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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended: March 31, 1998
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( ) TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the transition period from:
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Commission file number: 0-24031
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Integrated Business Systems and Services, Inc.
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(Exact name of small business issuer as specified in its charter)
South Carolina 57-0910139
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
115 Atrium Way, Suite 128, Columbia, SC 29223
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(Address of principal executive offices)
(803) 736-5595
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(Issuer's telephone number)
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(Former name, address or fiscal year, if changed since last report)
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 period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. (X) YES ( )NO
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PROCEEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
( ) YES ( ) NO
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
7,987,763 shares of no par common shares outstanding at March 31, 1998
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Transitional Small Business Disclosure Format (check one) ( ) YES (X) NO
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INTEGRATED BUSINESS SYSTEMS AND SERVICES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
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<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheets - March 31, 1998 and
December 31, 1997 3
Statements of Operations for the three months ended
March 31, 1998 and 1997 4
Statements of Cash Flows for the three months
ended March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-10
PART II OTHER INFORMATION
Items 1 - 6 11
SIGNATURES 12
</TABLE>
2
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Integrated Business Systems and Services, Inc.
Balance Sheets
<TABLE>
<CAPTION>
December 31,
MARCH 31, 1998 1997
(UNAUDITED) (audited)
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,820 $ 84,649
Accounts receivable 127,463 240,523
Inventory 3,962 3,962
Prepaid commissions 54,629 37,410
Other prepaid expenses 19,671 14,420
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Total current assets 211,545 380,964
Capitalized software costs, net 364,005 207,642
Property and equipment, net 151,886 115,559
Other assets 2,743 3,318
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Total assets $ 730,179 $ 707,483
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LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Note payable $ 47,724 $ 92,295
Related party payable 10,000 --
Long-term debt, current portion 36,000 36,000
Accounts payable 334,261 174,667
Accrued liabilities:
Accrued compensation and benefits 77,338 68,151
Accrued payroll taxes 98,018 13,700
Other 16,338 44,914
Deferred revenue 106,763 107,803
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Total current liabilities 726,442 537,530
Long-term debt, net of current portion 69,000 78,000
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Total liabilities 795,442 615,530
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Commitments and contingencies -- --
Shareholders' equity (deficiency):
Class A common shares, voting, no par value,
100,000,000 shares authorized, 7,987,763
and 3,600,000 shares outstanding at
December 31, 1997 and 1996, respectively.
1,700,959 1,700,959
Accumulated deficit (1,766,222) (1,609,006)
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Total shareholders' equity (deficiency) (65,263) 91,953
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Total liabilities and shareholders' equity (deficiency) $ 730,179 $ 707,483
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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Integrated Business Systems and Services, Inc.
Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
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1998 1997
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<S> <C> <C>
REVENUES
Funded development and other services $ 203,354 $ 338,354
Hardware sales 33,354 155,729
Maintenance 71,219 34,255
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Total revenues 307,927 528,400
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OPERATING EXPENSES
Cost of revenues 140,614 302,358
Research and development costs 24,446 78,344
General and administrative 254,310 240,369
Sales and marketing 40,663 43,752
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Total operating expenses 460,033 664,823
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Loss from operations (152,106) (136,423)
Interest expense 5,109 10,502
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Net Loss $ (157,215) $ (146,925)
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Earnings (loss) per share:
Basic and diluted $ (0.02) $ (0.04)
============= =============
Weighted average common shares outstanding 7,987,763 3,600,000
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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Integrated Business Systems and Services, Inc.
Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
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1998 1997
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<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (157,215) $ (146,925)
Adjustments to reconcile net loss to cash
used by operating activities:
Depreciation 12,802 12,138
Amortization of software costs 5,101 5,101
Decrease (increase) in:
Accounts receivable 113,060 (25,129)
Inventory -- 8,842
Prepaid commissions (17,219) (10,095)
Prepaid expenses and other assets (4,676) 1,949
Increase (decrease) in:
Accounts payable 159,594 89,918
Accrued expenses 64,929 40,749
Deferred revenue (1,040) (166,943)
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Cash provided (used) by operating activities 175,336 (190,395)
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INVESTING ACTIVITIES
Purchases of property and equipment, net (49,129) 1,332
Capitalized internal software development costs (161,464) --
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Cash (used) provided by investing activities (210,593) 1,332
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FINANCING ACTIVITIES
Proceeds from (payments on) notes payable, net (44,572) 326,394
Payments on long-term debt (9,000) (30,400)
Payable to a related party 10,000 (2,500)
Deferred costs -- (69,202)
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Cash (used) provided by financing activities (43,572) 224,292
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Net (decrease) increase in cash (78,829) 35,229
Cash and cash equivalents at beginning of period 84,649 15,625
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Cash and cash equivalents at end of period $ 5,820 $ 50,854
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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INTEGRATED BUSINESS SYSTEMS AND SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION:
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Article 10 of Regulation S-X of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting only of those of a normal recurring nature) considered necessary for
a fair presentation have been included. Operating results for the three month
periods ended March 31, 1998 are not necessarily indicative of the results that
may be expected for the fiscal year ending December 31, 1998. For further
information, refer to the audited financial statements and footnotes thereto
included in the Company's registration statement on Form SB-1 (File no.
