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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 June 30, 2001 (Second 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 (I.R.S. Employer I.D. No.)
of Incorporation or Organization)
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)
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 July 20, 2001, 7,137,131 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 June 30, 2001 (unaudited) and
December 31, 2000.................................................................. 2
Condensed Consolidated Statements of Operations for the three and six months ended
June 30, 2001 and 2000 (unaudited)................................................. 3
Condensed Consolidated Statements of Cash Flows for the six months ended June 30,
2001 and 2000 (unaudited).......................................................... 4
Notes to Condensed Consolidated Financial Statements............................... 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........................................................... 7
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................................... 12
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS........................................... 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................... 12
SIGNATURES.................................................................................. 13
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
IBS INTERACTIVE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, 2001 DECEMBER 31, 2000
------------- -----------------
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents $ 306 $ 1,557
Accounts receivable (net of allowance for doubtful
accounts of $1,108 in 2001 and $1,000 in 2000) 4,340 3,802
Other current assets 139 271
-------- --------
Total Current Assets 4,785 5,630
Property and equipment, net 1,001 1,424
Intangible assets, net 12,787 14,819
Other assets 55 136
-------- --------
Total Assets $ 18,628 $ 22,009
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 2,930 $ 2,507
Accrued liabilities on sale of discontinued operations 1,751 1,769
Accrued severance and restructuring expenses 2,019 1,375
Long-term debt, current portion 225 210
Deferred revenue and customer deposits 192 546
-------- --------
Total Current Liabilities 7,117 6,407
Long-term debt, less current portion 823 1,083
Pension obligation 148 148
Acquisition liabilities 945 945
-------- --------
Total Liabilities 9,033 8,583
-------- --------
Stockholders' Equity:
Common Stock, $.01 par value, authorized 11,000,000 shares,
7,137,131 shares issued and outstanding 71 68
Additional paid in capital 38,880 38,883
Accumulated deficit (29,356) (25,525)
-------- --------
Total stockholders' equity 9,595 13,426
-------- --------
Total liabilities and stockholders' equity $ 18,628 $ 22,009
======== ========
See Accompanying Notes to Condensed Consolidated Financial Statements.
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IBS INTERACTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2001 AND 2000
(unaudited, in thousands, except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2001 2000 2001 2000
-------- -------- -------- --------
Revenues $ 5,255 $ 6,589 $ 10,314 $ 11,001
Cost of services 3,935 4,735 7,943 8,186
-------- -------- -------- --------
Gross profit 1,320 1,854 2,371 2,815
Operating expenses:
Selling, general and administrative 1,324 3,324 3,403 6,091
Amortization of intangible assets 1,164 1,011 2,036 1,390
Non-cash compensation expenses -- -- -- 237
Loss on sale of assets 212 -- 212 --
Severance and restructuring 518 -- 518 865
-------- -------- -------- --------
Total operating expenses 3,218 4,335 6,169 8,583
-------- -------- -------- --------
Operating loss (1,898) (2,481) (3,798) (5,768)
Interest expense (income), net 17 52 33 51
-------- -------- -------- --------
Loss before income taxes (1,915) (2,533) (3,831) (5,819)
Income tax provision -- 6 -- 11
-------- -------- -------- --------
Loss from continuing operations (1,915) (2,539) (3,831) (5,830)
Discontinued operations
Loss from discontinued operations -- 242 -- 798
Loss on disposal of discontinued operations -- 3,383 -- 3,383
-------- -------- -------- --------
Net loss $ (1,915) $ (6,164) $ (3,831) $(10,011)
======== ======== ======== ========
Loss per share from continuing operations:
Basic and Diluted $ (0.28) $ (0.39) $ (0.55) $ (0.97)
Loss per share from discontinued operations:
Basic and Diluted -- (0.55) -- (0.70)
-------- -------- -------- --------
Loss per share from operations:
Basic and Diluted $ (0.28) $ (0.94) $ (0.55) $ (1.67)
======== ======== ======== ========
Weighted average common stock shares outstanding:
Basic and Diluted 6,803 6,581 6,969 5,982
======== ======== ======== ========
See Accompanying Notes to Condensed Consolidated Financial Statements.
