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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-48198
PROSPECTUS
INTEGRATED BUSINESS SYSTEMS AND SERVICES, INC.
7,903,215
SHARES OF COMMON STOCK
During the past three years, Integrated Business Systems and Services,
Inc. ("IBSS") has issued, among other issuances, 4,540,680 shares of its common
stock, 2,862,535 shares of its common stock issuable upon the exercise of
currently outstanding common stock purchase warrants, and a debenture currently
convertible into 500,000 shares of its common stock. The total of these shares
of common stock is 7,903,215. The convertible debenture and the warrants were
issued in connection with several private placements and other transactions. The
common stock was issued either in connection with several private placements
during the past three years, or as a result of the exercise of warrants issued
in connection with those private placements. In each case, we issued the
securities under one or more exemptions from the registration requirements of
the Securities Act of 1933 and applicable state securities laws.
These 4,540,680 currently outstanding shares of common stock, the
2,862,535 shares that may be purchased upon exercise of the warrants and the
500,000 shares that may be issued upon conversion of the convertible debenture,
are held by the security holders listed in the Selling Shareholders table
located on page 12 of this prospectus. Some of these shareholders may wish to
sell these shares in the future, and this prospectus allows them to do so. We
will not receive any of the proceeds from any sale of these shares by these
shareholders, but we have agreed to bear the expenses of registration of the
shares by this prospectus.
Our common stock is listed on the Nasdaq National Market under the
symbol "IBSS." The last sale price of our common stock as reported on the Nasdaq
National Market on November 29, 2000, was $5.63 per share.
INVESTING IN THE COMMON STOCK INVOLVES A HIGH LEVEL OF INVESTMENT RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
December 1, 2000.
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TABLE OF CONTENTS
Page
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The Company...................................................................3
Risk Factors..................................................................3
Special Note Regarding Forward-Looking Statements............................11
Use of Proceeds..............................................................11
Selling Shareholders.........................................................11
Plan of Distribution.........................................................13
Experts......................................................................14
Legal Matters................................................................14
Available Information........................................................14
Incorporation of Certain Documents by Reference..............................15
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.
WE HAVE NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION THAT IS DIFFERENT. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED. THE INFORMATION IN THIS PROSPECTUS IS COMPLETE AND ACCURATE AS OF THE
DATE ON THE COVER, BUT THE INFORMATION MAY CHANGE IN THE FUTURE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN
CONNECTION WITH THIS OFFERING, AND, IF GIVEN OR MADE, THAT INFORMATION OR THOSE
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY INTEGRATED
BUSINESS SYSTEMS AND SERVICES, INC. OR BY THE SELLING SHAREHOLDERS. THIS
PROSPECTUS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SECURITIES OFFERED BY THIS PROSPECTUS. THIS PROSPECTUS
IS NOT AN OFFER OR A SOLICITATION IN ANY JURISDICTION WHERE THE OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE THE OFFER OR
SOLICITATION. THE DELIVERY OF THIS PROSPECTUS AND ANY SALE MADE UNDER THIS
PROSPECTUS SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF INTEGRATED BUSINESS SYSTEMS AND SERVICES,
INC. OR THE SELLING SHAREHOLDERS SINCE THE DATE OF THIS PROSPECTUS OR THE DATE
OF ANY DOCUMENT INCORPORATED IN THIS PROSPECTUS.
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THE COMPANY
We provide value added electronic business software products and
services to manufacturers and other enterprises throughout the country that
require the use of transaction processing technology and other technology
connectivity solutions. Through our licensing, installation and servicing of our
proprietary software known as Synapse, we believe we bring a new paradigm to the
middleware and integrated systems market. The Synapse architecture provides the
framework that allows businesses to transition to the new e-business environment
more easily and rapidly than through the use of other currently available
software integration products. We provide a line of Synapse-based products that
includes Synapse Manufacturing (TM), Synapse EAI+(TM), and Synapse B2B(TM).
Synapse Manufacturing(TM) is typically licensed to manufacturers that have
already installed or are planning to install ERP (Enterprise Resource Planning)
systems. ERP systems use database technology to control all of the information
relating to a manufacturing company's customers, products, employees and
financial data. Our Synapse EAI+(TM) product is typically licensed to companies
that require seamless integration between disparate software systems and
applications. Synapse B2B(TM) is used to integrate our customer's software
applications directly with their trading partners' Internet Web sites and ERP or
legacy systems without requiring traditional or object oriented programming
techniques.
We were incorporated in South Carolina in 1990. Our principal executive
offices are located at Suite 228, 115 Atrium Way, Columbia, South Carolina
29223. Our telephone number is (803) 736-5595.
RISK FACTORS
An investment in our common stock involves a significant degree of
risk. You should not invest in our common stock unless you can afford to lose
your entire investment. You should consider carefully the following risk factors
and other information included in this prospectus before you decide to purchase
any securities issued by us. You should also carefully read the cautionary
statement following the "Risk Factors" regarding the use of forward looking
statements.
RISKS RELATED TO IBSS
WE HAVE A LARGE ACCUMULATED DEFICIT, WE EXPECT FUTURE LOSSES, AND WE MAY NEVER
ACHIEVE OR MAINTAIN PROFITABILITY.
