1
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, 1999
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transaction period from: ____________________ to _______________________
Commission File number: 0-24031
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 128, 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:
9,815,555 shares of no par common shares outstanding at June 30, 1999
Transitional Small Business Disclosure Format (check one) ( ) YES (X) NO
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INTEGRATED BUSINESS SYSTEMS AND SERVICES, INC.
INDEX
PAGE
NUMBER
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PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheets - June 30, 1999 and
December 31, 1998 3
Statements of Operations for the three months
ended June 30, 1999 and 1998, respectively 4
Statements of Cash Flows for the six months
ended June 30, 1999 and 1998, respectively 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of 7 - 12
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Items 1 - 6 13 - 14
SIGNATURES 15
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INTEGRATED BUSINESS SYSTEMS & SERVICES, INC.
Balance Sheets
JUNE 30 DECEMBER 31,
1999 1998
(unaudited) (audited)
----------------------------------
ASSETS
Current assets:
Cash and cash equivalents 8,982 16,593
Accounts receivable 200,780 159,122
Prepaid commissions 42,353 17,353
Other prepaid expenses 5,207 13,553
----------------------------------
Total current assets 257,322 206,621
Capitalized software costs, net 852,136 852,996
Property and equipment, net 123,744 140,756
Other assets 2,643 2,743
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Total assets 1,235,844 1,203,116
==================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Notes payable 156,976 89,828
Related party payable 20,000 35,300
Long-term debt, current portion 39,000 39,000
Accounts payable 267,283 553,067
Accrued liabilities
Accrued compensation and benefits 51,302 56,809
Accrued payroll taxes 123,673 407,312
Other 75,394 89,581
Deferred revenue 83,369 120,183
----------------------------------
Total current liabilities 816,997 1,391,080
Long-term debt, net of current portion 204,000 542,000
----------------------------------
Total liabilities 1,020,997 1,933,080
Commitments and contingencies - -
Stockholders' equity (deficiency):
Class A common shares, voting, no par value, 100,000,000 shares
authorized, 9,815,555 and 8,438,663 shares outstanding at
June 30, 1999 and December 31, 1998 respectively. 3,484,432 2,007,803
Accumulated deficit (3,269,584) (2,737,767)
----------------------------------
Total shareholders' equity (deficiency) 214,848 (729,964)
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Total liabilities and shareholders' equity (deficiency) 1,235,845 1,203,116
==================================
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
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1999 1998 1999 1998
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REVENUES
Services and Funded Development 180,515 122,121 423,522 325,476
Hardware sales 45 17,350 1,551 50,703
Software licensing 2,779 37,516 5,558 36,590
Maintenance 39,738 81,477 83,817 153,622
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Total revenues 223,077 258,464 514,448 566,391
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OPERATING EXPENSES
Cost of revenues 157,366 124,409 282,173 264,811
Research and development costs 61,123 18,685 66,135 43,132
General and administrative 305,355 354,329 547,121 605,289
Sales and marketing 76,622 122,940 109,265 167,164
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Total operating expenses 600,466 620,363 1,004,694 1,080,396
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Loss from operations (377,389) (361,899) (490,246) (514,005)
Interest expense 22,215 12,058 41,569 17,168
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Net loss (399,604) (373,957) (531,815) (531,173)
================================== ==================================
Earnings (loss) per share:
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Basic and diluted (0.04) (0.05) (0.06) (0.07)
================================== ==================================
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Weighted average common shares outstanding 9,459,089 8,138,046 9,081,544 8,066,466
================================== ==================================
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
----------------------------------
1999 1998
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OPERATING ACTIVITIES
Net loss (531,815) (531,173)
Adjustments to reconcile net loss to cash provided
(used) by operating activities:
Depreciation 28,844 28,010
Amortization of software costs 53,003 10,201
Decrease (increase) in:
Accounts receivable (41,659) 101,309
Prepaid commissions (25,000) (30,634)
Prepaid expenses and other assets 8,346 (33,183)
Refundable deposits 100 575
Increase (decrease) in:
Accounts payable (241,677) 102,838
Accrued expenses (347,441) 206,887
Deferred revenue (36,814) (36,140)
----------------------------------
Net cash provided (used) by operating activities (1,134,113) (181,310)
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INVESTING ACTIVITIES
Purchases of property and equipment, net (11,831) (76,204)
Capitalized internal software development costs (52,144) (371,944)
----------------------------------
Net cash used by investing activities (63,975) (448,148)
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FINANCING ACTIVITIES
Proceeds from (payments on) notes payable, net 67,148 (25,835)
Proceeds from long-term debt 0 500,000
Payments on long-term debt (18,000) (18,000)
Proceeds from (payments to) related party, net (15,300) 0
Sale of common shares 954,383 148,854
Paid in Capital 202,246 0
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Net cash provided by (used in) financing activities 1,190,477 605,019
----------------------------------
Net increase (decrease) in cash (7,611) (24,439)
Cash and cash equivalents at beginning of period 16,593 84,649
----------------------------------
Cash and cash equivalents at end of period 8,982 60,210
==================================
The accompanying notes are an integral part of these financial statements.
