal quarter of the first fiscal year beginning after December 15,
1999. SAB 101 clarifies the SEC's views related to revenue recognition and
disclosure. We do not believe that the adoption of SAB 101 will have a material
effect on our financial position or results of operations.
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequences of various modifications to
the terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. We do not
expect the application of FIN 44 to have a material impact on the our financial
position or results of operations.
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 are read in conjunction with the consolidated financial
statements and notes thereto included in our annual report on Form 10-KSB for
the fiscal year ended April 30, 2000. The results of operations for the period
ended July 31, 2000 are not necessarily indicative of the operating results for
the full year.
Note 2
Acquisitions
On-Point Technology
On May 22, 2000, we entered into an Asset Purchase Agreement with On-Point
Technology Systems, Inc., a Nevada corporation and e-Point Technologies, Inc.
also a Nevada corporation. Pursuant to the terms of the Agreement, we acquired
certain assets of e-Point Technologies Ltd., a United Kingdom company and a
subsidiary of e-Point Technologies, Inc. As consideration for the assets
acquired, we will issue shares of our Common Stock having a market value of
$90,000 (as adjusted) or approximately 20,000 shares based the average closing
price five business days immediatey preceeding the closing date of May 22, 2000.
The shares have not been issued to On-Point as of the date of this filing.
Global Insight Group LTD
On December 6th 1999, we 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
IFS Holdings' common stock. The transaction is structured to provide for a
minimal payment of three shares of the our 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 IFS Holdings 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 our existing shareholders in the
event of a temporary drop in the price of the common shares during the
computation period.
2). For the two calendar years of 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 IFS Holdings. 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 Holdings would be called upon to issue.
Network Controls International, Inc.
On January 30, 1998, the merger of a wholly owned subsidiary of IFS Holdings
with and into NCI Holdings, Inc. ("NCI Holdings") was consummated pursuant to a
plan and merger agreement, dated January 30, 1998. NCI 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 NCI Holdings and NCI Holdings subsequently changed its
name to Network Controls International, Inc.
We acquired all of the outstanding shares of capital stock of NCI 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, we 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, we 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 plan and merger agreement and allowances for
preferred shares were reversed.
In October, 1999, pursuant to the terms of the plan and 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 years 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.
In September, 2000 pursuant to the terms of the plan and merger agreement the
Board of Directors agreed to issue 585,511 shares of our common stock to Per
Olof Ezelius for the financial performance of NCI for the fiscal year ended
April 30, 2000. In September, 2000, we entered into an agreement with Mr.
Ezelius that terminated the rights of Mr. Ezelius to receive any additional
contingent shares in future years based on the financial performance of NCI
through fiscal year 2001 pursuant to the terms of the plan and merger agreement.
Note 3
Earnings Per Share
Effective April 30, 1998, IFS Holdings 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.
Note 4
Subsequent Event
We are presently conducting a private placement of our securities. The
placement, which commenced in August 2000, and may be extended through December
2000, includes units of our securities consisting of one share of newly
authorized convertible preferred stock and a warrant to purchase one share of
common stock. The conversion rules of preferred and exercise price of the
warrants are determined by a formula which results in a conversion price and an
esxercise price above current market price at the time of issuance of any units.
An aggregate of 4,000,000 units are being offered at a price of $2.50 per unit
or a total of $10,000,000, if all the units are sold. As of September 15, 2000,
we had sold 539,994 units and received gross proceeds of approximately
$1,350,000. We are required to issue warrants to the placement agent to acquire
a number of units equal to 15% of the units sold pursuant to the offering.
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 is 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 our software products by a significant
number of new customers, (vi) our continued relationship with computer
manufacturers, (vii) acceptance of NCI Business Centre a by a significant number
of new customers and (viii)the integration and success of acquisitions.
Introduction
We are engaged in the business of developing, marketing and supporting software
products for electronic funds transfer, retail, e-commerce and retail banking
markets. These markets are served primarily through the Company's two wholly
owned subsidiaries, IFS and NCI.