333-43437).
EARNINGS PER SHARE:
The computation of basic earnings (loss) per share and diluted earnings (loss)
per share is in conformity with the provisions of Statement of financial
Accounting Standards No. 128.
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PART I
FINANCIAL INFORMATION
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis provides information which the Company
believes is relevant to an assessment and understanding of the Company's results
of operations and financial condition. This discussion should be read in
conjunction with the financial statements and notes thereto.
Results of Operations
For the three months ended March 31, 1998 as compared to the three months
ended March 31, 1997
Revenues. Total revenues decreased $220,473 to $307,927 in the first quarter of
1998 from $528,400 in the first quarter 1997. This decrease was primarily
attributable to a decrease of sales of integration services and data collection
equipment due to the increased emphasis in the development of FIS 2.0. This
decrease was offset in part by an increase in the hardware and software
maintenance and support revenue due to one large customer obtaining software
maintenance.
Cost of Revenues. Total cost of revenues decreased $161,744 to $140,614 in the
first quarter of 1998 from $302,358 in the first quarter of 1998. This decrease
was primarily attributable to a decrease in data collection equipment costs and
integrated software costs as a result of lower sales levels. In addition, a
shift in research and development activities to development of FIS 2.0 resulted
in a reduction of salary expense.
The cost of revenues as a percentage of total revenues was 46% and 57% in the
first quarters of 1998 and 1997, respectively. Accordingly, the gross margin was
54% and 43% in the first quarter of 1998 and 1997, respectively.
Research and Development. Research and development costs decreased $53,898 to
$24,446 in the first quarter of 1998 from $78,344 in the first quarter of 1997.
During the first quarter of 1998, the Company continued to focus on development
activities related to the completion of Version 2.0 of the FIS System. Research
and development costs represented approximately 8% and 15% of total revenues for
the first quarter of 1998 and 1997, respectively. It is expected that the
Manufacturing Execution Management (MEM) module of Version 2.0 of the FIS System
will be available for general release during the third quarter of 1998. The MEM
module is the fourth and final module scheduled to complete the FIS 2.0 system.
General and Administrative. General and administrative expenses, including
interest expense, increased $8,548 to $259,419 in the first quarter of 1998 from
$250,871 in the first quarter of 1997. This increase was primarily attributable
to the addition of an administrative assistant to the President as well as the
addition of a Vice President of Operations. The elimination of the in-house
counsel and a reduction of travel costs offset these increases. Also there was a
reduction in rent expense as the Raleigh, North Carolina office was closed in
the fourth quarter of 1997. General and administrative expenses, including
interest expense, represented approximately 84% and 47% of total revenues in the
first quarter of 1998 and 1997, respectively.
Sales and Marketing. Sales and marketing expenses decreased $3,089 to $40,663 in
the first quarter of 1998 from $43,752 in the first quarter of 1997. This
decrease was primarily attributable to a decrease in sales commissions as a
result of a lower sales volume. This decrease was offset by an increase in
advertising. Sales and marketing expenses represented approximately 13% and 8%
of total revenues in the first quarter of 1998 and 1997, respectively.
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Financial Condition at March 31, 1998
Cash and cash equivalents decreased by $78,829 during the three months ended
March 31, 1998 and were utilized mainly for working capital needs and to fund
software development as previously discussed.
Accounts receivable decreased by $113,060 during the period, reflecting
decreased sales of integration services and data collection equipment.
The increase in capitalized software is attributable to the continued focus on
completion of Version 2.0 of the FIS System.
The $159,594 increase in accounts payable during the period is due to the
continued research and development focus and cash availability. Management
believes that it will be able to service these payables out of cash generated
through operations and planned financing transactions.
