1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(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, 1999
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( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transaction period from: ____________________ to _______________________
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 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:
9,820,555 shares of no par common shares outstanding at September 30, 1999
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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
PAGE
NUMBER
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PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheets - September 30, 1999, and
December 31, 1998 3
Statements of Operations for the three months and nine
months ended September 30, 1999, and 1998, respectively 4
Statements of Cash Flows for the nine months
ended September 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
SIGNATURES 14
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INTEGRATED BUSINESS SYSTEMS & SERVICES, INC.
BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
1999 1998
(UNAUDITED) (AUDITED)
------------------------------------
ASSETS
Current assets:
Cash and cash equivalents 215,055 16,593
Accounts receivable 244,918 159,122
Prepaid commissions 67,353 17,353
Other prepaid expenses 55,573 13,553
------------------------------------
Total current assets 582,899 206,621
Capitalized software costs, net 810,069 852,996
Property and equipment, net 122,043 140,756
Other assets 2,643 2,743
------------------------------------
Total assets 1,517,654 1,203,116
====================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Notes payable 48,975 89,828
Related party payable 0 35,300
Long-term debt, current portion 0 39,000
Accounts payable 110,859 147,140
Accrued liabilities
Accrued compensation and benefits 61,369 56,809
Accrued payroll taxes 181,018 407,312
Other 51,086 495,510
Deferred revenue 54,231 120,183
------------------------------------
Total current liabilities 507,538 1,391,082
Long-term debt, net of current portion 1,430,000 542,000
------------------------------------
Total liabilities 1,937,538 1,933,082
Commitments and contingencies -- --
Stockholders' equity (deficiency):
Class A common shares, voting, no par value, 100,000,000 shares
authorized, 9,820,555 and 8,438,663 shares outstanding at
September 30, 1999 and December 31, 1998 respectively 3,500,369 2,007,803
Accumulated deficit (3,920,253) (2,737,769)
------------------------------------
Total shareholders' equity (deficiency) (419,884) (729,966)
------------------------------------
Total liabilities and shareholders' equity (deficiency) 1,517,654 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 NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
--------------------------- ---------------------------
1999 1998 1999 1998
--------------------------- ---------------------------
REVENUES
Services and Funded Development 47,796 54,665 471,318 380,140
Hardware sales 25 37,981 1,576 88,684
Software licensing 1,853 2,779 7,411 39,369
Maintenance 38,748 76,924 122,565 230,546
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Total revenues 88,422 172,349 602,870 738,739
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OPERATING EXPENSES
Cost of revenues 105,029 112,651 387,202 377,461
Research and development costs 248,907 11,289 315,041 54,420
General and administrative 270,545 274,672 817,667 879,962
Sales and marketing 91,669 152,292 200,935 314,767
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Total operating expenses 716,150 550,904 1,720,845 1,626,610
--------------------------- ---------------------------
Loss from operations (627,728) (378,555) (1,117,975) (887,871)
Interest expense 22,940 22,903 64,509 40,070
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Net loss (650,668) (401,458) (1,182,484) (927,941)
=========================== ===========================
Earnings (loss) per share:
--------------------------- ---------------------------
Basic and diluted (0.07) (0.05) (0.13) (0.11)
=========================== ===========================
--------------------------- ---------------------------
Weighted average common shares outstanding 9,459,089 8,138,046 9,081,544 8,142,835
=========================== ===========================
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)
NINE MONTHS
ENDED SEPTEMBER 30
------------------------------------
1999 1998
------------------------------------
OPERATING ACTIVITIES
Net loss (1,182,484) (927,940)
Adjustments to reconcile net loss to cash provided
(used) by operating activities:
Depreciation 44,471 43,575
Amortization of software costs 95,070 15,302
Decrease (increase) in:
Accounts receivable (85,796) 175,874
Prepaid commissions (50,000) 18,088
Prepaid expenses and other assets (42,020) (7,717)
Refundable deposits 100 575
Increase (decrease) in:
Accounts payable (36,281) (36,488)
Accrued expenses (666,158) 658,577
Deferred revenue (65,952) (79,968)
------------------------------------
Net cash provided (used) by operating activities (1,989,050) (140,122)
------------------------------------
INVESTING ACTIVITIES
Purchases of property and equipment (25,758) (78,803)
Capitalized internal software development costs (52,144) (598,415)
------------------------------------
Net cash used by investing activities (77,902) (677,218)
------------------------------------
FINANCING ACTIVITIES
Proceeds from (payments on) notes payable, net (40,852) (49,126)
Proceeds from long-term debt 1,250,000 500,000
Conversion of long-term debt to equity (320,000) 0
Payments on long-term debt (81,000) (27,000)
Proceeds from (payments to) related party, net (35,300) 35,300
Sale of common shares 1,277,070 275,102
Paid in Capital 215,496 0
------------------------------------
Net cash provided by (used in) financing activities 2,265,414 734,276
------------------------------------
Net increase (decrease) in cash 198,462 (83,064)
Cash and cash equivalents at beginning of period 16,593 84,649
------------------------------------
Cash and cash equivalents at end of period 215,055 1,585
====================================
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 nine month period ended September 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.
