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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, 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.
(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, 4,875,325 shares outstanding as of December 7,
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
October 31, 2000 (unaudited) and April 30, 2000.............................2-3
Consolidated Statements of Operations,
three months and six months ended October 31, 2000 and 1999 (unaudited).......4
Consolidated Statements of Cash Flows,
six months ended October 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..............................9-12
Part II. Other Information
Item 1. Legal Proceedings...................................................13
Item 2. Changes in Securities...............................................13
Item 3. Defaults Under Senior Securities ...................................13
Item 4. Submission of Matters to a Vote of Security Holders.................13
Item 5. Other Information...................................................13
Item 6. Exhibits and Reports on Form 8-K....................................13
<PAGE>
Part I. Financial Information
Item 1. Consolidated Unaudited Financial Statements
IFS International holdings, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
October 31, April 30,
2000 2000
(unaudited)
----------------- -----------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $902,079 $2,382,279
Trade accounts receivable, net 2,849,583 2,523,753
Costs and estimated earnings in excess of billings
on uncompleted contracts 1,203,052 961,792
License fees receivable 1,650,998 642,246
Other current assets 826,991 606,468
Inventory 50,745 84,334
----------------- -----------------
Total current assets 7,483,448 7,200,872
----------------- -----------------
PROPERTY, EQUIPMENT AND IMPROVEMENTS, net 2,443,388 2,423,796
----------------- -----------------
OTHER ASSETS
Capitalized software costs, net 1,967,991 1,627,607
Excess of cost over fair value of net assets of business acquired, net 2,387,030 1,191,830
License fees receivable 316,336 632,672
Other 543,977 367,639
----------------- -----------------
Total other assets 5,215,354 3,819,748
----------------- -----------------
$15,142,190 $13,444,416
================= =================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
IFS International holdings, Inc. and SubsidiarIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
October 31, April 30,
2000 2000
(unaudited)
-------------------- ---------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
current liabilities
<S> <C> <C>
Current maturities of long term debt $133,795 $387,735
Accounts payable 499,679 674,961
Accrued compensation and related liabilities 663,705 525,860
Other accrued expenses 754,258 885,972
Billings in excess of costs and estimated
earnings on uncompleted contracts 98,265 48,457
Deferred revenue and customer deposits 720,134 710,474
-------------------- ---------------------
Total current liabilities 2,869,836 3,233,459
-------------------- ---------------------
LONG-TERM DEBT, less current maturities 2,737,237 2,976,164
-------------------- ---------------------
-------------------- ---------------------
OTHER LONG TERM LIABILITIES 305,760 -
-------------------- ---------------------
shareholders' equity
Preferred stock, $.001 par value; 25,000,000 shares Authorized:
Series B, 200,000 shares issued and outstanding 200 200
liquidation preference $11.50 per share
Series 2000-1,663,994 and 0 shares issued and outstanding, liquidation
preference $2.50 per share 664 -
Common stock $.001 par value; 50,000,000 shares
authorized: 4,875,325 and 4,048,451 shares issued and outstanding 4,876 4,047
Additional paid-in capital 15,122,610 11,859,424
Accumulated deficit (5,806,932) (4,547,665)
Accumulated other comprehensive (loss) (81,761) (81,213)
-------------------- ---------------------
9,239,657 7,234,793
Less Treasury stock, 5,000 and 0 shares, at cost (10,300) -
-------------------- ---------------------
Total shareholders' equity 9,229,357 7,234,793
-------------------- ---------------------
$15,142,190 $13,444,416
==================== =====================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
IFS International holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
Six Six Three Three
Months Months Months Months
Ended Ended Ended Ended
October 31, 2000 October 31, 1999 October 31, 2000 October 31, 1999
------------------ ----------------- ------------------ ------------------
Revenues:
<S> <C> <C> <C> <C>
Software license and installation contract fees $2,773,022 $3,463,648 $1,288,036 $2,092,450
Service and maintenance revenue 1,798,083 1,798,083 1,023,724 927,056
Hardware sales 48,814 958,933 35,972 369,382
------------------ ----------------- ------------------ ------------------
4,790,882 6,220,664 2,347,732 3,388,888
