<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended: January 31, 1999
[ ] 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 Identification No.)
incorporation or organization)
330 West 42nd St. (20th Floor)
New York, New York 10036
--------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: 212-563-6900
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the 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 March 1, 1999.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ]
<PAGE>
PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements.
IDF International, Inc., and its consolidated subsidiaries
(collectively, the "Company" or the "Registrant"), files herewith unaudited
condensed consolidated balance sheets of the Company as of January 31, 1999
(unaudited) and July 31, 1998 (the Company's most recent fiscal year), an
unaudited condensed consolidated income statement for the three and six months
ended January 31, 1999 and 1998, and unaudited condensed consolidated statements
of cash flows for the six months ended January 31, 1999 and 1998, together with
unaudited condensed notes thereto. In the opinion of management of the Company,
the financial statements reflect all adjustments, all of which are normal
recurring adjustments, necessary to fairly present the financial condition of
the Company for the interim periods presented. Operating results for any quarter
are not necessarily indicative of results for any future period. The financial
statements included in this report on Form 10-QSB should be read in conjunction
with the audited financial statements of the Company, and the notes thereto,
included in the annual report of the Company on Form 10-KSB for the fiscal year
ended July 31, 1998.
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
UNAUDITED
<TABLE>
<CAPTION>
January 31 July 31
1999 1998
<S> <C> <C>
CURRENT ASSETS
Cash 176,936 791,804
Accounts receivable 3,822,976 3,763,506
Allow for dbtfl accts (414,335) (480,000)
Work in process 2,295,088 2,590,596
'Prepaid Exp/Other CA 334,115 285,792
---------- ----------
TOTAL CURRENT ASSETS 6,214,780 6,951,698
FIXED ASSETS
Total 858,488 832,306
less accum deprec (549,835) (482,943)
---------- ----------
TOTAL FIXED ASSETS 308,653 349,363
OTHER ASSETS
Goodwill-net 541,565 560,190
Engineering license -net 145,688 149,626
Deferred acq cost-net 100,372 103,748
Other 136,361 137,042
---------- ----------
TOTAL OTHER ASSETS 923,986 950,606
TOTAL ASSETS 7,447,419 8,251,667
========== ==========
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable 1,066,282 909,023
Revolving credit facility 2,471,497 2,759,129
Bank overdraft 68,526 264,766
Note payable -subordinated 25,000 35,000
Accrued wages & related costs 641,786 974,610
Current portion-LTD 106,065 95,521
Other 1,028,690 1,179,427
---------- ----------
TOTAL CURRENT LIABILITIES 5,407,846 6,217,476
LONG TERM LIABILITIES
Long term debt -net current 1,246,900 495,521
---------- ----------
TOTAL LONG TERM LIABILITIES 1,246,900 495,521
SHAREHOLDERS EQUITY
Series A preferred stock 1,750,000 1,750,000
Series B preferred stock 800,000 800,000
Series C preferred stock 1,635,333 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 (14,279,684) (13,432,354)
less stock sub receivable (17,900) (17,900)
---------- ----------
TOTAL STOCKHOLDERS EQUITY 792,673 1,538,670
TOTAL LIABILITIES AND EQUITY 7,447,419 8,251,667
========== ==========
</TABLE>
<PAGE>
IDF International Inc, and Subsidiaries
Consolidated Income Statement
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 31 January 31
1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE EARNED $2,974,787 $3,774,431 $6,033,020 $8,034,629
Cost Revenue Earned $1,780,254 $2,095,604 $3,411,211 $4,597,436
---------- ---------- ---------- ----------
GROSS PROFIT $1,194,533 $1,678,827 $2,621,809 $3,437,193
Selling &
Administrative exps $1,461,578 $1,688,514 $2,933,427 $2,812,241
---------- ---------- ---------- ----------
(LOSS) INCOME FROM OPERATIONS $ (267,045) $ (9,687) $ (311,618) $ 624,952
OTHER INCOME (EXPENSE)
Interest Expense $ (211,687) $ (336,853) $ (465,198) $ (554,656)
Other Income $ 6,558 $ (205,129) $ (12,887) $ (349,740) $ 30,811 $ (434,387) $ 11,424 $ (543,232)
---------- ---------- ---------- ----------
(LOSS) Income Before Provision