Overall, the Company's current liabilities exceeded its current assets at March
31, 1998 by $514,897.
Liquidity and Capital Resources
Since its inception the Company has primarily financed its operations through
revenues from operations, including funded research and development revenues,
and occasional short term loans from the Company's principals or their
acquaintances. The Company, however, has had a net loss every year of its
existence except 1994, in which year it had net income of $31,373; therefore,
the Company's operations have led to a growing working capital deficit and a
decrease in shareholders' equity. Accordingly, the Company has had liquidity
problems from time to time. As of March 31, 1998 the shareholders' deficit was
$65,263. As of March 31, 1998 the Company's working capital deficit was
$514,897.
In December 1995, the Company entered into a factoring arrangement that is
currently being administered as a short term borrowing arrangement
collateralized by accounts receivable, which generally permits borrowings of up
to 75% of accounts receivable. In February 1996, the Company entered into a loan
for $180,000 collateralized by substantially all of the assets of the Company.
This loan is being repaid in sixty equal monthly installments.
The Company also issued two convertible promissory notes in March 1997 in the
principal amount of approximately $190,000 to two investors, and, in March 1997,
executed a promissory note to a significant vendor of the Company in the amount
of approximately $320,000 in connection with various payments owed to this
vendor.
On June 3, 1997, the Company sold 1,300,000 shares of Common Stock at a price of
$0.50 (Cdn.) per share for gross proceeds to the Company, after payment of a
commission to Wolverton Securities Ltd. ("Wolverton"), of approximately
$420,000. After deducting offering costs of approximately $100,000 the net
proceeds to the Company from that offering were approximately $320,000.
In the fourth quarter of 1996, the Company made a strategic decision to
concentrate on completing the FIS System Version 2.0, and initiating the sales
and marketing efforts relating thereto. Accordingly, during the period this
development continues, the Company expects a reduction in revenues and an
increase in sales and marketing expenses.
On November 26, 1997, the Company consummated an initial public offering of its
common stock. In this initial public offering, the Company sold 2,500,000 shares
of Common Stock at a price of $1.00 (Cdn.) per share for gross proceeds to the
Company, after payment of Wolverton's commission, of approximately $1,587,000.
After deducting offering costs of approximately $368,000, the net proceeds to
the Company from that offering were approximately $1,219,000. The Company used a
portion of these proceeds to repay the promissory note to a significant vendor
of the Company in the amount of approximately $320,000 discussed above.
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In addition, in connection with the consummation of the initial public offering,
one of the convertible notes issued by the Company in March 1997 in the
principal amount of $116,700 was converted into shares of Common Stock. The
other convertible note in the principal amount of $70,532 plus approximately
$5,100 in interest was repaid by the Company with a portion of the proceeds from
the initial public offering.
On April 24, 1998, the Company issued 100,000 share of Common Stock at a price
of $1.00 (Cdn.) per share pursuant to the exercise by Wolverton of 100,000 of
the Warrants. The gross proceeds to the Company from the exercise of such
Warrants were approximately $69,000.
The Company leases its principal facilities under a noncancellable operating
lease expiring in October 1999. The lease is subject to annual adjustments for
facility operating costs in excess of an established base year. The minimum
annual commitment for rent under this lease is approximately $120,000. Rent
expense under this lease in 1997 and 1996 was approximately $134,000 and
$123,000, respectively.
The Company expects that the proceeds from its initial public offering and a
proposed private placement along with revenues generated from operations will be
adequate to meet the Company's projected working capital and other cash
requirements for at least the next 12 months, which is the period the Company
believes will be required to implement and achieve its business objectives.
Management intends, however, to closely follow the Company's progress and to
reduce expenses if the Company's strategies outlined herein do not result in
sufficient revenues within a reasonable period. Any such reduction will involve
scaling back, delaying or postponing those development activities that are not
essential to the Company achieving its stated objectives. In any event, the
working capital deficit will continue to grow unless and until revenues increase
sufficiently to meet expenditure levels.