------------------ ----------------- ------------------ ------------------
Cost of Revenues:
Software license and installation contract fees 521,860 950,486 69,832 593,525
Service and maintenance revenue 633,967 214,687 399,790 132,494
Hardware sales 9,581 605,152 7,869 306,955
------------------ ----------------- ------------------ ------------------
Gross profit 3,625,473 4,450,339 1,870,241 2,355,914
------------------ ----------------- ------------------ ------------------
Operating expenses:
Research and development 691,765 486,913 255,765 236,788
Salaries 1,699,959 1,694,577 895,040 896,238
Rent and occupancy 305,272 307,323 158,379 160,277
Selling, general and administrative 1,839,310 1,471,575 865,967 772,140
Other 304,534 220,803 178,507 118,505
------------------ ------------------ ------------------ -----------------
4,840,841 4,181,191 2,353,658 2,183,948
------------------ ----------------- ------------------ ------------------
Income (loss) from operations (1,215,369) 269,148 (483,418) 171,966
Other income (expense):
Interest expense (192,603) (138,418) (117,592) (65,651)
Interest income 49,105 37,938 24,286 21,915
Other 159,984 16,621 155,270 16,907
------------------ ----------------- ------------------ -------------------
Income (loss) before income taxes (1,198,883) 185,289 (421,454) 145,137
Provision for income taxes 60,382 - 51,672 -
------------------ ----------------- ------------------ ------------------
Net (loss) income $(1,259,265) $185,289 $(473,126) $145,137
================== ================= ================== ==================
------------------ ----------------- ------------------ ------------------
Basic income (loss) per common share (0.30) .06 (0.11) .05
------------------ ----------------- ------------------ ------------------
Weighted average common shares outstanding 4,257,000 2,868,000 4,444,099 2,958,000
------------------ ----------------- ------------------ ------------------
Diluted income per common share (0.30) .05 (0.11) .04
------------------ ----------------- ------------------ ------------------
Weighted average common and common equivalent
shares outstanding 4,257,000 3,691,000 4,444,099 3,444,700
------------------ ----------------- ------------------ ------------------
See notes to consolidated financial statements.
</TABLE>
<PAGE>
IFS International holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
Six Months Ended Six Months Ended
October 31, 2000 October 31, 1999
-------------------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) (1,259,265) $185,289
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation and amortization 604,610 382,261
Amortization of discount on notes payable 60,300 10,050
Changes in assets and liabilities:
Inventory 33,589 31,814
License fees receivable (692,416) -
Trade accounts receivable, net (325,830) 184,755
Costs, estimated earnings and billings on uncompleted contracts (191,454) (692,711)
Other current assets (91,121) (64,921)
Accounts payable (175,282) (121,693)
Accrued expenses 37,881 (64,177)
Deferred revenue and customer deposits 9,660 (182,917)
-------------------- --------------------
Net cash used in operating activities (1,296,912) (332,250)
-------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Equipment purchases (207,380) (32,405)
Acquisition of treasury stock (10,300) -
Acquisition of e-Point (10,000) -
Capitalized software and license costs (611,123) (423,922)
-------------------- --------------------
Net cash used in investing activities (838,802) (456,327)
-------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long term debt (53,167) (27,103)
Proceeds from notes payable - 965,000
Proceeds from issuance of stock 1,401,645 8,811
-------------------- --------------------
Net cash provided by financing activities 1,348,478 946,708
-------------------- --------------------
Effect of exchange rate changes on cash (548) (37)
-------------------- --------------------
Increase (decrease) in cash and cash equivalents (1,480,200) 158,094
Cash and cash equivalents:
Beginning of year 2,382,279 1,326,708
-------------------- --------------------
End of period $902,079 $1,484,802
==================== ====================
Supplemental Disclosures of Cash Flows Information
------------------------------------------------------------------------------------ -------------------- --------------------
Cash paid during the six months for:
Interest $96,413 $66,458
Taxes 26,305 -
==================================================================================== ==================== ====================
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. $1,241,283 $1,009,647
Common stock issued for conversion of notes and interest 263,000 -
Common stock issued for debt elimination 268,750 -
Common stock issued for e-Point acquisition 90,000 -
See notes to consolidated financial statements.