for Inc Taxes $ (472,174) $ (359,427) $ (746,005) $ 81,720
PROVISION FOR INCOME
TAXES 0 $ (100,054) 0 $ 54,946
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (472,174) $ (259,373) $ (746,005) $ 26,774
---------- ---------- ---------- ----------
(LOSS) Earnings per Share $ (0.05) (0.03) $ (0.08) 0.003
</TABLE>
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Six Months Ended
January 31
1999 1998
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (746,005) $ 26,774
Adjustments to reconcile net loss to net cash (used in) operating activities:
Depreciation and amortization $ 66,892 $ 75,538
Bad debt provision $ (115,724)
Loss on disposal of assets $ 9,076
Amortization of goodwill $ 18,625 $ 146,598
Amortization of deferred costs $ 7,314 $ 105,820
Changes in operating assets and liabilities:
(Increase) in contract receivables $ (125,135) $ 247,670
Decrease in costs and earnings in excess of billings on uncompleted contracts $ 295,508 $ (529,949)
(Increase) in prepaid expenses and other current assets $ (48,323) $ (253,250)
Decrease in other assets $ 681 $ (33,883)
(Decrease) in bank overdraft $ (196,240) $ (19,040)
Increase in accounts payable $ 272,442 $ (114,106)
(Decrease) in billings in excess of costs and earnings on uncompleted contracts $ (115,183) $ 88,199
(Decrease) in accrued wages, salaries and related costs $ (332,824) $(1,192,542)
(Decrease) in income taxes payable $ (117,586)
(Decrease) in deferred income $ (200,000)
(Decrease) in current liabiliites $ (150,737) $ (805,796)
----------- -----------
Net cash (used in) operating activities $(1,052,985) $(2,682,201)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets $ (26,182) $ (128,203)
Proceeds from acquisition of subsidiary $ 155,500
----------- -----------
Net cash (used in) investing activities $ (26,182) $ 27,297
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) in revolving credit facility $ (287,632) $ 368,255
Increase in long-term debt $ 751,931 $ 29,175
Principal payments on long-term debt $ (111,052)
Proceeds from convertible debt $ 3,000,000
Fees paid to acquire debt $ (393,000)
----------- -----------
Net cash provided by financing activities $ 464,299 $ 2,893,378
NET (DECREASE) IN CASH AND CASH EQUIVALENTS $ (614,868) $ 238,474
Cash and cash equivalents, at beginning of year $ 791,804 $ 4,719
----------- -----------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 176,936 $ 243,193
=========== ===========
</TABLE>
<PAGE>
IDF INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JANUARY 31, 1999
UNAUDITED
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $465,198
Income taxes 0
NON-CASH TRANSACTION:
During the six months ended January 31, 1999, the Board of Directors
authorized the issuance of 81,218 shares of Series C Preferred Stock (designated
Series A-1 Preferred Stock) in payment of preferred stock dividends in the
aggregate amount of $101,523.
<PAGE>
IDF International Inc.
Notes to Unaudited Consolidated Financial Statements
1. 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.
2. Revolving Credit Facility
Hayden-Wegman, Inc., an indirect wholly-owned subsidiary of the Company
("Hayden-Wegman"), has a $3.0 million revolving credit facility agreement
with a lender. As of January 31, 1999, the outstanding borrowings under
this facility amounted to approximately $2,471,497. 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.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
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 1933, as amended, and Section 21A of the Securities
Exchange Act of 1934, as amended, and involve factors, risks and uncertainties
that may cause the actual results of the Registrant in future periods to differ
materially from such statements. These factors, risks and uncertainties include
the Registrant's relatively short operating history; rapid technological change
affecting products and services offered by the Registrant; 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 the
Registrant to meet both current and new customer demand for services.
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, collectively.
Results of Operations
Comparison of three and six months ended January 31, 1999 to the three and six
months ended January 31, 1998.
