U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly period ended July 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ______________
Commission file number: 333-90618
INFOTEC BUSINESS SYSTEMS, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 98-0358149
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
444 Columbia St. E., New Westminster BC V3L 3W9
(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number (604) 777-1707
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days.
YES [ X ] 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: 18,350,000 as of
September 10, 2003.
INFOTEC BUSINESS SYSTEMS, INC.
Form 10-QSB for the quarter ended July 31, 2003
TABLE OF CONTENTS AND INFORMATION REQUIRED IN REPORT
Page
PART I Financial Information
Item 1. Financial Statements (unaudited):
Consolidated:
Balance Sheets as of July 31, 2003 and April 30, 2003 3
Statements of Operations for the three month period
ended July 31, 2003 and July 31, 2002 4
Statements of Cash Flows for the three month period
ended July 31, 2003 and July 31, 2002 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of
Operation 8
Item 3. Controls and Procedures 12
PART II Other Information
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 13
INFOTEC BUSINESS SYSTEMS, INC.
(A Development Stage Company)
Consolidated Balance Sheets
July 31, April 30,
2003 2003
(unaudited) (audited)
Assets
Current assets
Cash $236,932 $3,818
Amounts receivable 369 757
Prepaid expenses and other current assets 374 -
--------------------
$ 237,675 $4,575
====================
Liabilities and Stockholders' Deficiency
Current liabilities
Accounts payable and accrued liabilities $ 5,927 $ 2,542
Accounts payable - related 8,506 47,708
-------------------
Total current liabilities 14,333 50,250
Stockholders' equity (deficiency)
Share capital (Note 3)
Authorized
25,000,000 preferred shares with $0.001 par value
50,000,000 common shares with $0.001 par value
Issued
18,350,000 common shares at July 31, 2003 18,350 -
27,000,000 common shares at April 30, 2003 - 27,000
Additional paid-in capital 445,400 100,000
Deficit accumulated during the
development stage (240,408) (172,675)
-------------------
Total stockholders' equity (deficiency) 223,342 (45,675)
-------------------
$ 237,675 $4,575
===================
The Accompanying Notes are an Integral
Part of These Financial Statements
3
INFOTEC BUSINESS SYSTEMS, INC.
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
Period from
August
30, 2001
Three Month Period (Inception)
Ended July 31, to July 31,
2003 2002 2003
---------------------------------
Operating Expenses
Administration costs $9,676 $ 1,481 $ 20,026
Professional fees 4,627 5,629 20,836
Salaries and fees 15,000 - 15,000
Consulting 500 1,000 1,500
Rent and occupancy 4,500 4,500 33,000
Equipment rental 4,500 4,500 32,808
Stock based compensation
(Note 4) 16,750 - 16,750
Software development costs 12,180 4,500 100,488
------------------------------
Total operating expenses 67,733 21,610 240,408
==============================
Net (Loss) (67,733) $(21,610) $ (240,408)
------------------------------
Net (loss) per share -
Basic and Diluted $ (0.01) $ (0.01) $(0.01)
------------------------------
Weighted average shares
of common stock
outstanding 21,542,717 25,043,478 20,248,003
----------------------------------
The Accompanying Notes are an Integral
Part of These Financial Statements
4
INFOTEC BUSINESS SYSTEMS, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
Period from
Three Three August
Month Month 30, 2001
Period Ended Period
Ended (Inception)
July 31, July 31, to July 31,
2003 2002 2003
Cash flows from operating activities
Net Loss $(67,733)$(21,610) $(240,408)
Non-cash items:
Stock based compensation 16,750 - 16,750
Changes in non-cash working
capital, net (35,903) (20,944) 73,590
---------------------------
(86,886) (42,554) (150,068)
===========================
Cash flows from financing activities
Proceeds from issuance of
common stock 400,000 60,000 467,000
Costs of issuance of common stock (80,000) - (80,000)
---------------------------
320,000 60,000 387,000
===========================
Increase (decrease) in
cash in the period 233,114 17,446 236,932
Cash - beginning of period 3,818 2,066 -
Cash - end of period $ 236,932 $ 19,512 $236,932
===========================
Supplementary cash flow information
Shares issued to settle
accounts payable - related $ - $ 60,000$ 60,000
============================
The Accompanying Notes are an Integral
Part of These Financial Statements
5
INFOTEC BUSINESS SYSTEMS, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
(a) Interim Financial Data
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and the instructions to form 10-QSB.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. All adjustments that, in the opinion of
management, are necessary for the fair presentation of the results of
operations for the interim periods have been made and are of a
recurring nature unless otherwise disclosed herein. The results of
operations for the three month period ended July 31, 2003 are not
necessarily indicative of the results that will be realized for a full
year. For further information, refer to the Company's audited
financial statements and notes thereto for the fiscal year ended April
30, 2003.