</TABLE>
<PAGE>
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 (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, 2000, the
consolidated statements of operations for the three months and six months ended
October 31, 2000 and 1999 and the consolidated statements of cash flows for the
six months ended October 31, 2000 and 1999 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, 2000 and for all
periods presented have been made.
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 (loss)
(the sum of net income and the change in foreign currency translation adjustment
amounts) was ($1,259,813) and $185,252 for the six months ended October 31, 2000
and 1999, 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, 2000. The results of operations for
the period ended October 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 issued 20,179 shares of our common stock having a market value of
$90,000 based on the average closing price five business days immediately
preceeding the closing date of May 22, 2000.
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
Company's common stock. The transaction was structured to provide for a minimal
payment of three shares of 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 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 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 (the "Merger Agreement"). 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 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.
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. At the same time, we entered into an agreement with Mr. Ezelius
that terminated the rights of Mr. Ezelius to receive any additional contingent
shares in future years.
Note 3
Earnings Per Share
We have 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. Potential
common shares are excluded from the computation if their effect is anti-dilutive
as was the case for the three months and six months ended October 31,2000.
Note 4
Private Placement
We have completed a private placement of our securities. The placement, which
occurred in August 2000 through October 2000, included units of our securities
consisting of one share of convertible preferred stock (Series 2001) and a
warrant to purchase one share of common stock. The conversion features of the
preferred stock and the exercise price of the warrants are determined by a
formula that results in a conversion price and an exercise price above current
market price at the time of issuance of any units. An aggregate of 4,000,000
units were offered at a price of $2.50 per unit. Though October 31, 2000, we
sold 663,994 units and received gross proceeds of approximately $1,660,000. 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 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 a by a
significant number of new customers.
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, consulting services provided by our Global Insight division
and from revenue from NCI's legacy migration products. The preparation of
functional specifications, customization, installation of TPII and TP-CMS
software products and the training by IFS of our customers personnel in the use
of the products, takes an average of six to nine months. This will depend 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 $2,347,732 for the quarter ended October 31, 2000 represent a
decrease of $1,041,156 or 30.7%, over total revenues of $3,388,888 for the
quarter ended October 31, 1999. Total revenues of $4,790,882 for the six months
ended October 31, 2000 represent a decrease of $1,429,782 or 23.0%, over total
revenues of $6,220,664 for the six months ended October 31, 1999. The decrease
in total revenues is primarily a result of a decrease in software license and
installation contract fees and hardware revenues from our NCI subsidiary. Total
revenues for NCI of $676,069 for the quarter ended October 31, 2000 represent a
decrease of $864,522 or 56.1%, over total revenues of $1,540,591 for the quarter
ended October 31, 1999. Total revenues for NCI of $1,222,688 for the six months
ended October 31, 2000 represent a decrease of $1,684,304 or 57.9%, over total
revenues of $2,906,992 for the six months ended October 31, 1999. Total revenues
from our IFS subsidiary of $3,568,194 for the six months ended October 31, 2000
represent an increase of $254,522 or 7.7%, over total revenues of $3,313,672 for
the six months ended October 31, 1999.
Software license and installation contract fees decreased by $804,414 or 38.4%
to $1,288,036 during the three months ended October 31, 2000 as compared to
$2,092,450 for the three months ended October 31, 1999. Software license and
installation contract fees decreased by $690,626 or 19.9% to $2,773,022 during
the six months ended October 31, 2000 as compared to $3,463,648 for the six
months ended October 31, 1999. The decrease is primarily a result of a decrease
in sales of software licenses from NCI .
