FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 2000
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
ELECTRONIC BUSINESS SERVICES, INC.
f/k/a @ebs, inc. f/k/a TRIANGLE IMAGING GROUP, INC.
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(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
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(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 15, 2000 was 14,004,144 shares.
<PAGE>
ELECTRONIC BUSINESS SERVICES, INC. AND SUBSIDIARIES
FORM 10-QSB
INDEX
Page
Number
------
PART I - FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheet -
June 30, 2000.......................................... 3
Consolidated Statement of Operations -
For the Six and Three Months Ended
June 30, 2000 and 1999................................. 5
Consolidated Statement of Cash Flows-
For the Six and Three Months Ended
June 30, 2000 and 1999................................. 6
Notes to Financial Statements............................... 7
Item 2. Management's Discussion and Analysis..................... 8
PART II - OTHER INFORMATION........................................... 14
SIGNATURES............................................................ 17
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
ELECTRONIC BUSINESS SERVICES, INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEET
--------------------------
(Unaudited)
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ASSETS
------
June 30, 2000
-------------
CURRENT ASSETS
Cash and cash equivalents $ 27,566
Accounts receivable, net of allowance of $ (147,136) 253,344
Other current assets 13,177
TOTAL CURRENT ASSETS 294,087
EQUIPMENT, LEASEHOLD IMPROVEMENTS & SOFTWARE, 1,262,336
net of accumulated depreciation and
amortization of $2,390,161
GOODWILL, net of accumulated amortization of $377,327 1,815,895
OTHER ASSETS 144,101
$3,516,418
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3
<PAGE>
ELECTRONIC BUSINESS SERVICES, INC. AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
(Unaudited)
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
June 30, 2000
-------------
CURRENT LIABILITIES
Accounts payable $ 1,644,067
Accured expenses 642,591
Customer deposits 162,679
Deferred revenue 375,736
Current portion - related party payable 331,000
Notes payable 991,957
Current portion - QCC puts payable 630,000
TOTAL CURRENT LIABILITIES 4,778,030
NOTES PAYABLE SUBJECT TO PUTS 600,000
LONG TERM DEBT - RELATED PARTY 186,000
PREFERRED STOCK, Class E $1,000 par value, 12.5% cumulative 1,650,311
2,200 shares issued, redemption value $2,200,000
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.001 par value, authorized 50,000,000 issued 14,004
and 14,004,144 outstanding
Additional paid-in capital 6,652,536
Accumulated deficit (9,113,763)
Common Stock Subject to Puts (1,230,000)
Deferred compensation (20,700)
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (3,697,923)
$ 3,516,418
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4
<PAGE>
ELECTRONIC BUSINESS SERVICES, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENT OF OPERATIONS
------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three months Three months Six months Six months
ended ended ended ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES $ 915,258 $ 1,799,758 $ 1,793,075 $ 3,890,837
COST OF SALES 672,812 984,029 1,206,848 1,663,816
------------ ------------ ------------ ------------
GROSS PROFIT 242,446 815,729 586,227 2,227,021
EXPENSES
Selling, general and administrative expenses 684,012 891,440 1,355,590 2,044,896
Product Development 113,002 450,280 246,884 512,917
Stock based compensation expense 10,295 10,295 20,590 20,590
Amortization expense and goodwill write-off 36,552 42,329 73,104 71,467
Litigation expenses 64,410 -- 89,047 --
Gains from Settlement of Lawsuit -- (212,000) -- (212,000)