(b) Going Concern
The financial statements have been presented on the basis that the
Company is a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business. The Company reported a net loss of $240,408 since inception
to July 31, 2003. At July 31, 2003, the Company had working capital
of $240,408.
The Company will need additional working capital to be successful in
its planned development activity for the coming year, and, therefore,
continuation of the Company as a going concern is dependent upon
obtaining the additional working capital necessary to accomplish its
objective. Management has developed a strategy, which it believes
will accomplish this objective, and is presently engaged in marketing
and sales activities and in seeking various sources of additional
working capital including equity funding through a private placement
and long term financing.
The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of
assets or the amounts and classifications of liabilities that may
result from the outcome of this uncertainty.
(c) Significant Accounting Policies
Stock Based Compensation - The Company accounts for non-employee stock
based compensation using the fair market value method prescribed in
SFAS No. 123 - Accounting for Stock-Based Compensation, and related
interpretations. Accordingly, compensation cost for such compensation
is measured as its fair value at the date of grant.
NOTE 2: COMMITMENT
Pursuant to a purchase agreement dated October 3, 2001, the Company is
committed to paying a royalty of 2% on the net sales revenue,
quarterly, for any product or service that uses all or any portion of
the software acquired until the amount paid totals $250,000, after
which the royalty drops to 1%. The software development costs were
acquired from Danby Technologies Corporation (Danby), a company
controlled by a majority shareholder.
6
INFOTEC BUSINESS SYSTEMS, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Unaudited )
NOTE 2: COMMITMENT (continued)
Pursuant to a licensing agreement dated July 8, 2003, the Company has
committed to pay monthly, a royalty of 10% of the net sales revenue,
from any commguard branded product or service until the amount paid
totals $7,500,000, after which the royalty drops to 7.5%. The license
was granted by CTEC Security Solutions Inc., a company with a director
in common.
NOTE 3: SHARE CAPITAL
On June 3, 2003, the Company completed a private placement of 100,000
units at $4.00 per unit for proceeds of $400,000. Each unit consists
of one common share and one common share warrant exercisable at $4.50
per share during the initial six month period, and at an exercise
price of $5.50 for the final six month period.
In conjunction with the above private placement, certain directors and
stockholders of the Company agreed to return to treasury for
cancellation a total of 8,750,000 common shares.
NOTE 4: STOCK BASED COMPENSATION
The Company applies SFAS No. 123 in accounting for stock-based
compensation for non-employees and, accordingly, the Company
determined compensation cost based on the fair value at the grant date
for the three month period ended July 31, 2003 as $16,750 (2002 -
$Nil).
Warrants to purchase 25,000 common shares for a period of one year were
issued in the three month period ended July 31, 2003. The per share
weighted average fair value of warrants granted was $0.67 (2002 -
$Nil) using the Black-Scholes option pricing model with the following
assumptions: no expected dividends, 60.81% volatility, risk free
interest rate of 1.71% and an expected term of one year. The
remaining weighted contractual life of the warrants outstanding at
July 31, 2003 was 10.5 months, with weighted exercise price of $5.13.
