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: September 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:
17,792,694 shares of no par common shares outstanding at September 30, 2001
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Transitional Small Business Disclosure Format (check one) ( ) Yes (X) No
INTEGRATED BUSINESS SYSTEMS AND SERVICES, INC.
INDEX
PART I FINANCIAL INFORMATION Page
Number
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Item 1 Financial Statements 3 - 6
Balance Sheets - September 30, 2001, and
December 31, 2000 3
Statements of Operations for the three months and
nine months ended September 30, 2001, and 2000,
respectively 4
Statements of Cash Flows for the three months
ended September 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
2
PART I - FINANCIAL INFORMATION
ITEM 1- FINANCIAL STATEMENTS
INTEGRATED BUSINESS SYSTEMS & SERVICES, INC.
BALANCE SHEETS
September 30, 2001 December 31, 2000
(unaudited) (audited)
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Assets
Current assets:
Cash and cash equivalents $ 139,993 $ 700,892
Accounts receivable, trade 1,692,202 1,015,330
Short-term investment 0 50,000
Related party notes receivable 0 305,000
Subscriptions receivable 9,000 0
Interest receivable 29,808 25,262
Other prepaid expenses 92,294 64,835
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Total current assets 1,963,297 2,161,319
Long term accounts receivable 1,000,000 0
Capitalized software costs, net 465,317 599,730
Property and equipment, net 611,438 573,350
Investment in affiliated company, at equity 429,310 117,840
Related party receivable 218,452 84,349
Other assets 4,303 4,128
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Total assets $ 4,692,117 $ 3,540,716
============ ============
Liabilities and shareholders' equity
Current liabilities:
Notes payable $ 2,283,625 $ 0
Accounts payable 723,963 245,417
Accrued liabilities:
Accrued compensation and benefits 319,270 141,261
Accrued payroll taxes 68,428 7,248
Accrued professional fees 237,729 51,385
Accrued interest 108,200 31,250
Other 25,107 6,370
Deferred revenue 79,297 48,150
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Total current liabilities 3,845,619 531,081
Long-term debt, net of current portion 0 1,250,000
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Total liabilities: $ 3,845,619 $ 1,781,081
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Shareholders' equity:
Common Shares, voting, no par value, 100,000,000 shares
authorized, 17,792,694 and 14,244,869, shares outstanding
at September 30, 2001 and December 31, 2000, respectively 13,914,396 10,828,400
Notes receivable - stock (190,800) (190,800)
Accumulated deficit (12,877,098) (8,877,965)
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Total shareholders' equity 846,498 1,759,635
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Total liabilities and shareholders' equity $ 4,692,117 $ 3,540,716
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The accompanying notes are an integral part of these financial statements.
3
INTEGRATED BUSINESS SYSTEMS AND SERVICES, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Nine Months
Ended September 30, Ended September 30,
2001 2000 2001 2000
---- ---- ---- ----
Revenue:
Service revenue $ 516,390 $ 75,056 $ 1,587,126 $ 230,571
License revenue 258,750 0 258,750 500,000
Maintenance and support 25,527 38,888 77,894 83,065
Hardware revenue 766,482 0 1,241,954 0
Other revenue 48,713 5,023 89,143 16,129
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Total revenues 1,615,862 118,968 3,254,867 829,765
------------ ------------ ------------ ------------
Cost of revenues 1,042,412 249,797 2,136,160 578,384
------------ ------------ ------------ ------------
Gross Profit (loss) 573,450 (130,830) 1,118,707 251,381
Operating expense:
Research and development costs 187,034 60,570 611,644 187,299
General and administrative 792,767 892,138 2,533,828 2,282,206
Sales and marketing 443,761 463,819 1,628,605 1,010,109
------------ ------------ ------------ ------------
Total operating expenses 1,423,562 1,416,526 4,774,077 3,479,614
------------ ------------ ------------ ------------
Loss from operations (850,112) (1,547,356) (3,655,370) (3,228,233)
------------ ------------ ------------ ------------
Interest income 5,590 51,440 24,861 140,284
Other income 0 5 41 90,485
Interest expense (39,236) (36,252) (140,133) (85,317)
Loss on equity investment (80,792) 0 (228,530) 0
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Total other (expense) income (114,438) 15,194 (343,761) 145,451
------------ ------------ ------------ ------------
Net loss $ (964,550) $ (1,532,162) $ (3,999,131) $ (3,082,781)
============ ============ ============ ============
Earnings (loss) per share
Basic and diluted $ (0.06) $ (0.11) $ (0.26) $ (0.23)
============ ============ ============ ============
Weighted average common shares outstanding 16,886,442 14,218,996 15,237,554 13,227,941
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
4
INTEGRATED BUSINESS SYSTEMS AND SERVICES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months
ended September 30,
2001 2000