------------ ------------ ------------ ------------
Total expenses 908,272 1,182,343 1,785,215 2,437,870
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (665,826) (366,614) (1,198,987) (210,849)
OTHER INCOME AND (EXPENSE):
Interest expense, net (53,032) (56,865) (88,775) (127,564)
Other Income -- -- -- --
------------ ------------ ------------ ------------
Total other income and expenses (53,032) (56,865) (88,775) (127,564)
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAX PROVISION (718,858) (423,479) (1,287,763) (338,413)
PROVISION FOR INCOME TAXES -- -- -- --
------------ ------------ ------------ ------------
NET LOSS FROM CONTINUING OPERATIONS (718,858) (423,479) (1,287,763) (338,413)
NET INCOME (LOSS) $ (718,858) $ (423,479) $ (1,287,763) $ (338,413)
PREFERRED DIVIDENDS 108,785 -- 217,569 --
NET LOSS TO COMMON STOCKHOLDERS $ (827,643) $ (423,479) $ (1,505,332) $ (338,413)
NET INCOME PER SHARE:
BASIC (0.06) (0.03) (0.11) (0.03)
DILUTED (0.06) (0.03) (0.11) (0.03)
NUMBER OF SHARES USED IN COMPUTATION:
BASIC 14,044,144 13,660,290 14,044,144 13,486,472
DILUTED 14,044,144 13,660,290 14,044,144 13,486,472
</TABLE>
See Notes to Financial Statements
5
<PAGE>
ELECTRONIC BUSINESS SERVICES, INC. AND SUBSIDIARIES
----------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $(1,287,763) $ (338,413)
----------- -----------
Adjustments to reconcile net income (loss) to net cash used in
Operating activities:
Depreciation 104,692 59,262
Amortization 387,813 69,744
Stock based compensation 20,590 20,590
Accounts receivable 258,921 (192,119)
Other current assets -- (60,601)
Accounts payable and accrued expenses 255,839 (42,058)
Deferred revenue 49,175 6,885
Gains from settlement of lawsuit -- (212,000)
----------- -----------
NET CASH USED BY OPERATIONS (210,733) (688,710)
CASH FLOWS FROM INVESTING ACTIVITIES:
Other assets (13,405) --
Development & purchase of software (217,778) --
Purchase of leasehold improvements & equipment -- (180,519)
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (231,183) (180,519)
CASH PROVIDED BY FINANCING ACTIVITIES:
Proceeds from sale of common stock -- 1,020,813
Preferred dividends paid and accrued (137,500) --
Proceeds from sale of preferred stock -- 632,700
Cash received for stock subscription -- --
Funds provided by new financing 615,814 --
Repayment of debt (146,500) (175,000)
Payment of note payable subject to puts (52,500)
Value of options issued for convertible note 20,000 --
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 351,814 1,426,013
----------- -----------
NET INCREASE (DECREASE) IN CASH (90,102) 556,784
CASH - beginning of the period 117,667 229,423
----------- -----------
CASH - end of the period $ 27,566 $ 786,208
=========== ===========
</TABLE>
See notes to financial statements
6
<PAGE>
ELECTRONIC BUSINESS SERVICES, 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, 2000 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2000.
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, 1999.
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. PREFERRED DIVIDENDS
The Series E Preferred Stock issued to Waterside accrues dividends at the
rate of 12.5% per year payable quarterly. During the quarter ended June 30,
2000, the Company recorded a charge of $68,750 for Preferred Dividends
accrued for the Series E Preferred Stock. The dividends first became due
and payable on July 15, 2000 and have not been satisfied by the Company as
of the date of this report.
4. GOING CONCERN
The financial statements have been prepared assuming the Company will
continue as a going concern. The Company is in default on several of its
debt obligations and several lawsuits have been filed on these matters. The
Company intends to raise additional debt or equity in the near future to
enable the Company to continue operations.
