UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ending October 31, 1998
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________________ to _________________
Commission file Number 0-24627
IDF International, Inc.
(Exact name of registrant as specified in its charter.)
New York 11-3059399
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
330 West 42nd St. (20th Floor)
New York, New York 10036
(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code: 212-563-6900
Securities registered pursuant to Section 12(b) of the Act:
Title of each class, name of each exchange on which registered.
None
----
Securities registered pursuant to Section 12(g) of the Act
Common Stock, $0.01 par value
-----------------------------
TITLE OF CLASS
Indicate by check mark whether the registrant(1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
9,927,841 shares of Common Stock, $.01 par value, as of December 1, 1998.
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The interim financial statements are unaudited but reflect all
adjustments which, in the opinion of management, are necessary to
provide a fair statement of the results of IDF International, Inc. and
its consolidated subsidiaries (collectively, the "Company") for the
interim periods presented. The results of operations for any interim
period are not necessarily indicative of results for the full year.
These financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Company's
Annual Report Form 10-KSB for the fiscal year ended July 31, 1998.
2. REVOLVING CREDIT FACILITY
Hayden-Wegman has a $3.0 million revolving credit facility agreement
with a lender. As of October 31, 1998 the outstanding borrowings under
this facility amounted to $2,747,139. Under this agreement,
Hayden-Wegman has pledged substantially all of its contract receivables
and other tangible and intangible assets. In accordance with the
agreement, Hayden-Wegman identifies and transfers to this lender, a
designated pool of contract receivables and is advanced 80% of the
aggregate face value of such receivables. The remaining 20%, less
interest, and certain reimbursable expenses, is remitted to
Hayden-Wegman once the lender receives payment for the pooled
receivables. The lender is paid interest at the rate of prime plus 1
1/2% per annum and fees of approximately 1% per month based on a
sliding scale tied to the number of days that the receivables are
outstanding. The interest and fees are computed on the full value of
each receivable until all related client payments are received.
Hayden-Wegman has the option to repurchase portions of the receivable
pools from the lender.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
For a summary of significant accounting policies (which have not
changed from fiscal year end July 31, 1998) and additional financial
information, see the Company's Annual Report Form 10-KSB, including the
consolidated financial statements and notes thereto for the fiscal year
ended July 31, 1998.
<PAGE>
IDF International, Inc. and Subsidiaries
Consolidated Income Statment
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
1998 1997
<S> <C> <C> <C>
REVENUE EARNED $3,058,233 $4,154,459
Cost Revenue Earned $1,630,957 $1,843,345
---------- ----------
GROSS PROFIT $1,427,276 $2,311,114
Selling & Administrative exps $1,471,849 $1,696,335
---------- ----------
(LOSS) INCOME FROM OPERATIONS ($44,573) $614,779
OTHER INCOME (EXPENSE)
Interest Expense ($253,511) ($277,328)
Other Income $24,252 ($229,259) $5,537 ($271,791)
--------- ---------
(LOSS) Income Before Provision for Inc Taxes ($273,832) $342,988
PROVISION FOR INCOME TAXES $0 $113,186
--------- ---------
NET INCOME (LOSS) ($273,832) $229,802
--------- ---------
(LOSS) Earnings per Share ($0.03) $0.02
</TABLE>
<PAGE>
IDF INTERNATIONAL, INC & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
October 31 July 31
1998 1998
<S> <C> <C>
CURRENT ASSETS
Cash 12,318 791,804
Accounts receivable 4,231,334 3,763,506
Allow for dbtfl accts (450,000) (480,000)
Work in process 2,404,439 2,590,596
'Prepaid Exp/Other CA 324,340 285,792
--------- ---------
TOTAL CURRENT ASSETS 6,522,431 6,951,698
FIXED ASSETS
Total 834,483 832,306
less accum deprec (514,402) (482,943)
--------- ---------
TOTAL FIXED ASSETS 320,081 349,363
OTHER ASSETS
Goodwill-net 550,877 560,190
Engineering license -net 147,657 149,626
Deferred acq cost-net 102,060 103,748
Other 239,030 137,042
--------- ---------
TOTAL OTHER ASSETS 1,039,624 950,606
TOTAL ASSETS 7,882,136 8,251,667
========= =========
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable 1,282,844 909,023
