10QSB 1 gb10q103.txt QUARTERLY REPORT ON FORM 10-QSB FOR QUARTER ENDED MARCH 31, 2003 QUARTERLY REPORT FOR SMALL BUSINESS ISSUERS SUBJECT TO THE 1934 ACT REPORTING REQUIREMENTS FORM 10-QSB U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2003 --------------------- [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from to --------------------- ------------------------ Commission file number 000-28587 ---------------------------------------------------------- GLOBAL BUSINESS SERVICES, INC -------------------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Delaware 80-004053 -------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) (Issuer's telephone number) (310) 360-1215 --------------------------------------------------- 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 ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. 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: 14,791,283 shares of common stock, par value $.01 per share as of March 31, 2003. Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ] TABLE OF CONTENTS PAGE PART I - FINANCIAL INFORMATION.............................................. 3 Item 1. Financial Statements (Unaudited)................................... 3 Consolidated Balance Sheet as of March 31, 2003 ............................ 3 Consolidated Statement of Operations Nine and Three Months Ended March 31, 2003 and 2002 ..................... 4 Consolidated Statement of Cash Flows Nine Months Ended March 31, 2003 and 20012 .............................. 5 Notes to Financial Statements ............................................. 6 Item 2. Management's Discussion and Analysis or Plan of Operation.......... 7 Item 3. Controls and Procedures .......................................... 10 PART II - OTHER INFORMATION................................................ 10 Item 1. Legal Proceedings................................................. 10 Item 2. Changes in Securities and Use of Proceeds......................... 10 Item 3. Defaults Upon Senior Securities................................... 10 Item 4. Submission of Matters to a Vote of Securities Holders............. 11 Item 5. Other Information................................................. 11 Item 6. Exhibits and Reports on Form 8-K.................................. 11 Signatures ................................................................ 12 Certifications ............................................................ 13 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements GLOBAL BUSINESS SERVICES, INC. CONSOLIDATED BALANCE SHEET March 31, 2003 ASSETS Current assets Cash $ 22,049 Accounts receivable, net 18,248 Inventory 34,816 ----------- Total current assets 75,113 Fixtures and equipment, net of accumulated 144,388 depreciation of $280,794 Note receivable 44,354 Goodwill, net of accumulated amortization of $165,355 1,004,184 Deposits 17,811 ----------- Total assets $ 1,285,850 =========== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities Accounts payable $ 344,082 Accrued expenses 23,508 Current portion of long term debt 7,927 Deferred revenues 108,500 Convertible notes payable 437,500 Notes payable - related party 744,932 ----------- Total current liabilities 1,666,449 Long term debt, net of current portion 35,067 Convertible notes payable 612,500 ----------- Total liabilities 2,314,016 ----------- Stockholders' Deficit Convertible preferred stock, $.01 par value, Class A 4,200,000 shares authorized, 3,864,541 issued or outstanding 38,645 Convertible preferred stock, $.01 par value, Class B 4,200,000 shares authorized, 3,864,541 issued or outstanding 38,645 Common stock, $.01 par value, 50,000,000 shares authorized, 14,791,283 issued and outstanding 148,363 Additional paid-in capital 12,582,996 Accumulated deficit (13,836,815) ----------- Stockholders' deficit ( 1,028,166) ----------- Total liabilities and stockholders' deficit $ 1,285,850 =========== 3
GLOBAL BUSINESS SERVICES, INC. CONSOLIDATED STATEMENT OF OPERATIONS For the nine months ended For the three months ended ------------------------- -------------------------- 2003 2002 2003 2002 ----------- ----------- ---------- --------- Revenues Sale of products and services $ 1,364,327 $1,609,372 $ 422,155 $ 381,100 Sale of money orders 323 1,601 (4,106) 0 Franchise revenues 415,387 152,905 (46,042) 18,900 ----------- ---------- ---------- ---------- Total revenues 1,780,037 1,763,878 372,007 400,000 ----------- ---------- ---------- ---------- Operating expenses Cost of sales 876,114 830,448 268,077 230,000 Selling 30,427 8,854 (28,519) 0 General and administrative 3,054,980 1,346,168 547,940 350,000 Depreciation and amortization 86,441 75,748 22,810 25,000 ----------- ---------- ---------- ---------- Total operating expenses 4,047,962 2,261,218 810,308 605,000 ----------- ---------- ---------- ---------- Net Operating Loss (2,267,925) (497,340) (438,301) (205,000) ----------- ---------- ---------- ---------- Other expenses Interest (Income) expense 98,369 69,248 23,024 22,000 ----------- ---------- ---------- ---------- Net Loss $(2,366,294) $ (566,588) $ (461,325) $ (227,000) =========== ========== ========== ========== Basic and Diluted earnings (loss) per share ($0.19) ($0.06) ($0.03) ($0.02) Weighted average shares outstanding 12,419,628 9,574,823 14,298,980 9,432,095