NOTE 5: RELATED PARTY TRANSACTIONS
During the period, the Company entered into transactions (recorded at
exchange values) with related parties as follows:
i) The Company engages Danby to provide a shared internet enabled
network system, provide development staff and office premises. In the
three month period to July 31, 2003, fees aggregated $17,000 (2002,
$13,500).
ii) The Company pays fees in respect of services to Danby Financial
Management Corp. a company controlled by a director, at the rate of
$5,000 per month. In the three month period to July 31, 2003, the
Company has incurred service fees aggregating $15,000 (2002, $Nil).
iii) During the three month period ended July 31, 2003, the Company
engaged a company controlled by a director to provide consulting
services for $500 (2002, $1,000).
7
ITEM 2. Management's Discussion and Analysis or Plan of Operation
General
Management's discussion and analysis or plan of operation
contains various forward looking statements within the meaning of the
Securities and Exchange Act of 1934. These statements consist of any
statement other than a recitation of historical fact and can be
identified by the use of forward looking terminology such as may,
expect, anticipate, estimates or continue or use of negative or other
variations of comparable terminology. We caution that these statements
are further qualified by important factors that could cause actual
results to differ materially from those contained in our forward looking
statements, that these forward looking statements are necessarily specu
lative, and there are certain risks and uncertainties that could cause
actual events or results to differ materially from those referred to in
our forward looking statements.
The following discussion should be read together with the
information contained in the financial statements and related notes
included elsewhere in this quarterly report.
General
Our discussion and analysis of our financial condition and results
of operations are based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these
financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities.
On an on-going basis, we evaluate these estimates, including those
related to software development expenses, financing operations and
contingencies and litigation. We base these estimates on historical
experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
Operation Development and Plan
We are a development stage company. We have undertaken initial
marketing of our products and services, however, we have not generated
revenue from our activities. Our business plan is to develop and
commercialize systems that provide remote access to business processes
via the Internet. We plan to market our products and service to busi
nesses in the U.S. and Canada and to earn revenue from monthly service
fees, usage and transaction fees and from consulting.
Since April 30, 2003, we have introduced to potential customers and
joint venture partners, our virtual office system and platform and our
management and customization services, as a backbone for operating and
managing business processes on line, both as a virtual office and to run
a firm's specialized business process. Our discussions have assisted us
in identifying potential opportunities for running and operating online
security and access control systems and specialized process such as
those for managing events. In April 2003, we incorporated Eventec Inc.,
as a wholly owned subsidiary, to facilitate the development and
marketing of an event management system in conjunction with industry
partners. We are currently in discussions with vendors to utilize our
virtual business system as a base for managing and offering their
specialized services online.
We have undertaken a program to incorporate digital identifications
and smartcards in our systems. In May 2003, we entered into a licensing
agreement with CTEC Security Solutions Inc., a related company, to sell
their commguard branded access and security control products and
services in the United States. Through our license with CTEC, we have a
source of supply for our smartcards and smartcard readers at competitive
market rates. Since that time, and in conjunction with CTEC, we have
8
among other things:
- developed and printed brochures targeted to the accounting, legal,
financial and investment management professions;
- developed an operational Certification Authority for the issuance
of digital certificates, as an application that runs within our
business systems;
- developed policies and practices documentation for the operation
of the Certificate Authority and the issuance of digital
certificates;
- undertaken development of tools for the management of digital
certificates; and
- introduced commguard e-mail communication security system to
potential customers within the legal and accounting communities.
We have also continued our development of the productivity
application modules, undertaken a program for the incorporation
of digital identifications and smartcards into our virtual
business systems and our development work related to the issuance
and management of digital certificates.
Our current plan is to accelerate our marketing efforts for our
virtual business system and our e-mail communication security
product, to develop business relationships and opportunities and
to sell our products and services to customers. In addition, we
also plan to complete development of the digital certificate
management and support tools, the productivity applications and an
event management system as is more fully described below. Our
objective is to successfully market our existing products and
services and to complete development of additional products and
services which will meet and address business needs.
