SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(Amendment No. 1)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 2-96392-A
@ebs, inc. f/k/a TRIANGLE IMAGING GROUP, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Florida 59-2493183
------------------------------ ---------------
State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
1800 NW 49th Street, Suite 100, Ft. Lauderdale, FL 33309
---------------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
954-229-5100
---------------------------------------------------
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of registrant's Common Stock, $.001 par value,
outstanding as of August 18, 1999 was 14,079,255 shares.
<PAGE>
@EBS, INC. AND SUBSIDIARIES
FORM 10-QSB
INDEX
Page
Number
------
PART I - FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheet -
June 30, 1999.........................................3
Consolidated Statement of Operations -
For the Six and Three Months Ended
June 30, 1999 and 1998 ...............................5
Consolidated Statement of Cash Flows-
For the Six and Three Months Ended
June 30, 1999 and 1998................................6
Notes to Financial Statements......................................7
Item 2. Management's Discussion and Analysis .......................11
PART II - OTHER INFORMATION ..................................................17
SIGNATURES....................................................................20
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
@EBS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
ASSETS
JUNE 30, 1999
-------------
CURRENT ASSETS
Cash and cash equivalents $ 786,208
Accounts receivable, net of allowance
for doubtful accounts of: $ (96,187.50)
999,360
Prepaid expenses 46,177
TOTAL CURRENT ASSETS $ 1,831,745
EQUIPMENT $ 413,091
GOODWILL $ 1,934,992
OTHER ASSETS $ 486,382
$ 4,666,210
=============
3
<PAGE>
@EBS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
JUNE 30, 1999
-------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,054,651
Deferred revenue
310,305
Current portion of long term debt
913,500
------------
TOTAL CURRENT LIABILITIES $ 2,278,456
NOTES PAYABLE SUBJECT TO PUTS $ 1,275,000
LONG TERM DEBT $ 312,000
STOCKHOLDERS EQUITY
Preferred stock, Class C $1,000 par value $ 1,424,473
12.5% cumulative 1,500 shares issued
Redemption value $1,500,000
Preferred stock, Class D $1,000 par value 632,700
12.5% cumulative 700 shares issued
Redemption value $700,000
Common stock, $.001 par value, 13,610
Authorized 50,000,000 shares
Issued and Outstanding 13,610,000
----------
Additional paid-in capital 6,257,133
Additional paid-in capital - Subject to Puts (1,432,500)
Accumulated deficit (6,060,162)
Deferred compensation (34,500)
------------
TOTAL STOCKHOLDERS' EQUITY $ 800,754
$ 4,666,210
============
4
<PAGE>
<TABLE>
<CAPTION>
@EBS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
SALES $ 1,799,758 $ 2,147,910 $ 3,890,837 $ 3,835,275
COST OF SALES 984,029 1,000,852 1,663,816 1,545,989
------------ ------------ ------------ ------------
GROSS PROFIT 815,729 1,147,058 2,227,021 2,289,286
SELLING, GENERAL &
ADMINISTRATIVE 891,440 594,445 2,044,896 1,184,441
PRODUCT DEVELOPMENT 450,280 83,419 512,917 166,838
NON-CASH IMPUTED COMPENSATION 10,295 49,640 20,590 99,280
AMORTIZATION OF GOODWILL 42,329 44,505 71,467 66,170
GAIN FROM SETTLEMENT OF LAWSUIT (212,000) -- (212,000) --
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS (366,614) 375,049 (210,849) 772,557
INTEREST EXPENSE 56,865 43,156 127,564 62,908
NON RECURRING CHARGES ASSOCIATED WITH
ACQUISITIONS -- 151,200 -- 151,200
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE TAX (423,479) 180,693 (338,413) 558,449
TAX PROVISION -- -- -- 107,000
------------ ------------ ------------ ------------
NET INCOME (LOSS) BEFORE DISCONTINUED
OPERATIONS (423,479) 180,693 (338,413) 451,449
GAIN/LOSS FROM DISCONTINUED OPERATIONS -- 58,507 -- 58,507
------------ ------------ ------------ ------------
NET INCOME (LOSS) (423,479) 239,200 (338,413) 509,956
============ ============ ============ ============
NET INCOME PER SHARE:
BASIC (0.03) 0.02 (0.03) 0.05
============ ============ ============ ============
DILUTED (0.03) 0.02 (0.03) 0.04
============ ============ ============ ============
NUMBER OF SHARES USED IN COMPUTATION:
BASIC 13,660,290 11,810,552 13,486,472 10,014,357
============ ============ ============ ============
DILUTED 13,660,290 14,507,370 13,486,472 13,234,778
============ ============ ============ ============
See Notes to Financial Statements
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
@EBS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ (338,413) $ 509,957
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation 59,262 43,418
Amortization of goodwill 69,744 66,170
Non Cash imputed compensation 20,590 99,280
Gain from settlement of lawsuit (212,000) --
Changes in assets and liabilities
(Increase)/decrease in accounts receivable (192,119) (975,481)
Increase in prepaid expenses -- (24,000)
Decrease in deferred tax asset -- 107,000
(Increase)/decrease in other assets (60,601) (635,016)
Increase in accounts payable and accrued expenses (42,058) 641,635
Increase in bank line of credit -- 39,533
Decrease in deferred revenue 6,885 (66,677)
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (688,709) (194,181)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisition -- (462,195)
Purchase of equipment/software (180,519) (167,683)
CASH USED IN INVESTING ACTIVITIES (180,519) (629,878)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of preferred stock 632,700
Proceeds from sale of common stock 1,020,813 910,858
Decrease in stock subscription receivable -- 501,250
Purchase of treasury stock -- (10,649)
Payment of note payable subject to puts (52,500) --
Payment of note payable (175,000) (275,000)
CASH PROVIDED BY FINANCING ACTIVITIES 1,426,013 1,126,459
NET INCREASE (DECREASE) IN CASH 556,785 302,400
CASH - BEGINNING OF PERIOD 229,423 525,009
CASH - END OF PERIOD 786,208 827,409
</TABLE>
See notes to financial statements
6
<PAGE>
@EBS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of @ebs, inc.