PROPOSED PRIVATE PLACEMENT
As it is likely that the Company will require additional financing in the
future, the Company continues to evaluate additional means of financing,
including additional debt or equity financing. In this connection, on April 22,
1998, the Company executed a letter of intent with Crescent Capital Advisors,
Inc. ("Crescent") in contemplation of a proposed private placement (the "Private
Placement") of five-year convertible notes (the "Notes") in the aggregate
principal amount of up to $500,000 and two-year stock purchase warrants (the
"Crescent Warrants") entitling the holders to purchase approximately 1.08 shares
of Common Stock for each $1.00 outstanding principal amount under the Notes (up
to an aggregate of 541,667 shares of Common Stock.) The Notes, the Crescent
Warrants and the Common Stock issuable upon conversion of the Notes and the
exercise of the Crescent Warrants are expected to be issued pursuant to
exemptions from the registration requirements of federal and state securities
laws. Consequently, the transfer of such securities will be substantially
limited during the first two years following their issuance. As proposed, the
Notes will carry an annual interest rate of 12% and will be convertible at the
option of the holder at any time after their issuance into shares of Common
Stock at conversion rates ranging from $0.923 during the first year of the Notes
up to $1.623 during the fifth year of the Notes. The closing of the proposed
Private Placement is subject to various conditions, including negotiation of
definitive offering and purchase documentation, favorable completion of due
diligence by Crescent, receipt by the Company and Crescent of applicable
third-party consents and satisfaction of applicable regulatory requirements.
There can be no assurance that the conditions for the Private Placement will be
met or that the Private Placement will otherwise be completed as currently
contemplated by the Company and Crescent. If the Company is not successful in
increasing its revenues or in securing additional financing, such as that
proposed pursuant to the Private Placement, the Company could be forced to delay
or eliminate some of its product development and/or sales and marketing
initiatives which would have an adverse impact upon the Company's business,
results of operations and prospects.
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THE YEAR 2000
It is possible that the Company's currently installed computer systems, software
products or other business systems, or those of the Company's vendors, working
either alone or in conjunction with other software or systems, will not accept
input of, store, manipulate or output dates in the years 1999, 2000 or
thereafter without error or interruption (commonly known as the "Year 2000"
problem). The Company has conducted a review of its business systems, including
its computer systems, and is querying its vendors as to their progress in
identifying and addressing problems that their computer systems may face in
correctly processing date information as the year 2000 approaches and is
reached. However, there can be no assurance that the Company will identify all
such Year 2000 problems in its computer systems or those of its vendors or
resellers in advance of their occurrence or that the Company will be able to
successfully remedy any problems that are discovered. The expenses of the
Company's efforts to identify and address such problems, or the expenses or
liabilities to which the Company may become subject as a result of such
problems, could have a material adverse effect on the Company's business,
financial condition and results of operations. Maintenance or modification costs
will be expensed as incurred, while the costs of any new software will be
capitalized over the software's useful life.
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PART II
OTHER INFORMATION
<TABLE>
<CAPTION>
<S> <C>
Item 1 LEGAL PROCEEDINGS
The Company is not party to any pending litigation.
Item 2 CHANGES IN SECURITIES
This item is not applicable
Item 3 DEFAULTS UPON SENIOR SECURITIES
This item is not applicable.
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
This item is not applicable.
Item 5 OTHER INFORMATION
This item is not applicable
Item 6 EXHIBITS AND REPORTS
There were no Form 8-K filings during the period.
The Financial Data Schedule is included herein as
Exhibit 27.
</TABLE>
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf by the undersigned
hereunto duly authorized.
Integration Business Systems and Services, Inc.
(Registrant)
/S/ Harry P. Langley
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Harry P. Langley
President, Treasurer, Chief Executive
Officer, Chief Financial Officer and
Chairman of the Board
Date: June 1, 1998
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF INTEGRATED BUSINESS SYSTEMS & SERVICES INC. FOR THE
THREE MONTHS ENDED MARCH 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,820
<SECURITIES> 0
<RECEIVABLES> 127,463
<ALLOWANCES> 0
<INVENTORY> 3,962
<CURRENT-ASSETS> 211,545
<PP&E> 323,212
<DEPRECIATION> (171,326)
<TOTAL-ASSETS> 730,179
<CURRENT-LIABILITIES> 726,442
<BONDS> 69,000
0
0
<COMMON> 1,700,959
<OTHER-SE> (1,766,222)
<TOTAL-LIABILITY-AND-EQUITY> 730,179
<SALES> 0
<TOTAL-REVENUES> 307,927
<CGS> 0
<TOTAL-COSTS> 140,614
<OTHER-EXPENSES> 319,419
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,109
<INCOME-PRETAX> (157,215)
<INCOME-TAX> 0
<INCOME-CONTINUING> (157,215)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (157,215)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