7
<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
Three months ended Three months ended Six months ended Six months ended
30-Jun-00 30-Jun-99 30-Jun-00 30-Jun-99
$ % $ % $ % $ %
------------------- ------------------- ------------------ -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ 915,258 100% $ 1,799,758 100% $ 1,793,075 100% $ 3,890,837 100%
Cost of Sales $ 672,812 74% $ 984,029 55% $ 1,206,848 67% $ 1,663,816 43%
Operating Exenses $ 908,272 99% $ 1,182,343 66% $ 1,785,215 100% $ 2,437,870 63%
Income from Operations $ (665,826) -73% $ (366,614) -20% $(1,198,987) -67% $ (210,849) -5%
Earnings (Loss) on Common Shares $ (827,643) -90% $ (423,479) -24% $(1,505,332) -84% $ (338,413) -9%
ENGINEERED BUSINESS SYSTEMS Three months ended Three months ended Six months ended Six months ended
30-Jun-00 30-Jun-99 30-Jun-00 30-Jun-99
$ % $ % $ % $ %
------------------- ------------------- ------------------ -------------------
Net Sales $ 415,425 100% $ 1,410,739 100% $ 987,690 100% $ 3,088,738 100%
Cost of Sales $ 286,461 69% $ 695,176 49% $ 627,652 64% $ 1,029,930 33%
QUICK CREDIT CORPORATION Three months ended Three months ended Six months ended Six months ended
30-Jun-00 30-Jun-99 30-Jun-00 30-Jun-99
$ % $ % $ % $ %
------------------- ------------------- ------------------ -------------------
Net Sales $ 499,834 100% $ 389,019 100% $ 805,385 100% $ 802,100 100%
Cost of Sales $ 378,851 76% $ 278,853 72% $ 564,196 70% $ 623,886 78%
</TABLE>
8
<PAGE>
THREE MONTHS ENDED JUNE 30,2000 VS. THREE MONTHS ENDED JUNE 30,1999
CONSOLIDATED
Sales for the three months ended June 30, 2000 were $915,258 or a decrease of
49% from the $1,799,758 in sales for the same period ended June 30, 1999. The
decrease in sales is due to several factors including the current high level 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.
Cost of sales as a percentage of sales increased 19%, from 55% for the quarter
ended June 30, 1999 to 74% for the quarter ended June 30, 2000. The increase is
primarily a result of a shift in revenue from the more profitable Engineered
Business Systems products to QuickCredit products which have a higher cost as a
percentage of revenue. Gross profit as a percentage of revenue has decreased
from 45% for the second quarter of 1999 to 39% for the second quarter of 2000.
Selling, general and administrative ("SG&A") expenses were $748,422 for the
quarter ended June 30, 2000 representing a decrease of 16% over SG&A expenses of
$891,440 for the quarter ended June 30, 1999. This decrease in SG&A is due to
continued efforts to downsize the organization. Included in the SG&A is a
$63,229 charge to Bad Debt to increase the Allowance for Bad Debt to $147,136.
This allowance includes a specific provision for three deficient accounts which
total $105,170.
The Company had approximately 43 employees at the end of the period June 30,
2000 compared to approximately 80 employees at the same period 1999. The effects
of the downsizing has allowed us to consolidate our Fort Lauderdale office space
which was completed in early July 2000. The Company will occupy approximately
one-third of the previous office space.
Development expenses during the quarter were $113,002 compared with $450,280 or
the same period in 1999.
Non-cash imputed compensation of $10,295 remained the same for the quarter ended
June 30, 2000 compared to the quarter ended June 30, 1999.
Amortization of goodwill was $36,552 for the three months ended June 30, 2000
compared to $42,329 for the three months ended June 30, 1999, a decrease of
$5,777. 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.
The loss from operations for the quarter ended June 30, 2000 was $665,826 which
represents a increase of $299,212 from the loss from operations of $366,614 for
the quarter ended June 30, 1999 for the reasons stated above. Net income was
($718,858) for the three months ended June 30, 2000, compared to ($423,479) for
the same period in 1999.
9
<PAGE>
ENGINEERED BUSINESS SYSTEMS, INC.
Sales for Engineered Business Systems accounted for $415,425 or 45% of the
Company's total revenue for the quarter ended June 30, 2000 compared to
$1,410,737 or 78% of the Company's total revenue for the quarter ended June 30,
1999. The revenue decrease was a result of the continued decline of the revenue
generated from all product lines.