f/k/a Triangle Imaging Group, Inc. (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article
10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments considered necessary for a fair representation (consisting
of normal recurring accruals) have been included. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Operating results
for the six month period ended June 30, 1999 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1999.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1998.
2. EARNINGS PER SHARE
Basic earnings per share are computed on the weighted average number of
common shares actually outstanding during the period. Diluted earnings per
share considers potential shares issuable upon exercise or conversion of
other outstanding instruments where dilution would result.
3. STOCKHOLDERS' EQUITY
During the quarter ended March 31, 1999, the Company issued 416,813 shares
of common stock, $.001 par value ("Common Stock"), for a total value of
$416,813 and issued an additional 45,000 shares of common stock in lieu of
a cash payment to a former shareholder of one of the acquired credit
bureaus.
During the quarter ended June 30, 1999, the Company issued 528,000 shares
of common stock, $.001 par value ("Common Stock"), for a total value of
$528,000 in a private placement of the Company's securities. The Company
issued an additional 500,000 shares of Common Stock during the same period
incident to the exercise of a stock purchase warrant held by Waterside
Capital Corporation ("Waterside"). The total proceeds to the Company from
such warrant exercise was $25,000, or $.05 per share, which exercise price
was reduced from the original exercise price of between $2.15 and $3.00 per
share in consideration for the settlement of a lawsuit filed against the
Company by Waterside. During the period ended June 30, 1999, the Company
also cancelled 800,000 shares of Common Stock in connection with the
settlement of a lawsuit against the Company's former Chairman, his wife and
two former directors of the Company. The settlement, entered into on April
30, 1999, requires the return to the Company for cancellation of an
7
<PAGE>
additional 100,000 shares of common stock held in the name of two of the
Company's former directors. During the same period, pursuant to an
amendment dated April 7, 1999 to that certain Agreement and Plan of Merger
dated April 30, 1998, by and among the Company, QuickCREDIT Corp., CBS
Acquisition Corp., Credit Bureau Services, Inc. and the Shareholders of
Credit Bureau Services, Inc., the Company cancelled an additional 17,500
shares of Common Stock at a cost to the Company of $52,500.
On June 30, 1999, the Company entered into a Series D Convertible Preferred
Stock Purchase Agreement with Waterside, pursuant to which Waterside paid
an aggregate purchase price of $700,000 in exchange for the issuance of 700
shares of the Company's Series D Redeemable Convertible Preferred Stock and
a stock purchase warrant. The warrant entitles the holder to purchase up to
80,000 shares of the Company's Common Stock, subject to certain vesting
requirements, at an exercise price of $1.15 per share until June 30, 2009,
so long as the Series D Convertible Preferred Stock remains outstanding. On
June 30, 1999, the Company also issued to Waterside 1,500 shares of its
Series C Preferred Stock in exchange for the cancelation of outstanding
indebtedness to Waterside in the amount of $1,500,000 and pursuant to that
certain Agreement for Issuance of Preferred Stock to be Secured Until
Issuance by Promissory Note entered into by and between the Company and
Waterside on October 15, 1998.
4. STOCK OPTION ISSUANCES
During the period ended June 30, 1999, the Company's shareholders voted to
adopt the Triangle Imaging Group, Inc. 1999 Incentive Plan (the "1999
Plan") and to reserve for issuance thereunder 4,000,000 shares of Common
Stock. In connection with the adoption of the 1999 Plan, the Company
terminated the Company's existing stock option plans, the 1997 Employee
Stock Option Plan and the 1997 Officers and Directors Stock Option Plan
(the "Terminated Option Plans"), and all stock options granted under such
plans. At the time of cancellation of the Terminated Option Plans there
were 1,195,000 stock options outstanding under the Terminated Plans, not
including 2,200,000 stock options issued to the Company's former Chairman
and canceled pursuant to the settlement agreement referenced in Note 3,
above. These canceled options had exercise prices ranging from $.875 per
share to $4.00 per share. At the close of the period ended June 30, 1999,
after the cancellation of the options granted under the Terminated Option
Plans and the reissuance of such options under the 1999 Plan and the grant
of new options to the officers, employees, directors and consultants to the
Company under the 1999 Plan, there were 3,507,250 stock options outstanding
having exercise prices ranging from $.875 per share to $4.00 per share. All
of the stock options canceled under the Terminated Option Plans were
reissued under the 1999 Plan and there was no change in the exercise price
of any of the reissued options.
8
<PAGE>
5. DISCONTINUED OPERATIONS
In September and December 1998, the Company decided to discontinue the
operation of Trimax Systems, Inc. and Multitask Computer Services, Inc.,
respectively. Second Quarter 1998 results have been restated to reflect
these changes according to the following schedule:
<TABLE>
<CAPTION>
3 Months Ending 6 Months Ending
June 30,1998 June 30,1998
--------------- ---------------
<S> <C> <C>
Revenue $2,147,910 $3,835,275
Cost of Sales $ 156,953 $ 432,734
SG&A $1,521,763 $2,464,533
Net Income $ 180,693 $ 451,450
Net Income per share (Basic) .02 .05
Net Income per share (Fully Diluted) .01 .03
Number of Shares used in computation (Basic) 11,810,552 10,014,357
Number of Shares used in computation (Fully Diluted) 14,507,370 13,234,778
</TABLE>
An adjustment of $58,507 is shown separately as "Discontinued Operations."
