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U.S. 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, 1999 (First quarter of
fiscal 1999)
OR
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT For the
transition period from_____________ to ________________
Commission File No. 0-24073
IBS INTERACTIVE, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
DELAWARE 13-3817344
(State or Other Jurisdiction of (I.R.S.Employer I.D. No.)
Incorporation or Organization)
2 RIDGEDALE AVENUE
SUITE 350
CEDAR KNOLLS, NJ 07927
(Address of Principal Executive Offices)
(973) 285-2600
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former 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
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[_]
As of May 13, 1999, 3,900,290 shares of the issuer's common stock, par
value $.01 per share, were outstanding.
Transitional Small Business Disclosure Format (check one): Yes [_] No [X]
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IBS INTERACTIVE, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet as of March 31, 1999
(unaudited)...................................................... 1
Condensed Consolidated Statements of Operations for the three
months ended March 31, 1999 and 1998 (unaudited)................. 3
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 1999 and 1998 (unaudited)................. 4
Notes to Unaudited Condensed Consolidated Financial Statements... 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..................................... 8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS............................................. 12
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS..................... 12
ITEM 3. DEFAULT UPON SENIOR SECURITIES................................ 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........... 13
ITEM 5. OTHER INFORMATION............................................. 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................. 13
SIGNATURES............................................................. 14
(i)
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PART 1
FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS.
IBS INTERACTIVE, INC.
Condensed Consolidated Balance Sheet
(unaudited, in thousands)
ASSETS MARCH 31, 1999
Current Assets
Cash and cash equivalents.............................. $ 4,210
Accounts receivable (net of allowance for doubtful
accounts of $68)..................................... 2,342
Prepaid expenses...................................... 216
Deferred tax assets................................... 258
Other current assets.................................. 107
------
Total Current Assets............................ 7,133
------
Property and equipment, net................................. 1,076
Intangible assets, net...................................... 2,863
Intangible assets - deferred compensation, net.............. 636
Other assets................................................ 180
------
TOTAL ASSETS.............................. $ 11,888
======
See Accompanying Notes to Condensed Consolidated Financial Statements.
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IBS INTERACTIVE, INC.
Condensed Consolidated Balance Sheet
(unaudited, in thousands, except share amounts)
LIABILITIES & STOCKHOLDERS' EQUITY MARCH 31, 1999
--------------
Current Liabilities
Long-term debt and capital lease obligations, current
portion ................................................ $ 296
Accounts payable and accrued expenses..................... 1,571
Other current liabilities................................. 440
-----------
Total Current Liabilities............................ 2,307
-----------
Deferred compensation........................................ 900
Long-term debt and capital lease obligations................. 290
-----------
Total Liabilities.................................... 3,497
-----------
Stockholders' Equity
Preferred Stock, $.01 par value, authorized 1,000,000
shares, none issued and outstanding.................... --
Common Stock, $.01 par value, authorized 11,000,000 shares
shares, 3,894,962 shares issued and outstanding........ 39
Additional paid in capital................................ 9,927
Accumulated deficit....................................... (1,575)
-----------
Total Stockholders' Equity................................ 8,391
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,888
===========
See Accompanying Notes to Condensed Consolidated Financial Statements.
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IBS INTERACTIVE, INC.
Condensed Consolidated Statements of Operations
for the three months ended March 31, 1999 and 1998
(unaudited, in thousands, except share and per share amounts)
Three months ended March 31,
1999 1998
---- ----
Revenues..................................... $ 3,273 $ 2,908
Cost of services............................. 1,867 1,807
--------- ----------
Gross profit................................. 1,406 1,101
Operating expenses:
Selling, general and administrative....... 1,551 672
Amortization of intangible assets......... 65 31
Compensation expense - non-cash........... 84 40
Merger expenses........................... 20 0
--------- ----------
Operating income (loss)...................... (314) 358
Interest expense (income), net............... (25) 37
---------- ----------
Income (loss) before income taxes............ (289) 321
Tax benefit (provision)...................... 126 (117)
---------- ----------
Net income (loss)............................ $ (163) $ 204
========== ==========
Earnings (loss) per share
Basic and Diluted............................ $ (0.04) $ 0.09
---------- ----------
Weighted average common shares outstanding
Basic........................................ 3,838,876 2,309,032
Diluted...................................... 3,838,876 2,354,255
See Accompanying Notes to Condensed Consolidated Financial Statements.