Revolving credit facility 2,747,139 2,759,129
Bank overdraft 255,706 264,766
Note payable -subordinated 35,000 35,000
Accrued wages & related costs 675,055 974,610
Current portion-LTD 81,159 95,521
Other 793,494 1,179,427
--------- ---------
TOTAL CURRENT LIABILITIES 5,870,397 6,217,476
LONG TERM LIABILITIES
Long term debt -net current 746,900 495,521
Deferred income taxes 0 0
Intercompany Payable 0 0
--------- ---------
TOTAL LONG TERM LIABILITIES 746,900 495,521
SHAREHOLDER EQUITY
Series A preferred stock 1,750,000 1,750,000
Series B preferred stock 800,000 800,000
Series C preferred stock 1,610,000 1,534,000
Dividend Payable 0 0
Common stock 9,928 9,928
Common stock warrants 19,527 19,527
A.P.I.C., 10,875,469 10,875,469
Retained earnings (deficit) (13,782,185) (13,432,354)
less stock sub receivable (17,900) (17,900)
--------- ---------
TOTAL STOCKHOLDER EQUITY 1,264,839 1,538,670
TOTAL LIABILITIES AND EQUITY 7,882,136 8,251,667
========= =========
</TABLE>
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED OCTOBER 31, 1998
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($273,832)
Adjustments to reconcile net loss to net cash (used in) operating activities:
Depreciation and amortization 31,460
Amortization of goodwill 9,314
Amortization of deferred costs 3,657
Changes in operating assets and liabilities:
(Increase) in contract receivables (497,828)
Decrease in costs and earnings in excess of billings on uncompleted contracts 186,157
(Increase) in prepaid expenses and other current assets (38,548)
(Increase) in other assets (101,988)
(Decrease) in bank overdraft (9,060)
Increase in accounts payable 489,003
(Decrease) in billings in excess of costs and earnings on uncompleted contracts (115,183)
(Decrease) in accrued wages, salaries and related costs (299,555)
(Decrease) in income taxes payable (31,838)
(Decrease) in current liabiliites (354,094)
--------
Net cash (used in) operating activities (1,002,335)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets ($2,178)
Net cash (used in) investing activities (2,178)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) in revolving credit facility ($11,990)
Increase in long-term debt 250,000
-------
Reduction in long term debt (12,982)
-------
Net cash provided by financing activities 225,027
-------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (779,486)
Cash and cash equivalents, at beginning of year 791,804
-------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $12,318
=======
</TABLE>
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES page 2 of 2
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED OCTOBER 31, 1998
<TABLE>
<CAPTION>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<S> <C>
Cash paid during the period for:
Interest $253,511
Income taxes 0
</TABLE>
NON-CASH TRANSACTION:
During the three months ended October 31, 1998, the Board of Directors
authorized the issuance of 60,800 shares of Series C Preferred Stock (designated
Series A-1 Preferred Stock) in payment of preferred stock dividends in the
aggregate amount of $76,000.
<PAGE>
FORWARD-LOOKING STATEMENTS
The statements contained herein, other than historical information, are or may
be deemed to be "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1993, as amended, and Section 21A of the Securities and
Exchange Act of 1934, as amended, and involve factors, risks and uncertainties
that may cause the actual results of IDF International, Inc. ("IDF") in future
periods to differ materially from such statements. These factors, risks and
uncertainties include the relatively short operating history of IDF; rapid
technological change affecting products and services offered by IDF; the impact
of competitive services, products and pricing from other consulting, engineering
and design firms; general economic conditions and the volatility of customers'
capital building plans and their ability to obtain financing; delays and
postponements in consulting and engineering projects, including public sector
projects; the ability to obtain and keep, at profitable levels, quality
personnel; and the availability of sufficient financial resources to enable IDF
to meet both current and new customer demand for services.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion relates to the company's results of operations,
financial condition and liquidity for the interim periods indicated.
References herein to the "Company" or "IDF" are references to IDF
International, Inc. and its consolidated subsidiaries, including Techstar
Communications, Inc ("Techstar") and Hayden-Wegman Inc. ("Hayden-Wegman"),
collectively.