6. COST RECLASSIFICATION
Certain costs that have been historically classified as Selling, General
and Administrative have been reclassified to more accurately categorize the
costs. The reclassification does not effect the Company's net income during
the relevant period. The following schedule restates the Three Month Period
Ending June 30, 1998 and the Six Month Period Ending June 30, 1998 to
reflect the changes:
3 Months Ending 3 Months Ending
June 30,1998 June 30,1998
As reported Reclassification Reclassified
--------------- ---------------- ---------------
Cost of Sales $ 156,953 $ 843,899 $1,000,852
SG&A $1,521,763 ($927,318) $ 594,445
Product Development $ -- $ 83,419 $ 83,419
6 Months Ending 6 Months Ending
June 30,1998 June 30,1998
As reported Reclassification Reclassified
--------------- ---------------- ---------------
Cost of Sales $ 432,734 $ 1,113,255 $1,545,989
SG&A $2,464,533 ($1,280,093) $1,184,441
Product Development $ -- $ 166,838 $ 166,838
9
<PAGE>
7. LEGAL SETTLEMENT
During the period ending June 30,1999, the Company cancelled 800,000 shares
of Common stock in connection with the settlement of a lawsuit against the
Company's former Chairman, his wife and two former directors of the
Company. The settlement also requires the cancellation of an additional
100,000 shares of Common Stock held in the name of two of the Company's
former directors. The Company recorded a net gain of $212,000 from the
cancellation of the 900,000 shares referenced above, which gain was net of
$468,000 in deferred payments pursuant to the settlement agreement.
10
<PAGE>
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of the Company's financial condition and results of
operation should be read in conjunction with the Financial Statements and Notes
thereto appearing elsewhere in this document.
STATEMENTS IN THIS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS DOCUMENT AS WELL AS STATEMENTS
MADE IN PRESS RELEASES AND OR STATEMENTS THAT MAY BE MADE BY THE COMPANY OR BY
OFFICERS, DIRECTORS, OR EMPLOYEES OF THE COMPANY ACTING ON THE COMPANY'S BEHALF
THAT ARE NOT STATEMENTS OF HISTORICAL OR CURRENT FACT CONSTITUTE "FORWARD
LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN
RISKS, UNCERTAINTIES, AND OTHER UNKNOWN FACTORS THAT COULD CAUSE THE ACTUAL
RESULTS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM THE HISTORICAL RESULTS OR
FROM ANY FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS.
IN ADDITION TO STATEMENTS WHICH EXPLICITLY DESCRIBE SUCH RISKS AND
UNCERTAINTIES, READERS ARE URGED TO CONSIDER STATEMENTS LABELED WITH THE TERMS
"BELIEVES", "BELIEF", "EXPECTS", "INTENDS", "ANTICIPATES", OR "PLANS" TO BE
UNCERTAIN FORWARD-LOOKING STATEMENTS. THE FORWARD LOOKING STATEMENTS CONTAINED
HEREIN ARE ALSO SUBJECT GENERALLY TO OTHER RISK AND UNCERTAINTIES THAT ARE
DESCRIBED FROM TIME TO TIME IN THE COMPANY'S REPORTS AND REGISTRATION STATEMENTS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
The following table sets forth information on operations for the periods
indicated:
<TABLE>
<CAPTION>
PERCENTAGE OF NET REVENUES
CONSOLIDATED Three months ended Three months ended Six months ended Six months ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------------ ------------------ ---------------- ----------------
$ % $ % $ % $ %
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ 1,799,758 100% $ 2,147,910 100% $ 3,890,837 100% $ 3,835,275 100%
Cost of Sales $ 984,029 55% $ 1,000,852 47% $ 1,663,816 43% $ 1,545,989 40%
Operating Expenses $ 1,182,344 66% $ 864,702 40% $ 2,437,870 63% $ 1,609,422 42%
Income from Operations $ (366,614) -20% $ 282,356 13% $ (210,849) -5% $ 679,864 18%
Interest Expense (net) $ 56,865 3% $ 43,156 2% $ 127,564 3% $ 62,908 2%
Income Before Income Taxes $ (423,479) -24% $ 239,200 11% $ (338,413) -9% $ 616,956 16%
Net Income $ (423,479) -24% $ 239,200 11% $ (338,413) -9% $ 509,956 13%
ENGINEERED BUSINESS SYSTEMS Three months ended Three months ended Six months ended Six months ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------------ ------------------ ---------------- ----------------
$ % $ % $ % $ %
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ 1,410,739 100% $ 1,635,518 100% $ 3,088,738 100% $ 3,323,882 100%
Cost of Sales $ 695,176 49% $ 629,990 39% $ 1,029,930 33% $ 1,175,128 35%
QUICK CREDIT CORPORATION Three months ended Three months ended Six months ended Six months ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------------ ------------------ ---------------- ----------------
$ % $ % $ % $ %
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ 389,019 100% $ 511,393 100% $ 802,100 100% $ 511,393 100%
Cost of Sales $ 278,853 72% $ 370,861 73% $ 623,886 78% $ 370,861 73%
</TABLE>
11
<PAGE>
THREE MONTHS ENDED JUNE 30,1999 VS. THREE MONTHS ENDED JUNE 30,1998
CONSOLIDATED
Sales for the three months ended June 30, 1999 were $1,799,758 or a decrease of
16% from the $2,147,910 in sales for the same period ended June 30, 1998. The
decrease in sales is due to several factors including a significant rise in
residential mortgage interest rates which resulted in a reduction of the volume
of credit reports associated with home mortgage originations and mortgage
refinancings, continued consolidation within the Company's wholesale credit
client base, and a resistance of clients to install new software applications in
light of Year 2000 compliance priorities. Cost of sales as a percentage of sales
increased 8%, from 47% for the quarter ended June 30, 1998 to 55% for the
quarter ended June 30, 1999. The increase is primarily a result of a shift in
revenue from the more profitable CRIS products to outsourcing services revenue
which has a higher cost as a percentage of revenue. Gross profit as a percentage
of revenue has decreased from 53% for the second quarter of 1998 to 45% for the
second quarter of 1999.