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IBS INTERACTIVE, INC.
Condensed Consolidated Statements of Cash Flows
For the three months ended March 31, 1999 and 1998
(unaudited, in thousands)
Three months ended March 31,
1999 1998
---- ----
Cash Flows (used in) provided by Operating
Activities..................................... $ (402) $ 267
Cash Flows used in Investing Activities......... (892) (347)
Cash Flows (used in) provided by Financing
Activities..................................... (28) 287
------ -----
NET INCREASE (DECREASE) IN CASH
and CASH EQUIVALENTS............................ (1,322) 207
CASH and CASH EQUIVALENTS
at BEGINNING of PERIOD.......................... 5,532 163
------ -----
CASH and CASH EQUIVALENTS
at END of PERIOD................................ $4,210 $ 370
====== ======
See Accompanying Notes to Condensed Consolidated Financial Statements.
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. FINANCIAL STATEMENT PRESENTATION
a. The condensed consolidated financial statements of IBS Interactive, Inc.
("IBS," or the "Company") included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission with respect to Form 10-QSB. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures made herein
are adequate to make the information contained herein not misleading. These
condensed consolidated financial statements should be read in conjunction
with the Company's audited financial statements for the fiscal year ended
December 31, 1998 and the notes thereto included in the Company's Annual
Report on Form 10-KSB. In the Company's opinion, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the information shown herein have been included. As
discussed in Note 2, the Company acquired Spectrum Information Systems,
Inc. ("Spectrum") in a business combination accounted for as a
pooling-of-interests.
b. The results of operations and cash flows for the three months ended March
31, 1999 presented herein are not necessarily indicative of the results of
operations and cash flows expected for the year ending December 31, 1999.
c. Previously issued consolidated financial statements and notes thereto for
the three month period ended March 31, 1998 have been restated, as
required, to reflect the 1998 business combinations accounted for as
poolings-of-interests (DesignFX Interactive, LLC ("Design FX") and Halo
Network Management, LLC ("Halo")) as well as the Spectrum business
combination.
d. Basic earnings (loss) per share have been computed using the weighted
average number of shares of common stock outstanding, which includes the
shares issued in connection with the Spectrum combination. Diluted earnings
per share for the three-month period ended March 31, 1998 included the
assumed exercise of stock options, warrants and convertible debt (using the
treasury stock method) that could potentially dilute earnings per share.
For the three-month period ended March 31, 1999, there was no difference
between basic and diluted loss per common share because the assumed
exercise of common share equivalents was antidilutive.
2. BUSINESS COMBINATIONS
Purchase Aquisitions
All of the following business combinations have been accounted for as
purchases. The ultimate values ascribed to the purchases are subject to
certain adjustments between the parties. The Company's acquisitions do not
represent, individually and in the aggregate, significant susidiaries.
Accordingly, condensed and pro forma financial information is not
presented.
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a. On January 29, 1999, the Company acquired substantially all of the
assets of Mainsite Communications, a Bridgeport, New Jersey-based
Internet Service Provider.
b. On February 22, 1999, the Company acquired substantially all of the
assets of the Renaissance Internet Services Division ("Renaissance") of
PIVC, LLC. Renaissance is an Internet Service Provider based in
Huntsville, Alabama.
c. On March 1, 1999, the Company acquired substantially all of the assets
of EZ Net, Inc., a Yorktown, Virginia-based Internet Service Provider.
d. On March 25, 1999, the Company acquired substantially all of the assets
of the Advicom - Advanced Internet Communications Division ("ADViCOM")
of Multitronics, Inc. ADViCOM is an Internet Service Provider based in
Huntsville, Alabama.