Marketing
During the early phase of our plan, we expect to continue to develop
awareness of our virtual business system as a platform for the
deployment of business applications over the Internet through
direct contact, trades conferences and online. We have currently
identified opportunities with security monitoring and access
control firms and firms who manage events. We will actively
pursue these opportunities as well as developing customer and
channel relationships and new sales opportunities. We are in the
process of developing our web site and additional marketing
materials for the virtual business system. We expect input from
our discussions with potential customers and channel partners to
assist us in directing our marketing efforts.
We will also continue introduction of our e-mail communication
security services and the development of product awareness. We
have identified the accounting, legal and the financial
professions as initial focuses of our marketing of this product.
We intend to develop business relationships and channel
partnerships as well as develop relationships with industry
associations and professional bodies. In conjunction with CTEC,
we attended a legal conference in Canada in August 2003, where we
had an opportunity to show the commguard products and services to
strong interest from the legal community in Canada. We have
plans to attend one additional conference in conjunction with CTEC
this year.
We currently have insufficient staff to undertake all aspects of our
marketing efforts. We have engaged the services of a marketing
consultant to assist us in developing our marketing efforts. We
expect to hire or engage additional marketing and sales personnel
and to additionally seek opportunities for marketing through
channel partners and resellers. We expect to add one service and
support technician as our support and service obligations
increase.
Development
We have accelerated our current development activities and plan to
maintain a strong development focus to support our business
opportunities. Our current development plans include:
9
(i) complete development of the certificate management tools;
(ii)complete development of the productivity applications; and
(iii)complete designs and implementation for the event management
system.
The productivity application is designed for use with the virtual
office to provide a unified base for contact, task, communication,
and resource and document management. Due to other current
prioritization, we estimate that this application will be
available for customer testing and input in our third quarter.
The event management system is designed around the needs of
operators of events and will include online ticket and merchandise
sales, provide the firm with Internet access to manage and view
information and update their offerings. We are in the design
stage of this application and expect to proceed to initial
development activities in the second quarter and to testing and
operating our implementation in the fourth quarter. Progress in
development of this application is dependant on our completing
discussions with industry participants who can provide input into
our designs and assist with introducing the system to potential
customers.
The certificate management tools are being developed to enable us to
provide clients with online applications, running in our virtual
business system, to enable them to manage the deployment of
digital certificates to their staff and clients.
In addition, we plan to maintain an ongoing development program that
will continue enhancing and upgrading our systems, developing new
products and services and providing support for our product and
service offerings. Our development staff are also responsible for
our system operation and maintenance and for providing our custom
development services. We have budgeted approximately $62,000 for
our development activities over the next six month period and
$20,000 for computer equipment and software. Further additions to
our budget are dependant on the receipt of adequate additional
funding.
To accomplish our development objectives, we will need to hire
additional employees or contractors. Our current plan is to rely
on increasing our three part-time technical consultants' work
hours, which we believe will be satisfactory to accomplish our
development through the end of the second quarter. We believe we
can engage additional employees, consultants and subcontract
development staff with the required skills, as they may be needed.
Results of Operations
We have not yet engaged in any revenue-producing activities, nor are
we a party to any binding agreements that will generate revenues.
For the period from incorporation, August 30, 2001 through July
31, 2003, we incurred a deficit of $240,408. Our principal areas
of expenditure during the period were for development costs of
$100,488, rent and occupancy costs of $33,000, system rental of
$32,808 and professional fees of $20,836.
For the first quarter ended July 31, 2003, we incurred a net loss of
$67,733. Our principal areas of expenditure during the first
quarter ended July 31, 2003 were for occupancy costs of $4,500,
system rental of $4,500, development costs of $12,180, salaries
and fees $15,000 and administrative costs of $9,676.
Administrative and development costs were higher in the current
quarter than in the prior quarter due to our increased general
operation activities and the increase in development undertaken in
the period. Salaries and fees reflect payments for increased
management services during the period.
Liquidity and Capital Resources
10
As of July 31, 2003, we had an accumulated deficit of $240,408 and
cash in the bank of $236,932. Working capital at July 31, 2003
was $223,342. The accumulated deficit and our working capital was
funded by proceeds from the issuance of common shares and the
conversion of indebtedness to common shares.