Selling, general and administrative ("SG&A") expenses were $891,440 for the
quarter ended June 30, 1999 representing an increase of 51% over SG&A expenses
of $594,445 for the quarter ended June 30, 1998. This increase in SG&A is due to
the additional costs associated with building the sales organization,
administrative infrastructure and facilities Development expenses during the
quarter were $450,280 compared with $83,419 or the same period in 1998. The
Development expense during the second quarter of 1999 was primarily associated
with the development by the Company of two new products in connection with a
contract for the marketing and resale of such products entered into with an
Atlanta, Georgia-based company that specializes in the nationwide marketing of
products to bank credit card holders.
Non-cash imputed compensation decreased by $39,345 from $49,640 for the quarter
ended June 30, 1998 to $10,295 for the quarter ended June 30, 1999. In December
1998, the Company wrote off the balance of the deferred compensation associated
with the future services to be provided by the Company's former Chairman and
Chief Executive Officer. In March 1999, the Company's former Chairman and Chief
Executive Officer was terminated for "cause" under his employment agreement with
the Company. The Company no longer incurs the expense associated with these
services. However, the Company has entered into a settlement agreement with the
Company's former Chairman and Chief Executive Officer which requires periodic
payments to him and/or his spouse. See Part II "Legal Proceedings."
Amortization of goodwill was $42,329 for the three months ended June 30, 1999
compared to $44,505 for the three months ended June 30, 1998, a decrease of
$2,176. The decrease in the amortization of goodwill is a result of a goodwill
adjustment that was made in December 1998 in connection with the revaluation of
the credit bureaus acquired by QCC in April and May of 1998.
A gain in the amount of $212,000 was recognized in the quarter ending June
30,1999 based on the settlement of the lawsuit with the Company's former
Chairman and Chief Executive Officer. See Part II "Legal Proceedings."
The loss from operations for the quarter ended June 30, 1999 was $366,614, which
represents a difference of $741,663 from the income from operations of $375,049
for the quarter ended June 30, 1998 for the reasons stated above. Net income was
($423,479) for the three months ended June 30, 1999, compared to $239,200 for
the same period in 1998. The comparative difference of $662,679 was less than
the comparative loss from operations primarily because of a 1998 charge
associated with the QCC acquisitions offset by a gain from the discontinued
Trimax Systems, Inc.
operation.
12
<PAGE>
ENGINEERED BUSINESS SYSTEMS, INC.
Sales for Engineered Business Systems accounted for $1,410,739 or 78% of the
Company's total revenue for the quarter ended June 30, 1999 compared to
$1,635,518 or 76% of the Company's total revenue for the quarter ended June 30,
1998. The revenue decrease was a result of the continued decline of the revenue
generated from the CRIS product line due to the continued consolidation of the
CRIS client base. Higher interest rates which have caused a reduction in the
residential mortgage refinancing market have accelerated the pace of this
decline. Management believes that certain product enhancements that are in
development will better position our products to reduce the rate of decline of
this revenue stream.
The revenue mix for the quarter ended June 30, 1999 was comprised of recurring
revenue from the ACES product line, the CRIS product line, annual software
maintenance contracts, technical support revenues, revenues generated on a
transactional per report basis and monthly software rental programs ("Recurring
Revenue") (41%), outsourcing services (45%), software sales (11%) and consulting
services (2%). The comparable revenue mix for the quarter ended June 30, 1998
was Recurring Revenue (50%), outsourcing services (28%), software sales (14%),
Hardware (4%), and consulting services (4%). Sales of the DESC product and
continued growth of outsourcing service revenues offset declines in the amount
of revenue generated by the CRIS products and decreased software sales of the
ACES product. Cost of sales as a percentage of revenue increased from 39% for
the quarter ended June 30, 1998 to 49% for the quarter ended June 30, 1999.
Management believes that the increase is due to the shift in the Company's
product mix from higher margin CRIS transactional revenue to lower margin
outsourcing services revenue. The Company's resulting gross margins for all
products and services for the quarter ended June 30, 1999 was 51% compared to
61% for the quarter ended June 30, 1998
QUICKCREDIT CORP.
QCC was formed, under the laws of the State of Florida, on February 23,1998 for
the purpose of acquiring and operating formerly independent credit bureaus. QCC
had no operations from its inception until the second quarter of 1998.