We have experienced operating losses in each of our fiscal years since
January 1, 1995. As of September 30, 2000, we had an accumulated deficit of
approximately $7.7 million. In addition, since 1997, we have continued to
allocate an increasing proportion of our internal resources to research and
development activities associated with the development of our current suite of
new software products. During the same period, we also undertook a complete
restructuring of our sales and marketing organization and commenced several new
customer acquisition strategies. The execution of these marketing initiatives
required additional staffing resources and other related expenditures. This
strategy of increased emphasis on new product development and the suspension of
much of our traditional sales activities while we began implementing our sales
team reorganization resulted in a substantial reduction in our traditional
service revenues during the affected periods. Despite our history of losses, we
believe it is vital to our future success that we continue to invest heavily in
sales and marketing, although at a lower percentage of revenue than our
investment in this area during our fiscal years 1998 and 1999. Nevertheless, if
expenditures related to our sales and marketing and the expansion of our
operations are not accompanied or shortly followed by significantly increased
revenue, our losses could be even greater than expected until we are able to
delay or reduce these expenditures. As a result, we expect to incur losses in
2000 and 2001, and we will need to significantly increase our quarterly revenues
to achieve profitability. We cannot predict when we will operate profitably, if
at all.
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SIGNIFICANT UNANTICIPATED FLUCTUATIONS IN OUR ACTUAL OR ANTICIPATED QUARTERLY
REVENUES AND OPERATING RESULTS MAY CAUSE US NOT TO MEET SECURITIES ANALYSTS' OR
INVESTORS' EXPECTATIONS AND MAY RESULT IN A DECLINE IN OUR STOCK PRICE.
Our quarterly operating results have fluctuated significantly in the
past and may vary significantly in the future. Moreover, as a result of our
limited operating history with our new suite of software products and the
evolving nature of the markets in which we compete, we may have difficulty
accurately forecasting our revenue in any given period. If our revenues,
operating results, earnings or future projections are below the levels expected
by investors or securities analysts, our stock price is likely to decline. As a
result of the factors discussed below, we believe that quarterly revenues and
operating results are difficult to forecast, and period-to-period comparisons of
our historical results of operations are not necessarily meaningful and should
not be relied upon as indications of trends or of future performance.
Our stock price is subject to the volatility generally associated with
Internet, software and technology stocks in general and may also be affected by
broader market trends unrelated to our performance. We also expect to experience
significant fluctuations in our future quarterly revenues and operating results
as a result of many factors specific to our operations, including:
o the difficulty predicting the size and timing of our customer
orders
o the mix of our products and services sold and the mix of our
distribution channels
o the lengthy sales cycle for some of our products
o the market acceptance of our products
o the terms and timing of our financing activities
o whether we are able to successfully expand our sales and
marketing programs
o the possible loss of our key personnel
o the difficulty predicting the amount and timing of employee
stock option exercises
Our revenues and operating results depend upon the volume and timing of
customer orders and payments and the date of product delivery. New software
licensing, service and maintenance contracts may not result in revenues in the
quarter in which the contracts are signed, and we may not be able to predict
accurately when revenues from these contracts will be recognized. Historically a
substantial portion of our revenues has been derived from large licensing and
software implementation orders. We expect this trend to continue for the
foreseeable future. We also expect that increases in the dollar size of
individual license transactions will increase the risk of fluctuation in future
quarterly results. We realize substantially higher gross margins on our license
revenues compared to our services and maintenance revenues. Consequently, our
margins for any particular quarter will be highly dependent on the mix of
license, service and maintenance revenues in that quarter. If we cannot generate
large customer orders, or customers delay or cancel such orders in a particular
quarter, it will have a material adverse effect on our revenues and, more
significantly on a percentage basis, on our net income or loss in that quarter.
In addition, we are subject to employer payroll taxes when our
employees exercise their stock options. The employer payroll taxes are assessed
on each employee's gain, which is the difference between the price of our common
stock on the date of exercise and the exercise price. During a particular
period, these payroll taxes could be material. These employer payroll taxes
would be recorded as an expense and are assessed at tax rates that vary
depending upon the employee's taxing jurisdiction in the period such options are
exercised based on actual gains realized by employees. However, because we are
unable to predict how many stock options will be exercised and at what price
during any particular period, we cannot predict, the amount, if any, of employer
payroll expense will be recorded in a future period or the impact on our future
financial results.
VARIATIONS IN THE TIME IT TAKES US TO SELL OUR PRODUCTS MAY CAUSE FLUCTUATIONS
IN OUR OPERATING RESULTS.
Our customers generally consider a wide range of issues before
committing to purchase our products, including product benefits, the ability to
operate with existing and future computer systems, the ability to accommodate
increased transaction volumes and product reliability. Some of our customers are
addressing these issues for the first time when they consider whether to buy our
products and services. As a result, we or other parties must educate potential
customers on the use and benefits of our products and services. In
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addition, the purchase of our products generally involves a significant
commitment of capital and other resources by a customer. This commitment often
requires significant technical review, assessment of competitive products and
approval at a number of management levels within a customer's organization. Our
sales cycles may vary based on the industry in which the potential customer
operates and is difficult to predict for any particular license transaction.
Because of the number of factors influencing the sales process, the period
between our initial contact with a new customer and the time when we recognize
revenue from that customer varies widely in length. Our sales cycles typically
range from two to six months. For larger opportunities with new customers,
however, these cycles can be longer. The length and variability of our sales
cycle makes it difficult to predict whether particular sales will be concluded
in any given quarter. If one or more of our license transactions are not
consummated in a given quarter, our results of operations for that quarter may
be below our expectations and the expectations of analysts and investors.
WE HAVE HISTORICALLY DERIVED SUBSTANTIALLY ALL OF OUR REVENUE FROM A SMALL
NUMBER OF CUSTOMERS IN THE MANUFACTURING INDUSTRY, AND OUR REVENUE COULD DECLINE
IF WE LOSE A MAJOR CUSTOMER OR SIGNIFICANT DOWNTURNS OCCUR IN ANY OF OUR
CUSTOMER'S INDUSTRIES.