DELIVERY OF PRODUCT AND NAME CHANGE:
On September 7, 1999, the Company announced the final delivery of the product
and changed the Flexible Industrial Solutions (FIS 2.0) applications name to
Synapse Manufacturing 2.0. Management believes the name change will better
reflect the functionality of the applications formally known as FIS 2.0.
SUBSEQUENT EVENTS:
The Company entered into a lease agreement dated October 1,1999, with the Atrium
Northeast Limited Partnership effective November 1, 1999, for a 5 year period
with an option to renew for one 5-year period at market rates. The lease is for
18,124 square feet of office space at a base rent 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.
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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 September 30, 1999 as compared to the three months
ended September 30, 1998
Revenues. Total revenues decreased $83,927 to $88,422 in the three months ended
September 30,1999, from $172,349 in the three months ended September 30, 1998.
This decrease was primarily attributable to a decrease in the sales of
integration services, data collection equipment and maintenance due to the
increased emphasis in the completion of Synapse Manufacturing 2.0.
Cost of Revenues. Total cost of revenues decreased $7,622 to $105,029 in the
three months ended September 30, 1999, from $112,651 in the three months ended
September 30, 1998. This decrease was attributable to a decrease in labor costs,
a decrease in the cost of sales of data collection equipment sold and a decrease
in the cost of vendor maintenance. This decrease was partially offset by an
increase in the amortization of software costs due to the completion of Synapse
Manufacturing 2.0.
The cost of revenues as a percentage of total revenues was 118% and 65% in the
three months ended September 30, 1999, and 1998, respectively. Accordingly, the
gross margin was (18%) and 35% in the three months ended September 30, 1999, and
1998, respectively.
Research and Development. Research and development costs increased $237,618 to
$248,907 in the three months ended September 30,1999, from $11,289 in the three
months ended September 30, 1998. The Company released Version 2.0 of the Synapse
Manufacturing System for general product availability; therefore, additional
development costs were expensed rather than capitalized. Research and
development costs represented approximately 281% and 6% of total revenues for
the three months ended September 30,1999, and 1998, respectively.
General and Administrative. General and administrative expenses, including
interest expense, decreased $4,090 to $293,485 in the three months ended
September 30,1999, from $297,575 in the three months ended September 30, 1998.
General and administrative expenses, including interest expense, represented
approximately 332% and 173% of total revenues in the three months ended
September 30, 1999 and 1998 respectively.
Sales and Marketing. Sales and marketing expenses decreased $60,623 to $91,669
in the three months ended September 30,1999, from $152,292 in the three months
ended September 30, 1998. This decrease was primarily attributable to a decrease
in marketing salaries due to a reduction of marketing personnel, a decrease in
commissions expense and a reduction in the cost of marketing advertising and
convention expenses. This decrease was partially offset by an increase in public
relations and investor public relations awareness as well as an increase in
marketing travel expenses. Sales and Marketing expenses represented
approximately 104% and 88% of total revenues in the three months ended September
30, 1999, and 1998, respectively.
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For the Nine months ended September 30, 1999 as compared to the nine months
ended September 30, 1998
Revenues. Total revenues decreased $135,869 to $602,870 in the nine months ended
September 30,1999, from $738,739 in the nine months ended September 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 Synapse Manufacturing 2.0. This
decrease was partially offset by an increase in the service revenue associated
with Synapse Manufacturing integration services in conjunction with the first
implementation of Synapse Manufacturing 2.0.
Cost of Revenues. Total cost of revenues increased $9,741 to $387,202 in the
nine months ended September 30, 1999, from $377,461 in the nine months ended
September 30, 1998. This increase was attributable to an increase in
amortization of software costs due to the completion of Synapse Manufacturing
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 units 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 Synapse Manufacturing 2.0.
The cost of revenues as a percentage of total revenues was 64% and 51% in the
nine months ended September 30, 1999, and 1998, respectively. Accordingly, the
gross margin was 36% and 49% in the nine months ended September 30, 1999, and
1998, respectively.