Total revenues for the three months ended June 30, 1999 were $389,019 compared
to $511,393 for the same period in 1998. The 24% decline in revenue from period
to period was primarily due to the increase in residential mortgage interest
rates which resulted in a reduction of the volume of credit reports associated
with home mortgage originations and mortgage refinancings during the 1999
period. Another factor that management believes contributed to the reduction in
revenue was the business disruption attendant to the consolidation of the Fort
Lauderdale, Florida credit bureau operations into QCC's Jacksonville, Florida
credit bureau operations. Management anticipates that the consolidation will
eliminate redundant operational costs and expenses resulting in an estimated
future cost savings of approximately $250,000 per year. Cost of sales during the
second quarter of 1999 was $278,853, 25% lower than cost of sales of $370,861
that was recorded during the same period in 1998. Gross profit as a percentage
of revenues was 28% for the three months ended June 30, 1999 compared to 27% for
the three month period ending June 30, 1998. Management believes that gross
profit as a percentage of revenue will improve as a result of the anticipated
cost savings from the consolidation.
13
<PAGE>
SIX MONTHS ENDED JUNE 30,1999 VS. SIX MONTHS ENDED JUNE 30,1998
CONSOLIDATED
Sales for the six months ended June 30,1999 were 3,890,837 or 1% higher than
sales of $3,835,275 for the six month period ended June 30, 1998. The increase
in sales was primarily due to the additional revenue produced from the
acquisition of three credit service bureaus by QuickCREDIT Corp., a wholly-owned
subsidiary of the Company ("QCC), during the second quarter of 1998 which offset
decreasing wholesale credit revenue from the CRIS client base. Cost of sales as
a percentage of sales increased 3% or $117,827 for the six months ended June 30,
1999 from $1,545,989 to $1,663,816. The reason for the increase in cost as a
percentage of revenue was the replacement of the more profitable CRIS
transactional business with lower margin outsourcing and Quick Credit services.
SG&A for the six months ended June 30,1999 was $2,044,896 compared to $1,184,441
for the same period in 1998. The increase was due to the expenses associated
with the addition to the sales and administrative organizations as well as the
relocation of the corporate offices. Research and Development for the six month
period ended June 30, 1999 was $512,917 compared to $166,838 during the same
period in 1998. The reason for the increase was primarily associated with the
development by the Company of two new products in connection with a contract for
the marketing and resale of such products entered into with an Atlanta,
Georgia-based company that specializes in the nationwide marketing of products
to bank credit card holders.
Non-cash imputed compensation decreased by $78,690 from $99,280 for the six
months ended June 30, 1998 to $20,590 for the six months ended June 30, 1999. In
December 1998, the Company wrote off the balance of the deferred compensation
associated with the future services to be provided by the Company's former
Chairman and Chief Executive Officer. In March 1999, the Company's former
Chairman and Chief Executive Officer was terminated for "cause" under his
employment agreement with the Company. The Company no longer incurs the expense
associated with these services. However, the Company has entered into a
settlement agreement with the Company's former Chairman and Chief Executive
Officer that requires periodic payments to him and/or his spouse. See Part II
"Legal Proceedings."
Amortization of goodwill was $71,467 for the six month period ended June 30,
1999 compared to $66,170 for the six month period ended June 30, 1998, an
increase of $5,297. The increase in the amortization of goodwill is a result of
six months of goodwill amortization associated with the acquisition of Quick
Credit Corporation versus three months of goodwill amortization during the same
period in 1998.
The loss from operations for the six month period ended June 30, 1999 was
$210,849, which represents a difference of $983,406 from the income from
operations of $772,557 for the six months ended June 30, 1998. Net income was
($338,413) for the six month period ended June 30, 1999, compared to $509,956
for the same period in 1998 for the reasons stated above.
ENGINEERED BUSINESS SYSTEMS, INC.
Sales for Engineered Business Systems accounted for $3,088,738 or 79% of the
Company's total revenue for six month period ended June 30, 1999 compared to
$3,323,882 or 86% of the Company's total revenue for the same period ended June
30, 1998. The revenue decrease of $235,144 or 7%, was a result of the continued
decline of the revenue generated from the CRIS product line due to the continued
consolidation of the CRIS client base. Higher interest rates which have caused a
reduction in the residential mortgage refinancing market have accelerated the
pace of this decline. Management believes that certain product enhancements that
are in development will better position our products to reduce the rate of
decline of this revenue stream.
The revenue mix for the six month period ended June 30, 1999 was comprised of
recurring revenue from the ACES product line, the CRIS product line, annual
software maintenance contracts, technical support revenues, revenues generated
on a transactional per report basis and monthly software rental programs
("Recurring Revenue") (37%), outsourcing services (40%), software sales (16%),
hardware (2%) and consulting services (5%). The comparable revenue mix for the
14
<PAGE>
six month period ended June 30, 1998 was Recurring Revenue (49%), outsourcing
services (30%), software sales (16%), Hardware (2%), and consulting services
(3%). Sales of the DESC product and continued growth of outsourcing and
consulting services offset declines in the amount of revenue generated by the
CRIS products and decreased software sales of the ACES product.
Cost of sales as a percentage of revenue decreased from 35% for the six month
period ended June 30, 1998 to 33% for the same period ended June 30, 1999
resulting in better gross margins for the comparable period. Management believes
that this is due to improved gross margins on software sales and outsourcing
services.
QUICKCREDIT CORP.
Total revenues for the six month period ended June 30, 1999 were $802,100
compared to $511,393 for the same period in 1998. The increase of $290,707 was a
result of six months of revenue during 1999 versus three months of revenue
during the same period in 1998.
