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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2001
(First quarter of fiscal 2001)
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from_____________ to ________________
Commission File No. 0-24073
IBS INTERACTIVE, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 13-3817344
(State or Other Jurisdiction of (I.R.S. Employer
of Incorporation or Organization) I.D. No.)
400 NORTH ASHLEY DRIVE
SUITE 2600
TAMPA, FL 33602
(Address of Principal Executive Offices)
(813) 221-0024
(Issuer's Telephone Number, Including Area Code)
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
2 Ridgedale Ave., Suite 350
Cedar Knolls, NJ 07927
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ ] No [X]
As of June 15, 2001, 6,787,129 shares of the issuer's common stock, par
value $.01 per share, were outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
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IBS INTERACTIVE, INC.
INDEX
PAGE NO.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of March 31, 2001 (unaudited) and December
31, 2000........................................................................... 1
Condensed Consolidated Statements of Operations for the three months ended March
31, 2001 and 2000 (unaudited)...................................................... 2
Condensed Consolidated Statements of Cash Flows for the three months ended March
31, 2001 and 2000 (unaudited)...................................................... 3
Notes to Condensed Consolidated Financial Statements............................... 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................................... 5
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS........................................... 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................... 11
SIGNATURES.................................................................................. 11
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
IBS INTERACTIVE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 31, DECEMBER 31,
2001 2000
----------- --------------
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents $ 123 $ 1,557
Accounts receivable (net of allowance for doubtful
accounts of $1,006 in 2001 and $1,000 in 2000) 5,057 3,802
Other current assets 91 271
-------- --------
Total Current Assets 5,271 5,630
Property and equipment, net 1,247 1,424
Intangible assets, net 13,947 14,819
Other assets 130 136
-------- --------
Total Assets $ 20,595 $ 22,009
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 3,469 $ 2,507
Accrued liabilities on sale of discontinued operations 1,752 1,769
Accrued severance and restructuring expenses 1,296 1,375
Long-term debt, current portion 217 210
Deferred revenue and customer deposits 376 546
-------- --------
Total Current Liabilities 7,110 6,407
Long-term debt 882 1,083
Pension obligation 148 148
Acquisition liabilities 945 945
-------- --------
Total Liabilities 9,085 8,583
-------- --------
Stockholders' Equity:
Common Stock, $.01 par value, authorized 11,000,000 shares,
6,787,129 shares issued and outstanding 68 68
Additional paid in capital 38,883 38,883
Accumulated deficit (27,441) (25,525)
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Total stockholders' equity 11,510 13,426
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Total liabilities and stockholders' equity $ 20,595 $ 22,009
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See Accompanying Notes to Condensed Consolidated Financial Statements.
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IBS INTERACTIVE, INC.
Condensed Consolidated Statements of Operations
For the three months ended March 31, 2001 and 2000
(unaudited, in thousands, except per share amounts)
THREE MONTHS ENDED
MARCH 31,
---------------------
2001 2000
------- -------
Revenues $ 5,059 $ 4,412
Cost of services 4,008 3,451
------- -------
Gross profit 1,051 961
Operating expenses:
Selling, general and administrative 2,079 2,767
Amortization of intangible assets 872 379
Non-cash compensation expenses -- 237
Severance and restructuring -- 865
------- -------
Total operating expenses 2,951 4,248
------- -------
Operating loss (1,900) (3,287)
Interest expense (income), net 16 (1)
------- -------
Loss before income taxes (1,916) (3,286)
Tax provision -- 5
------- -------
Loss from continuing operations (1,916) (3,291)
Discontinued operations -- 556
------- -------
Net loss $(1,916) $(3,847)
======= =======
Loss per share from continuing operations:
Basic and Diluted $ (0.28) $ (0.61)
Loss per share from discontinued operations:
Basic and Diluted -- (0.10)
------- -------
Loss per share from operations:
Basic and Diluted $ (0.28) (0.71)
======= =======
Weighted average common stock shares outstanding:
Basic and Diluted 6,787 5,377
======= =======
See Accompanying Notes to Condensed Consolidated Financial Statements.
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IBS INTERACTIVE, INC.