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OPERATING ACTIVITIES
Net loss $(3,999,131) $(3,082,781)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation/amortization 110,321 62,086
Amortization of software cost 134,414 126,204
Write-off of accounts payable 0 (90,285)
Loss on equity investments 228,530 0
Changes in assets and liabilities
Accounts receivable (1,668,974) (542,406)
Subscriptions receivable (9,000) 0
Interest receivable (4,547) (35,966)
Prepaid commissions 0 (60,740)
Prepaid expenses and other assets (27,635) (35,732)
Accounts payable 478,547 11,826
Accrued expenses 521,217 (289,992)
Deferred revenue 31,147 (52,909)
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Cash used in operating activities (4,205,111) (3,959,955)
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INVESTING ACTIVITIES
Purchases of property and equipment (148,409) (364,000)
Investments 50,000 (50,000)
Investment in affiliate companies (540,000) 0
Related party note receivable 163,000 183,680
Related party receivable 0 (4,459)
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Cash used in investing activities (475,409) (225,825)
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FINANCING ACTIVITIES
Proceeds from (payments on) notes payable, net 2,283,625 (28,976)
Sale of common shares 400,000 4,872,067
Proceeds from exercise of common stock options and warrants 1,435,996 876,847
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Cash provided by financing activities 4,119,621 5,719,938
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Net (decrease) increase in cash (560,899) 1,534,158
Cash and cash equivalents at beginning of period 700,892 82,996
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Cash and cash equivalents at end of period $ 139,993 $ 1,617,154
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The accompanying notes are an integral part of these financial statements.
5
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 nine month period ended Sept 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.
6
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
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For the three months ended September 30, 2001, as compared to the three months
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ended September 30, 2000.
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Revenues. Total revenues increased by 1,258% (or $1,496,894) to $1,615,862 in
the three months ended September 30, 2001, from $118,968 in the three months
ended September 30, 2000. This increase was primarily attributable to increases
in services, license 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 317% (or $792,615) to
$1,042,412 in the three months ended September 30, 2001, from $249,797 in the
three months ended September 30, 2000. This increase was attributable to an
increase in the cost of hardware sold as well as increases in direct labor costs
due to an 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 65% and 210% in the
three months ended September 30, 2001, and 2000, respectively. Accordingly, the
gross margins were 35% and (110%) in the three months ended September 30, 2001,
and 2000, respectively.
Research and Development. Research and development costs increased by 209% (or
$126,464) to $187,034 in the three months ended September 30, 2001, from $60,570
in the three months ended September 30, 2000. Research and development costs
represented 12% and 51% of total revenues for the three months ended September
30, 2001, and 2000, respectively.
General and Administrative. General and administrative expenses, including
interest expense, decreased by 10% (or $96,387) to $832,003 in the three months
ended September 30, 2001, from $928,390 in the three months ended September 30,
2000. General and administrative expenses decreased due to reductions in
employment recruitment and placement fees incurred as well as a reduction in
miscellaneous professional services offset by the new allocation of time by
technical staff for administrative projects. General and administrative costs
represented 51% and 750% of total revenues for the three months ended September
30, 2001 and 2000, respectively.
Sales and Marketing. Sales and marketing expenses decreased by 4% (or $20,058)
to $443,761 in the three months ended September 30, 2001, from $463,819 in the
three months ended September 30, 2000. This decrease was attributable to a
reduction in commissions expense recorded as well as a reduction in travel
expenses offset by 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. Sales and marketing expenses
represented 27% and 390% of total revenues in the three months ended September
30, 2001, and 2000, respectively.
Corporate and Other Related Non-Operating Items. Interest income decreased by
89% (or $45,850) to $5,590 in the three months ended September 30, 2001, from
$51,440 in the three months ended September 30, 2000, as a result of the smaller
cash balances.
For the nine months ended September 30, 2001, as compared to the nine months
- ----------------------------------------------------------------------------
ended September 30, 2000.