Our revenues have resulted from the licensing of our family of TPII and TP-CMS
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 pays 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. Fees from licenses are recognized as revenue upon
delivery of core software, provided fees are fixed or determinable and
collection is probable. Fees from licenses sold together with consulting
services are generally recognized upon shipment provided that payment of the
license fees is not dependent upon the performance of the consulting services.
In instances where the aforementioned criteria have not been met, both the
license and consulting fees are recognized under the percentage of completion
method of contract accounting. Several of our license fee arrangements allow for
extended payment terms (generally one to two years). 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. We also derive recurrent
revenues from furnishing certain maintenance services to our customers for our
products. We may also receive additional revenues for additional training of
customer personnel and consulting services. With respect to revenues for
maintenance services, we generally receive annual payments at the beginning of
the contract. Such payments are initially reflected as deferred revenues and are
recognized ratably during the year.
Results of Operations
Total revenues of $2,443,150 for the quarter ended July 31, 2000 represent a
decrease of $388,626 or 13.7%, over total revenues of $2,831,776 for the quarter
ended July 31, 1999. The decrease in total revenues is primarily a result of a
decrease in revenue from NCI . Revenue from NCI decreased by $819,781 or 60% to
$546,619 during the quarter ended July 31, 2000 as compared to $1,366,400 for
the three months ended July 31, 1999. Total revenues for IFS increased by
$431,155 or 29.4% to $1,896,530 from the corresponding period in the previous
year. The decrease in NCI's revenue is primarily atributable to a decrease in
revenue from the sale of NCI's legacy products.
Software license and installation contract fees increased by $113,788 or 8.3% to
$1,484,986 during the three months ended July 31, 2000 as compared to $1,371,198
for the three months ended July 31, 1999. Software license and installation
contract fees for IFS increased by $271,286 or 22.8% to $1,462,945. This
increase is a result of the increase in the average contract value. The contract
values have increased as a result of the addition of TP-CMS license fees with
TPII license fees in IFS' contracts. The increase was partially offset by a
decrease software license and installation contract fees from NCI.
Service and maintenance revenues increased by $74,294 or 8.5% to $945,321 during
the three months ended July 31, 2000 as compared to $871,027 for the three
months ended July 31, 1999. Service and maintenance revenue for IFS increased by
$159,869 or 58.7% from the corresponding period in the previous year. IFS'
increase was a result of new customers beginning their maintenance contracts.
The increase was partially offset by a decrease in service and maintenance
revenue from NCI.
Revenues from licensing of software products and hardware sales in countries
outside the United States accounted for 61.4% of total revenues for the three
months ended July 31, 2000 as compared to 96.2% for the three months ended July
31, 1999. The decrease as a percentage of total revenues resulted primarily from
the increase in domestic revenues generated by IFS. We expect total revenues
from foreign countries to continue to be a significant portion of our revenues
in the future.
Gross profit, as expressed as a percentage of total revenues, decreased to 71.8%
for the quarter ended July 31, 2000, as compared to 74.0% for the quarter ended
July 31, 1999.
Operating expenses increased by $490,576 or 24.6% to $2,487,183 during the three
months ended July 31, 2000 as compared to $1,996,607 for the three months ended
July 31, 1999. Operating expenses increased as a result of increases in research
and development and selling, general and administrative expenses. These
increases are a result of our continued efforts to expand our technical staff
and to fund our sales and marketing objcetives.
The excess of cost over fair value of assets acquired in the NCI acquisition is
approximately $1,140,000 at July 31, 2000. This amount is being amortized on a
straight line basis over eight years. Amortization expense for the three month
periods ended January 31, 2000 and 1999 was $51,819 and $12,699 respectively.
The increase in amortization expense is related to the additional goodwill
associated with the issuance of earn out shares pursuant to the merger agreement
with NCI.