The revenue mix for the quarter ended June 30, 2000 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") (65%), outsourcing services (31%), software sales (0%) and consulting
services (4%). The comparable revenue mix for the quarter ended June 30, 1999
was Recurring Revenue (41%), outsourcing services (45%), software sales (11%),
Hardware (1%), and consulting services (2%). Cost of sales as a percentage of
revenue increased from 49% for the quarter ended June 30, 1999 to 69% for the
quarter ended June 30, 2000. The Company's resulting gross margins for all
products and services for the quarter ended June 30, 2000 was 31% compared to
51% for the quarter ended June 30, 1999.
QUICKCREDIT CORP.
Total revenues for the three months ended June 30, 2000 were $499,832 compared
to $389,019 for the same period in 1999. The 13% increase in revenue from period
to period was primarily due to revenues generated by Credit Services Products
which accounted for 57% of QCC's revenue during the period compared to 0% during
the same period in 1999. Revenue was down 45% on the traditional retail products
due to the high level in residential mortgage interest rates which resulted in a
reduction of the volume of credit reports associated with home mortgage
originations and mortgage refinancings. Cost of sales during the second quarter
of 2000 was $378,851 36% higher than cost of sales of $278,853 that was recorded
during the same period in 1999. Gross profit as a percentage of revenues were
24% for the three months ended June 30, 2000 compared to 28% for the three month
period ending June 30, 1999.
SIX MONTHS ENDED JUNE 30,2000 VS. SIX MONTHS ENDED JUNE 30,1999
CONSOLIDATED
Sales for the six months ended June 30,2000 were 1,793,075 or 54% lower than
sales of $3,890,837 for the six month period ended June 30, 1999. The decrease
in sales was primarily due to the high level of interest rates that has caused a
reduction across all product lines within EBS. Sales within QCC remained flat
due to the credit service products that offset reductions in the retail
business. Cost of sales as a percentage of sales increased 27% for the six
months ended June 30, 2000 from 43% to 67%.
SG&A for the six months ended June 30, was $1,444,637 compared to $2,044,896 for
the same period in 1999. Development costs decreased from $512,917 during the
same period in 1999 to $246,884 during the same period 2000.
Non-cash imputed compensation of $20,590 was the same for both periods.
Amortization of goodwill was $71,467 for the six month period ended June 30,
1999 compared to $73,104 for the six month period ended June 30, 2000, an
decrease of $1,637.
10
<PAGE>
The loss from operations for the six month period ended June 30, 2000 was
$1,198,987 which represents a difference of $988,138 from the loss from
operations of $210,849 for the six months ended June 30, 1999. Net income was
($1,287,763) for the six month period ended June 30, 2000, compared to
($338,413) for the same period in 1999 for the reasons stated above.
ENGINEERED BUSINESS SYSTEMS, INC.
Sales for Engineered Business Systems accounted for $987,690 or 55% of the
Company's total revenue for six month period ended June 30, 2000 compared to
$3,088,738 or 79% of the Company's total revenue for the same period ended June
30, 1999. The revenue decrease of $2,101,048 or 68%, was a result of the
continued decline of the revenue generated from all products. High interest
rates which have caused a reduction in the residential mortgage refinancing
market have accelerated the pace of this decline
The revenue mix for the six month period ended June 30, 2000 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") (61%), outsourcing services (33%), software sales (3%),
hardware (1%) and consulting services (2%). The comparable revenue mix for the
six month period ended June 30, 1999 was Recurring Revenue (38%), outsourcing
services (40%), software sales (16%), Hardware (1%), and consulting services
(5%).
Cost of sales as a percentage of revenue increased from 33% for the six month
period ended June 30, 1999 to 64% for the same period ended June 30, 2000.
QUICKCREDIT CORP.
Total revenues for the six month period ended June 30, 2000 were $805,385
compared to $802,100 for the same period in 1999. Revenue generated from our new
credit services products was $305,735 during the period compared to $0 for the
same period in 1999. This new revenue stream offset a reduction in the
traditional retail products of $302,450 from $802,100 during the period in 1999
to $499,650 during the same period in 2000.