RESULTS OF OPERATIONS
COMPARISON OF FIRST QUARTER ENDED OCTOBER 31, 1998 ("FIRST QUARTER 1999") TO
FIRST QUARTER ENDED OCTOBER 31, 1997 ("FIRST QUARTER 1998")
REVENUES
Net Revenues for IDF for First Quarter 1999 aggregated $3,058,233. This result
represents a decrease of $1,096,226, or 26%, from the First Quarter 1998. The
most significant reduction was at Techstar, which experienced a reduction in
revenues of approximately $1,000,000, with Net Revenues of $853,000 for First
Quarter 1999. The decline was primarily attributable to the cancellation of a
contract by its most significant customer. This reduction was further
exacerbated by a reduction in the scope of work by another customer. Due to the
general slowdown in the industry, Techstar was able to only slightly offset
these reductions with an increase in work with new contracts. The reduction in
revenues at Hayden-Wegman of approximately $100,000 was due primarily to
Hayden-Wegman's inability to secure new work at a time when its prior projects
were being completed. Although Hayden-Wegman maintains a solid reputation for
the quality of its engineering and construction management
<PAGE>
work, Hayden-Wegman's ability to previously secure new work, particularly in the
public sector, was impaired by its prior poor credit position.
EXPENSES
The Company's consolidated operating expenses for First Quarter 1999 was
$3,102,806. This result represents a decrease of approximately $435,000 from
first quarter 1998. Techstar accounted for a reduction in expenses of
approximately $450,000, with expenses of $1,023,000 for First Quarter 1998. This
was primarily due to a significant reduction of employees and a cutback in
associated overhead expense. These changes were management's response to a
reduction in business. Expenses increased at Hayden-Wegman due to increased
marketing efforts and due to the acquisition of hardware and software for a new
accounting/management information system. The comparision to the prior period
was affected by one-time costs incurred to improve Hayden-Wegman's prior poor
credit position incurred in first quarter 1997. These costs included the payment
of overdue accounts payables.
IDF incurred interest expense in the amount of $253,511 for first quarter 1999.
This represents a decrease in interest of approximately $24,000 or 9% from the
same period in 1998. Hayden-Wegman has a $3,000,000.00 revolving credit facility
with a lender, (a factoring arrangement). In accordance with the agreement,
Hayden-Wegman identifies and transfers to this lender a designated pool of
contract receivables and is advanced 80% of the aggregate face value of such
receivables. The remaining 20%, less interest, fees and certain reimbursable
expenses, is remitted to Hayden-Wegman once the lender receives payment for the
pooled receivables. The reduction in interest expense, when compared to first
quarter 1998, is attributable to a concerted effort by management to improve the
collections of receivables that resulted in certain customers remitting their
payments in a more timely manner.
INCOME
The Company experienced net earnings loss of $ 273,832 for First Quarter 1999.
This represents a reduction in net earnings of approximately $500,000 from
First Quarter 1998, when the Company had positive net earnings of
$229,802. On an earnings per share basis, the loss is $0.03 based upon 9,927,841
shares of common stock outstanding as of October 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
For the first quarter 1999, IDF had cash on hand of $12,318. This amount was
offset by a current liability overdraft of $255,706. This is a reduction of
approximately $780,000 from the cash on hand as of fiscal year ended July 31,
1998 at which time the cash on hand was $791,804 with an offset by a current
liability of $264,766.
<PAGE>
In First Quarter 1999, the Company experienced significant demands on its
working capital needs. At Techstar, the significant reduction in revenue could
not be offset by a reduction in expenses. Management responded to the reduction
in business by reducing the number of employees. This action, however did not
avoid a negative impact on cash holdings in the period. At Hayden-Wegman, delays
in billing and the subsequent delay in collections of funds due it created a
cash drain during First Quarter 1999. Management believes its new accounting and
information system will greatly enhance its billing and collections efforts at
Hayden-Wegman.
IDF believes its cash flows from operations and its revolving credit facility
will continue to need to be supplemented in the current fiscal year to meet its
working capital needs. Certain members of the IDF Board of Directors and
significant shareholders have committed to loan up to $1,000,000 to IDF when
requested by IDF for its working capital needs. In October 1998 the Company
received $250,000, from Robert Rubin, Chairman of the Board of the Company, and
in November 1998 the Company received an additional $400,000 from AUGI, under
this commitment. IDF may also need additional financing in order to take
advantage of new opportunities in its core businesses. However, there can be no
assurance that such financing, if available, will be on terms acceptable to IDF
or that such financing would not result in dilution to existing shareowners.
<PAGE>
YEAR 2000
Many existing computer programs use only the last two digits that refer
to a year. Those computer programs that do not properly recognize a year that
begins with "20" instead of the familiar "19" could fail or create erroneous
results (the "Year 2000" issue).