Software costs capitalized for the quarter ended July 31, 2000 were
approximately $240,000 as compared to approximately $193,000 for the quarter
ended July 31, 1999. Capitalized software costs relate to costs incurred with
respect to electronic funds transfer software technology and the NCI Business
Centre(TM) 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 $786,139 for the quarter ended July 31, 2000, as compared to a net
income of $40,153 for the quarter ended July 31, 1999. The net loss for the
quarter resulted primarily from a sustantial decrease in revenue from NCI.
We have net operating loss carryforwards of approximately $4,450,000 as of April
30, 2000. 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.
Our first successful installation of TP-CMS was completed during our last fiscal
year. It has since been marketed worldwide, and subsequently several contracts
have been executed. The product is an open architecture payment card management
solution for credit, debit, electronic purse cards and biometric identification.
Incorporating the latest technologies available for information management,
TP-CMS enables IFS to provide a complete migration of a bank's payment card
systems to state-of-the-art solutions. To date, in every instance, TP-CMS has
been implemented in conjunction with TP-II. We believe that the product has been
and will continue to be accepted by the EFT industry, and therefore contribute
significantly to the results of operations. However, we can not provide any
assurance that the product will continue to be successful and can not estimate
the impact, if any, on earnings.
We have also recently introduced PosPay. PosPay allows merchants to process
their internet sourced transactions in a secure, automated and real line
environment which complies with the various bank/card scheme mail order and
telephone rules and regulations. We have entered into an initial contract for
PosPay. At this time, we can not provide any assurance that the product will
continue to be successful and can not estimate the impact, if any, on earnings.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased from $3,967,413 at April 30, 2000 to
$3,728,238 at July 31, 2000. The decrease in working capital was primarily a
result of a decrease in cash offset by increases in deferred revenue and cost
and estimated earnings in excess of billings and license fees receivable. Cash
decreased as a result of funds being utilized for expansion in sales & marketing
and for other working capital needs.
Deferred revenue increased as a result of software maintenance beginning for
the successful installation of new customers. Cost and estimated earnings in
excess of billings and license fees receivable, increased as a result of new
contracts being executed during the quarter and being accounted for under the
percentage of completion method of contract accounting.
We believe that anticipated cash flow from operations, proceeds from our
on-going and proposed private placement financings (see Note 4 to the
financials) and the availability of a $600,000 line of credit will be sufficient
to finance our working capital requirements for the foreseeable future. However,
since a portion of our software contracts are not paid until acceptance by the
customer and, as a result, we are 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 us, 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. We 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 IFS 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, our 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
We have not experienced any meaningful impact on its sales or costs as the
result of inflation.
<PAGE>
IFS International holdings, Inc. and SubsidiarIES
Part II - Other Information
Item 1 - Legal Proceedings
On June 29, 2000, MDB Capital Group LLC ("MDB") filed a Statement of Claim
through the American Arbitration Association against the Company. MDB claimed
that it was damaged by the Company's purported failure to timely file, and seek
approval of, a registration statement covering MDB's shares underlying a warrant
to purchase 300,000 shares of the Company's stock. MDB alleged damages in the
amount of $2,193,000 based on the purported highest intra-day price of the
Company's stock subsequent to the time MDB believes the registration statement
would have or should have been effective. MDB also seeks recovery of attorneys'
fees and costs. The Company denies MDB's allegations and contends, among other
things, that the effective date of the registration statement was delayed, if at
all, because of legal issues relating to MDB. In addition, the Company filed
counterclaims against MDB contending that the Company is entitled to, among
other relief, rescission of the warrant and damages due to MDB's failure to
perform under the investment banking agreement entered into contemporaneously
and as partial consideration for the warrant issued. The Company intends
vigorously to defend the suit and pursue the counterclaims.
Item 2 - Changes in Securities
None
Item 3 - Defaults Under Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
Signature
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: September 19, 2000
IFS International Holdings, Inc.
By:
/s/ David L. Hodge
-----------------------------
David L. Hodge
President and Chief Executive Officer
/s/ John P. Singleton
-----------------------------
John P. Singleton
Chairman
<PAGE>