We have generated a substantial portion of our revenue from a limited
number of customers, substantially all of which are in the manufacturing
industry. We have recently begun directing a significant amount of our sales and
marketing efforts toward companies in other industries and other vertical
markets, particularly for business-to-business integration and enablement of
application service providers. Nevertheless, we expect that a small number of
customers in the manufacturing industry will continue to account for a
substantial portion of our revenue through fiscal year 2001. Any significant
decline in the demand for, and market acceptance of, our software in the
manufacturing industry of any of our customers would hurt what we anticipate for
our 2001 results of operations. We believe that many of our current customers
will continue to provide a substantial portion of our revenue through additional
license, implementation services and maintenance fees. In 1999, our largest
customer accounted for more than 77% of our revenue and our three largest
customers collectively accounted for more than 88% of our revenue. Consequently,
the loss of even one customer could have a material adverse effect on our
revenue. Moreover, as we continue to market our products in new vertical
markets, we expect that customers in some of those new vertical markets are
likely to have different requirements and may require us to change our product
design or features, sales methods, support capabilities or pricing policies. If
we fail to successfully address these new vertical markets, we may experience
decreased sales in future periods.
IF WE DO NOT EFFECTIVELY COMPETE WITH NEW AND EXISTING COMPETITORS, OUR REVENUES
AND OPERATING MARGINS WILL DECLINE.
The market for our products is intensely competitive, evolving and
subject to rapid technological change. We expect the intensity of competition to
increase in the future. As a result of increased competition, we may have to
reduce the price of our products and services, and we may experience reduced
gross margins and loss of market share, any one of which could significantly
reduce our future revenues and operating results. Our company and our products
are not well known in the marketplace, and we face intense competition from a
variety of competitors. Our current competitors include vendors offering
enterprise application integration, or EAI, business-to-business integration, or
B2B, business-to-customer integration, or B2C, and traditional manufacturing
enterprise systems, or MES, software products. A number of other companies are
offering products that address different aspects of our solution, including BEA
Systems, Inc., CrossWorlds Software, Inc., NEON Systems, Inc., Software
Technologies Corporation, TIBCO Software Inc. and Vitria Technology, Inc. These
companies have significantly greater resources and broader customer
relationships than we have. In addition, many of these competitors have
extensive knowledge of our industry. Current and potential competitors have
established or may establish cooperative relationships among themselves or with
third parties to offer a single solution and increase the ability of their
products to address our customers' needs.
Although we believe that our solutions generally compete favorably with
respect to these factors, our current suite of software products and our markets
are relatively new and are evolving rapidly. Because we have from inception
primarily focused on product development, we have less experience than many of
our competitors in marketing and selling our products. During the past twelve
months, we have undertaken a substantial restructuring of our sales and
marketing team, and have begun a more direct sales and marketing
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strategy. There can be no assurance that we will be successful in marketing and
selling our products under our new strategies or that our products will continue
to achieve market acceptance. Even if they do continue to achieve market
acceptance, there can be no assurance that our products and services can be sold
at prices that are sufficient to enable us to sustain and expand our operations.
We also may not be able to maintain our competitive position against current and
potential competitors, especially those with significantly greater resources.
WE MUST EXPAND OUR SALES FORCE AND OUR NETWORK OF DISTRIBUTION PARTNERS IN ORDER
TO SUCCESSFULLY SELL OUR PRODUCTS.
We have recently implemented a direct sales model under which we sell
our products principally through our direct sales force and, to a lesser extent,
through indirect sales channels such as resellers and distributors. We are
currently investing, and plan to continue investing, significant resources to
expand our direct sales force and our relationships with resellers and
distributors. We may not be successful in expanding our direct sales force or
other distribution channels, and even if we are, such expansion might not result
in an increase in our revenues. If we fail to maintain our existing
relationships with indirect sales channel partners or fail to establish new
ones, or if our revenue does not increase correspondingly with the expenses we
incur in pursuing such relationships, our business will suffer.
IF WE DO NOT RETAIN OUR KEY MANAGEMENT PERSONNEL AND ATTRACT AND RETAIN OTHER
HIGHLY SKILLED EMPLOYEES, OUR BUSINESS WILL SUFFER.
Our future success depends on the skills, experience and performance of
our senior management team, other key personnel, and their ability to operate
effectively, both individually and as a group. Each of these persons is bound by
an employment agreement with the company, and we maintain "key man" insurance in
the amount of $1 million on the lives of each of Harry P. Langley, President and
Chief Executive Officer, George E. Mendenhall, Executive Vice President, and
Stuart E. Massey, Vice President of Engineering. Nevertheless, recovery under
such insurance may not be adequate to compensate us for the full impact
resulting from the death of any one or more these officers. If any of our senior
management or other key research, engineering and development or sales and
marketing personnel were to leave the company, it would be difficult to replace
them, and our business would be harmed. Our success also depends on our ability
to recruit, retain and motivate highly skilled sales, marketing and engineering
personnel. We face significant competition for individuals with the skills
required to develop, market and support our products and services. We believe
that attracting and retaining these personnel is particularly difficult for us
because:
o the market for connectivity infrastructure software is still
emerging,
o our company and our products are not yet widely known in the
marketplace, and
o the relative scarcity of qualified technical personnel in the
Columbia, South Carolina metropolitan area makes it difficult
to attract and retain technical personnel.
We cannot assure you that we will be able to recruit and retain sufficient
numbers of these highly skilled employees. If we fail to do so, our ability to
compete will be significantly harmed.
