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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: June 30, 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
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(Address of principal executive offices)
(803) 736-5595
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(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:
16,842,294 shares of no par common shares outstanding at June 30, 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 3 - 6
Balance Sheets - June 30, 2001, and
December 31, 2000 3
Statements of Operations for the three months and six
months ended June 30, 2001, and 2000, respectively 4
Statements of Cash Flows for the three months
ended June 30, 2001, and 2000, respectively 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II OTHER INFORMATION 10
Items 1 - 6
SIGNATURES
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PART I - FINANCIAL INFORMATION
ITEM 1- FINANCIAL STATEMENTS
INTEGRATED BUSINESS SYSTEMS & SERVICES, INC.
BALANCE SHEETS
June 30, 2001 December 31, 2000
(unaudited) (audited)
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Assets
Current assets:
Cash and cash equivalents $ 60,316 $ 700,892
Accounts receivable, trade 1,356,910 1,015,330
Short-term investment 0 50,000
Related party notes receivable 0 305,000
Notes receivable 30,000 0
Subscriptions receivable 352,000 0
Interest receivable 25,292 25,262
Other prepaid expenses 119,534 64,835
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Total current assets 1,944,052 2,161,319
Capitalized software costs, net 510,121 599,730
Property and equipment, net 641,796 573,350
Investment in affiliated company, at equity 510,103 117,840
Related party receivable 79,399 84,349
Other assets 4,303 4,128
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Total assets $ 3,689,774 $ 3,540,716
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Liabilities and shareholders' equity
Current liabilities:
Notes payable 1,218,937 0
Accounts payable 245,230 245,417
Accrued liabilities:
Accrued compensation and benefits 178,428 141,261
Accrued payroll taxes 8,715 7,248
Accrued professional fees 126,715 51,385
Accrued interest 69,624 31,250
Other 13,405 6,370
Deferred revenue 104,824 48,150
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Total current liabilities 1,965,878 531,081
Long-term debt, net of current portion
0 1,250,000
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Total liabilities: $ 1,965,878 $ 1,781,081
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Shareholders' equity:
Common Shares, voting, no par value, 100,000,000 shares
authorized, 16,842,294 and 14,244,869, shares outstanding
at June 30, 2001 and December 31, 2000, respectively 13,827,245 10,828,400
Notes receivable - stock (190,800) (190,800)
Accumulated deficit (11,912,549) (8,877,965)
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Total shareholders' equity 1,723,896 1,759,635
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Total liabilities and shareholders' equity $ 3,689,774 $ 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 Six Months
Ended June 30, Ended June 30,
2001 2000 2001 2000
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Revenue:
Service revenue $ 663,842 $ 131,425 $ 1,070,735 $ 155,515
License revenue 0 500,000 0 500,000
Maintenance and support 22,593 22,089 52,367 44,177
Hardware revenue 33,625 0 475,473 0
Other revenue 32,836 2,836 40,430 11,106
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Total revenues 752,896 656,350 1,639,005 710,798
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Cost of revenues 408,244 154,492 1,093,748 328,585
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Gross Profit 344,652 501,858 545,257 382,213
Operating expense:
Research and development costs 163,271 84,451 424,610 126,730
General and administrative 872,681 736,240 1,741,061 1,390,067
Sales and marketing 555,606 336,973 1,184,844 546,291
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Total operating expenses 1,591,558 1,157,664 3,350,515 2,063,088
------------ ------------ ------------ ------------
Loss from operations (1,246,906) (655,806) (2,805,258) (1,680,875)
------------ ------------ ------------ ------------
Interest income 5,580 63,269 19,271 88,843
Other income 10 215 41 90,480
Interest expense (62,828) (22,460) (100,898) (49,065)
Loss on equity investment (70,599) 0 (147,738) 0
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Total other (expense) income (127,837) 41,024 (229,324) 130,258
------------ ------------ ------------ ------------
Net loss $ (1,374,743) $ (614,782) $ (3,034,582) $ (1,550,617)
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Earnings (loss) per share
Basic and diluted $ (0.10) $ (0.04) $ (0.21) $ (0.12)
============ ============ ============ ============
Weighted average common shares
outstanding 14,370,292 13,882,911 14,411,821 12,726,968
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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 CASH FLOWS
(UNAUDITED)
Six Months
ended June 30,
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2001 2000