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INTEGRATED BUSINESS SYSTEMS AND SERVICES, INC.
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, 1999, are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 1999. For further information, refer to the audited
financial statements and footnotes thereto included in the Company's Form 10-KSB
for the year ended December 31, 1998.
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.
SUBSEQUENT EVENTS:
On July 23, 1999, the Company completed a private placement of a Convertible
Debenture in the principal amount of $1,250,000 and the sale of common stock
purchase warrants for the purchase of up to 1,850,000 shares of the Company's
common stock. The Company received net proceeds of $913,250 from the sale of the
Convertible Debenture and the common stock purchase warrants, after deduction of
offering expenses and the placement of $300,000 into an escrow account. Funds
from the escrow account are to be released to the Company upon its satisfaction
of certain performance milestones. The Convertible Debenture bears an interest
rate of seven percent through January 1, 2000 and 10 percent thereafter until
maturity on January 1, 2002.
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PART I
FINANCIAL INFORMATION
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.
Results of Operations
For the three months ended June 30, 1999 as compared to the three months ended
June 30, 1998
Revenues. Total revenues decreased $35,387 to $223,077 in the three months ended
June 30,1999 from $258,464 in the three months ended June 30, 1998. This
decrease was primarily attributable to a decrease in the sales of integration
licenses, services, data collection equipment and maintenance due to the
increased emphasis in the completion of FIS 2.0. This decrease was partially
offset by an increase in the service revenue of the FIS system business unit in
conjunction with the first implementation of FIS 2.0.
Cost of Revenues. Total cost of revenues increased $32,957 to $157,366 in the
three months ended June 30, 1999 from $124,409 in the three months ended June
30, 1998. This increase was attributable to an increase in Amortization of
Software Costs due to the completion of FIS 2.0 as well as an increase in the
labor costs of the FIS system business unit as a result of a transfer between
business unites of several employees. This increase was partially offset by a
decrease in the cost of sales of integration services and data collection
equipment due to the increased emphasis in the completion of FIS 2.0.
The cost of revenues as a percentage of total revenues was 70% and 48% in the
three months ended June 30, 1999 and 1998, respectively. Accordingly, the gross
margin was 30% and 52% in the three months ended June 30, 1999 and 1998,
respectively.
Research and Development. Research and development costs increased $42,438 to
$61,123 in the three months ended June 30,1999 from $18,685 in the three months
ended June 30, 1998. The Company released Version 2.0 of the FIS System for
general product availability; therefore, additional development costs were
expensed rather than capitalized. Research and development costs represented
approximately 27% and 7% of total revenues for the three months ended June
30,1999 and 1998, respectively.
General and Administrative. General and administrative expenses, including
interest expense, decreased $38,817 to $327,570 in the three months ended June
30,1999 from $366,387 in the three months ended June 30, 1998. Rent expense
decreased due to a reduction in the leased facilities as of the beginning of
1999. General business insurance increased due to the implementation of a
directors, officers and company liability policy effective June, 1998. Interest
expense increased due to the accrual on the private placement of the five-year
convertible notes in the amount of $500,000 in June, 1998. Professional fees
decreased due to a reclassification of marketing public relations expenses to
sales and marketing expenses. General and administrative expenses, including
interest expense, represented approximately 146% and 141% of total revenues in
the three months ended June 30, 1999 and 1998, respectively.