Cost of sales during the six month period ended June 30, 1999 were $623,886,
compared to $370,861 during the same period in 1998. The increase of $253,025
was a result of six months of revenue during 1999 versus three months of revenue
during the same period in 1998. Gross profit as a percentage of revenues was 22%
for the six month period ended June 30, 1999 compared to 27% for the six month
period ended June 30, 1998. Management believes that Gross profit as a
percentage of revenue will improve as a result of anticipated cost savings from
the consolidation of the Fort Lauderdale, Florida credit bureau operations into
QCC's Jacksonville, Florida credit bureau operations. Management anticipates
that the consolidation will eliminate redundant operational costs and expenses
resulting in an estimated future cost savings of approximately $250,000 per
year.
STOCKHOLDERS' AGREEMENT
As of April 16, 1999, shareholders of the Company beneficially holding an
aggregate of 6,368,454 shares of Common Stock, or 45.8% of the total number of
shares then outstanding, entered into a Stockholders Agreement pursuant to which
the participating shareholders (the "Participating Shareholders") agreed to
certain matters pertaining to the governance of the Company and the
circumstances under which the shares held by the Participating Shareholders may
be sold or transferred. The Participating Shareholders agreed, among other
things, that (i) at any annual or special meeting of stockholders called for the
purpose of voting on the election of directors, or by consensual action of
stockholders with respect to the election of directors, the Participating
Shareholders will vote the shares of the Company's Common Stock held thereby in
favor of the directors nominated by Harold S. Fischer, the Company's Chief
Executive Officer and President, and (ii) except for certain permitted
transfers, each Participating Shareholder will not sell or transfer shares of
the Company's Common Stock held thereby without first granting the Company and
then the other Participating Shareholders with a right of first offer. Although
the Company is not a party to the Stockholders Agreement, certain members of
management are Participating Shareholders, including Harold S. Fischer, the
Company's Chief Executive Officer and President.
VOTING AGREEMENT INCIDENT TO SETTLEMENT
On April 30, 1999, the Company entered into a settlement agreement with the
Company's former Chairman, his wife and two former directors of the Company.
Among the terms of the settlement was the grant to the Company's Board of
Directors of the right to vote for a period of two (2) years from April 30,
1999, subject to certain limitations, all shares of the Company's Common Stock
owned by such individuals, currently believed by the Company to be in excess of
three million shares, in accordance with the majority vote of the other holders
of the Company's Common Stock.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its working capital and capital expenditures requirements
with cash provided from operations, the private sale of the Company's stock, and
debt and other equity financing. In 1999 the primary source of cash receipts
will be from payments for software and services. The Company's management
believes that cash flows from continuing operations may be sufficient to cover
its working capital requirements, but additional financing will be required to
fund planned expansion, research and development and any working capital
shortfall. The Company has received a commitment to enter into a loan agreement
that the Company expects to close during the third quarter of 1999.
Management estimates the future spending for capital expenditures during the
remainder of the 1999 fiscal year will be approximately $300,000 and believes
that the current and future cash flows from continuing operations and proceeds
from debt and equity financing will be sufficient to fund such capital
expenditures.
During the three month period ended June 30, 1999, the Company issued 528,000
shares of common stock for a total value of $528,000 and issued an additional
45,000 shares of Common Stock in lieu of a cash payment to a former principal of
one of the acquired credit bureaus. In addition, during the same period, the
Company issued to Waterside (i) 500,000 shares of Common Stock upon the exercise
of a stock purchase warrant, at an exercise price of $.05 per share, for total
consideration to the Company of $25,000, (ii) 1,500 shares of Series C Preferred
Stock in consideration for the cancellation of indebtedness owed by the Company
to Waterside in the amount of $1,500,000 and (iii) 700 shares of Series D
Redeemable Convertible Preferred Stock in exchange for a cash purchase price of
$700,000. See Part II "Changes in Securities and Use of Proceeds."
At June 30, 1999 the Company had working capital of ($446,711) as compared to
working capital of $1,179,793 at June 30,1998. The reduction in working capital
is primarily due to an increase in Current Liabilities of which the following
represent the significant additions: (i) $157,000 of the Notes Payable Subject
to Puts was reclassified into Current Liabilities based on an agreement reached
in April 1999 with the former shareholders of Credit Bureau Services, Inc. (ii)
in April 1999, the Company incurred a liability in connection with the
settlement with the Company's former Chairman and Chief Executive Officer of
$468,000 of which $156,000 was classified as a Current Liability, (iii) the note
payable to the former shareholders of Engineered Business Systems, Inc. has a
balloon payment of $400,000 due in February 1999, and (iv) an accrued expense to
reserve for additional costs associated with the change of control of the
Company in the amount $418,827.
YEAR 2000
The Company recognizes that a challenging problem exists in that many
computer systems worldwide do not have the capability of recognizing the year
2000 or the years thereafter. No easy technological "quick fix" has yet been
developed for this problem. The Company has spent a considerable sum of money to
assure that all of its software programs are year 2000 compliant and believes
that it has achieved this objective. This "Year 2000 Computer Problem" creates
risk for the company from unforeseen problems in its own software and from third
parties with whom the company deals. Such failures of the Company and/or third
parties' computer systems could have a material adverse effect on the Company
and its ability to conduct its business in the future.
INFLATION
The Company does not believe that inflation has had a material adverse
effect on sales or income during the past several years. Increases in the cost
of supplies and services, or other operating costs, could adversely affect the
Company's operations; however, the Company believes it could increase prices to
offset increases in costs of goods sold or other operating costs.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During the first quarter of 1999, the Company was a defendant in the lawsuit
styled, THOMAS L. BAUER, ET AL V. TRIANGLE IMAGING GROUP, INC., VITO A.