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IBS INTERACTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(unaudited, in thousands)
SIX MONTHS ENDED
JUNE 30,
------------------------
2001 2000
------- -------
Cash flows used in operating activities $(1,331) $(5,439)
------- -------
Cash flows provided by (used in) investing activities:
Asset acquisition - cash acquired -- 30
Capital expenditures - property and equipment (25) (100)
Proceeds from assets sold 200 --
------- -------
Net cash provided by (used in) investing
activities 175 (70)
Cash flows provided by (used in) financing activities:
Net proceeds from private placement -- 7,247
Payments of capital leases -- (21)
Repayments of notes payable (95) (1,219)
------- -------
Net cash provided by (used in) financing
activities (95) 6,007
------- -------
Net decrease in cash and cash equivalents (1,251) 498
Cash and cash equivalents, beginning of periods 1,557 2,892
------- -------
Cash and cash equivalents, end of periods $ 306 $ 3,390
======= =======
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)
necessary for a fair presentation of the information shown herein have been
included.
The results of operations and cash flows for the three and six months
ended June 30, 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 six months ended June 30,
2001, the Company incurred losses of $3,831,000 and cash flow deficiencies from
operations of $1,331,000. 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 its 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.
In July 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS 141
requires the use of the purchase method of accounting and prohibits the use of
the pooling-of-interests method of accounting for business combinations
initiated after June 30, 2001. SFAS 142 addresses financial accounting and
reporting for acquired goodwill and other intangible assets. SFAS requires,
among other things, that companies no longer amortize goodwill, but instead
test goodwill for impairment at least annually. SFAS 142 is required to be
applied for fiscal years beginning after December 15, 2001. The Company's
previous business combinations were accounted for using both the
pooling-of-interests and purchase methods. As of June 30, 2001, net carrying
amount of goodwill is $12.6 million and other intangible assets is $0.2
million. Amortization expense during the six-month period ended June 30, 2001
was $2.0 million. Currently, the Company is assessing but has not yet
determined how the adoption of SFAS 141 and SFAS 142 will impact its financial
position and results of operations.
2. LOSS PER SHARE DATA
Common stock equivalents in the three and six-month periods ended June
30, 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 and six-month periods ended June 30, 2001 and 2000
based on uncertainties concerning its ability to generate taxable income in
future periods. The tax benefit for the three and six-month periods ended June
30, 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.
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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 yet been provided. At June 30, 2001, $100,000 remained in deferred
revenue related to this transaction. PowerCerv must use these unused services by
December 31, 2001.
5. SALE OF ASSETS
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 IBS Board of
Directors.
6. SEVERANCE AND RESTRUCTURING
During April 2001, the Company took additional cost reduction 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 $456,000 relating to the
closing of the office, and $62,000 relating to severance, benefits and
entitlements. At June 30, 2001, $408,000 remained of the $518,000 accrued.
7. STOCKHOLDERS' EQUITY
During June, the Company reached a settlement agreement with certain
shareholders resolving a contractual dispute with such shareholders. During
June, the Company issued 350,002 shares of common stock to these shareholders to
effect that resolution.
8. SUBSEQUENT EVENTS
During July 2001, the Company sold its network services and
installation business unit to Spectrum Solutions, Inc. for $350,000. The Company
recorded an $11,000 loss related to this sale.
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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
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, IT consulting and training.
We provide a broad range of e-Business and IT professional services,
including strategy services, component-based solutions, business application
development, 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.
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Currently, the Company's strategic vision is to be focused on being an
IT professional services company. To meet this goal, during April 2001, the web
hosting and non-dial-up internet access division was sold and during July 2001,
the network services and installation business unit was sold.
