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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(MARK ONE)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: March 31, 2001
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( ) TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the transaction period from: to .
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Commission File number: 0-24031
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Integrated Business Systems and Services, Inc.
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Exact name of small business issuer as specified in its charter)
South Carolina 57-0910139
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
115 Atrium Way, Suite 228, Columbia, SC 29223
(Address of principal executive offices)
(803) 736-5595
(Issuer's telephone number)
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(Former Name, address or fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such 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. (X) Yes ( ) No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
14,394,869 shares of no par common shares outstanding at March 31, 2001
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Transitional Small Business Disclosure Format (check one) ( ) Yes (X) No
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INTEGRATED BUSINESS SYSTEMS AND SERVICES, INC.
INDEX
PART I FINANCIAL INFORMATION Page
Number
Item 1 Financial Statements
Balance Sheets - March 31, 2001, and 3
December 31, 2000
Statements of Operations for the three months 4
ended March 31, 2001, and 2000, respectively
Statements of Cash Flows for the three months 5
ended March 31, 2001, and 2000, respectively
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
PART II OTHER INFORMATION
Items 1 - 6 9
SIGNATURES 9
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
INTEGRATED BUSINESS SYSTEMS & SERVICES, INC.
BALANCE SHEETS
March 31, December 31,
2001 2000
(unaudited) (audited)
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Assets
Current assets:
Cash and cash equivalents $ 601,240 $ 700,892
Accounts receivable, trade 1,099,466 1,015,330
Short-term investment 50,000 50,000
Related party notes receivable 0 305,000
Interest receivable 24,419 25,262
Other prepaid expenses 77,297 64,835
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Total current assets 1,852,422 2,161,319
Capitalized software costs, net 554,926 599,730
Property and equipment, net 636,726 573,350
Related party receivable 82,249 84,349
Investment in affiliated company, at equity 580,701 117,840
Other assets 4,303 4,128
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Total assets $ 3,711,327 $ 3,540,716
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Liabilities and shareholders' equity (deficiency)
Current liabilities:
Notes payable 2,663,000 0
Accounts payable 287,316 245,417
Accrued liabilities:
Accrued compensation and benefits 165,156 141,261
Accrued payroll taxes 13,921 7,248
Accrued professional fees 100,055 51,385
Accrued interest 38,046 31,250
Other 4,358 6,370
Deferred revenue 52,681 48,150
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Total current liabilities 3,324,533 531,081
Long-term debt, net of current portion 0 1,250,000
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Total liabilities $ 3,324,533 $ 1,781,081
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Commitments and contingencies
Stockholders' equity:
Common Shares, voting, no par value, 100,000,000 shares
authorized, 14, 394,869 and 14,244,869, shares outstanding
at March 31, 2001, and December 31, 2000, respectively 11,115,400 10,828,400
Notes receivable - stock (190,800) (190,800)
Accumulated deficit (10,537,806) (8,877,965)
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Total shareholders' equity 386,794 1,759,635
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Total liabilities and shareholders' equity $ 3,711,327 $ 3,540,716
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The accompanying notes are an integral part of these financial statements.
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INTEGRATED BUSINESS SYSTEMS AND SERVICES, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months
ended March 31,
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2001 2000
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Revenues:
Service revenue $ 406,894 $ 24,089
Maintenance and support 29,775 22,088
Hardware revenue 441,847 0
Other revenue 7,593 8,270
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Total revenues 886,109 54,447
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Cost of revenues: 685,504 174,093
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Gross Profit (loss) 200,605 (119,646)
Operating expenses:
Research and development costs 261,339 42,278
General and administrative 868,380 654,296
Sales and marketing 629,238 209,318
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Total operating expenses 1,758,957 905,892
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Loss from operations (1,558,352) (1,025,538)
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Interest income 13,722 25,574
Other income 0 90,265
Interest expense (38,070) (26,605)
Loss on equity investment $ (77,139) 0
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Total other income (expense) (101,487) 89,234
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Net loss $ (1,659,839) $ (936,304)
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Earnings (loss) per share
Basic and diluted $ (0.12) $ (0.08)
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Weighted average common shares outstanding 14,293,869 11,571,026
The accompanying notes are an integral part of these financial statements.