Condensed Consolidated Statements of Cash
Flows For the three months ended March 31, 2001 and 2000
(unaudited, in thousands)
THREE MONTHS ENDED
MARCH 31,
---------------------
2001 2000
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Cash flows used in operating activities $(1,384) $(2,920)
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Cash flows used in investing activities:
Asset acquisition - cash acquired -- 30
Capital expenditures - property and equipment (6) (63)
------- -------
Net cash used in investing activities (6) (33)
Cash flows provided by (used in) financing activities:
Net proceeds from private placement 2,233
Payments of capital leases -- (21)
Repayments of notes payable (44) (144)
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Net cash provided by (used in) financing
activities (44) 2,068
------- -------
Net decrease in cash and cash equivalents (1,434) (885)
Cash and cash equivalents, beginning of periods 1,557 2,892
------- -------
Cash and cash equivalents, end of periods $ 123 $ 2,007
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See Accompanying Notes to Condensed Consolidated Financial Statements.
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NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed consolidated interim financial statements of IBS
Interactive, Inc. ("IBS," the "Company," "we," or "us") have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission with respect to Form 10-QSB. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures made herein are adequate to make the
information contained herein not misleading. These condensed consolidated
interim financial statements should be read in conjunction with the Company's
audited financial statements for the year ended December 31, 2000 and the notes
thereto included in the Company's Annual Report on Form 10-KSB. In the Company's
opinion, all adjustments (consisting only of normal recurring adjustments, and
discontinued operations reclasses) necessary for a fair presentation of the
information shown herein have been included.
The results of operations and cash flows for the three months ended
March 31, 2001 are not necessarily indicative of the results of operations and
cash flows expected for the year ending December 31, 2001.
The accompanying financial statements have been prepared on the
assumption that the Company will continue as a going concern. The Company has
incurred losses of $18,062,000 and $6,238,000 for the years ended 2000 and 1999,
respectively and cash flow deficiencies from operations of $6,837,000 and
$6,893,000 in 2000 and 1999, respectively. During the three months ended March
31, 2001, the Company incurred losses of $1,916,000 and cash flow deficiencies
from operations of $1,384,000. These factors raise substantial doubt about the
ability of the Company to continue as a going concern. The ability of the
Company to continue as a going concern is dependent upon obtaining cash flow
from external sources and restructuring liabilities. Management is currently
negotiating with certain of its vendors to restructure certain liabilities. In
addition, management plans to seek additional capital through a private
placement of securities. The financial statements do not include any adjustments
that may result from the outcome of this uncertainty.
2. LOSS PER SHARE DATA
Common stock equivalents in the three-month periods ended March 31,
2001 and 2000, were anti-dilutive due to the net losses sustained by the Company
during these periods, thus the diluted net loss per share in these periods is
the same as the basic net loss per share.
3. INCOME TAXES
The Company has not recognized an income tax benefit for its operating
losses generated in the three-month periods ended March 31, 2001 and 2000 based
on uncertainties concerning its ability to generate taxable income in future
periods. The tax benefit for the three-month periods ended March 31, 2001 and
2000 is offset by a valuation allowance established against deferred tax assets
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arising from operating losses and other temporary differences, the realization
of which could not be considered more likely than not. In future periods, tax
benefits and related deferred tax assets will be recognized when management
considers realization of such amounts to be more likely than not.
4. RELATED PARTY TRANSACTION
The Company entered into a consulting services agreement with PowerCerv
on October 13, 2000 where the Company will provide consulting services to
PowerCerv at $130 per hour. The Company recorded a payment of $150,000, which
was due on March 31, 2001 in accordance with the agreement by reducing the
PowerCerv long-term note payable and recorded deferred revenue as the services
had not been provided yet. PowerCerv must use these unused services by December
31, 2001.
5. SUBSEQUENT EVENTS
(a) During April 2001, the Company sold its web hosting and
non-dial-up internet access business to Veraciti, Inc. for
$200,000 cash and $60,000 worth of services to complete
certain customer projects. In addition, Veraciti assumed
certain lease obligations of the Company related to the web
hosting and non-dial-up internet access business and
subleased 4,000 square feet of the Cedar Knolls office space.
The Company recorded a $211,000 loss related to this sale.
Veraciti is owned by Frank Altieri, a current member of the
Board of Directors of IBS.
(b) During April 2001, the Company took additional cost and
restructuring steps to become profitable. It closed its
Detroit facility and reduced its sales and general and
administrative management headcount by 21 employees. As a
result, the Company recognized a severance and restructuring
expense of $518,000 in April 2001. This is comprised of
$339,000 relating to the closing of the office, $62,000
relating to severance, benefits and entitlements and $117,000
of other costs.