During December of 2000 and the first six months of 2001, the Company
has focused on reducing its expenditures to reach our goal of positive cash flow
from operations. During April 2001, we closed certain facilities that were
non-profitable and reduced our workforce to help accomplish this goal. The
Company believes it has taken the steps necessary to become cash flow positive
from its continuing operations during the second half of 2001 and during the
second quarter of 2001, the Company attained positive cash flow from operations
of $53,000. 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
certain liabilities and obtaining capital from external sources. In order for
the Company to execute its current plan to raise additional capital, the Company
is negotiating with certain creditors to reduce these liabilities. During July
2001, the Company successfully restructured a portion of the liabilities and is
working diligently on the remaining liabilities. 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 majority of 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 10-KSB and 10-QSB
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 $200,000 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 Company is now current with
its filings. The Company has until August 9, 2001 to file an appeal with NASDAQ
and intends to vigorously appeal this delisting.
RESULTS OF OPERATIONS
Three and Six Months Ended June 30, 2001 Compared to Three and Six Months
Ended June 30, 2000:
REVENUES. Revenues decreased $1,334,000 for the three months ended June
30, 2001 compared to the same period during 2000. This decrease is primarily the
result of reduced revenues due to selling non-IT business units and closing
unprofitable offices.
Revenues decreased $687,000 for the six months ended June 30, 2001
compared to the same period during 2000 due to reduced revenue as a result of
the sale of non-IT business units and closing unprofitable offices. This
decrease was offset by an increase in revenues of approximately $1.1 million
during the six months ended 2001 compared to the same period in 2000 due to the
March 2000 acquisition of digital fusion, inc. (DFI Acquisition). Because the
DFI Acquisition took place in March 2000, the 2000 revenues did not include DFI
revenue for January and February 2000. Revenues are expected to continue to be
lower in 2001 as compared to 2000 due to the sale of non-IT business units and
the closing of unprofitable offices. Revenue from our largest professional
services customer was responsible for 17% of our revenue in 2001 as compared to
18% in 2000.
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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 decreased by
$800,000 for the three months ended June 30, 2001 compared to the same period in
2000. This decrease is due to the decrease in revenues described above in the
"Revenues" section.
The cost of services decreased by $243,000 for the six-month period
ended in June 30, 2001 compared to the same period in 2000. This decrease is
primarily due to lower revenues as discussed above; offset by the increase
related to the cost of services from the March 2000 DFI acquisition which were
included for six months in 2001 vs four months during 2000.
GROSS PROFIT. The gross profit for the second quarter during 2001 was
$1,320,000, or 25% of revenues and $1,854,000, or 28% of revenues for the second
quarter of 2000. 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.
The gross profit for the six-month period ended June 30, 2001 was
$2,371,000, or 23% of revenues and $2,815,000, or 26% of revenues for the
six-month period ended June 30, 2000. 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. The gross profit for the second quarter of 2001 increased to 25% of
revenue compared to 22% for the first quarter of 2001. This increase was the
result of higher billable consultant utilization.
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 $2,000,000, or 60%,
for the three-month period ended June 30, 2001 compared to the same period
during 2000. It decreased $2,688,000 or 44% for the six-month period ended June
30, 2001 compared to the same period during 2000. The decrease for the three and
six-month periods were primarily due to the significant reduction in the
Company's administrative staff in conjunction with its fourth quarter 2000
restructuring, the administrative headquarters move from New Jersey to Florida
during January 2001 and the April 2001 restructuring which included closing
unprofitable offices and a reduction in workforce.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets
increased by $153,000, or 15% for the second quarter of 2001 compared to the
same period in 2000. This increase was primarily due to the amortization related
to the intangible assets arising from the DFI Acquisition.
Amortization of intangible assets increased by $646,000, or 46% for the
six-month period ended June 30, 2001 compared to the same period in 2000. This
increase was primarily due to the DFI Acquisition and the fact that the
acquisition occurred on March 1, 2000, therefore the 2000 amounts only have four
months of amortization related to the DFI Acquisition as compared to six months
included in 2001.
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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. 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 June
30, 2001, $-0- remained of the total accrual of $865,000.