Pooling-of-Interest
e. On March 31, 1999, the Company signed an agreement with Spectrum to issue
145,456 shares of its common stock in exchange for all of the issued and
outstanding capital stock of Spectrum, a full-service provider of network
and systems integration solutions. The business combination has been
accounted for as a pooling-of-interests. The accompanying consolidated
financial statements are based on the assumption that the Company and
Spectrum were combined as of January 1, 1998, and accordingly, financial
statements of prior periods have been restated to give effect to the
Spectrum combination. There were no material adjustments necessary for the
Company and Spectrum to conform to consistent accounting policies. Through
the acquisition date, the shareholders of Spectrum elected, as permitted,
to report income for federal and state income tax purposes as an "S"
corporation. Under those regulations, the shareholders individually
received the income tax provision or benefit of their respective share of
Spectrum's net income or loss. Accordingly, the Company has not recorded a
tax provision or benefit for the quarters ended March 31, 1999 and 1998.
The fiscal year end of Spectrum also conforms to that of the Company.
Unaudited net revenues and net income (loss) and earnings (loss) per share
for the Company and Spectrum for the three months ended March 31, 1999 and
1998 and the year ended December 31, 1998 are as follows:
Three Months Ended
March 31, 1999 IBS Spectrum Combined
-------------- --- -------- --------
Revenues $2,601 $672 $3,273
Net income (loss) (183) 20 (163)
Loss per share $(0.04)
Three Months Ended
March 31, 1998 IBS Spectrum Combined
-------------- --- -------- --------
Revenues $2,567 $341 $2,908
Net income (loss) 125 79 204
Earnings per share $ 0.09
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Year Ended
December 31, 1998 IBS Spectrum Combined
----------------- --- -------- --------
Revenues $9,805 $1,730 $ 11,535
Net loss (60) (335) (395)
Loss per share $ (0.12)
3. 1998 INITIAL PUBLIC OFFERING
On May 14, 1998, the Company's registration statement on Form SB-2, as
amended (the "Registration Statement"), relating to its initial offering
of common stock, was declared effective by the Securities and Exchange
Commission (the "Offering"). Whale Securities Co., L.P. acted as the
underwriter in connection with the Offering which was consummated on May
20, 1998. In connection with the Offering, the Company registered, issued
and sold 1,380,000 shares of common stock, including 180,000 shares of
common stock issued in connection with the exercise in full of the
underwriter's over-allotment option at an initial public offering price of
$6.00 per share resulting in proceeds to the Company (net of underwriting
discount, commissions and other expenses payable by the Company) in the
aggregate approximate amount of $6,642,000. From the effective date of the
Registration Statement through March 31,1999, the Company has applied an
aggregate of $507,000 of the net proceeds of the Offering for the full
repayment of certain indebtedness; $351,000 towards the purchase of
equipment; $909,000 towards the purchase of assets of, or the outright
acquisition of, companies; $493,000 towards sales and marketing; and
$300,000 towards general administrative expenses. The remaining net
proceeds of the Offering in the amount of $4,082,000 remain unused and are
invested in short-term assets.
4. STOCKHOLDERS' EQUITY
In March 1999, the Company agreed to issue 12,500 shares of restricted
stock to an officer. The stock award vests over a three-year period;
however, if certain events occur, the unvested portion of the award will
automatically vest. The value ascribed to the stock award ($195,000) was
based, in part, on the per share price of the Company's common stock at
the date of the agreement. The values ascribed to this award approximates
$195,000 and is included as an intangible asset (to be amortized over the
vesting period) and as "Deferred Compensation" in the accompanying March
31, 1999 consolidated balance sheet. Such liability will be reduced if and
when the shares are formally issued.
In February 1999 and March 1999, respectively, the Company consummated the
acquisitions of substantially all of the assets of the Renaissance
Internet Services Division of PIVC, LLC, and substantially all of the
assets of EZ Net, Inc., and in connection therewith issued warrants to
purchase 50,000 shares of its common stock to the investment advisory firm
that assisted the Company on such acquisitions.
5. SUBSEQUENT EVENTS
(a) On April 30, 1999 the Company acquired Realshare, Inc., a Cherry Hill,
New Jersey-based Web-site design and programming company.
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(b) On April 30, 1999, Millennium Computer Applications, Inc. was merged
into the Company pursuant to the laws of the States of Delaware and
North Carolina, respectively. Millennium Computer Applications, Inc., is
an Internet Service Provider based in Shallotte, North Carolina.