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INTEGRATED BUSINESS SYSTEMS AND SERVICES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months
ended March 31,
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2001 2000
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Operating activities:
Net loss $(1,659,839) $ (936,304)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation/amortization 35,075 19,498
Amortization of software cost 44,805 42,068
Write-off of accounts payable 0 (90,285)
Loss on equity investments 77,139 0
Changes in assets and liabilities:
Accounts receivable (82,036) 79,060
Interest receivable 843 (6,903)
Prepaid commissions 0 (19,560)
Prepaid expenses and other assets (12,638) 20,725
Accounts payable 41,899 (8,087)
Accrued expenses 84,022 (335,853)
Deferred revenue 4,531 (33,969)
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Cash used in operating activities (1,466,199) (1,269,610
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Investing activities:
Purchases of property and equipment, net (98,451) (152,585)
Investment in affiliate companies (540,000) 0
Related party note receivable 305,000 183,680
Related party receivable 0 (1,251)
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Cash provided by (used in) investing activities (333,451) 29,844
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Financing activities:
Payments on notes payable, net 1,413,000 (28,976)
Payments on long-term debt 0 0
Sale of common shares 0 4,872,070
Proceeds from exercise of common stock options
and warrants 287,000 444,517
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Cash provided by financing activities: 1,700,000 5,287,611
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Net increase (decrease) in cash (99,650) 4,047,845
Cash and cash equivalents at beginning of period 700,892 82,996
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Cash and cash equivalents at end of period $ 601,242 $ 4,130,841
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The accompanying notes are an integral part of these financial statements.
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NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Item 310 of Regulation S-B
promulgated by the Securities and Exchange Commission. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of those of a normal recurring
nature) considered necessary for a fair presentation have been included.
Operating results for the three month period ended March 31, 2001, are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 2001. For further information, refer to the audited
financial statements and footnotes thereto included in the Company's Form 10-KSB
for year ended December 31, 2000.
EARNINGS PER SHARE
The computation of basic earnings (loss) per share and diluted earnings (loss)
per share is in conformity with the provisions of Statement of Financial
Accounting Standards No. 128.
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis provides information which the Company
believes is relevant to an assessment and understanding of the Company's results
of operations and financial condition. This discussion should be read in
conjunction with the financial statements and notes thereto set forth elsewhere
in this report.
Results of Operations
For the three months ended March 31, 2001, as compared to the three months ended
March 31, 2000.
Revenues. Total revenues increased $831,662 to $886,109 in the three months
ended March 31, 2001, from $54,447 in the three months ended March 31, 2000.
This increase was primarily attributable to an increase in both service revenue
and hardware revenue due to an increase in the Synapse-based product sales, and
hardware to accompany said software.
Cost of Revenues. Total cost of revenues increased $511,411 to $685,504 in the
three months ended March 31, 2001 from $174,093 in the three months ended March
31, 2000. These figures included a $331,397 increase in hardware cost. Also,
this increase was attributable to increases in direct labor costs due to an
approximate 50% increase in the number of employees in the development, design,
production and project management areas.
The cost of revenues as a percentage of total revenues was 77% and 320% in the
three months ended March 31, 2001, and 2000, respectively. Accordingly, the
gross margin was 22% and (220%) in the three months ended March 31, 2001, and
2000, respectively.
Research and Development. Research and development costs increased $219,061 to
$261,339 in the three months ended March 31, 2001, from $42,278 in the three
months ended March 31, 2000. Research and development costs represented 29% and
77% of total revenues for the three months ended March 31, 2001, and 2000,
respectively.
General and Administrative. General and administrative expenses, including
interest expense, increased $225,549 to $906,450 in the three months ended March
31, 2001, from $680,901 in the three months ended March 31, 2000. General and
administrative expenses increased due to the new allocation of time by technical
staff for administrative projects. General and administrative expenses,
including interest expense, represented 102% and 1,250% of total revenues in the
three months ended March 31, 2001, and 2000, respectively.
Sales and Marketing. Sales and marketing expenses increased $419,920 to $629,238
in the three months ended March 31, 2001 from $209,318 in the three months ended
March 31, 2000. This increase was attributable to increases in marketing
salaries due to additional sales and marketing staff, as well as increases in
professional fees and public relations awareness expenses. Also, included in
this line item are the new allocation of time by technical staff for sales and
marketing expenses and a reclassification of prepaid commissions. Sales and
marketing expenses represented 71% and 384% of total revenues in the three
months ended March 31, 2001, and 2000, respectively.