Cost of sales during the six month period ended June 30, 2000 were $564,196
compared to $623,886 during the same period in 1999. Gross profit as a
percentage of revenues was 30% for the six month period ended June 30, 2000
compared to 22% for the six month period ended June 30, 1999.
11
<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 capital
stock and debt financing. In the second quarter of 2000 the primary source of
cash receipts was from payments from customers for product and services. THESE
FUNDS HAVE NOT BEEN SUFFICIENT TO MEET CURRENT AND PRIOR OBLIGATIONS TO
CREDITORS AND AS MENTIONED IN PRIOR FILINGS ADDITIONAL FUNDS MUST BE SECURED IN
ORDER FOR THE COMPANY TO CONTINUE OPERATIONS.
On April 26, 2000, Harold S. Fischer made a bridge loan to the Company in the
amount of $25,000. The loan is evidenced by a promissory note bearing interest
at the annual rate of ten percent (10%) until all sums due under this note are
paid in full. If not sooner paid, the entire unpaid principal balance, all
accrued and unpaid interest and any other sums due under the note are due and
payable on the earlier to occur of September 14, 2000 or any event of default of
the terms of the note. Among the events of default that trigger repayment of the
note is the removal of Harold S. Fischer from the position of President or Chief
Executive Officer of the Company or as a director of the Company.
On May 15, 2000, Harold S. Fischer's daughter made a bridge loan to the Company
in the amount of $75,000. The loan is evidenced by a promissory note bearing
interest at the annual rate of ten percent (10%) until all sums due under this
note are paid in full. If not sooner paid, the entire unpaid principal balance,
all accrued and unpaid interest and any other sums due under the note are due
and payable on the earlier to occur of September 14, 2000 or any event of
default of the terms of the note. Among the events of default that trigger
repayment of the note is the removal of Harold S. Fischer from the position of
President or Chief Executive Officer of the Company or as a director of the
Company.
The Company's management believes that cash flows from the issuance of
additional equity and debt financing will be required to fund day-to-day
operational expenditures, planned expansion and research and development in the
immediate future. Management estimates the future spending for operations,
research and development and the repayment of trade payables and other current
obligations of the Company will require additional debt or equity financing.
FAILURE TO OBTAIN SUCH FINANCING WILL HAVE A MATERIAL ADVERSE EFFECT ON THE
COMPANY AND ITS PROSPECTS.
At June 30, 2000 the Company had negative working capital of $(4,483,943) as
compared to negative working capital of $ (446,711) at June 30,1999. The
reduction in working capital is primarily due to an increase in current
liabilities of which the following represent the significant items: (i)
$1,644,067 in accounts payable (ii) Notes Payable Subject to Puts of $630,000
with the former shareholders of Credit Bureau Services, Inc. (iii) 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 is classified as a Current Liability, (iv)promissory notes of $325,000
to shareholders (v) a note payable to the former shareholders of Engineered
Business Systems, Inc. has a principal balance of $350,000 as of March 31, 2000
(vi) accrued expenses of $645,811(vii)Customer deposits of $159,459 deferred
revenue of $375,736. (viii) a note payable to Waterside Capital in connection
with a line of credit transaction having a balance in excess of $440,814 and
(ix) a $51,142 note resulting from a conversion of Puts Payable.
12
<PAGE>
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.
13
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On March 23, 1999, QCC and Interfinancial Services entered into a Joint Product
Sales and Marketing Agreement pursuant to which QCC was obligated to develop and
provide two new consumer products, a credit monitoring product and a card
registration product, and Interfinancial Services was to market and sell such
products. On November 24, 1999, QCC terminated its agreement with Interfinancial
Services Corp. due to the alleged failure of Interfinancial Services Corp. to
perform its material obligations under such contract despite full and timely
performance by QCC. Particularly, Interfinancial Services Corp. was obligated
under the agreement to, among other things, design and prepare certain marketing
and sales materials, to establish a telemarketing sales effort, to undertake
general marketing of the products and to introduce and market the products to
Interfinancial Services Corp.'s institutional clients. At the time of
termination, QCC demanded payment under section 17 of the agreement which
entitles QCC to recover certain incremental expenses incurred in the furtherance
of its obligations under the contract. QCC currently believes the amount of
damages to which it is entitled under the agreement is in excess of $1.3
million. QCC demanded arbitration in accordance with the terms of the agreement
on February 2, 2000 after failing to reach an amicable resolution of the dispute
with Interfinancial Services Corp. On April 11, 2000, QCC and ISC attempted
unsuccessfully to mediate the dispute at a mediation held in Atlanta, Georgia.