(c) On May 7, 1999, the Company acquired substantially all of the consumer
dial-up and ISDN accounts from the owners of Planet Access, Inc.
and related computer equipment from Planet Access, Inc., a
Stanhope, New Jersey-based Internet Service Provider.
All of these business combinations have been accounted for as purchases.
The ultimate values ascribed to the purchases are subject to certain adjustments
between the parties. The Company's 1999 acquisitions do not represent,
individually and in the aggregate, significant subsidiaries. Accordingly,
condensed and pro forma financial information is not presented.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This Quarterly Report on Form 10-QSB contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Actual results, events and circumstances (including future performance,
results and trends) could differ materially from those set forth in such
statements due to various factors, risks and uncertainties including those set
forth in the Company's Form 10-KSB for 1998 in "Item 6. Management's Discussion
and Analysis of Financial Condition and Results of Operations Certain Factors
Which May Affect the Company's Future Performance." Except as otherwise required
to be disclosed in periodic reports required to be filed by companies registered
under the Exchange Act by the rules of the Securities and Exchange Commission
(the "Commission"), the Company has no duty and undertakes no obligation to
update such statements.
OVERVIEW
The Company provides a broad range of computer networking, programming,
applications development and Internet services primarily to businesses and
organizations. The Company's revenues are derived principally from consulting
fees earned in connection with the performance of systems integration services,
recurring monthly Internet connectivity fees and consulting fees earned in
connection with programming and applications development services.
The Company commenced operations in June 1995 as an Internet service
provider offering Web-site hosting services. Since April 1996, the Company has
acquired Interactive Networks, Inc., Mordor International and Allnet Technology
Services, Inc., each an Internet service provider principally offering dial-up
access services. The Company began to provide Systems Integration and
Programming and Applications Development services in April 1996 and has
increasingly emphasized such services. In January 1998, the Company acquired
Entelechy, Inc., a provider of programming and applications development
services, and also acquired substantially all of the assets of JDT Webwerx LLC
(consisting primarily of computer equipment and intangible assets). In September
1998, the Company acquired all of the outstanding membership interests of
DesignFX Interactive, LLC, a Cherry Hill, New Jersey-based provider of
Web-design, programming and hosting services. In December 1998, the Company
acquired substantially all of the assets of MBS, Inc., a Huntsville,
Alabama-based Microsoft Certified Technical Education Provider - Partner Level
and also acquired Halo Network Management, LLC, an Eatontown, New Jersey-based
network management company that offers full-service network solutions including
planning, installation and maintenance. In the first quarter of 1999, the
Company continued to make strategic acquisitions, acquiring (i) substantially
all of the assets of Mainsite Communications Inc., a Bridgeport, New
Jersey-based Internet Service Provider; (ii) substantially all of the assets of
the Renaissance Internet Services Division of PIVC, LLC, an Internet Service
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Provider headquartered in Huntsville, Alabama; (iii) substantially all of the
assets of EZ Net, Inc., a Yorktown, Virginia-based Internet Service Provider;
(iv) substantially all of the assets of the ADViCOM Division of Multitronics,
Inc., an Internet Service Provider headquartered in Huntsville, Alabama; and (v)
the aforementioned combination with Spectrum, a Huntsville, Alabama-based
systems integrator.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
REVENUES:
Revenues increased by $365,000, or 12.6%, from $2,908,000 for the three
months ended March 31, 1998 ("1998") to $3,273,000 for the three months ended
March 31, 1999 ("1999"). Revenues for 1999 increased primarily due to higher
Network Installation service revenues than those recognized in 1998 and, to a
lesser extent, higher Web Design service revenues than those recognized in 1998.
Additionally, the continued expansion of the Company's network through
acquisitions and relationships with Competitive Local Exchange carriers during
1999 resulted in additional Internet services revenue. The Company's largest
customer, Aetna (which engaged the Company in October 1997), accounted for 59%
of the Company's consolidated revenues for the first quarter of 1998 and only
19% for the first quarter of 1999. Non-Aetna revenues increased 122% for
the first quarter 1999 as compared to the first quarter 1998.