Corporate and Other Related Non-Operating Items. Interest income decreased
$11,882 in the quarter ended March 31, 2001, as a result of smaller cash
balances.
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Liquidity and Capital Resources
Prior to 1997, we financed our operations primarily through our
revenues from operations, including funded research and development revenues,
and occasional short-term loans from our principals and acquaintances. Since the
middle of 1997, we have financed our operations primarily through private and
public offerings of common stock and convertible debt, and to a lesser extent
through borrowings from third-party lenders and from revenues from operations.
We raised net proceeds of approximately $1,220,000 in our November 1997 initial
public offering on the Vancouver Stock Exchange. Since that time, we have raised
additional equity of approximately $9.2 million through several private
placements of common stock and stock purchase warrants. In 1999, we raised
$1,250,000 from the sale of a convertible debenture that matures in January
2002. We expect to raise additional funds in the second quarter of 2001 from the
private sale of additional equity, or equity-linked securities.
We expect that the proceeds from our capital raising activities, along
with revenues generated from operations, will be adequate to meet our projected
working capital and other cash requirements for at least the next twelve months.
Management intends to closely follow the company's progress and to reduce
expenses if the company's strategies do not result in sufficient revenues within
a reasonable period. Any such reduction will involve scaling back, delaying or
postponing those development activities that are not essential to the company
achieving its stated objectives. In any event, our working capital deficit will
continue to grow unless and until revenues increase sufficiently to meet
expenditure levels.
We entered into a lease agreement with the Atrium Northeast Limited
Partnership effective November 1, 2000, for a five-year period with an option to
renew for one five-year period at market rates. The lease is for approximately
19,500 square feet of office space at a base rate of $276,391 for the first
year. The second year base rent increases to $280,922. The third through fifth
year base rent increases to $285,453.
Net cash used in operating activities was approximately $1,466,200
during the three months ended March 31, 2001, as compared to approximately
$1,269,600 during the three months ended March 31, 2000. The increase in cash
used in operating activities in 2001 was mainly due to an increase in the net
loss and increases in accounts receivable.
Net cash used in investing activities was approximately $333,500 during
the three months ended March 31, 2001, as compared to approximately $29,800
provided during the three months ended March 31, 2000. The net cash used in
investing activities in 2001 was primarily for investment in an affiliate.
Net cash provided by financing activities was approximately $1,700,000
during the three months ended March 31, 2001, as compared to approximately
$5,288,000 during the three months ended March 31, 2000. The net cash provided
by financing activities in 2001 resulted primarily from the notes payable for
$1,413,000 issued during the quarter.
ADVISORY NOTE REQUIRING FORWARD-LOOKING STATEMENTS
This form 10-QSB contains forward-looking statements subject to the
safe harbor created by the Private Securities Litigation Reform Act of 1995. The
Company cautions readers of this Form 10-QSB that such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from those expressed or implied by such
forward-looking statements. Although the Company's management believes that
their expectations of future performance are based on reasonable assumptions
within the bounds of their knowledge of their business and operations, there can
be no assurance that actual results will not differ materially from their
expectations. Factors which could cause actual results to differ from
expectations, include, among other things, the risk associated with start-up
companies, including start-up losses, liquidity problems, uncertainty of
revenues, markets, profitability and the need for additional funding; the risks
that the Company may be unable to raise additional capital through private
financings, debt or equity offerings or collaborative arrangements with others
on acceptable terms; intense competition from a variety of competitors with
greater resources and market acceptance; the Company's limited experience is
assembling a sales and marketing team and strategy; the potential need to make
continuing significant investments in software development in response to
rapidly evolving technologies and technological shifts; the risks associated
with the potential loss of one or more key customers of the Company; the
Company's dependence upon key personnel; the challenges and uncertainties in the
implementation of the
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Company's expansion and development strategies; and other factors described in
other reports filed by the Company with the Securities and Exchange Commission.
PART II
OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is not a party to any pending litigation.
ITEM 2 - CHANGES IN SECURITIES
This item is not applicable.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
This item is not applicable.
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the shareholders of the Company
during the first quarter of fiscal year 2001.
ITEM 5 - OTHER INFORMATION
This item is not applicable.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
There were no Form 8-K filings during the period.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, hereunto, duly authorized.
Integrated Business Systems and Services, Inc.
(Registrant)
/s/ Harry P. Langley
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Harry P. Langley
President, Chief Executive Officer and
Chairman of the Board
Date: May 15, 2001
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