Sales and Marketing. Sales and marketing expenses decreased $46,317 to $76,622
in the three months ended June 30,1999 from $122,940 in the three months ended
June 30, 1998. This decrease was primarily attributable to a decrease in
marketing salaries due to a reduction of marketing personnel and a reduction in
the cost of marketing advertising and convention expenses. This decrease was
partially offset by an increase in public relations expenses due to a
reclassification from general and administrative expenses as well as an increase
in marketing. travel. Sales and marketing expenses represented approximately 34%
and 47% of total revenues in the three months ended June 30, 1999 and 1998,
respectively.
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For the six months ended June 30, 1999 as compared to the six months ended June
30, 1998
Revenues. Total revenues decreased $51,943 to $514,448 in the six months ended
June 30,1999 from $566,391 in the six months ended June 30, 1998. This decrease
was primarily attributable to a decrease in the sales of integration licenses,
services, data collection equipment and maintenance due to the increased
emphasis in the completion of FIS 2.0. This decrease was partially offset by an
increase in the service revenue of the FIS system business unit in conjunction
with the first implementation of FIS 2.0.
Cost of Revenues. Total cost of revenues increased $17,362 to $282,173 in the
six months ended June 30, 1999 from $264,811 in the six months ended June 30,
1998. This increase was attributable to an increase in Amortization of Software
Costs due to the completion of FIS 2.0 as well as an increase in the labor costs
of the FIS system business unit as a result of a transfer between business
unites of several employees. This increase was partially offset by a decrease in
the cost of sales of integration services and data collection equipment due to
the increased emphasis in the completion of FIS 2.0.
The cost of revenues as a percentage of total revenues was 54% and 46% in the
six months ended June 30, 1999 and 1998, respectively. Accordingly, the gross
margin was 46% and 54% in the six months ended June 30, 1999 and 1998,
respectively.
Research and Development. Research and development costs increased $23,003 to
$66,135 in the six months ended June 30,1999 from $43,132 in the six months
ended June 30, 1998. The Company released Version 2.0 of the FIS System for
general product availability; therefore, additional development costs were
expensed rather than capitalized. Research and development costs represented
approximately 12% and 7% of total revenues for the six months ended June 30,
1999 and 1998, respectively.
General and Administrative. General and administrative expenses, including
interest expense, decreased $33,767. to $588,690 in the six months ended June
30,1999 from $622,457 in the six months ended June 30, 1998. Rent expense
decreased due to a reduction in the leased facilities as of the beginning of
1999. General business insurance increased due to the implementation of a
directors, officers and company liability policy effective June, 1998. Interest
expense increased due to the accrual on the private placement of the five-year
convertible notes in the amount of $500,000 in June, 1998. Professional fees
decreased due to a reclassification of marketing public relations expenses to
sales and marketing expenses. General and administrative expenses, including
interest expense, represented approximately 114% and 102% of total revenues in
the six months ended June 30, 1999 and 1998, respectively.
Sales and Marketing. Sales and marketing expenses decreased $57,899 to $109,265
in the six months ended June 30,1999 from $167,164 in the six months ended June
30, 1998. This decrease was primarily attributable to a decrease in marketing
salaries due to a reduction of marketing personnel and a reduction in the cost
of marketing advertising and convention expenses. This decrease was partially
offset by an increase in public relations expenses due to a reclassification
from general and administrative expenses as well as an increase in marketing.
travel. Sales and marketing expenses represented approximately 21% and 29% of
total revenues in the six months ended June 30, 1999 and 1998, respectively.
Financial Condition at June 30, 1999
Cash and cash equivalents increased by $8,982 during the six months ended June
30, 1999.
Accounts receivable decreased by $41,659 during the six months ended June 30,
1999, reflecting decreased sales of integration services and data collection
equipment.
The $52,144 increase in capitalized software is attributed to the completion of
Version 2.0 of the FIS System.
The $574,083 decrease in current liabilities during the six months ended June
30, 1999 is due to the partial use of funds from private placements on February
25, 1999 and on May 3, 1999.