COST OF SERVICES:
Cost of services consists primarily of expenses relating to the operation
of the network, including telecommunications and Internet access costs, costs
associated with monitoring network traffic and quality and providing technical
support to clients and subscribers, cost of equipment and applications sold to
clients and subscribers, salaries and expenses of engineering, programming and
technical personnel and fees paid to outside consultants. The Company expects
that its cost of services will increase in the future to the extent the Company
is able to expand its client and subscriber base, as well as its service
offerings and network. Cost of services increased by $60,000, or 3%, from
$1,807,000 in 1998 to $1,867,000 in 1999. However, cost of services as a
percentage of sales declined in the first quarter of 1999 as a result of lower
telecommunications costs, as well as an increase in revenues related to higher
margin services.
SELLING, GENERAL AND ADMINISTRATIVE:
Selling, general and administrative expenses consist primarily of salaries
and costs associated with sales personnel, marketing literature, advertising,
direct mailings and the Company's management, accounting, finance and
administrative functions. Selling, general and administrative expenses increased
by $879,000, or 131%, from $672,000 in 1998 to $1,551,000 in 1999. This increase
is primarily attributable to the Company's expanded promotional and marketing
activities, the hiring of additional marketing and administrative personnel to
manage the growth in the Company's business, as well as additional
administrative and professional costs associated with operating as a publicly
traded company.
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AMORTIZATION OF INTANGIBLE ASSETS:
Amortization of intangible assets increased by $34,000, or 110%, from
$31,000 in 1998 to $65,000 in 1999. This increase is primarily attributed to the
amortization of intangible assets, including customer lists and goodwill,
acquired by the Company in connection with its purchase of Micro Business
Solutions Inc., Mainsite Communications Inc., the Renaissance Internet Access
Division of PIVC, LLC, Ez Net Inc. and the ADViCOM Internet Access Division of
Multitronics, Inc., all of which were consummated subsequent to March 31, 1998.
INTEREST EXPENSE (INCOME):
Interest expense consists of interest on indebtedness, capital leases and
financing arrangements in connection with the Company's borrowings. Interest
income consists of money earned on cash equivalents. Interest expense (income)
decreased by $62,000 from approximately $37,000 of expense in 1998 to $25,000 of
income in 1999. This decrease is primarily due to an increase in invested funds
as a result of the Company's receipt of net proceeds of approximately $6,642,000
from the Offering.
TAX BENEFIT (PROVISION):
The Company recognized a tax benefit of $126,000 in 1999 compared to a tax
provision of $117,000 in 1998. At March 31, 1999, based on estimated 1999
taxable income, its ability to carryback operating losses against previous tax
payments, and an assessment of all available evidence, management considers
realization of the unreserved deferred tax asset ($258,000) to be more likely
than not.
NET INCOME:
As a result of the foregoing, the Company had a net loss of $163,000
for 1999 compared to net income of $204,000 for 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements have been to fund working capital as well
as acquisitions and capital expenditures in connection with providing consulting
services to clients and Internet access to subscribers. The Company has
historically satisfied its cash requirements principally through the issuance of
equity and debt securities and borrowings.
At March 31, 1999, the Company had working capital of $4,826,000. The
increase in liquidity resulted primarily from the receipt of net proceeds from
the Offering in the amount of $6,642,000.
Net cash used in operating activities decreased from $267,000 provided in
1998 to $402,000 used in 1999. This change was primarily attributable to
operating results which produced a net loss in the amount of $163,000 for the
three months ended March 31, 1999, compared to net income in the amount of
$204,000 for the corresponding three month period in 1998.
Net cash used in investing activities increased from $347,000 in 1998 to
$892,000 in 1999 due to increased capital expenditures principally related to
the expansion and enhancement of the Company's network and the acquisition of
five additional companies during the first quarter of 1999.
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Net cash provided by financing activities was $287,000 in 1998, compared
to $28,000 used in 1999. This change is primarily attributable to the borrowing
of $200,000 from Commerce Bank during the first quarter of 1998.
At March 31, 1999, the Company had capital lease obligations in the
aggregate amount of $52,000 that are secured by the personal guarantees of each
of Nicholas R. Loglisci, Jr., the Company's President and Chief Executive
Officer; Clark D. Frederick, the Company's Chief Technical Officer; and Frank R.