<PAGE>
The decline in NCI's software license and installation contract fees was
primarily due to the increased demand that NCI had in the prior year relating to
year 2000 software upgrades for its legacy migration solutions. It is
anticipated that new revenue related to the recently released Internet Banking
and Customer Relationship Management (CRM) business channels of NCI Business
Centrea, NCI's latest retail delivery solution, will offset the decline in
revenues derived from its legacy migration products.
Hardware revenues decreased by $333,410 or 90.3% to $35,972 for the three months
ended October 31, 2000 as compared to $369,382 for the three months ended
October 31, 1999. Hardware revenues decreased by $910,919 or 94.9% to $48,814
during the six months ended October 31, 2000 as compared to $958,933 for the six
months ended October 31, 1999. The decrease is primarily a result of a decrease
in sales of NCI's legacy 4700 hardware migration and 4700 connectivity products.
The decline in hardware related revenue was primarily a result of the sooner
than anticipated decline in NCI's German operation. We have known that the
demand in Germany for our legacy 4700 hardware migration and 4700 connectivity
products were going to decrease as these customers move to new in-house
developed solutions, however, this decline became much greater in the first and
second quarters than anticipated and will continue throughout the remainder of
the fiscal year. It is not expected that NCI will return to the levels of
hardware revenue that it has achieved in the past.
Revenues from licensing of software products and hardware sales in countries
outside the United States accounted for 81.4% of total revenues for the three
months ended October 31, 2000 as compared to 86.0% for the three months ended
October 31, 1999. Revenues from licensing of software products and hardware
sales in countries outside the United States accounted for 71.1% of total
revenues for the six months ended October 31, 2000 as compared to 90.0% for the
six months ended October 31, 1999. The decrease as a percentage of total
revenues for the six months ended October 31, 2000 resulted primarily from the
increase in domestic revenues generated by IFS coupled with a decrease in
foreign revenue from NCI. 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, increased to 79.7%
for the quarter ended October 31, 2000, as compared to 69.5% for the quarter
ended October 31, 1999. Gross profit, as expressed as a percentage of total
revenues, increased to 75.7% for the six months ended October 31, 2000, as
compared to 71.5% for the six months ended October 31, 1999. Gross profit
expressed as a percentage of total revenues increased primarily as a result of a
decline in royalties associated with the reselling of our TP-CMS products.
The excess of cost over fair value of assets acquired in the NCI acquisition is
approximately $2.3 million at October 31, 2000. This amount is being amortized
on a straight-line basis over eight years. Amortization expense for the three
month periods ended October 31, 2000 and 1999 was $94,264 and $25,739
respectively. Amortization expense for the six month periods ended October 31,
2000 and 1999 was $146,083 and $38,439 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 plan and merger
agreement
Software costs capitalized for the quarter ended October 31, 2000 were $
$363,723 as compared to $192,648 for the quarter ended October 31, 1999.
Software costs capitalized for the six months ended October 31, 2000 were
$606,074 as compared to $423,922 for the six months ended October 31, 1999.
Capitalized software costs relate to costs incurred with respect to electronic
funds transfer software technology and the continuation and expansion of 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 current
software versions.
Other income for the quarter ended October 31, 2000 reflects adjustments to
royalties associated with the reselling of our TP-CMS products. The adjusments
were made during the second quarter as a result of the modification of a
reseller agreement reducing royalties that were accrued in prior periods.
Net loss was $473,126 for the quarter ended October 31, 2000, as compared to net
income of $145,137 for the quarter ended October 31, 1999. Net loss was
$1,259,265 for the six months ended October 31, 2000, as compared to net income
of $185,289 for the six months ended October 31, 1999. The decrease resulted
primarily from the decrease in total revenues from our NCI subsidiary and
significant cost burden incurred from the IFS Holding company. Management
believes that it should be able to make significant cost reductions in the
Holding company operations as a result of its recent reorganization of IFS
Holdings and its board over the next several quarters. Furthermore, NCI's has
also incurred additional expenses in the second quarter as a part of their
formation and establishment of NCI America, Inc. based in New York City in
August, 2000.