THE RAPID GROWTH OF OUR OPERATIONS COULD STRAIN OUR RESOURCES AND CAUSE OUR
BUSINESS TO SUFFER.
Our ability to successfully offer products and services and implement
our business plan in a rapidly evolving market requires an effective planning
and management process. We are increasing the scope of our operations and the
size of our direct sales force, and we have recently increased our headcount
substantially. Between September 30, 1999 and September 30, 2000, our total
number of employees increased from 25 to 48. The growth necessitated by our need
to properly staff and direct appropriate resources toward our business growth
strategy has placed and will continue to place a significant strain on our
management systems, infrastructure and resources. We expect that we will need to
continue to improve our financial and managerial controls, reporting systems and
procedures. We will also need to expand, train and manage our workforce.
Furthermore, we expect that we will be required to manage an increasing number
of relationships with various customers, strategic alliance partners and other
third parties. Failure to expand any of the foregoing areas efficiently and
effectively could interfere with the growth of our business as a whole.
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DEFECTS IN OR SLOW PERFORMANCE OF OUR SOFTWARE PRODUCTS COULD DIMINISH DEMAND
FOR OUR PRODUCTS AND CAUSE COSTLY LIABILITY, WHICH WOULD ADVERSELY AFFECT OUR
OPERATING RESULTS.
The software products we offer are internally complex. Complex software
may contain errors or defects, particularly when first introduced or when new
versions or enhancements are released. Although we conduct extensive testing, we
may not discover software defects that affect our current or new products or
enhancements until after they are sold. Although we have not experienced any
material software defects to date, any errors, defects or slow performance that
is discovered could result in:
o loss of revenue,
o product returns or order cancellations,
o delay in market acceptance of our products,
o diversion of our development resources,
o distraction of our management,
o damage to our customer relationships and our reputation,
o increased service and warranty costs, and
o costly litigation defense.
Our license agreements with our customers typically contain provisions
designed to limit our exposure to potential product liability claims. It is
possible, however, that the limitation of liability provisions contained in our
license agreements may not be effective as a result of existing or future
federal, state or local laws or ordinances or unfavorable judicial decisions.
Although we have not experienced any product liability claims to date, sale and
support of our products entails the risk of such claims, which could be
substantial in light of customers' use of many of our products in
mission-critical applications. We do not maintain product liability insurance.
If a claimant brings a product liability claim against us, it could have a
material adverse effect on our business, results of operations and financial
condition.
RISKS RELATED TO OUR INDUSTRY
IF WE FAIL TO ADAPT TO THE RAPID TECHNOLOGICAL CHANGE WHICH CHARACTERIZES OUR
MARKETS, WE COULD LOSE MARKET SHARE OR OUR PRODUCTS COULD BECOME OBSOLETE.
The market for our current suite of software products is characterized
by:
o rapid technological change,
o frequent new product introductions and enhancements,
o uncertain product life cycles,
o changing customer requirements, and
o evolving industry standards.
The introduction of products embodying new technologies, the emergence
of new industry standards or changes in customer requirements could render some
or all of our existing products obsolete and unmarketable. Moreover, decreases
in the cost of existing products or services could enable our current or
potential customers to fulfill their own needs for transaction processing and
integration systems and services in a more cost efficient manner than through
the purchase of our products and services. As a result, our success depends upon
our ability to respond to changing customer requirements and enhance existing
products and services that keep pace with technological developments and
emerging industry standards. We have invested significantly in technology and
anticipate that it will be necessary for us to continue to do so. Failure to
develop and introduce enhancements to our existing products and services in a
timely manner in response to changing market conditions or customer requirements
will materially and adversely affect our business, results of operations and
financial condition.
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BECAUSE OUR PRODUCTS COULD INTERFERE WITH OUR CUSTOMERS' OTHER SOFTWARE
APPLICATIONS AND HARDWARE, WE MAY BE SUBJECT TO CLAIMS BY THESE CUSTOMERS, WHICH
MAY BE COSTLY AND MAY NOT BE ADEQUATELY COVERED BY INSURANCE.
Our products interoperate with many parts of complicated computer
systems, such as mainframes, servers, personal computers, application software,
databases, operating systems and data transformation software. Failure of any
one of these parts could cause all or large parts of computer systems to fail.
In such circumstances, it may be difficult to determine which part failed, and
it is likely that customers will bring a lawsuit against several suppliers. Even
if our software is not at fault, we could suffer material expense and material
diversion of management time in defending any such lawsuits.
IF WE FAIL TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS, WE MAY LOSE THESE
RIGHTS AND OUR BUSINESS MAY BE SERIOUSLY HARMED.
Our success depends upon our proprietary technology. To establish and
protect our proprietary rights, we rely primarily on a combination of :
o patent law,
o copyright law,
o trademark and trade secret laws,
o confidentiality procedures and agreements,
o licensing arrangements, and
o the complex nature of our technologies.
As part of our confidentiality procedures, we generally enter into
non-disclosure agreements with our employees, customers, and strategic partners
and we enter into license agreements with respect to our software, documentation
and other proprietary information. Despite these precautions, third parties
could copy or otherwise obtain and use our products or technologies without
authorization, or develop similar technologies independently. It is difficult
for us to police unauthorized use of our products. Because of this difficulty in
determining the extent to which piracy of our software products exists, software
piracy is a persistent problem. Expensive litigation may be necessary in the
future to enforce our intellectual property rights. Moreover, effective
protection of intellectual property rights is unavailable or limited in certain
foreign countries. While we believe that our products and technologies are
adequately protected against infringement, existing laws afford only limited
protection. Consequently, the protection of our proprietary rights may not be
adequate, and our competitors could independently develop similar technologies,
duplicate our products, reverse engineer or design around the intellectual
property rights we hold.