Altieri, Jr., the Company's Chief Information Officer. In addition, certain of
these capital lease agreements are secured by the equipment that is the subject
of the capital lease.
In June 1998, the Company secured a line of credit in the amount of $1.5
million from First Union National Bank. The line of credit is for a one-year
period effective July 1, 1998. As of March 31, 1999, the Company had no
outstanding indebtedness under such line of credit.
Additionally, in May 1998, the Company secured equipment lines of credit
from Ascend Credit Corp., Cisco Systems Capital Corp. and PAM Financial Corp.,
each in the amount of $500,000. At March 31, 1999, the Company had no
outstanding indebtedness under any such line of credit.
The Company expects that cash flow generated by its operations and
borrowings under its various lines of credit will be sufficient to meet its
planned operating and capital requirements for the foreseeable future.
SUBSEQUENT EVENTS
On April 30, 1999 the Company acquired Realshare, Inc., a Cherry Hill, New
Jersey-based Web-site design and programming company.
On April 30, 1999, Millennium Computer Applications, Inc. was merged into
the Company pursuant to the laws of the States of Delaware and North Carolina,
respectively. Millennium Computer Applications, Inc. is an Internet Service
Provider based in Shallotte, North Carolina.
On May 7, 1999, the Company acquired substantially all of the consumer
dial-up and ISDN accounts from the owners of Planet Access, Inc. and related
computer equipment from Planet Access, Inc., a Stanhope, New Jersey-based
Internet Service Provider.
YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Computer programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This situation could result in a system failure
or miscalculations causing disruptions of operations, including inability to
process transactions or engage in normal business activities.
Management has evaluated the Company's computer software and hardware
systems, and, based on currently available information, believes that it will
not have to replace or modify any of its hardware but has, and will have, to
modify its software so that its systems will function properly with respect to
dates in the year 2000 and thereafter. It is believed that the greatest risk to
the Company will be from outside firms that the Company relies on for its
operations as well as the legacy computer systems of its clients. The failure by
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outside firms and/or clients' failure to address Year 2000 issues could
interfere with the Company's ability to provide its services, and therefore
impact future revenues. As of May 7, 1999, the Company has contingency plans in
place to remedy these types of problems. Estimated costs associated with such
plans are not expected to exceed $100,000, which are likely to be funded through
the use of available internal employees and resources. At this time, the Company
believes that the most likely "worst case" scenario involves potential
disruptions in areas in which the Company's operations must rely on outside
firms or clients whose systems may not function properly after January 1, 2000.
While such failures could affect important operations of the Company, either
indirectly or directly, in a significant manner, the Company cannot at present
estimate either the likelihood or the potential cost of such failures.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(a) Not applicable.
(b) Not applicable.
(c)
i. As part of the acquisition of substantially all of the assets of the
Renaissance Internet Services Division of PIVC, LLC, on February 22,
1999 the Company issued to PIVC, LLC 44,046 shares, subject to
certain adjustments, of the Company's common stock. The issuance of
the Company's common stock to PIVC, LLC was exempt from registration
under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to Section 4(2).
ii. As part of the acquisition of substantially all of the assets of EZ
Net, Inc., on March 1, 1999 the Company issued to EZ Net, Inc.,
33,289 shares, subject to certain adjustments, of the Company's
common stock. The issuance of the Company's common stock to EZ Net,
Inc. was exempt from registration under the Securities Act pursuant
to Section 4(2).
iii. As part of the acquisition of substantially all of the assets of the
ADViCOM - Advanced Internet Communications Division of Multitronics,
Inc., on March 25, 1999 the Company issued to Multitronics, Inc.,
4,424 shares, subject to certain adjustments, of the Company's common
stock. The issuance of the Company's common stock to Multitronics,
Inc. was exempt from registration under the Securities Act pursuant
to Section 4(2).
iv. As part of the acquisition of Spectrum Information Systems, Inc., on
March 31, 1999 the Company issued 145,456 shares of its common
stock, subject to certain adjustments, in exchange for all of the
issued and outstanding capital stock of Spectrum Information
Systems, Inc. The exchange of the Company's common stock with the
stockholders of Spectrum Information Systems, Inc. was exempt from
registration under the Securities Act pursuant to Section 4(2).