The Company has 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.
We have now completed various installations of TP-CMS. TP-CMS is currently being
marketed worldwide, and several contracts have been executed. The product is an
open architecture, payment card management solution for magnetic stripe, chip,
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 most instances, 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 we will continue to enter into new TP-CMS contracts and can not
estimate the impact, if any, on earnings in the future.
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. However at this time, we can not provide any assurance that the product
will be successful and can not estimate the impact, if any, on earnings.
The CRM business channel of NCI Business Centrea that was recently released
provides customer relationship management functionality when used in conjunction
with retail banking applications. We believe that the product will be accepted
by the banking industry, and therefore contribute to the results of operations.
However, at this time, we can not provide any assurance that the product will be
successful and can not estimate the impact, if any, on earnings in the future.
We have also recently established a data processing center for outsourced
management of settlement and transaction processing for money brokers in New
York. This center was established as a requirement of an outsourcing contract
similar to an outsourcing contract operated by us in London, England. We believe
that this service has been accepted by the money brokering market by virtue of
the outsourcing agreement and therefore should contribute to the results of
operations. However, at this time, we can not provide any assurance that the
service will expand and therefore can not estimate the impact, if any, on
earnings in the future.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased from $3,967,413, at April 30, 2000 to
$4,613,612 at October 31, 2000, primarily due to the increase in license fees
receivable, the net increase in costs and estimated earnings in excess of
billings on uncompleted contracts, and the decrease in accounts payable and
accrued liabilities.
We believe that anticipated cash flow from operations will be sufficient to
finance our operational working capital requirements for the foreseeable future.
In addition, we will continue to seek alternative sources of financing to assist
us with our working capital needs and to implement expansion plans, which can
not be financed out of revenues. Also, from time to time we expend significant
funds in anticipation of performance of new contracts or business opportunities.
If such new contracts or anticipated business opportunities are delayed or if
such contracts are terminated or new business opportunities are cancelled, we
may experience working capital shortages. Also, portions of our software
contracts are not paid until acceptance by the customer. As a result, we are
required to fund a portion of the costs of configuration and installation of
these products from available capital. Any substantial increase in the number of
installations or delay in payment could create working capital shortages. In any
of these events, we may have a need for additional financing for current
operations. There, however, can be no assurance that additional financing for
operations or expansion will be available on terms acceptable to us if 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.
<PAGE>
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 filed a Statement of Claim through the
American Arbitration Association against us. MDB claimed that it was damaged by
our 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 our stock. MDB alleged damages in the amount of $2,193,000 based on the
purported highest intra-day price of our 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. We deny 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, we filed counterclaims against MDB contending that we are 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. We intend to vigorously
defend the suit and pursue the counterclaims.
Item 2 - Changes in Securities
In August through October, 2000, we issued 663,994 shares of our Series 2000-1
convertible preferred stock through a private placement. (See note 4 to the
financial statements.) The Company believes the issuance of these securities was
exempt from the registration requirements of securities Act of 1933 pursuant to
Section 4(2) thereof.
In August 2000, we issued 585,511 shares of common stock to one of our
directors and an officer of a subsidiary pursuant to the plan merger agreement
between IFS and NCI dated January 30, 1998. (See note 2 to the financial
statements.) The Company believes the issuance of these securities was exempt
from the registration requirements of securities Act of 1933 pursuant to Section
4(2) thereof.
In September and October, 2000 we issued a total of 130,905 shares of our common
stock to holders of notes that were issued in July, 1999. The Company believes
the issuance of these securities was exempt from the registration requirements
of securities Act of 1933 pursuant to Section 3(a)(9) thereof.
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: December 15, 2000
IFS International Holdings, Inc.
By:
/s/ Simon J. Theobald
-----------------------------
Simon J. Theobald
Chairman and Chief Executive Officer
/s/ Carmen A. Pascuito
-----------------------------
Carmen A. Pascuito
Secretary