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Revenues. Total revenues increased by 292% (or $2,425,102) to $3,254,867 in the
nine months ended September 30, 2001, from $829,765 in the nine months ended
September 30, 2000. This increase was primarily attributable to increases in
services, license and hardware revenues 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 269% (or $1,557,776) to
$2,136,160 in the nine months ended September 30, 2001, from $578,384 in the
nine months ended September 30, 2000. This increase was attributable to an
increase in the cost of hardware sold as well as increases in direct labor costs
due to an increase in the number of employees in the development, design,
production and project management areas.
7
The cost of revenues as a percentage of total revenues were 66% and 70% in the
nine months ended September 30, 2001, and 2000, respectively. Accordingly, the
gross margins were 34% and 30% in the nine months ended September 30, 2001, and
2000, respectively.
Research and Development. Research and development costs increased by 227% (or
$424,345) to $611,644 in the nine months ended September 30, 2001, from $187,299
in the nine months ended September 30, 2000. Research and development costs
represented 19% and 23% of total revenues for the nine months ended September
30, 2001, and 2000, respectively.
General and Administrative. General and administrative expenses, including
interest expense, increased by 13% (or $306,438) to $2,673,961 in the nine
months ended September 30, 2001, from $2,367,523 in the nine months ended
September 30, 2000. This increase was due to the new allocation of time by
technical staff for administrative projects. General and administrative expenses
represented 82% and 285% of total revenues for the nine months ended September
30, 2001, and 2000, respectively.
Sales and Marketing. Sales and marketing expenses increased by 61% (or $618,496)
to $1,628,605 in the nine months ended September 30, 2001, from $1,010,109 in
the nine months ended September 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 50% and 122% of total
revenues in the nine months ended September 30, 2001, and 2000, respectively.
Corporate and Other Related Non-Operating Items. Interest income decreased by
82% (or $115,423) to $24,861 in the nine months ended September 30, 2001, from
$140,284 in the nine months ended September 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 fourth quarter of
2001, and the first quarter of 2002 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 $4,196,000
during the nine months ended September 30, 2001, as compared to approximately
$3,960,000 during the nine months ended September 30, 2000. This increase in
cash used in operating activities in 2001 was mainly due to an increase in the
net loss and increases in accounts receivable offset by increases in accounts
payable and accrued expenses.
Net cash used in investing activities was approximately $475,000 during
the nine months ended September 30, 2001, as compared to approximately $226,000
used during the nine months ended September 30, 2000. This increase in cash used
in investing activities in 2001 was mainly due to an investment in an affiliate
offset by a decrease in the purchases of property and equipment.
Net cash provided by financing activities was approximately $4,111,000
during the nine months ended September 30, 2001, as compared to approximately
$5,720,000 during the nine months ended September 30, 2000. The net cash
provided by
8
financing activities in 2001 resulted primarily from the notes payable for
$2,284,000 issued and the exercise of warrants and sales of common stock for
$1,827.000.
For the nine months ended September 30, 2001 our affiliate, Wilcam-SC,
Inc. (for more details on our relationship with Wilcam-SC, Inc., please see our
December 31, 2000 audited financial statements) posted sales of $1,766, gross
profit of ($3,234) and a net loss of $855,274.
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 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.
9
PART II
OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is not a party to any material pending litigation.
ITEM 2 - CHANGES IN SECURITIES
During the three months ended September 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 August, the Company issued to two private investors an aggregate of
20,000 shares of its common stock at a purchase price of $2.50 per share for
an aggregate purchase price of $50,000, which shares were accompanied by an
aggregate of 10,000 warrants exercisable at $3.00 per share.
In addition, (i) in August, warrants issued in August 1999, to a
private investor group were exercised for the purchase of 25,000 shares of the
Company's common stock at $1.00 per share, for an aggregate exercise price of
$25,000, and (ii) in September, warrants issued in October 1998, to two private
investors were exercised for the purchase of 860,000 shares of the Company's
common stock at $0.01 per share for an aggregate exercise price of $8,600.
Finally, in the third quarter, in connection with debt financing to
the Company, the Company issued warrants for the purchase of the Company's
common stock to four individual lenders in the following amounts: (i) warrants
to purchase 152,500 shares at $3.00 per share; and (ii) warrants to purchase
110,000 shares 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
This item is not applicable
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/ George E. Mendenhall
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George E. Mendenhall
Chairman and Chief Executive Officer
Date: November 14, 2001
10