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(d) On May 14, 1998, the Company's registration statement on Form SB-2, as
amended (file number 333-47741) (the "Registration Statement"), relating to the
Offering, was declared effective by the Commission. Whale Securities Co., L.P.
acted as the underwriter in connection with the Offering which was consummated
on May 20, 1998. In connection with the Offering, the Company registered, issued
and sold 1,380,000 shares of common stock, including 180,000 shares of common
stock issued in connection with the exercise in full of the underwriter's
over-allotment option at an initial public offering price of $6.00 per share
resulting in proceeds to the Company (net of underwriting discounts, commissions
and other expenses payable by the Company) in the aggregate approximate amount
of $6,642,000. Additionally, the Company registered 120,000 shares of common
stock underlying warrants to purchase common stock which warrants were sold by
the Company to the underwriter for $100. The warrants are exercisable for a
four-year period commencing on May 14, 1999 at an initial exercise price of
$8.10 per share.
From the effective date of the Registration Statement through March 31,
1999, the Company has applied an aggregate of $507,000 of the net proceeds of
the Offering for the full repayment of certain indebtedness; $351,000 towards
the purchase of equipment; $909,000 towards the purchase of assets of, or the
outright acquisition of, companies; $493,000 towards sales and marketing; and
$300,000 towards general administrative expenses. The Company believes that none
of the proceeds used in the first quarter of fiscal 1999 was paid, directly or
indirectly, to (i) directors or officers of the Company or their affiliates,
(ii) persons owning ten percent or more of the common stock or (iii) affiliates
of the Company. To date, the Company believes that it has used the net proceeds
of the Offering in a manner consistent with the use of proceeds described in the
Registration Statement and the Prospectus dated May 14, 1998. The remaining net
proceeds of the Offering in the amount of $4,082,000 remain unused.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The exhibits in the following table have been filed as part of this
Quarterly Report on Form 10-QSB:
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
27 Financial Data Schedule for the three-month period ended
March 31, 1999.
13
<PAGE>
(b) Reports on Form 8-K.
On December 22, 1998, the Company filed a Report with the Commission
on Form 8-K, under Item 2, to report the Acquisition Agreement, dated as
of December 10, 1998, among the Company and the members of Halo and Halo,
whereby the Company acquired all of the issued and outstanding membership
interests of Halo in exchange for 180,866 shares of the Company's Common
Stock. The Company also reserved 38,365 shares of Common Stock for
issuance in connection with the Halo combination pending the final
calculation of defined financial data. The Company filed the financial
statements required by Items 7(a) and 7(b) of Form 8-K on February 26,
1999.
14
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
IBS INTERACTIVE, INC.
Date: May 17, 1999 By: /s/ Nicholas R. Loglisci, Jr.
Nicholas R. Loglisci, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 17, 1999 By: /s/ Howard B. Johnson
Howard B. Johnson
Chief Financial Officer
(Principal Financial and Accounting Officer)
15
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
27 Financial Data Schedule for the three-month period ended
March 31, 1999.
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET AND UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS OF IBS INTERACTIVE, INC. FOR THE QUARTER
ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-30-1999
<CASH> 4,210
<SECURITIES> 0
<RECEIVABLES> 2,410
<ALLOWANCES> 68
<INVENTORY> 0
<CURRENT-ASSETS> 7,133
<PP&E> 2,435
<DEPRECIATION> 1,359
<TOTAL-ASSETS> 11,888
<CURRENT-LIABILITIES> 2,307
<BONDS> 290
0
0
<COMMON> 39
<OTHER-SE> 8,352
<TOTAL-LIABILITY-AND-EQUITY> 11,888
<SALES> 0
<TOTAL-REVENUES> 3,273
<CGS> 0
<TOTAL-COSTS> 1,867
<OTHER-EXPENSES> 1,720
<LOSS-PROVISION> 45
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (289)
<INCOME-TAX> 126
<INCOME-CONTINUING> (163)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (163)
<EPS-PRIMARY> (0.04)
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