Research and Development. Research and development costs increased $260,621 to
$315,041 in the nine months ended September 30,1999, from $54,420 in the nine
months ended September 30, 1998. The Company released Version 2.0 of the Synapse
Manufacturing System for general product availability; therefore, additional
development costs were expensed rather than capitalized. Research and
development costs represented approximately 52% and 7% of total revenues for the
nine months ended September 30, 1999 and 1998, respectively.
General and Administrative. General and administrative expenses, including
interest expense, decreased $37,857 to $882,175 in the nine months ended
September 30,1999, from $920,032 in the nine months ended September 30, 1998.
Rent expense decreased due to a reduction in the leased facilities as of the
beginning of 1999 and professional fees decreased due to a reclassification of
marketing public relations expenses to sales and marketing expenses. This
decrease was partially offset by an increase in interest expense as a result of
a private placement of a five-year convertible note in the amount of $1,250,000
in July, 1999. General and administrative expenses, including interest expense,
represented approximately 146% and 125% of total revenues in the nine months
ended September 30, 1999, and September 30, 1998, respectively.
Sales and Marketing. Sales and marketing expenses decreased $113,832 to $200,935
in the nine months ended September 30,1999, from $314,767 in the nine months
ended September 30, 1998. This decrease was primarily attributable to a decrease
in marketing salaries due to a reduction of marketing personnel, a reduction in
marketing commission expense 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 33% and 43% of total revenues in
the nine months ended September 30, 1999, and 1998, respectively.
Financial Condition at September 30, 1999
Cash and cash equivalents increased by $198,462 during the nine months ended
September 30, 1999.
Accounts receivable decreased by $85,796 during the nine months ended September
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 $883,544 decrease in current liabilities during the nine months ended
September 30, 1999 is due to the partial use of funds from private placements on
February 25, 1999, May 3, 1999, and July 23, 1999.
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The Company's current assets exceeded its current liabilities at September 30,
1999 by $75,361.
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 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 was
retired in July of 1999.
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.
In the third quarter of 1999 the Company completed a Private Placement Offering
for an aggregate principal amount of $1,250,000 through a Convertible Debenture
with an interest rate of 7% thru January 1, 2000; 10% thereafter with a maturity
date of January 1, 2002. In conjunction with the Convertible Debenture, the
Company also entered into a Common Stock Purchase Warrant Agreement for the
purchase of 1,850,000 shares of Common Stock.
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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.
The Company leased its principal facilities under a noncancellable operating
lease through October 31, 1999, which had a five-year renewable term at market
rates. The lease was 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 was approximately $82,700. The rent expense under this
lease in 1998 and 1997 was approximately $133,200 and $134,000, respectively.
The Company entered into a lease agreement dated October 1,1999, with the Atrium
Northeast Limited Partnership effective November 1, 1999, for a 5 year period
with an option to renew for one 5-year period at market rates. The lease is for
18,124 square feet of office space at a base rent 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 $1,989,100 during the
nine months ended September 30, 1999, as compared to approximately $140,100
during the nine months ended September 30, 1998. The increase in cash used in
operating activities in 1999 was mainly due an increase in the net loss, an
increase in accounts receivable, an increase in prepaid items and a decrease in
current liabilities.
Net cash used in investing activities was approximately $77,900 during the nine
months ended September 30, 1999, as compared to approximately $677,200 during
the nine months ended September 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 $2,265,400 during
the nine months ended September 30, 1999, as compared to approximately $734,300
during the nine months ended September 30, 1998. The net cash provided by
financing activities resulted primarily from the completion of a private
placement of $800,000, receipt of $60,000 from a private placement, the receipt
of $200,000 associated with the sale of warrants, and the completion of a
private placement of $1,250,000 through a Convertible Debenture offset by
payments on the Company's short-term and long-term debt.
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 in the fourth quarter of
1999, all of the
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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 in the fourth quarter, 1999;
however, there can be no assurance that such actions will avoid all problems
that could arise.
Third Party Compliance:
Vendors. The Company's software has been developed for a variety of hardware and
operating system (OS) plat forms, 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 these
third party Y2K Problems, should they arise. Office power, however, is protected
by a 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 fourth 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 vendor, 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
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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.
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 risk 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 September 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 and possessed requisite
financial sophistication.
The Company entered into a Private Placement Offering on July 23, 1999 for an
aggregate principal amount of $1,250,000 through a Convertible Debenture with an
interest rate of 7% through January 1, 2000; 10% thereafter with a maturity date
of January 1, 2002. In conjunction with the Convertible Debenture, the Company
also entered into a Common Stock Purchase Warrant Agreement for the purchase of
1,850,000 shares of Common Stock.
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.
Exhibits:
10.16 - Lease Agreement dated October 1, 1999 between the Company and
Atrium Northeast Ltd. Partnership.
27 - Financial Data Schedule
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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: October 29, 1999
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