(c) On June 15, 2001, the Company reached a settlement agreement
in principle with several shareholders resolving a contractual
dispute with such shareholders. The Company has agreed to
issue 350,000 shares of common stock to these shareholders to
effect that resolution.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This Quarterly Report on Form 10-QSB contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). In addition, from time to time, we or our representatives have
made or may make other forward-looking statements orally or in writing. Such
statements may include, without being limited to, statements concerning
anticipated financial performance, future revenues or earnings, business
prospects, projected ventures, new products, anticipated market performance and
similar matters. The words "plan," "budget, "intend," "anticipate," "project,"
"estimate," "expect," "may," "might," "believe," "potential," "could," "should,"
"would" and similar statements are intended to be among the statements that are
forward-looking statements. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. In order to comply with
the terms of the safe harbor, we caution our readers that, because such
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statements reflect the reality of risk and uncertainty that is inherent in doing
business, actual results may differ materially from those expressed or implied
by such forward-looking statements. These risks and uncertainties, many of which
are beyond our control, include, but are not limited to, those set forth in the
Company's Form 10-KSB for 2000. Readers are cautioned not to place undue
reliance on these forward-looking statements, which are made as of the date of
this report. Except as otherwise required to be disclosed in periodic reports
required to be filed by companies registered under the Exchange Act by the rules
of the SEC, the Company has no duty and undertakes no obligation to update such
statements.
OVERVIEW
IBS is a leading provider of e-Business and Information Technology (IT)
professional services to businesses, organizations and public sector
institutions primarily in the Eastern and Midwestern United States. Services are
primarily rendered to mid-sized businesses (including mid-sized departments of
larger enterprises) and public sector institutions. The Company was incorporated
in February 1995 under the name Internet Broadcasting System, Inc. and changed
its name to IBS Interactive, Inc. when it went public in May 1998. During late
2000 the Company began doing business as Digital Fusion. The Company will
propose to the shareholders a name change to Digital Fusion, Inc. at the
Company's annual shareholder meeting during 2001. IBS, a Delaware corporation,
has its main administrative office in Tampa, Florida, along with regional
offices throughout New Jersey, New York, Florida and Alabama.
We represent an emerging breed of e-Business and IT professional
service firms: one that provides total solutions by transforming technology into
value for clients through our integrated, multi-disciplinary service offerings.
We utilize advanced technologies to provide our clients with business
application development and integration, network services, IT consulting and
training. To summarize, we build business applications.
We provide a broad range of e-Business and IT professional services,
including strategy services, component-based solutions, business application
development, network services, IT consulting services, and desktop support and
integration to businesses, organizations and public sector institutions. Our
revenues are derived principally from fees earned in connection with the
performance of services provided to customers.
Currently, the Company's strategic vision is to become more focused on
being an IT professional services company and concentrate on its profitable
business units. During April 2001, the web hosting and non-dial-up internet
access division which was not part of the Company's IT professional services
units was sold.
Also during April 2001, the Company reduced its work force to help it
meet its goal of reaching profitability with its continuing business units. With
the April 2001 restructuring, the Company believes it has taken the steps
necessary to become cash flow positive from its continuing operations during the
second half of 2001. However at year-end 2000, the Company received a going
concern emphasis to its audit opinion from its auditors because of its previous
losses and significant liabilities related to its discontinued business units,
restructuring efforts and the termination of the Infonautics merger. The ability
of the Company to continue as a going concern is dependent upon restructuring
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certain liabilities and obtaining capital from external sources. In order for
the Company to execute its current plan to raise additional capital, it will
have to negotiate with certain creditors to reduce these liabilities and this
process has recently begun. If the Company is successful in reaching agreements
with its creditors to reduce these liabilities, the Company believes it will be
able to raise capital to pay down the restructured liabilities as well as fund
the Company's ongoing capital needs. If the Company cannot restructure the
liabilities related to its discontinued operations, restructuring and
Infonautics merger termination, it will be required to re-examine its current
business plan and plans to raise capital as it may not have sufficient
liquidity to service ongoing operations and those liabilities.