BELLEZZA, JUDITH BELLEZZA A/K/A JUDITH KLOTZ, PETER BELLEZZA AND FRANZ FIDELI in
the Circuit Court of the 17th Judicial Circuit in and for Broward County,
Florida filed in December 1998 by in excess of 25 of the Company's shareholders
some of whom are officers and employees of the Company (the "Shareholder
Litigation"). The Shareholder Litigation alleged, among other things, breaches
of fiduciary duty, self-dealing, stock manipulation and insider trading by Mr.
Bellezza, the Company's former Chief Executive Officer and Chairman of the
Board. The lawsuit further alleged certain claims against Judith Bellezza for
her alleged participation in Mr. Bellezza's complained of activities, as well as
claims against Franz Fideli and Peter Bellezza arising from the failure to
discharge their fiduciary duties as directors of the Company when presented with
the allegations against Mr. Bellezza and Judith Bellezza.
On April 30, 1999, the Company attended a court ordered mediation conference and
entered into a settlement agreement (the "Agreement") with Vito A. Bellezza, the
Company's former Chief Executive Officer and Chairman of the Board of Directors,
Judith Bellezza, Mr. Bellezza's wife and a former employee of the Company, Peter
Bellezza, Mr. Bellezza's brother and a former director of the Company, and Franz
Fideli, a former director of the Company. The Agreement includes a general
release of all claims by the parties against all other parties and also (i)
requires Messrs. Bellezza, Fideli and Peter Bellezza to surrender for
cancellation (a) an aggregate of 900,000 shares of the Company's Common Stock
and (b) options to purchase an aggregate of 2,200,000 shares of the Company's
Common Stock at exercise prices ranging from $.05 per share to $1.875 per share,
(ii) grants the Company's Board of Directo+rs the right to vote, subject to
certain limitations, all shares of the Company's Common Stock owned by such
individuals (presently believed to be in excess of 3,000,000 shares) in
accordance with the majority vote of the other shareholders of the Company's
Common Stock, and (iii) requires that the Company pay to Vito Bellezza and/or
Judith Bellezza a total of $468,000 over a period of three (3) years and to
provide them with health and dental insurance coverage. As a result of the
execution and delivery of the Agreement, Mr. Bellezza and the other defendants
in the lawsuit will not serve as officers or directors of the Company and will
not otherwise be involved in the activities of the Company in any capacity. The
Company has received from Vito A. Bellezza for cancellation 800,000 shares of
Common Stock in connection with the settlement but has not yet received the
remaining 100,000 shares of Common Stock required to be delivered for
cancellation by Peter Bellezza and Franz Fideli.
In addition to the foregoing, in January 1999, Waterside Capital Corporation
("Waterside") filed a lawsuit against the Company (the "Waterside Litigation")
in the United States District Court for the Eastern District of Virginia, Civil
Action No. 2:98 cv 1468, based upon alleged defaults by the Company under a
promissory note in the original principal amount of $1,500,000, dated October
15, 1998, and alleged breaches of contract under certain related investment
agreements. The Company and Waterside reached a settlement of the litigation
pursuant to which the Company re-priced certain stock purchase warrants
previously granted to Waterside at the time of the closing of Waterside's
investment in the Company. Pursuant to the settlement, the exercise price of the
warrants was reduced from the range of $2.15 per share to $3.00 per share down
to $.05 per share. In exchange for the re-pricing of the warrants, Waterside
dismissed the Waterside Litigation and delivered to the Company a contingent
general release. The release provides that Waterside may not refile the lawsuit
with the same claims set forth in the Waterside Litigation unless certain
members of management and/or members of the Company's Board fail to remain in
such positions through the date of the second annual meeting of shareholders
held after the date of the settlement.
17
<PAGE>
In May 1999, the Company was sued in the Circuit Court of the 17th Judicial
Circuit in and for Broward County, Florida, by Quest Communications
International, Inc. ("Quest"), allegedly a former long distance telephone
service provider to the Company, for in excess of $34,000 allegedly past due on
an open account. The Company has denied any liability to Quest and is defending
the lawsuit. The Company does not consider the amount in controversy or the
disputed matters to be material to the success of the Company's business or to
its financial position.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In April 1999, the Company issued 200,000 shares of Company common stock to
certain individual accredited investors for an aggregate purchase price of
$200,000 pursuant to Section 4(2) of the Securities Act of 1933 (the "Act").
In June 1999, the Company issued 328,000 shares of Company common stock to
certain individual accredited investors for an aggregate purchase price of
$328,000 pursuant to Section 4(2) of the Securities Act of 1933 (the "Act").
During the period ended June 30, 1999, the Company issued an additional 500,000
shares of Common Stock incident to the exercise of stock purchase warrants held
by Waterside. The total proceeds to the Company from such warrant exercise was
$25,000, or $.05 per share, which exercise price was reduced from the original
exercise price of between $2.15 and $3.00 per share in consideration for the
settlement of a lawsuit filed against the Company by Waterside. See Part II
"Legal Proceedings." During the same period the Company also cancelled 800,000
shares of common stock in connection with the settlement of a lawsuit against
the Company's former Chairman, his wife and two former directors of the Company
entered into on April 30, 1999. The settlement requires the return for
cancellation of an additional 100,000 shares of Common Stock, held in the name
of two of the Company's former directors, which have not yet been delivered to
the Company. See Part II "Legal Proceedings."