The Company's current liabilities exceeded its current assets at June 30, 1999
by $559,675.
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Liquidity and Capital Resources
From its inception through the middle of 1997, the Company financed its
operations primarily through revenues from operations including funded research
and development revenues, and occasional short term loans from the Company's
principals or their acquaintances. Since the middle of 1997, the Company has
financed its operations primarily through private and public offerings of Common
Stock and convertible debt, and to a lesser extent through through borrowings
from third-party lenders and from revenues from operations.
In December 1995, the Company entered into a factoring arrangement that was
being administered as a short term borrowing arrangement collateralized by
accounts receivable, which generally permitted borrowing of up to 75% of
accounts receivable. This arrangement was terminated by the Company in March,
1999. In February 1996, the Company entered into a loan for $180,000
collateralized by substantially all of the assets of the Company. This loan is
being repaid in sixty equal monthly installments.
During 1997, the Company received approximately $1,540,000 in net proceeds
(after deduction of commissions and offering costs) from the sale of 3,800,000
shares of its Common stock, of which approximately $1,220,000 was received
through the Company's initial public offering in November of 1997 and
approximately $320,000 was received from a private offering in June of 1997. The
Company used a portion of these proceeds to repay debt of approximately
$320,000. In addition, in November of 1997, convertible debt issued by the
Company in March of 1997, in the principal amount of $116,700 was converted into
shares of Common Stock.
During 1998, the Company received approximately $288,400 in gross proceeds from
the exercise by Wolverton Securities Ltd of warrants for the purchase of 430,000
shares of the Company's Common Stock.
In June 1998, the Company completed a private placement of five-year convertible
notes in the amount of $500,000 and non-transferable share purchase warrants
entitling the holders to purchase an aggregate of 541,000 common shares of the
Company. The notes, which bear interest at the rate of 12% per year, may be
converted into common shares of the Company at a conversion price of $0.923
during the first year and during each of the remaining four years of the term of
the notes; a conversion price that is higher than the conversion price in the
previous year by $0.175 per share. In June 1999, $320,000 of the $500,000
convertible note was converted into common shares at a conversion price of
$0.923 per share.
In the first quarter of 1999, the Company completed a private placement of
800,000 shares of Common Stock and two-year warrants for the purchase of 80,000
shares of Common Stock, pursuant to which the Company received gross proceeds of
$800,000. The warrants are exercisable at $1.00 per share during the first year
following their issuance and at $1.25 per share during the second year following
their issuance.
In the second quarter of 1999, the Company completed a private placement of
60,000 shares of Common Stock and two-year warrants for the purchase of 6,000
shares of Common Stock, pursuant to which the Company received gross proceeds of
$60,000. Under the terms of this private placement, the Company also issued
1,800 shares of Common Stock as finder's fees. The warrants are exercisable at
$1.00 per share during the first year following their issuance and at $1.25 per
share during the second year following their issuance.
In the second quarter of 1999 the Company completed a Common Stock Purchase
Warrant Agreement with accredited investors for the purchase of 1,000,000 shares
of Common Stock, pursuant to which the Company received gross proceeds of
$200,000. The warrants are exercisable at $1.00 per share during the term of
this Agreement.
The Company expects that the proceeds from its capital raising activities along
with revenues generated from operations will be adequate to meet the Company's
projected working capital and other cash requirements for at least the next nine
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.
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The Company leases its principal facilities under a noncancellable operating
lease expiring in October 1999, which can be renewed for a five-year term at
market rates. The lease is subject to annual adjustments for facility operating
costs in excess of an established base year. On December 31, 1998, the Company
reduced the size of the facilities by approximately 38%. The minimum annual
commitment for rent under this lease is approximately $82,700. The rent expense
under this lease in 1998 and 1997 was approximately $133,200 and $134,000,
respectively.
Net cash used in operating activities was approximately $1,134,100 during the
six months ended June 30, 1999, as as compared to approximately $181,300 during
the six months ended June 30, 1998. The increase in cash used in operating
activities in 1999 was mainly due to the decrease in accounts receivable,
increase in unbilled revenue, and decrease in accrued expenses.