For the three month period ended July 31, 2003, net cash used in
operating activities was $86,886, which primarily resulted from
the net cash loss of $50,983 combined with changes in working
capital amounts. Cash provided by financing activities was
$320,000 for a net cash addition during the period of $236,932.
Management believes that our working capital will be sufficient to
sustain our current operations for a period of twelve months and,
while management believes that sales and ultimately profitable
operations, can be attained in the future, there is no assurance
that sales will be made or that if made, they will be of a level
required to generate profitable operations or provide positive
cash flow. Management has a desire to expand our planned
marketing and development activities to more fully exploit our
opportunities. Expanding our marketing and development activities
would require additional funding. We are unable to predict at
this time the exact amount of any additional working capital we
will require to fund the implementation of our business plan and
achieve cash flow sufficient to sustain operations and achieve
profitability. We may receive additional capital from the
exercise of share purchase warrants or, alternatively, we may seek
additional capital in the private and/or public equity markets
through the sale of equity or debt securities, or through the
issuance of debt instruments. If we receive additional funds
through the issuance of equity securities, however, our existing
stockholders may experience significant dilution. If we issue new
securities, they may contain certain rights, preferences or
privileges that are senior to those of our common stock.
Moreover, we may not be successful in obtaining additional
financing when needed or on terms favorable to our stockholders.
As we have no commitments from any third parties to provide
additional equity or debt funding, we cannot provide any assurance
that we will be successful in attaining such additional funding.
We have commenced initial marketing of our products and services,
however, we have not yet generated any revenues, nor are we a
party to any binding agreements that will generate revenues. Due
to our lack of revenue-production to date, and our lack of
contractual commitments to generate revenue, there is no basis at
this time for investors to make an informed determination as to
the prospects for our future success. For this reason and, as we
have not achieved profitable operations and require additional
capital to achieve our objectives, our auditors have included in
their report covering our financial statements for the period from
incorporation to April 30, 2003, that there is substantial doubt
about our ability to continue as a going concern.
Product Research and Development
We anticipate spending $62,000 over the next twelve month period for
product development to complete development of (a) the
productivity applications, (b) the certificate management tools
and (c) an event management system and complete our infrastructure
development and incorporation of digital certificates and
smartcards in our products and services.
Property or Plant
To complete our infrastructure for commercial operations, we
estimate software licensing costs and the cost for equipment and
related expenses will be approximately $20,000. With adequate
additional funding, we would increase this budget by $60,000.
Except as noted above, we do not expect to purchase or sell plant
and significant equipment in the next twelve months.
Employment
We expect our operations to grow to six employees and contractors
from our current level of two full-time and three part-time
contractors. The number and positions of any new employees and
contractors will be determined by additional funding, if obtained.
11
ITEM 3. Controls and Procedures
On July 31, 2003, our management concluded its evaluation of
the effectiveness of the design and operation of our disclosure
controls and procedures. As of the Evaluation Date, our Chief
Executive Officer and Chief Financial Officer concluded that we
maintain disclosure controls and procedures that are effective in
providing reasonable assurance that information required to be
disclosed in our reports under the Securities Exchange Act of 1934
(Exchange Act) is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and forms,
and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and our Chief
Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. Our management necessarily applied
its judgment in assessing the costs and benefits of such controls
and procedures, which, by their nature, can provide only
reasonable assurance regarding management's control objectives.
There have been no significant changes in our internal controls or
in other factors that could significantly affect internal controls
over financial reporting subsequent to its evaluation.
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
None
ITEM 2. Changes in Securities and Use of Proceeds
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submissions of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Index to Exhibits
Exhibits Description of Documents
31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
12
31.2 Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification of Chief Executive Officer and
Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
(b) Reports on 8-K.
Report Date Items Reported
June 3, 2003 Item 5,Private Placement & Return to
treasury for Cancellation
SIGNATURES
Pursuant to 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, thereunto duly authorized.
Infotec Business Systems, Inc.
(Registrant)
Date.......................................September 12,2003.........
By../s/ Robert Danvers..............................................
(Robert Danvers, President, Director, CEO,
Chief Financial and Accounting Officer)
13