During April 2001, the Company took additional cost reduction 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 $456,000 relating to the
closing of the office, and $62,000 relating to severance, benefits and
entitlements.
INTEREST EXPENSE (INCOME), NET. Interest expense, net in 2000 and 2001
consisted primarily of interest payments and accruals on indebtedness in
connection with the DFI Acquisition. Net interest expense was $17,000 and
$52,000 for the three-month periods ended 2001 and 2000, respectively and
$33,000 and $51,000 for the six-month periods ended June 30, 2001 and 2000,
respectively.
INCOME TAXES. The Company has not recognized an income tax benefit for
its operating losses generated during the three and six-month periods ended June
30, 2001 and 2000 based on uncertainties concerning its ability to generate
taxable income in future periods. The tax benefit for the three and six-month
periods ended June 30, 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
and six-month periods ended June 30, 2000, the Company recorded a loss related
to this discontinued operation of $242,000 and $798,000, respectively. During
June 2000, the Company recorded a loss on disposal of discontinued operations of
$3,383,000.
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LIQUIDITY AND CAPITAL RESOURCES
The net cash used in operating activities decreased from $5,439,000 for
the six-month period ended June 30, 2000 to $1,331,000 during the same period in
2001. This change is primarily attributable to operating results from continuing
operations that produced a net loss in the amount of $5,830,000 for the six
months ended June 30, 2000 compared to a net loss of $3,831,000 for the
corresponding six-month period in 2001. Net cash provided by operating
activities for the three-month period ended June 30, 2001 was $53,000. Obtaining
a positive cash flow from operations for the second quarter of 2001 is the
result of the Company taking the necessary steps to restructure the Company by
closing unprofitable offices, moving the administrative headquarters from New
Jersey to Tampa as well as reducing its workforce during December 2000 and April
2001 and selling non-IT focused business units so management can focus on its
core business, IT professional services.
Net cash used in investing activities was $70,000 in 2000 compared to
net cash provided in investing activities of $175,000 in 2001. During 2001, the
Company sold the web hosting and non-dial-up internet access business for
$200,000. The Company purchased property and equipment of $100,000 during 2000
and $25,000 during 2001. The Company does not expect to have significant
equipment purchases during 2001. The Company sold its network services and
installation business unit during July 2001 for $350,000.
Financing activities provided cash and cash equivalents of $6,007,000
in 2000. This is comprised of $7,247,000 received from the net proceeds of the
2000 Private Placement; which is offset by payments on notes payable and capital
leases of $1,240,000. During 2001, net cash used in financing activities of
$95,000 was principal payments on the note payable owed to PowerCerv, Inc.
Our working capital deficit at June 30, 2001 was $2.3 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, $200,000 received from the former employee who misappropriated funds
from the Company, $350,000 received from the sale of the network services and
installation business, 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 begun and during July 2001, we have
successfully restructured a portion of the liabilities and are working
diligently on the rest. 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 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 1. LEGAL PROCEEDINGS.
The Company has been sued on July 24, 2001 for alleged
defaults under several equipment lease agreements associated with a
business unit that was sold. The complaint seeks damages and
possession of the equipment. The Company has returned the equipment
that was in its possession and is defending the suit. The Company has
initiated discussions to resolve the dispute.
The Company is also involved in miscellaneous legal
proceedings arising from the cessation of certain business operations.
The Company is defending these proceedings and anticipates that it
will be able to resolve these disputes in a manner that will not
materially effect the Company's financial position.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
During June, the Company issued 350,002 shares of common
stock to certain shareholders to effect a settlement agreement. This
issuance of common stock was exempt from registration under the
Securities Act pursuant to Section 4 (2).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K.
None.
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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: August 8, 2001
By: /s/ ROY E. CRIPPEN, III
-------------------------------------
Name: Roy E. Crippen, III
Title: Chief Executive Officer
(Principal Executive Officer)
Date: August 8, 2001
By: /s/ KAREN L. SURPLUS
-------------------------------------
Name: Karen L. Surplus
Title: Chief Financial Officer
(Principal Financial and
Accounting Officer)
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