OUR PRODUCTS MAY INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WHICH MAY
CAUSE US TO INCUR UNEXPECTED COSTS OR PREVENT US FROM SELLING OUR PRODUCTS.
The commercial success of our business depends upon our products not
infringing any intellectual property rights of others and upon no claims for
infringement being made against us. We have conducted periodic patent searches
to determine whether or not we may be infringing the patent or trademark rights
of any third parties and have recently applied for patent protection of our
proprietary Synapse software. Because patent applications in the United States
are not publicly disclosed until the patent is issued, applications of which we
are not aware may have been filed which relate to our software products. We may
be subject to legal proceedings and claims from time to time in the ordinary
course of our business, including claims of alleged infringement of the patents,
trademarks and other intellectual property rights of third parties by us or our
licensees in connection with their use of our products. Intellectual property
litigation is expensive and time-consuming, and could divert our management's
attention away from running our business. If we were to discover that our
products violated the intellectual property rights of others, we would have to
obtain licenses from these parties in order to continue marketing our products
without substantial re-engineering. We might not be able to obtain the
necessary licenses on acceptable terms or at all. If we could not obtain such
licenses, we might not be able to re-engineer our products successfully or in a
timely fashion. We believe that we are not infringing any intellectual property
rights of third parties, but there can be no assurance that such infringement
will not occur. If we fail to address any infringement issues successfully, we
will be forced to incur significant costs and could be prevented from selling
our products.
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OTHER RISKS
THE PRICE OF OUR COMMON STOCK MAY FLUCTUATE SIGNIFICANTLY.
The market price for our common stock may be affected by a number of
factors, including developments in the middleware, software or technology
industry, general market conditions and other factors, including factors
unrelated to our operating performance or our competitors' operating
performances. In addition, our stock price and the stock prices of many other
companies in the technology and emerging growth sectors have experienced wide
fluctuations, including recent rapid rises and declines in their stock prices,
that have often been unrelated to the operating performance of such companies.
These factors and fluctuations, as well as general economic, political and
market conditions, such as recessions, may materially adversely affect the
market price of our common stock.
THE SUBSTANTIAL NUMBER OF SHARES THAT ARE CURRENTLY ELIGIBLE FOR SALE UNDER THIS
PROSPECTUS AND SHARES THAT WILL BE ELIGIBLE FOR SALE IN THE NEAR FUTURE MAY
CAUSE THE MARKET PRICE FOR OUR COMMON STOCK TO DECLINE SIGNIFICANTLY, EVEN IF
OUR BUSINESS IS DOING WELL.
Trading in our common stock has historically been very limited which
has made the market price of our common stock vulnerable to significant
fluctuations. If the selling shareholders identified in this prospectus sell
substantial amounts of their common stock in the public market during a short
period of time, or if the holders of these shares are perceived by the market as
intending to sell them, our stock price may decline significantly. These sales
also might make it more difficult for us to sell equity or equity-related
securities in the future at a time and price that we deem appropriate and could
threaten the listing of our common stock on the Nasdaq Stock Market.
As of the date of this prospectus, we had 14,243,369 outstanding shares
of common stock. This prospectus covers the public offer and sale of 4,540,680
(or approximately 32 %) of these outstanding shares and the public offer and
sale of 3,362,535 shares of common stock issuable upon exercise of currently
exercisable warrants and upon conversion of the convertible debenture referenced
elsewhere in this prospectus. Prior to the date of this prospectus, the
7,903,215 shares of common stock covered by this prospectus were restricted from
sale in the public market because of limitations under federal and state
securities laws and commitments made to us by the selling shareholders in their
respective purchase agreements with us for these securities. Prior to the date
of this prospectus, the only means by which the selling shareholders could offer
and sell these securities was under an effective registration statement or under
an exemption from applicable state and federal registration requirements.
In connection with our sales of these outstanding shares, warrants and
the convertible debenture in private placements undertaken during the past three
years, we agreed to register the public resale of the shares covered by this
prospectus. As a consequence of the registration to which this prospectus
relates, unless such shares are held by our affiliates, all of the 4,540,680
currently outstanding shares covered by this prospectus and all of the 3,362,535
shares issuable upon exercise of the warrants and conversion of the convertible
debenture are now freely tradeable in the public market. Although we have
registered the shares for sale, the registration of these shares does not
necessarily mean that any of these shares will be offered or sold by the selling
shareholders identified in this prospectus.
Even if we had not registered the sale of these shares, the holders of
the shares would nevertheless become eligible to make sales of these shares in
the public market in accordance with the Securities and Exchange Commission's
Rule 144 one year following the respective dates of payment to us for the
shares, with certain volume and manner of sale limitations continuing only for
one year thereafter, except as to shares held by persons deemed to be our
affiliates.
In addition to the registration statement on Form S-3 of which this
prospectus forms a part, we have filed a registration statement on Form S-8 with
the Securities and Exchange Commission covering 960,000 shares reserved for
issuance under our stock option plan. We intend to file another registration
statement on Form S-8 covering 900,000 additional shares reserved for issuance
under this same plan. Issuance of
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additional shares upon exercise of options and warrants could result in dilution
to our shareholders and a decline in the market price of our common stock.
FAILURE TO RAISE ADDITIONAL CAPITAL OR GENERATE THE SIGNIFICANT CAPITAL
NECESSARY TO EXPAND OUR OPERATIONS AND INVEST IN NEW PRODUCTS COULD REDUCE OUR
ABILITY TO COMPETE AND RESULT IN LOWER REVENUES.