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OPERATING ACTIVITIES
Net loss $(3,034,582) $(1,550,617)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation/amortization 72,319 39,789
Amortization of software cost 89,609 84,136
Write-off of accounts payable 0 (90,285)
Loss on equity investments 147,738 0
Changes in assets and liabilities
Investments 50,000 (50,000)
Accounts receivable (336,630) (512,018)
Interest receivable (31) (21,110)
Prepaid commissions 0 (60,740)
Prepaid expenses and other assets (54,875) (33,430)
Accounts payable (187) (15,828)
Accrued expenses 159,371 (329,990)
Deferred revenue 56,674 (47,620)
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Cash used in operating activities (2,850,594) (2,587,713)
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INVESTING ACTIVITIES
Purchases of property and equipment (140,765) (215,931)
Investment in affiliate companies (540,000) 0
Related party note receivable 275,000 183,680
Related party receivable 0 (2,459)
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Cash used in investing activities (405,765) (34,710)
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FINANCING ACTIVITIES
Proceeds from (payments on) notes payable, net 1,218,938 (28,976)
Subscriptions receivable (352,000) 0
Sale of common shares 350,000 4,872,066
Proceeds from exercise of common stock options and warrants 1,398,845 806,923
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Cash provided by financing activities 2,615,783 5,650,013
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Net increase (decrease) in cash (640,576) 3,027,590
Cash and cash equivalents at beginning of period 700,892 82,996
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Cash and cash equivalents at end of period $ 60,316 $ 3,110,586
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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 six month period ended June 30, 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 June 30, 2001, as compared to the three months ended
June 30, 2000.
Revenues. Total revenues increased by 15% (or $96,546) to $752,896 in the three
months ended June 30, 2001, from $656,350 in the three months ended June 30,
2000. This increase was primarily attributable to an increase in both service
revenue and hardware revenue due to earlier sales of the Synapse-based product
requiring service and hardware to accompany said software.
Cost of Revenues. Total cost of revenues increased by 164% (or $253,752) to
$408,244 in the three months ended June 30, 2001, from $154,492 in the three
months ended June 30, 2000. 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 were 54% and 24% in the
three months ended June 30, 2001, and 2000, respectively. Accordingly, the gross
margins were 46% and 76% in the three months ended June 30, 2001, and 2000,
respectively.
Research and Development. Research and development costs increased by 93% (or
$78,820) to $163,271 in the three months ended June 30, 2001, from $84,451 in
the three months ended June 30, 2000. Research and development costs represented
22% and 13% of total revenues for the three months ended June 30, 2001, and
2000, respectively.
General and Administrative. General and administrative expenses, including
interest expense, increased by 23% (or $176,809) to $935,509 in the three months
ended June 30, 2001, from $753,700 in the three months ended June 30, 2000.
General and administrative expenses increased due to the new allocation of time
by technical staff for administrative projects. General and administrative costs
represented 124% and 116% of total revenues for the three months ended June 30,
2001 and 2000, respectively.
Sales and Marketing. Sales and marketing expenses increased by 65% (or $218,633)
to $555,606 in the three months ended June 30, 2001, from $336,973 in the three
months ended June 30, 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 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 74% and 51% of total revenues in the three months
ended June 30, 2001, and 2000, respectively.
Corporate and Other Related Non-Operating Items. Interest income decreased by
91% (or $5,580) to $57,689 in the three months ended June 30, 2001, from $63,269
in the three months ended June 30, 2000, as a result of the smaller cash
balances.
For the six months ended June 30, 2001, as compared to the six months ended June
30, 2000.
Revenues. Total revenues increased by 131% (or $928,207) to $1,639,005 in the
six months ended June 30, 2001, from $710,798 in the six months ended June 30,
2000. This increase was primarily attributable to an increase in both service
revenue and hardware revenue due to earlier sales of the Synapse-based product
requiring service and hardware to accompany said software.
Cost of Revenues. Total cost of revenues increased by 233% (or $765,163) to
$1,093,748 in the six months ended June 30, 2001, from $328,585 in the six
months ended June 30, 2000. 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 were 67% and 46% in the
six months ended June 30, 2001, and 2000, respectively. Accordingly, the gross
margins were 33% and 54% in the six months ended June 30, 2001, and 2000,
respectively.