On June 7, 2001, IBS was delisted from the NASDAQ SmallCap Market
System primarily due to not being current with the filings of the Company's
periodic reports with the Securities Exchange Commission. The 10KSB and 10QSB
Company filings were not filed on time primarily due to an investigation into a
former New Jersey controller's misappropriation of funds from the Company. The
misappropriation of funds was approximately $220,000 and the Company has
subsequently recovered approximately $150,000 from the former employee. In
addition to actively pursuing collections of all remaining outstanding funds,
the Company has insurance covering $500,000 in losses plus $50,000 for
investigation fees. The investigation was directed by two of the Company's
outside board members and assisted by an outside forensic auditing firm. To
insure that this was not a material event, the investigation had to be completed
in order that the 2000 audit could be finalized. The 10KSB and 10QSB have been
filed and the Company is current with its filings. The Company is vigorously
appealing the delisting with the NASDAQ.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000
REVENUES. Revenues increased by $647,000 to $5,059,000 for the three
months ended March 31, 2001. The increase in revenues during the three months
ended 2001 compared to the same period in the prior year was primarily due to
professional service revenues generated by the March 2000 acquisition of digital
fusion, inc. (DFI Acquisition) of $2,022,000 for 2001 compared to $890,000 for
2000. Because the DFI acquisition took place in March 2000, its revenues were
included for one month in our consolidated revenues for 2000 compared to three
months during 2001. This increase was offset by approximately $400,000 reduction
in revenue in 2001 as compared to 2000 due to business units that were shut down
or sold due to not being a part of our core business focus. Revenue from our
largest professional services customer was responsible for 17% of our revenue in
2001 as compared to 18% in 2000.
COST OF SERVICES. Cost of services consists primarily of salaries and
expenses of engineering, programming and technical personnel, expenses relating
to cost of equipment and applications sold to customers and fees paid to outside
consultants engaged for customer projects. Cost of services increased by
$557,000, from $3,451,000 for 2000 to $4,008,000 for 2001. The increase in cost
of services was primarily due to the DFI Acquisition that took place in March
2000. The cost of services related to this DFI acquisition were included for one
month during 2000 vs three months in 2001.
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GROSS PROFIT. Our gross profit was $961,000, or 22% of revenues in 2000
and $1,051,000, or 21% of revenues, in 2001. This decrease as a percent of
revenues is a combination of a higher product contribution in 2001 compared to
2000 which has lower margins and decreased billable consultant utilization in
2001 compared to 2000. During the second quarter 2001, we expect the gross
profit margin to increase slightly.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses consist primarily of salaries and costs associated with
marketing literature, advertising, direct mailings, and accounting, finance,
sales and administrative personnel, as well as professional fees and other costs
associated with being a public company and the administration of the Company.
Selling, general and administrative expenses decreased by $688,000, or 25%, from
$2,767,000 in 2000 to $2,079,000 for 2001. This decrease was primarily due to
the significant reduction in the Company's administrative staff in conjunction
with its fourth quarter 2000 restructuring and the administrative headquarters
move from New Jersey to Florida during January 2001.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets
increased by $493,000, or 130% from $379,000 for 2000 to $872,000 for 2001. This
increase was primarily due to the amortization related to intangible assets
arising from the DFI Acquisition. This acquisition occurred on March 1, 2000,
therefore the 2000 amounts only have one month of amortization related to the
DFI Acquisition as compared to three months included in 2001.
NON-CASH COMPENSATION EXPENSES. Non-cash compensation expense decreased
from $237,000 in 2000 to $-0- in 2001. This decrease was due to the release of
shares of common stock related to the 1998 acquisition of Entelechy, Inc.
("Entelechy"). Under the terms of the original agreement, such reserved shares
were to be earned ratably over a three-year period ending January 31, 2001.
Since the condition of continued employment for the release of such shares had
been waived, the Company recognized the remaining non-cash compensation charge
of $214,000 in the quarter ended March 31, 2000. Non-cash compensation expense
is expected to be $-0- during 2001.
SEVERANCE AND RESTRUCTURING. During the three months ended March 31,
2000, the Company reduced its work force by 19 employees and, as a result,
recognized a charge of $567,000 related to severance, benefits and entitlements.
In addition, the Company decided to terminate its Microsoft training business
and recognized a charge of $298,000, which is comprised of the exit costs of
this business and impairment losses on the value of related assets. As of March
31, 2000, $26,000 remained of the total accrual of $865,000. No severance and
restructuring charge was incurred during the three months ended March 31, 2001;
however during April 2001, the Company took additional cost and restructuring
steps to become profitable. It closed its Detroit facility and reduced its sales
and general and administrative management headcount by 21 employees. As a
result, the Company recognized a severance and restructuring expense of $518,000
in April 2001. This is comprised of $339,000 relating to the closing of the
office, $62,000 relating to severance, benefits and entitlements and $117,000 of
other costs.