We expect that our currently held cash and cash from expected customer
revenues will be sufficient to meet our working capital and capital expenditure
needs for at least the next 12 months. Even if we are successful in realizing
our expected 2001 sales revenue, we expect that we will still require additional
financing to implement our growth strategies and achieve our long term
objectives. We cannot be certain that we will be able to obtain additional debt
or equity financing on favorable terms, or at all. If we raise additional equity
financing, our shareholders may experience significant dilution of their
ownership interests and the per share value of our common stock could decline.
If we engage in debt financing, we may be required to accept terms that restrict
our ability to incur additional indebtedness and that force us to maintain
specified liquidity or other ratios, any of which could harm our business. If we
need additional capital and cannot raise it on acceptable terms, we may not be
able to, among other things:
o develop or enhance our products and services;
o continue to expand our sales and marketing organizations;
o acquire complementary technologies, products or businesses;
o expand operations, in the United States or internationally;
o hire, train and retain employees; or
o respond to competitive pressures or unanticipated working
capital requirements.
Our failure to do any of these things could result in lower revenues and could
seriously harm our business.
ANTI-TAKEOVER PROVISIONS IN OUR ARTICLES OF INCORPORATION AND STATE CORPORATE
LAWS COULD DISCOURAGE OR PREVENT A TAKEOVER, EVEN IF AN ACQUISITION WOULD BE
BENEFICIAL TO OUR SHAREHOLDERS.
In many cases, shareholders receive a premium for their shares when a
company is purchased by another. Various provisions in our articles of
incorporation and bylaws and South Carolina corporate laws could deter and make
it more difficult for a third party to bring about a merger, sale of control, or
similar transaction without approval of our board of directors, even if the
transaction would be beneficial to our shareholders. These provisions tend to
perpetuate existing management. As a result, you may be deprived of
opportunities to sell some or all of your shares at prices that represent a
premium over market prices. These provisions, which could make it less likely
that a change in control will occur, include:
o provisions in our articles of incorporation establishing three
classes of directors with staggered terms, which means that
only one-third of the members of the board of directors is
elected each year and each director serves for a term of three
years.
o provisions in our articles of incorporation authorizing the
board of directors to issue a series of preferred stock
without shareholder action, which issuance could discourage a
third party from attempting to acquire, or make it more
difficult for a third party to acquire, a controlling interest
in us.
o provisions in our articles of incorporation prohibiting
cumulative voting in the election of directors, which would
otherwise allow less than a majority of stockholders to elect
director candidates.
o provisions in our bylaws relating to meetings of shareholders
which limit who may call a meeting and what matters will be
voted upon.
o provisions in our bylaws establishing advance notice
requirements for nominations for election to the board of
directors or for proposing matters that can be acted upon by
stockholders at stockholder meetings.
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o state law provisions that require two-thirds of the
shareholders to approve mergers and similar transactions, and
amendments to the articles of incorporation.
In addition, the South Carolina Business Combination Act, the South
Carolina Control Share Acquisition Act and the vesting terms of our stock option
plan may discourage, delay or prevent a change in control of our company.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus, as well as the
documents incorporated by reference into this prospectus, discuss future
expectations or state other "forward-looking" information. Such statements can
be identified by the use of forward- looking words such as "may," "will,"
"expect," "anticipate," "estimate," "plans,", estimates," "potential,"
"continue," or other similar words. Those statements could be affected by known
or unknown risks, uncertainties and other factors that could cause the actual
results to differ materially from those contemplated by the statements. When
considering such forward -looking statements, you should keep in mind the
preceding risk factors and other cautionary statements in this prospectus. All
forward-looking statements and reasons why results may differ included in this
prospectus are made as of the date of this prospectus, and we assume no
obligation to update any forward-looking statement or reason why actual results
might differ.
USE OF PROCEEDS
All of the shares, including the shares underlying the warrants and the
convertible debenture, being offered under this prospectus are being offered by
the selling shareholders. We will not receive any of the proceeds from the sale
of the shares. This registration statement is intended to satisfy obligations we
have under agreements with the selling shareholders. Under those agreements, we
have agreed to pay the expenses of the registration of these shares under
federal and state securities laws.
SELLING SHAREHOLDERS
The following table provides the number of shares of common stock,
including the number of shares of common stock underlying currently outstanding
common stock purchase warrants and a currently outstanding convertible
debenture, that are, to our knowledge, beneficially owned by each of the
identified selling shareholders. We have assumed that, upon completion of the
offering or offerings under this prospectus, each selling shareholder listed
below will have sold all of that shareholder's respective shares offered under
this prospectus, including shares underlying unexercised warrants and underlying
a convertible debenture which has not been converted as of the date of this
prospectus. However, selling shareholders may offer and sell all, some, or none
of the shares offered under this prospectus. Under some circumstances, the
respective donees, pledges, and transferees or other successors in interest of
the selling shareholders, may also sell the shares listed below as being held by
the selling shareholders and offered under this prospectus.
The following information is based on information reflected in
agreements with the selling shareholders, information reflected in our stock
records and in schedules filed with the Securities and Exchange Commission, as
well as information provided to us by some of the selling shareholders. Of the
selling shareholders listed below, Harry P. Langley, Stuart E. Massey and George
E. Mendenhall currently serve as members of our board of directors. In addition,
Mr. Langley serves as our President, Chief Executive Officer, and Chairman of
the Board; Mr. Massey serves as our Vice President of Engineering; and Dr.
Mendenhall serves as our Executive Vice President. No other selling shareholder
has held a position or office or otherwise had a control or other material
relationship with us or, to our knowledge, with any of our affiliates within the
past three years.