Research and Development. Research and development costs increased by 235% (or
$297,880) to $424,610 in the six months ended June 30, 2001, from $126,730 in
the six months ended June 30, 2000. Research and development costs represented
26% and 18% of total revenues for the six months ended June 30, 2001, and 2000,
respectively.
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General and Administrative. General and administrative expenses, including
interest expense, increased by 28% (or $402,827) to $1,841,959 in the six months
ended June 30, 2001, from $1,439,132 in the six months ended June 30, 2000. This
increase was due to the new allocation of time by technical staff for
administrative projects. General and Administrative costs represented 112% and
202% of total revenues for the six months ended June 30, 2001 and 2000,
respectively.
Sales and Marketing. Sales and marketing expenses increased by 117% (or
$638,553) to $1,184,844 in the six months ended June 30, 2001, from $546,291 in
the six months ended June 30, 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 72% and 77% of total revenues in the
six months ended June 30, 2001, and 2000, respectively.
Corporate and Other Related Non-Operating Items. Interest income decreased by
78% (or $69,572) to $19,271 in the six months ended June 30, 2001, from $88,843
in the six months ended June 30, 2000, as a result of the smaller cash balances.
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 third and fourth 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 $2,851,000
during the six months ended June 30, 2001, as compared to approximately
$2,588,000 during the six months ended June 30, 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 $406,000 during
the six months ended June 30, 2001, as compared to approximately $35,000 used
during the three months ended June 30, 2000. The net cash used in investing
activities in 2001 was primarily for investment in an affiliate and purchases of
property and equipment.
Net cash provided by financing activities was approximately $2,616,000
during the six months ended June 30, 2001, as compared to approximately
$5,650,000 during the six months ended June 30, 2000. The net cash provided by
financing activities in 2001 resulted primarily from the notes payable for
$1,413,000 issued during the first quarter, and the exercise of warrants and
sale of common stock in the second quarter.
For the six months ended June 30, 2001 our affiliate, Wilcam-SC, Inc.
(for more details on our relationship with Wilcam-SC, Inc., please see our
December 31, 2001 audited financial statements) posted sales of $1,233, gross
profit of ($6,233) and a net loss of $552,911.
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
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risks 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 in 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 Company's expansion
and development strategies; and other factors described in other reports filed
by the Company with the Securities and Exchange Commission.
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PART II
OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is not a party to any pending litigation.
ITEM 2 - CHANGES IN SECURITIES
During the three months ended June 30, 2001, the securities identified
below were issued by the Company without registrations under the Securities Act
of 1933, as amended (the "1933 Act"). In each case, all of the securities were
issued pursuant to the exemption from registration contained in Section 4(2) and
Rule 506 of Regulation D of the 1933 Act as a transaction, not involving a
general solicitation, in which the purchaser was purchasing for investment. The
Company believes that each purchaser was given or had access to detailed
financial and other information with respect to the Company and possessed
requisite financial sophistication.
In the second quarter of 2001, the Company received $350,000 in gross
proceeds from two private investors from the purchase of 140,000 shares of the
Company's Common Stock at $2.50 per share.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
This item is not applicable.
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
(a) The Company's annual meeting of the stockholders was held on May
18, 2001
(b) Matters approved at the meeting:
(i) Election of Directors;
Number of Shares
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Nominees For Abstain Against
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George E. Mendenhall 9,491,576 214,701 0
(ii) Proposal to ratify the Company's adoption of the 2001 Stock
Incentive Plan;
Number of Shares
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For Abstain Against
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9,396,248 10,643 299,386
(iii) Proposal to approve the motion on the conversion of the
existing escrow arrangements in place with respect to shares
of Common Stock held by the Company's executive officers; and
Number of Shares
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For Abstain Against
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4,719,374 17,393 287,566
(iv) Proposal to ratify the appointment of Scott McElveen, LLP, as
the Company's independent auditors for the fiscal year ending
December 31, 2001.
Number of Shares
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For Abstain Against
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9,648,622 0 0
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.
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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: August 14, 2001
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