On June 30, 1999, the Company entered into a Series D Convertible Preferred
Stock Purchase Agreement with Waterside, pursuant to which Waterside paid an
aggregate purchase price of $700,000 in immediately available funds in exchange
for the issuance of 700 shares of the Company's Series D Redeemable Convertible
Preferred Stock and a stock purchase warrant. See the Company's Current Report
on Form 8-K filed July 15, 1999. On the same date the Company issued to
Waterside 1,500 shares of its Series C Preferred Stock in exchange for the
cancellation of outstanding indebtedness to Waterside in the amount of
$1,500,000. See the Company's Current Report on Form 8-K, filed July 15, 1999.
In April 1999 the Company and each of the former shareholders of Credit Bureau
Services, Inc. (the "CBS Shareholders") entered into an amendment (the "CBS
Amendment") to that certain Agreement and Plan of Merger (the "CBS Merger
Agreement") by and among the Company, QuickCREDIT Corp., CBS Acquisition Corp.,
Credit Bureau Services, Inc. and the CBS Shareholders, dated April 30, 1998. The
CBS Merger Agreement contains a provision granting the CBS Shareholders the
right to require the Company to repurchase, after April 30, 1999 and upon the
occurrence of certain triggering events, at the CBS Shareholders' option and
upon their demand, the 245,000 shares of Common Stock issued in the merger (the
"CBS Merger Shares") at a repurchase price of $3.00 per share (the "Put
Option"). The CBS Amendment, among other things, recasts the Company's
obligations under the Put Option to require that the Company (i) repurchase
17,500 CBS Merger Shares from the CBS Shareholders on each of May 3, 1999,
August 2, 1999, November 1, 1999 and February 1, 2000 (for an aggregate total of
70,000 repurchased CBS Merger Shares) and (ii) repurchase, upon the CBS
18
<PAGE>
Shareholders' demand, all or any portion of the remaining 175,000 CBS Merger
Shares at any time from May 1, 2000 to April 30, 2001. The Company has
repurchased an aggregate of 35,000 CBS Merger Shares, at a total cost to the
Company of $105,000, satisfying the Company's May 1999 and August 1999
obligations pursuant to the CBS Amendment.
The Company and the former shareholder of EJG Services, Inc. (the "EJG
Shareholder") entered into an amendment (the "EJG Amendment") to that certain
Agreement and Plan of Merger (the "EJG Merger Agreement") by and among the
Company, QuickCREDIT Corp., EJG Acquisition Corp., EJG Services, Inc. and the
EJG Shareholder, dated May 22, 1998. The EJG Merger Agreement contains a
provision granting the EJG Shareholder the right to require the Company to
repurchase, after May 22, 1999 and upon the occurrence of certain triggering
events, at the EJG Shareholder's option and upon his demand, the 200,000 shares
of Common Stock issued in the merger (the "EJG Merger Shares") at a repurchase
price of $3.00 per share (the "Put Option"). The EJG Amendment, among other
things, changes the period during which the EJG Shareholder may require the
Company to repurchase the EJG Merger Shares from the one year period beginning
May 22, 1999 and ending May 21, 2000 to the one year period beginning January 1,
2001 and ending January 1, 2002.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On May 27, 1999, the Company held its Annual Meeting of Stockholders
where the stockholders of the Company approved the following proposals:
(a) ELECTION OF DIRECTORS. The following individuals were reelected for
a term of one (1) year to the Company's Board of Directors: (i) Harold S.
Fischer (9,553,244 votes for; 113,145 votes withheld); (ii) J. Alan Lindauer
(9,553,168 votes for; 113,221 votes withheld); and (iii) Charles D. Winslow
(9,553,244 votes for; 113,145 votes withheld).
(b) 1999 INCENTIVE PLAN. The Company's 1999 Incentive Plan covering
4,000,000 shares of Common Stock was approved by the stockholders of the Company
(8,187,453 votes for; 152,942 votes against; and 10,636 votes abstained).
(c) AMENDMENT OF THE COMPANY'S ARTICLES OF INCORPORATION. In order to
(i) change the Company's name to "@ebs, inc.," and (ii) enable the Company's
Board of Director's to establish the preferences, limitations and relative
rights with respect to any class of unissued shares of capital stock, an
amendment to the Company's Articles of Incorporation was approved by the
stockholders of the Company (7,756,081votes for; 588,627 votes against; and
11,323 votes abstained).
(d) REINCORPORATION IN THE STATE OF DELAWARE. In order to effect a
reincorporation of the Company in the State of Delaware, a merger of the Company
with and into a wholly-owned Delaware subsidiary was approved by the
stockholders of the Company (8,225,220 votes for; 115,959 votes against; and
9,852 votes abstained).
(e) RATIFICATION OF CERTAIN PRIOR CHANGES TO THE COMPANY'S CAPITAL
STRUCTURE. The stockholders of the Company approved certain prior changes to the
Company's capital structure.(7,782,798 votes for; 559,870 votes against; and
13,363 votes abstained).
See the Company's Schedule 14A Definitive Proxy Statement filed with the
Securities and Exchange Commission on April 30, 1999.
19
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
None.
B. Reports on Form 8-K
Current Report on Form 8-K filed April 15, 1999, Item 5
Current Report on Form 8-K filed May 4, 1999, Item 5
Current Report on Form 8-K filed June 4, 1999, Item 5
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
@ebs, inc.
Dated: August 26, 1999 By: /s/ HAROLD S. FISCHER
----------------------------------------
Harold S. Fischer, President, Chief
Executive Officer and Director
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