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<PAGE> 12
<TABLE>
<CAPTION>
Shares of Common Stock Shares of Common Stock
Beneficially Owned Prior to the Beneficially Owned After
Offering (1) the Offering (2)
-------------------------------------- -----------------------------
Common Stock
Currently Issuable Under Total Shares of
Outstanding Warrants and Common Stock
Shares of Convertible Offered Under
Name of Selling Shareholder Common Stock Debenture (3) this Prospectus Shares Percentage
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Roger Kazanowski 173,120 86,560 259,680 -0- -0-
M&J Investment Trust 173,120 86,560 259,680 -0- -0-
Richard Kraniak 173,120 86,560 259,680 -0- -0-
Crescent Capital Fund, L.P. 213,101 -0- 194,760 18,341 *
Irwin Olian 86,560 -0- 86,560 -0- -0-
J. Allen Dougherty, Trustee
U/T/D 5/31/96 F/B/O Dorothy
Hawkins 55,000 -0- 55,000 -0- -0-
Donald Hoffman 10,000 1,000 11,000 -0- -0-
IBSS Michigan Partnership 865,000 -0- 865,000 -0- -0-
Integrated Business Investors, LLC 1,000,000 -0- 1,000,000 -0- -0-
IBSS Investors, LLC -0- 500,000 500,000 -0- -0-
Carolina Consultants -0- 900,000 900,000 -0- -0-
RXA Associates -0- 520,000 520,000 -0- -0-
MRP Investors -0- 210,000 210,000 -0- -0-
Afton Limited, LLC 110,000 110,000 220,000 -0- -0-
Harry P. Langley 1,258,000 9,879 9,879 1,258,000 8.83
Stuart E. Massey 1,292,100 988 988 1,292,100 9.07
George E. Mendenhall 1,280,000 988 988 1,280,000 8.99
Joseph Marsh 250,000 125,000 375,000 -0- -0-
The Cutting Family LLC 250,000 125,000 375,000 -0- -0-
Aspen International, Ltd. 200,000 100,000 300,000 -0- -0-
Danby International, Ltd. 200,000 100,000 300,000 -0- -0-
Anegada Fund, Ltd. 200,000 100,000 300,000 -0- -0-
Gilston Corporation, Ltd. 135,000 67,500 202,500 -0- -0-
Tonga Partners, LP 265,000 132,500 397,500 -0- -0-
Shane Pavitt 20,000 10,000 30,000 -0- -0-
Joel Kirschbaum 20,000 10,000 30,000 -0- -0-
BiCoastal Consulting
Corporation 160,000 80,000 240,000 -0- -0-
---------------------------------------------------------------------------------------------
TOTAL 8,389,121 3,362,535 7,903,215 3,848,441 27
=============================================================================================
</TABLE>
* To our knowledge, the percentage of shares of common stock beneficially
owned after the offering will be less than one percent
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<PAGE> 13
(1) Beneficial ownership reflected in the table is determined in accordance
with the rules and regulations of the Securities and Exchange
Commission and generally includes voting or investment power with
respect to securities. Except as otherwise specified, each of the
shareholders named in the table has indicated to us that the
shareholder has sole voting and investment power with respect to all
shares of common stock beneficially owned by that shareholder.
(2) These numbers assume that all shares offered under this prospectus are
sold.
(3) Except for the 500,000 shares reflected in this column as being held by
IBSS Investors, LLC, which shares are issuable upon conversion of a
convertible debenture, all of the shares reflected in this column are
issuable upon exercise of currently exercisable warrants held by the
indicated selling shareholder.
PLAN OF DISTRIBUTION
This prospectus relates to the offer and sale from time to time by the
holders of up to 4,540,680 currently outstanding shares of common stock, the
sale from time to time of up to 2,862,535 shares of common stock that currently
may be purchased by the holders of common stock purchase warrants, and the sale
from time to time of up to 500,000 shares of common stock that currently may be
issued upon conversion by the holder of a convertible debenture. The convertible
debenture and the warrants were issued in connection with several private
placements and other transactions during the past three years, and the common
stock was issued either in connection with several private placements during the
past three years, or as a result of the exercise of various warrants issued in
connection with several private placements during the past three years. This
prospectus has been prepared in connection with registering the future sale of
these currently outstanding shares, the shares that may be purchased under the
warrants, and the shares that may be issued upon conversion of the convertible
debenture. We have undertaken to register the sales of the shares by the
applicable selling shareholders to the public as required by the terms of the
agreements between us and the selling shareholders executed in connection with
the private placements. Although we have registered the shares for sale under
the terms of these agreements, the registration of these shares does not
necessarily mean that any of these shares will be offered or sold by the holders
identified above.
We will not receive any proceeds from this offering. The shares may be
sold from time to time to purchasers directly by any of the selling
shareholders, or under some circumstances, donees, pledgees, transferees or
other successors in interest of the selling shareholders. Alternatively, the
selling shareholders, or their transferees, may from time to time offer the
shares through dealers or agents, who may receive compensation in the form of
commissions from the selling shareholders, or their transferees, and/or the
purchasers of the shares for whom they may act as agent. The selling
shareholders, or their transferees, and any dealers or agents that participate
in the distribution of the shares may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933, and any profit on the sale of the shares
by them and any commissions received by any dealers or agents might be deemed to
be underwriting commissions under the Securities Act of 1933.
At a time a particular offer of the shares is made, a prospectus
supplement, if required, will be distributed that will set forth the name and
names of any dealers or agents and any commissions and other terms constituting
compensation from the selling shareholders, or their transferees, and any other
required information. The shares may be sold from time to time at varying prices
determined at the time of sale or at negotiated prices.