The Company anticipates that this matter will proceed to arbitration in July of
2000. QCC has received substantial funding from Waterside Capital Corporation to
be used to fund the prosecution of its claims against Interfinancial Services
Corp. On August 10th the Company signed an agreement settling the matter. Terms
of the settlement can not be disclosed absent a legal obligation to do so . As
of this filing we do not have a legal position regarding our disclosure
obligation.
On January 20, 2000, the former shareholder of Florida Credit Bureau, Inc., a
credit reporting bureau acquired by QuickCREDIT Corp. in May 1998, filed a
lawsuit against the Company styled HOWARD M. WATCH V. TRIANGLE IMAGING GROUP,
INC. in the Circuit Court in and for Orange County, Florida seeking collection
of approximately $52,000 plus costs and expenses allegedly due under a letter
agreement and promissory note dated July 22, 1999 and June 4, 1999,
respectively. The letter agreement and note were entered into by the parties to
restructure the Company's obligation to repurchase 50,000 shares of Company
common stock at a purchase price of $3.00 per share pursuant to the acquisition
agreement entered into by the parties at the time of the acquisition of Mr.
Watch's business by QCC. The letter agreement required that the Company deliver
to Mr. Watch payment of $51,000 on or before July 23, 1999 with the balance of
$100,000 due in six equal monthly installments beginning September 1, 1999. The
Company's obligation to pay the $100,000 was evidenced by a promissory note in
that original principal amount providing for interest of 8% per annum beginning
June 4, 1999. The complaint alleges the Company failed to make all payments due
under the note. In consideration for restructuring the obligation, Mr. Watch was
permitted to keep 20,000 shares of common stock under the terms of the letter
agreement with that number to increase to 30,000 shares if the Company did not
prepay the note on or before September 1, 1999. Upon receipt of the complaint in
the lawsuit, the Company challenged the plaintiff's choice of venue and was
successful in having the case transferred to Broward County, Florida where the
suit is currently pending. This matter has been scheduled for trial in February
2001.
On March 12, 1999, Quest Communications International filed a lawsuit against
Engineered Business Systems, Inc. styled Quest Communications International,
Inc. f/k/a Phoenix Network, Inc. f/k/a Automated Communications, Inc. v.
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Engineered Business Systems, Inc. in the Circuit Court of the 17th Judicial
Circuit in and for Broward County, Florida, seeking recovery of payments,
interests and costs in excess of $34,000 allegedly due under a long-distance
telephone service agreement. Engineered Business Systems denies liability for
the amounts allegedly due and is defending the suit.
On May 30, 1998 the Company acquired TriMax Systems Corp. and MultiTask Corp.
for 405,000 shares of the Company's common stock. At the time of the
acquisition, the Company understood TriMax to have certain business
relationships and to have a financial history that was later revealed to be
different than that initially contemplated. On September 30, 1998, the Company
and the former principal shareholders of TriMax mutually agreed to rescind the
acquisition of TriMax. Pursuant to the rescission agreement, the shares
delivered by the Company as payment of the purchase price for all of the
outstanding shares of TriMax were cancelled and the TriMax shares were returned
to the former TriMax shareholders. In addition, the Company entered into
consulting contracts with each of the former TriMax shareholders and the former
Chairman of the Board of the Company caused the Company to grant 100,000 stock
options having an exercise price of $0.20 per share to each of the two former
shareholders of TriMax. The Company has not made any payments under the
consulting contracts and has canceled the stock option agreements. The former
shareholders of TriMax Systems Corp. have demanded the right to exercise the
canceled stock options purportedly granted to each of them by the Company's
former Chairman and the Company has refused such demand. The Company will
vigorously defend any action brought to attempt to enforce the alleged stock
option rights.