INTEREST EXPENSE (INCOME), NET. Interest expense in 2001 consisted of
interest payments and accruals on indebtedness in connection with the DFI
Acquisition. Net interest expense was $(1,000) and $16,000, respectively, for
2000 and 2001.
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INCOME TAXES. The Company has not recognized an income tax benefit for
its operating losses generated in the three-month periods ended March 31, 2001
and 2000 based on uncertainties concerning its ability to generate taxable
income in future periods. The tax benefit for the three-month periods ended
March 31, 2001 and 2000 is offset by a valuation allowance established against
deferred tax assets arising from operating losses and other temporary
differences, the realization of which could not be considered more likely than
not. In future periods, tax benefits and related deferred tax assets will be
recognized when management considers realization of such amounts to be more
likely than not.
DISCONTINUED OPERATIONS. During 2000, the Company sold its dial-up
internet access business to Earthlink, Inc. for $2.8 million. During the three
months ended March 31, 2000, the Company recorded a $556,000 loss related to
this discontinued operation.
LIQUIDITY AND CAPITAL RESOURCES
The net cash used in operating activities decreased from $2,920,000 in
2000 compared to $1,384,000 in 2001. This change is primarily attributable to
operating results that produced a net loss in the amount of $3,847,000 for the
three months ended March 31, 2000 compared to a net loss of $1,916,000 for the
corresponding three-month period in 2001.
Net cash used in investing activities was $33,000 in 2000 compared to
$6,000 in 2001. The cash used in both periods was primarily related to
investments in equipment. The Company does not expect to have significant
equipment purchases during 2001.
Financing activities provided cash and cash equivalents of $2,068,000
in 2000, which was primarily from the net proceeds received during the first
quarter 2000 related to the 2000 Private Placement. During 2001, net cash used
in financing activities of $44,000 resulted from the principal payment on the
note payable owed to PowerCerv, Inc.
Our working capital deficit at March 31, 2001 was $1.8 million. With
the April 2001 restructuring, the Company believes it has taken the steps
necessary to become cash flow positive from its continuing operations during the
second half of 2001. Currently the Company is funding its cash needs through
$200,000 received from the sale of the web hosting and non-dial-up internet
access business, $150,000 received from the former employee who misappropriated
funds from the Company, consistent collections of accounts receivable,
curtailment of payments of certain debts associated with discontinued business
units, restructuring efforts and continued improvements in the operational
performance of our ongoing business lines. The improved performance of our
continuing operations is primarily due to the restructurings that the Company
completed in fourth quarter 2000 and April 2001. This included reduction of
personnel, closing of offices, moving the administrative headquarters to Tampa
and focusing on our profitable ongoing business units.
However with respect to the Company's year 2000 financial statement,
the Company received a going concern emphasis to its opinion from its auditors
because of its previous losses and significant liabilities related to its
discontinued business units, restructuring efforts and the termination of the
Infonautics merger. The ability of the Company to continue as a going concern is
dependent upon restructuring certain liabilities and obtaining cash flow from
external sources. In order for the Company to execute its current plan to raise
additional capital, it will have to negotiate with certain creditors to reduce
these liabilities. This process has recently begun. If the Company is successful
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in reaching agreements with its creditors to reduce these liabilities, the
Company believes it will be able to raise capital to pay down the restructured
liabilities as well as fund the Company's ongoing capital needs. If the Company
cannot restructure the liabilities related to its discontinued operations,
restructuring and Infonautics merger termination, it will be required to
re-examine its current business and capitalization plans as it may not have
sufficient liquidity to service the approximately $4.0 million of liabilities
associated with the discontinued business units, restructuring and Infonautics
Merger termination. No assurance can be given that these liabilities can be
restructured and if additional capital can be raised.
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PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K.
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
IBS INTERACTIVE, INC.
Date: June 22, 2001
By: /s/ NICHOLAS R. LOGLISCI
------------------------------------------
Name: Nicholas R. Loglisci
Title: Chairman and Chief Executive
Officer
(Principal Executive Officer)
Date: June 22, 2001
By: /s/ KAREN L. SURPLUS
------------------------------------------
Name: Karen L. Surplus
Title: Chief Financial Officer
(Principal Financial and
Accounting Officer)
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