Net cash used in investing activities was approximately $64,000 during the six
months ended June 30, 1999, as compared to approximately $448,100 during the six
months ended June 30, 1998. The net cash used in investing activities was mainly
due to the capitalization of internal software development costs.
Net cash provided by financing activities was approximately $1,190,500 during
the six months ended June 30, 1999, as compared to approximately $605,000 during
the six months ended June 30, 1998. The net cash provided by financing
activities resulted primarily from the completion of a private placement of
$800,000, the receipt of $60,000 from a private placement and the receipt of
$200,000 associated with the sale of warrants, offset by payments on the
Company's short-term debt, long-term debt and payments to related party.
The Year 2000
Issues. Some computers, software, and other equipment include programming codes
in which calendar year data is abbreviated to only two digits. As a result of
this design decision, some of these systems could fail to operate or fail to
produce results if "00" is interpreted to mean 1900, rather than 2000. These
problems are widely expected to increase in frequency and severity as the year
2000 approaches and are commonly referred to as the "Y2K Problem".
Assessment. The Y2K Problem could affect computers, software and other equipment
that the Company uses. Accordingly, the Company has completed a review of its
internal computer programs and systems to determine whether they will be Year
2000 compliant in a timely manner. However, while the Company does not expect
the cost of these efforts to be material to its financial position or any year's
operating results, there can be no assurance to this effect.
Readiness. As a software developer, the Company has had a longstanding program
of keeping pace with current technology as part of its commitment to its
customers and its development staff. As such, the Company's IT systems,
including its internal network servers and operational software, are current
generation, and are checked and upgraded frequently to ensure Y2K compliance. In
addition, the Company has evaluated its non-IT equipment and other intelligent
office machines, including print servers, fax machines and laser printers for
Y2K compliance. With the exception of one development server and the Company's
current accounting software and accompanying hardware, all of which are
scheduled to be replaced by fully compliant systems by the third quarter of
1999, all of the systems and machinery evaluated by the Company were found to be
Y2K immune or compliant. The Company expects to expend approximately $10,000 on
replacement systems for its existing accounting software and accompanying
hardware.
Core Products. In accordance with industry guidelines, all of the current
software products of the Company are fully Y2K compliant, and a fee-based
program is in place to assist customers with older versions of Company provided
products, if they should require it.
Internal Risks. The Company believes that its most significant internal risk
posed by the Y2K problems is the possibility of a failure of its accounting
systems and hardware. If these systems were to fail, the Company would have to
implement manual processes, which may slow the timeliness of information needed
to manage the business. As discussed above, the Company plans to avoid this risk
by replacing its accounting software and hardware by the third quarter of 1999;
however, there can be no assurance that such actions will avoid all problems
that could arise.
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Third Party Compliance:
Vendors. The Company's software has been developed for a variety of hardware and
operating system (OS) platforms, including IBM servers running AIX, Hewlett
Packard servers and HP/UX, Intel servers with Microsoft Windows/NT or Linux and
others. Consequently, the Company's software is not tied to any one hardware or
OS vendor. The Company is not primarily a hardware reseller, and is not
dependent on the fate of any particular hardware vendor or platform. The Company
has been gathering information from and has initiated communications with its
vendors to identify and, to the extent possible, resolve issues involving the
Y2K Problem. However, the Company has limited or no control over the actions of
its vendors and others. Therefore, while the Company expects that it will be
able to resolve any significant Y2K Problems with its own system, it cannot
guarantee that its vendors or others will resolve any or all Y2K Problems with
their systems before the occurrence of a material disruption to their
businesses. Any failure of these vendors or others to resolve Y2K Problems with
their systems in a timely manner could have a material adverse effect on the
Company's business, financial condition or operating results.
Customers. The Company is querying its customer base as to its progress in
identifying and addressing potential Y2K problems in their computer systems. At
present, the Company has little information on the Y2K readiness of its customer
base.
Utilities. A significant portion of the Company's business depends on off-site
customer service, via phone or remote connection, and thus the Company is
sensitive to some degree to interruptions of phone, wide area network, and power
service. At present, there is no available alternative to local phone and data
carriers, so the Company cannot insure that it will not be affected by theses
third party Y2K Problems, should they arise. Office power, however, is protected
by an UPS system that can be augmented by external power generation, although it
is not so supplemented at this time.