Revenues
Net revenues for the Company for the three months ended January, 1999 aggregated
$2,974,787. This result represents a decrease of $799,644, or 21%, from the same
period in 1998. The most significant reduction was at TechStar, which
experienced a reduction in revenues of approximately $950,000, with net revenues
of $229,100 for the three months ended January, 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
two other customers. 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. Increased revenues at Hayden-Wegman of approximately $150,000
partially offset the reduction in revenues. These increased revenues at
Hayden-Wegman relate to new contracts and an expansion of existing contracts
previously awarded. For the six months ended January, 1999, the Company
<PAGE>
aggregated net revenues of $6,033,020, which is a reduction of approximately
$2,002,000 from the same period in 1998. This reduction is due almost entirely
to reduced activity at TechStar, which had revenues of approximately $1,083,000
for the six months ended January, 1999, compared to approximately $3,030,000 for
the same period ended January, 1998.
Expenses
The Company's consolidated operating expenses for the three months ended
January, 1999 were $3,241,832. This result represents a decrease of
approximately $543,000 from the same period in 1998. TechStar accounted for a
reduction in expenses of approximately $1,007,000 with expenses of $610,000 for
the three months ended January, 1999. This was primarily due to a significant
reduction of employees and a cutback in associated overhead expenses. These
changes were management's response to a reduction in business. Expenses
increased at Hayden-Wegman due to increased marketing efforts, the acquisition
of hardware and software for a new accounting/management information system and
an increase in employees related to new contracts. For the six months ended
January, 1999, the Company aggregated expenses in the amount of $6,344,638. This
represents a reduction of $1,065,039 from the same period ended January, 1998.
Increased expenses at Hayden-Wegman related to an increased workload were
offset by significant expense reductions at TechStar due to decreased business
volume.
The Company incurred interest expense in the amount of $211,687 for the three
months ended January, 1999. This represents a significant decrease in interest
of approximately $125,000, or 37%, from the same period in fiscal year 1998. For
the six months ended January, 1999, the Company incurred interest expenses of
$465,198. This represents a reduction of $90,000 from the same period in 1998.
An increased effort at Hayden-Wegman related to the collections of past due
receivables has decreased financing costs from its revolving credit facility
when compared to the same periods in 1998.
Hayden-Wegman has a $3,000,000.00 revolving credit facility with a lender (a
factoring arrangement), as more particularly described herein in the section
titled "Notes to the Unaudited Consolidated Financial Statements." 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 the same period in 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 a net loss of $ 472,174 for the three months ended
January, 1999. This represents a reduction in net earnings of approximately
$212,800 from the same period in 1998, when the Company had a net loss of
$259,373. On an earnings per share basis, the loss is $0.05 based upon 9,927,841
shares of common stock outstanding as of January 31, 1999. For the six months
ended January, 1999, the Company experienced net losses of $746,005, which on an
earnings per share basis results in a loss of $0.08.
<PAGE>
Liquidity and Capital Resources
As of January 31, 1999, the Company had cash on hand of $176,936. This amount
was offset by a current liability overdraft of $68,526. This is a reduction of
approximately $66,257 from the cash on hand as of January 31, 1998, at which
time the cash on hand was $243,193 with an offset by a current liability of
$240,368.
In the six months ended January, 1999, the Company experienced significant
demands on its working capital needs. At TechStar, the significant reduction in
revenues could not be offset by a reduction in expenses. Management responded by
significantly reducing the number of employees, but it was not able to do so in
a timely enough manner to avoid a negative impact on cash. At Hayden-Wegman,
delays in billing and the subsequent delay in collections of funds due it
created a cash drain. Management believes its new accounting and information
system will greatly enhance the billing and collections efforts at
Hayden-Wegman.
The Company believes it will have to supplement its cash flows from operations
and its revolving credit facility in the current fiscal year to meet its working
capital needs. Certain members of the Company's Board of Directors, and
significant shareholders, have committed to loan up to $1,000,000 to the Company
when requested for working capital needs. As part of this commitment, 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 American United Global, Inc., a company controlled by Mr. Rubin.
Additionally, in January, 1999, the Company received $200,000 toward working
capital needs in the form of loans from (i) Robert Rubin, in the amount of
$100,000, (ii) an affiliate of Lawrence Kaplan, a director of the Company, in
the amount of $75,000 and (iii) $25,000 from an unaffiliated individual. Each of
these notes is due and payable on demand and accrues interest at an annual rate
of 8%. The Company may also require 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 the
Company or that such financing would not result in dilution to existing
shareholders.