In order to comply with the securities laws of certain states, if
applicable, some of the shares may be sold only through registered or licensed
brokers or dealers. In addition, in some states, the shares may not be sold
unless they have been registered or qualified for sale in that state or an
exemption from that state's registration or qualification requirement is
available and is complied with.
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<PAGE> 14
The shares may also be sold in one or more of the following
transactions: (a) block transactions (which may involve crosses) in which a
broker-dealer may sell all or a portion of such stock as agent but may position
and resell all or a portion of the block as principal to facilitate the
transaction; (b) purchases by any such broker-dealer as principal, and resale by
such broker-dealer for its own account pursuant to a prospectus supplement; (c)
ordinary brokerage transactions and transactions in which any such broker-dealer
solicits purchasers; (d) sales "at the market" to or through a market maker or
into an existing trading market, on an exchange or otherwise, for such shares;
and (e) sales in other ways not involving market makers or established trading
markets, including direct sales to purchasers. In effecting sales,
broker-dealers engaged by the selling shareholders may arrange for other
broker-dealers to participate.
EXPERTS
Scott McElveen, L.L.P., our independent auditors, have audited our
financial statements and schedule included in our Annual Report on Form 10-KSB
for the year ended December 31,1999, as set forth in their report dated February
1, 2000 (March 2, 2000 as to Note 18), which is incorporated by reference in
this prospectus. Our financial statements and schedule are incorporated by
reference in reliance on Scott McElveen, L.L.P.'s report, given on their
authority as experts in accounting and auditing.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered
under this prospectus will be passed upon for us by Nexsen Pruet Jacobs &
Pollard, LLP, Columbia, South Carolina. William S. McMaster, special counsel
with Nexsen Pruet Jacobs & Pollard, LLP, is also our Chief Financial Officer and
General Counsel.
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934, and in accordance with that act we file reports, proxy
statements and other information with the Securities and Exchange Commission.
These reports, proxy statements and other information filed can be inspected and
copied at the Securities and Exchange Commission's Public Reference Section, 450
Fifth Street, N.W., Washington, D.C., 20549, and at the following regional
offices of the Securities and Exchange Commission: Seven World Trade Center,
13th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of this material can also be obtained from
the Public Reference Section of the Securities and Exchange Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Securities
and Exchange Commission maintains a web site (http://www.sec.gov) containing
reports, proxy and information statements and other information of registrants,
including ours, that file electronically with the Securities and Exchange
Commission. In addition, our common stock is listed on the Nasdaq National
Market and similar information concerning us can be inspected and copied at the
offices of the National Association of Securities Dealers, Inc., 9513 Key West
Avenue, Rockville, Maryland 20850.
We have filed with the Securities and Exchange Commission a
registration statement on Form S-3 (of which this prospectus is a part) under
the Securities Act of 1933, with respect to the shares being offered by this
prospectus. This prospectus does not contain all of the information set forth in
this registration statement, some portions of which have been omitted as
permitted by the rules and regulations of the Securities and Exchange
Commission. Statements contained in this prospectus as to the contents of any
contract or other documents are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the registration statement, each of these statements
14
<PAGE> 15
are qualified in all respects by this reference and the exhibits and schedules
thereto. For further information regarding us and the shares being offered by
this prospectus, reference is hereby made to the registration statement and such
exhibits and schedules which may be obtained from the Securities and Exchange
Commission at its principal office in Washington, D.C. upon payment of the fees
prescribed by the Securities and Exchange Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by IBSS under the Securities
Exchange Act of 1934 with the Securities and Exchange Commission and are
incorporated by reference into this prospectus:
(a) Our annual report on Form 10-KSB for the year ended December
31, 1999;
(b) Our quarterly reports on Form 10-QSB for the quarters ended
March 31, 2000, June 30, 2000, and September 30, 2000;
(c) Our current reports on Form 8-K filed August 14, 2000, October
18, 2000, and October 30, 2000; and
(d) The description of our common stock contained in our
registration statement on Form 8-A (File No.333-43437).
Each document we file pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 subsequent to the date of this prospectus
and prior to the termination of this offering shall be deemed to be incorporated
by reference in this prospectus and to be a part of this prospectus from the
date of filing of such documents. Any statement contained in this prospectus in
a document incorporated or deemed to be incorporated in this prospectus by
reference shall be deemed to be modified or superseded for purposes of this
prospectus to the extent that a statement contained in this prospectus (or in
the applicable prospectus supplement) or in any subsequently filed document
which also is or is deemed to be incorporated by reference in this prospectus
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this prospectus.
COPIES OF THE ABOVE DOCUMENTS WHICH ARE INCORPORATED HEREIN BY
REFERENCE (NOT INCLUDING THE EXHIBITS TO SUCH INFORMATION, UNLESS SUCH EXHIBITS
ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH INFORMATION) WILL BE
PROVIDED WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM
THIS PROSPECTUS IS DELIVERED UPON WRITTEN OR ORAL REQUEST. REQUESTS SHOULD BE
DIRECTED TO WILLIAM S. MCMASTER, CHIEF FINANCIAL OFFICER, 115 ATRIUM WAY,
SUITE 228, COLUMBIA, SOUTH CAROLINA 29223, TELEPHONE NUMBER (803) 736-5595.
15
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================================================================================
INTEGRATED BUSINESS SYSTEMS AND SERVICES, INC.
7,903,215 SHARES
OF
COMMON STOCK
------------
PROSPECTUS
------------
December 1, 2000
================================================================================