Ongoing Analysis. The Company has not yet established a contingency plan to
address potential Y2K Problems, and it is currently considering the extent to
which it will develop a formal contingency plan. The Company will continue to
internally upgrade its systems according to its strategic plan, replacing any
remaining non-Y2K-compliant systems by the third quarter of 1999. Management
believes that the Company's primary Y2K vulnerabilities are external. With
further dialog with third-party service providers, the Company will continue to
refine its risk assessments and possible contingency plans in the coming months.
Summary Assessment. While the Company expects to identify and resolve all Y2K
Problems that could materially adversely affect its business, financial
condition or operating results, there can be no assurance that the Company has
identified or will identify all Y2K Problems in its computer systems or those of
third parties in advance of their occurrence or that the Company will be able to
successfully remedy any problems that are discovered. The Company believes that
it is not possible to determine with complete certainty that all Y2K Problems
affecting it have been identified or corrected. The number of devices that could
be affected and the interactions among these devices are simply too numerous. In
addition, the Company cannot accurately predict how many failures related to the
Y2K Problem will occur with its vendors, customers or other third parties or the
severity, duration, or financial consequences of such failures. The expenses of
the Company's efforts to identify and address such problems in advance of their
occurrence are not expected to be material, but the potential expenses or
liabilities to which the Company may become subject as a result of such problems
could have a material adverse effect on the Company's business, financial
condition and results of operations. Maintenance or modification costs will be
expensed as incurred.
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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 included, 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.
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PART II
OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS
The Company is not party to any pending litigation.
Item 2 CHANGES IN SECURITIES
During the three months ended June 30, 1999, the securities identified below
were issued by the Company without registration 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 1999 the Company completed a Common Stock Purchase
Warrant Agreement with accredited investors for the purchase of 1,000,000 shares
of Common Stock, pursuant to which the Company received gross proceeds of
$200,000. The warrants are exercisable at $1.00 per share during the term of
this Agreement.
In the second quarter of 1999, the Company, through a private placement, issued
an aggregate of 60,000 shares of common stock and two-year non-transferable
warrants for the purchase of up to 6,000 shares of the Company's common stock to
two private investors for aggregate gross proceeds to the Company of $60,000.
Under the terms of this private placement, the Company also issued 1,800 shares
of common stock as finders fees. The exercise price of the warrants is $1.00
during the first year following their issuance and $1.25 per share during the
second year.
In the second quarter of 1999, the Company, through the conversion of five-year
convertible subordinated notes completed in the June 1998 private placement,
issued 346,692 shares of common stock to certain holders of the notes at a price
of $0.923 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 shareholders was held on June 11,
1999.
(b) Matters approved at the meeting:
(i) Election of Directors:
Number of shares
----------------
Nominees For Withhold Authority
-------- --- ------------------
Stuart E. Massey and Russell C. King Jr. 5,023,825 4,500
George E. Mendenhall and Raymond M. Burdick 5,023,825 4,500
Harry P. Langley and Joseph C. Berger, Jr. 5,023,825 4,500
(ii) Proposal to ratify amendment to the Company's stock
option plan:
For Against Abstain
--- ------- -------
5,018,325 4,500 2,000
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(iii) Proposal to ratify grants and amendments of stock options of
affiliates:
For Against Abstain
--- ------- -------
4,971,825 51,500 5,000
(iv) Proposal to approve future private placement financings:
For Against Abstain Broker Non-Vote
--- ------- ------- ---------------
3,924,678 56,000 3,000 1,044,647
(v) Proposal to ratify the appointment of Scott, Holloway
&McElveen, LLP as the Company's independent auditors for the
fiscal year ending December 31, 1999:
For Against Abstain
--- ------- -------
5,021,825 4,500 2,000
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.
The Financial Data Schedule is included herein as Exhibit 27.
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SIGNATURE
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
- -------------------------------------
Harry P. Langley
President, Treasurer, Chief Executive
Officer, Chief Financial Officer and
Chairman of the Board
Date: June 27 , 1999
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