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings. The Company is not a party to any
material legal proceeding or litigation.
Item 2. Changes in Securities and Use of Proceeds. None.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information.
As of December 11, 1998, the Company offered to all holders of the Company's
Series A, Series A-1 and Series B Preferred Stock (collectively, "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 of Preferred Stock 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 originally expired December 31, 1998. Subsequent to
that date, the Company extended the deadline to accept the offer until February
12, 1999. As of the filing date, all but one holder of Preferred Stock has
agreed to this arrangement. As a result, an aggregate of 3,104,292 Preferred
Shares will be canceled in exchange for an aggregate of 6,208,584 Common Shares.
This would increase the total number of Common Shares outstanding to 16,136,425.
These additional shares of Common Stock are expected to be issued in the near
future.
As of February 1, 1999, the Company, Hayden-Wegman, TechStar and certain
affiliates of the Company entered into a Separation Agreement with Solon Kandel,
a director and officer of the Company. Pursuant to this Agreement, (a) Mr.
Kandel resigned all director and officer positions with the Company and its
affiliates to pursue other opportunities, (b) Mr. Kandel's employment with the
Company, as evidenced by an Employment Agreement with the Company dated August
25, 1997, was terminated, (c) Mr. Kandel will be paid his full salary and
benefits through March 31, 1999 or upon securing full time employment, whichever
comes first, and (d) the parties waived and discharged all rights each had
against the other. Mr. Kandel will retain the 71,379 vested stock options
granted to Mr. Kandel pursuant to his Employment Agreement, which options are
immediately exercisable through November 30, 2002.
<PAGE>
On January 7, 1999, Sergio Luciani resigned as a director of the Company. It is
expected that the Company and Mr. Luciani will enter into a Separation Agreement
on terms similar to that which the Company and Solon Kandel agreed to on
February 1, 1999, but there can be no assurance thereof. No directors have been
elected to replace Messrs. Kandel or Luciani, but the remaining directors intend
to fill all vacancies on the Board of Directors as soon as possible.
On February 11, 1999, the Company was scheduled to hold its Annual Meeting of
Shareholders. However, on February 10, 1999, the Company filed a Form 8-K
providing notice that the Annual Meeting was postponed indefinitely. The Company
intends to hold the Annual Meeting sometime in the next few months.
In an effort to assist the Company in preserving its working capital, effective
October 1, 1998, Robert Rubin, the Chairman of the Board of the Company, orally
agreed to terminate his three year consulting agreement with the Company, which
had commenced on January 1, 1998 and provided for payment to Mr. Rubin of
$75,000 per year. Further, effective March 1, 1999, an entity controlled by an
officer and director of American United Global, Inc. orally agreed to terminate
its consulting agreement with the Company, which had commenced on August 1, 1998
and provided for payment of $75,000 per year, but was terminable by the Company
after 18 months. The Company anticipates that both of these oral agreements will
be reflected in written agreements in the near future.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
Form 8-K was filed on February 10, 1999.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: March 15, 1999 IDF INTERNATIONAL, INC.
By: /s/ Michael J. Losch
---------------------------
Michael J. Losch
Chief Operating Officer and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 176,936
<SECURITIES> 0
<RECEIVABLES> 3,822,976
<ALLOWANCES> 414,335
<INVENTORY> 0
<CURRENT-ASSETS> 6,214,780
<PP&E> 858,488
<DEPRECIATION> 549,835
<TOTAL-ASSETS> 7,447,419
<CURRENT-LIABILITIES> 5,407,846
<BONDS> 1,246,900
9,928
0
<COMMON> 4,185,333
<OTHER-SE> (3,402,588)
<TOTAL-LIABILITY-AND-EQUITY> 7,447,419
<SALES> 6,033,020
<TOTAL-REVENUES> 6,033,020
<CGS> 3,411,211
<TOTAL-COSTS> 6,344,638
<OTHER-EXPENSES> 2,933,427
<LOSS-PROVISION> 110,000
<INTEREST-EXPENSE> 465,198
<INCOME-PRETAX> (746,005)
<INCOME-TAX> 0
<INCOME-CONTINUING> (746,005)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (746,005)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