In July 1998, Techstar began the installation of a new accounting and
information system, Timberline. This new system is Microsoft Windows based and
is certified by Timberline as being Year 2000 compliant. Techstar anticipates
installation to be completed by December 1998. The cost of the new Timberline
system, including training, was approximately $25,000. Techstar also uses
Microsoft Office 97 and Auto CAD version 14, which are also certified by the
vendor as being Year 2000 compliant. Management requires its employees to
perform proper system backups of material at regular intervals to minimize any
potential system problems.
Hayden-Wegman's Information Strategic Plan (ISP) calls for replacement
of existing account and project information systems with third-party
state-of-the-art applications and hardware, augmented with internally developed
client-server desktop applications. The third-party applications consist of
Microsoft Office 97 applications, Auto CAD version 14 and LARSA 1998 Finite
Element Analysis, all certified by the respective vendors as Year 2000
compliant. The implementation of ISP is expected to be completed by early 1999.
The new account and project information system will use Harper and
Shuman's new Advantage accounting and project control software. This software
will reside on a new Dell PowerEdge 2300 server with 9.1GB LVD SCSI hard drive
using Microsoft NTS 4.0 software. Hardware and software are both Year 2000
compliant. Historical accounting and project data on the legacy accounting
system, an older version of Harper and Shuman, which currently resides on a
Digital Equipment Corporation VAX, will be brought over to the new application.
The estimated total cost of this effort, including software, system development,
conversion of existing data and on-site training, is $100,000, of which
approximately $10,000 has been spent as of October 31, 1998.
IDF's subsidiaries are not materially dependent on the Year 2000
compliance of its customers or other third parties. The work performed by the
subsidiaries for its customers is performed relatively independent from third
parties. Techstar and Hayden-Wegman's ability to meet customer commitments is
dependent upon its internal year 2000 compliance. Given the recent and ongoing
installation of the new systems, IDF does not expect material business
interruptions from the Year 2000 issues and further, in management's evaluation,
the Company's reasonably likely worst case scenario from any Year 2000 issues is
not expected to be material.
<PAGE>
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
As of December 11, 1998 the Company offered to all holders of Preferred Stock to
issue to each of them one share of Common Stock in exchange for their agreement
to convert one share of Preferred Stock into Common Stock. If a holder of
Preferred Stock agrees to convert at the current rate of $1.25 per share, the
company will issue to that holder one additional share of Common Stock for each
share of Preferred Stock converted. This would result in an effective conversion
rate of $0.625 per share for all holders other than Robert Rubin, the Chairman
of the Board and the sole holder of Series B Preferred Stock, whose effective
conversion rate will be $1.00. Each member of the Board of Directors has agreed
to convert all Preferred Stock owned by them on the foregoing basis. This offer
expires December 31, 1998. There can be no assurance that any holder of
Preferred Stock (other than members of the Board of Directors) will agree to
this arrangement. If all holders agree, an aggregate of 3,087997 Preferred
shares will be cancelled in exchange for an aggregate of 6,175,994 Common
Shares. This would increase the total number of Common Shares outstanding to
16,103,835.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the period covered by
this report.
<PAGE>
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The undersigned is signing this report as
a duly authorized officer of the registrant and as the principal financial
officer of the registrant.
IDF International, Inc.
-----------------------
Registrant
Date: December 15, 1998
By: /s/Michael J. Losch
-------------------
Michael J. Losch
Chief Operating Officer
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements for the three months ended October 31, 1998
and is qualified in its entirety by reference to such statements.
</LEGEND>
<CIK> 0000874993
<NAME> IDF INTERNATIONAL, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Oct-31-1998
<PERIOD-START> Aug-01-1998
<PERIOD-END> Oct-31-1998
<CASH> 12,318
<SECURITIES> 0
<RECEIVABLES> 4,231,334
<ALLOWANCES> 450,000
<INVENTORY> 0
<CURRENT-ASSETS> 6,522,431
<PP&E> 834,483
<DEPRECIATION> 514,402
<TOTAL-ASSETS> 7,882,136
<CURRENT-LIABILITIES> 5,870,397
<BONDS> 746,900
9,928
0
<COMMON> 4,160,000
<OTHER-SE> (2,905,089)
<TOTAL-LIABILITY-AND-EQUITY> 7,882,136
<SALES> 3,058,233
<TOTAL-REVENUES> 3,058,233
<CGS> 1,630,957
<TOTAL-COSTS> 1,630,957
<OTHER-EXPENSES> 1,471,849
<LOSS-PROVISION> 110,000
<INTEREST-EXPENSE> 253,511
<INCOME-PRETAX> (273,832)
<INCOME-TAX> 0
<INCOME-CONTINUING> (273,832)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (273,832)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