On June 22, 2000, Steven P. Namoli and Kim A. Namoli filed a lawsuit against
Electronic Business Services, Inc, f/k/a Triangle Imaging Group, in the Circuit
Court of the 17th Judicial Circuit in and for Broward County, Florida, seeking
recovery of payments, interests and costs in excess of $630,000 due under an
agreement for the merger of Credit Bureau Services Inc with Triangle.. Upon
receipt of the complaint in the lawsuit, the Company has entered a countersuit
against the Namoli's for breach of the same contract.
On July 14, 2000, Global Financial Press filed a lawsuit against Triangle
Imaging Group, Inc, in the Circuit Court in and for Broward County, Florida,
seeking recovery of payments, interests and costs in excess of $19,344.77 for
services rendered. On August 15, 2000, the Company responded to their suit with
our own filing.
Item 2. Changes in Securities and Use of Proceeds
In connection with an agreement to establish a line of credit entered into on
January 27, 2000, Waterside Capital Corporation ("Waterside") and the Company
agreed to (i) cancel the 1,500 shares of Series C Preferred Stock and the 700
shares of Series D Preferred Stock of the Company owned by Waterside,
constituting all outstanding shares of each such class, and (ii) to issue to
Waterside in exchange therefor 2,200 shares of a new class of preferred stock
designated Series E Convertible Redeemable Preferred Stock pursuant to the
limited offering exemption available under Section 4(2) of the Securities Act of
1933. See "Liquidity and Capital Resources." The Series E Preferred Stock has
substantially the same rights and preferences as the cancelled shares of Series
C Preferred Stock and Series D Preferred Stock except that the shares of Series
E Preferred Stock are convertible into shares of Company common stock, subject
to certain limitations, at the rate of 5,000 shares of common stock for each
converted share of Series E Preferred Stock. In addition, cancellation of the
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shares of Series D Preferred Stock terminated the right of Waterside to cause
Mr. Fischer to have repurchase such shares in the event the Company was unable
to do so. The accrued and unpaid dividends due to Waterside on the canceled
shares of Series C Preferred Stock and Series D Preferred Stock, as well as any
accrued and unpaid dividends that may become due to Waterside on the Series E
Preferred Stock, are also convertible into shares of common stock at the rate of
one share of Common Stock for each $.20 of accrued and unpaid dividends so
converted. In addition, the Company granted to Waterside Common Stock purchase
warrants to purchase 30,000 shares of Common Stock for $.20 per share. The stock
purchase warrants are exercisable for a period of 10 years from the date of
issuance. In connection with the transaction, the Company agreed to register for
resale with the Securities and Exchange Commission all of the shares of
restricted common stock owned by Waterside as of the date of the agreement and
all shares of common stock issuable upon conversion of the Series E Preferred
Stock, conversion of the accrued and unpaid dividends on the Series E Preferred
Stock, conversion of the note and the exercise of the common stock purchase
warrants.
Item 3. Defaults Upon Senior Securities
In December 1996, the Company paid an aggregate purchase price of $2,620,915 to
acquire 760 shares of EBS common stock, or 95% of the total number of shares of
EBS common stock outstanding. The purchase price included the payment of
$896,000 in cash, 500,000 shares of Company common stock and a promissory note
in the principal amount of $1,600,000. The note, in its original form, (i) bore
interest at the prime rate per annum (but no less than 8% and no more than 9%
per annum), (ii) was payable monthly, (iii) was secured by all assets of the
Company and EBS, and (iv) required a balloon payment of the balance of the note
on February 1, 2000. In December 1997, the Company acquired 40 shares of EBS
Common Stock (the remaining 5% of shares outstanding) for an aggregate purchase
price of $153,250. In October 1998, the Company made an additional principal
payment of $375,000 to reduce the balance of the note incident to certain
capital raising activities of the Company as required by the agreements
ancillary to the purchase by the Company of the EBS Common Stock. Effective
January 31, 2000, the Company entered into a Promissory Note Extension and
Modification Agreement with the note holders which agreement (i) modified the
Company's obligation to pay the $400,000 balloon payment due on February 1, 2000
by dividing such payment into 8 equal consecutive monthly installments of
principal plus interest with the first installment due February 1, 2000 and (ii)
increased the interest rate applicable to the loan to 21% per annum. The Company
satisfied the first payment obligation under the Promissory Note Extension and
Modification Agreement and has not delivered any other payments thereunder. The
current amount due the note holders is in excess of $350,000 plus interest and
other charges.
The Series E Preferred Stock issued to Waterside accrues dividends at the rate
of 12.5% per year payable quarterly. During the quarter ended March 31, 2000,
the Company recorded a charge of $68,750 for Preferred Dividends accrued for the
Series E Preferred Stock. The dividends first became due and payable on April
15, 2000 and have not been satisfied by the Company as of the date of this
report.
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Item 4. Recent Events:
On July 14, 2000, Harold S. Fischer made a bridge loan to the Company in the
amount of $25,000. The loan is evidenced by a promissory note bearing interest
at the annual rate of ten percent (10%) until all sums due under this note are
paid in full. If not sooner paid, the entire unpaid principal balance, all
accrued and unpaid interest and any other sums due under the note are due and
payable on the earlier to occur of September 14, 2000 or any event of default of
the terms of the note. Among the events of default that trigger repayment of the
note is the removal of Harold S. Fischer from the position of President or Chief
Executive Officer of the Company or as a director of the Company.
On August 10th the Company signed an agreement settling the dispute with
Interfinancial Services Corp that was schedule for arbitration in August 2000.
The Company can not disclose the terms or the amount of the settlement absent a
legal obligation to do so . As of this filing the Company does not have a legal
position regarding the Company's disclosure obligation.
On the 28th of July the Company was notified by the Eastern District of the
United States Bankruptcy Court that Island Mortgage Corp filed a motion for
appointment of a Chapter 11 Trustee. Island Mortgage is a customer of
QuickCredit Corporation and owes Quick Credit and American Factors (a company
that QuickCredit has a factoring agreement with) a total of over $79,000 for
services performed. The Company has taken an allowance for bad debt in an
equivalent amount and will be working with American Factors to establish the
Company's claim in these proceedings.
On August 3, the Company was notified by Alter Asset Management, LLC that rent
for the Company's premises in Fort Lauderdale was substantially past due in the
amount of $58,016.72 and that they were going to pursue legal remedies to
collect same. During the second quarter, an agreement was entered into with the
Alter Group to amend our lease reducing floor space in excess of 15,000 sq.
feet, which would be leased to another party with events scheduled to take place
by July 15, 2000. The other lessor has not accepted obligation for their portion
of the rent and likewise the Company has not accepted responsibility for full
payment on the original lease, which is pending modification.
On April 30, 1999, the Company entered into a settlement agreement with Vito A.
Bellezza, the Company's former Chief Executive Officer and Chairman of the Board
of Directors and Judith Bellezza, Mr. Bellezza's wife and a former employee of
the Company. One of the stipulations of the agreement 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.
On June 16th, the Company due to the current financial condition had to suspend
payments under this agreement.
On June 5, 2000, Atlantic First filed a lawsuit against Engineered Business
Systems in the Circuit Court of the 17th Judicial Circuit in and for Broward
County, Florida, seeking recovery of payments, interests and costs in excess of
$49,620.00 for services rendered. On August 15, 2000, the Company responded to
their suit with our own filing.
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.
ELECTRONIC BUSINESS SERVICES, INC.
Dated: August 15, 2000 By: /s/ HAROLD S. FISCHER
---------------------------------
Harold S. Fischer, President, Chief
Executive Officer and Director
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