4 GLOBAL BUSINESS SERVICES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS For the nine months ended March 31 ------------------------ 2003 2002 ----------- --------- Cash Flows from operating activities Net Loss $(2,366,294) $(566,588) Adjustments to reconcile net income to net cash provided by operating activities: Amortization and Depreciation 86,441 75,748 Stock issued for services 687,316 266,501 Note Receivable for sale of area franchise ( 44,354) Changes in: Accounts receivable ( 4,090) ( 35,761) Inventory 14,477 Prepaid expenses 104,133 ( 10,889) Accounts payable 84,905 (158,250) Accrued expenses 48,249 11,222 Deferred revenues ( 80,500) ----------- --------- Net cash used in operating activities (1,484,194) (403,540) ----------- --------- Cash Flows from investing activities Purchase of property and equipment ( 108,066) ( 11,725) (Increase) or reduction in deposits 3,098 ( 6,433) ----------- --------- Net cash used in investing activities ( 104,968) ( 18,158) ----------- --------- Cash Flows from financing activities Increase (decrease) in: Proceeds from convertible notes 612,500 120,500 Notes payable - related party 398,649 62,518 Payments on long-term debt ( 550) Proceeds from installment notes payable 43,554 Issuance of common stock 548,461 160,450 ----------- --------- Net cash provided by financing activities 1,602,604 351,468 ----------- --------- Net increase (decrease) in cash 13,442 ( 70,320) Cash, beginning of period 8,607 70,230 ----------- --------- Cash, end of period $ 22,049 $ 0 =========== ========= 5 GLOBAL BUSINESS SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited interim financial statements of Global Business Services, Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission ("SEC"), and should be read in conjunction with the audited financial statements and notes thereto contained in Global's 10-KSB filed with the SEC. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the 2002 audited financial statements, as reported in the 10-KSB, have been omitted. NOTE 2. SALE OF AREA FRANCHISE AGREEMENT In December 2002, Global agreed to sell an Area Franchise covering the Portland, Oregon metropolitan area for $86,520. Of this amount, $41,166 was paid in the current quarter, and $44,354 is a note receivable with monthly principal plus interest at bank prime + 1.5% over a 35-month remaining period. Under the Area Franchise agreement, future franchise fees for new locations within the Portland Oregon area will be split 60% for the Area Franchisee and 40% for Global. 6 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW Global Business Services, Inc. is the parent of Cyber Centers, Inc. ("CCI"). Through CCI, we are engaged in the private postal and business services industry, both through our direct ownership of corporate retail stores as well as through our Postal Connections of America franchise operations. The postal and business services furnished include parcel packing and shipping, fax, copies, mail box rentals, money orders and transfer, computer workstations with internet access, video conferencing and conference rooms. Our stores also offer a variety of goods for retail sale, including office supplies, packing materials, legal forms, greeting cards, cellular phones and other items. We have accumulated deficits of approximately $13,837,000 and $2,924,000; and stockholders' equity (deficit) of $(1,028,000) and $6,663,000 as of March 31, 2003 and 2002, respectively. We expect operating losses and negative operating cash flows to continue for at least the next twelve months. We anticipate losses to continue because we expect to incur additional costs and expenses related to marketing and other promotional activities; hiring of additional management, sales and other personnel; acquisitions of additional corporate stores; potential acquisitions of related businesses; and expansion of franchise sales activities. Liquidity and Capital Resources. Our principal sources of operating capital have been revenues from operations, private sales of common stock and debt instruments, and shareholder loan arrangements. At March 31, 2003, we had negative working capital of approximately $1,591,000; however, current liabilities include approximately $745,000 in shareholder notes; $108,000 in deferred revenues; and $437,000 in convertible notes that mature between April and September 2003. During the 3 months ended March 31, 2003, we issued 512,650 shares of common stock for $66,280 and our wholly-owned subsidiary issued convertible notes of $272,500. The convertible notes are convertible into common stock at the rate of $2.50 per share. We issued 561,956 shares for services rendered. 547,145 shares were valued at approximately $69,000 were issued to our employees and directors and 14,811 shares valued at $2,000 were issued for consulting services to non-employees. Although we experienced considerable fluctuation in revenues for the period ended March 31, 2003 compared to the prior year, this may not be indicative of future operating results. Accordingly, we believe that period-to-period comparisons of our results of operations are not necessarily a good indication of future performance. The results of operations in some future periods may be below the expectations of analysts and investors. 7 While we continue to actively seek out single and multi-unit postal and business stores for acquisition, we believe that our cash flows generated from operations may not be sufficient to fund such plans. Accordingly, it is likely that we will require additional funding through private and public securities offerings. There can be no assurance that we will obtain such financing. At March 31, 2003, we employed 17 full time and 18 part time employees. Recent Events In May 2002, we signed a letter of intent to acquire Eagle Postal Centers ("Eagle") of Dallas Texas. We propose to acquire the 13 Eagle stores located in the Dallas metro area. Our negotiations are still ongoing. In June 2002, we hired Kenneth Sully as president and CEO of our subsidiaries, Cyber Centers, Inc. and Postal Connections of America Franchise Corp. Ken has over 25 years experience in franchise sales including being the former vice president of worldwide franchise development at Mail Boxes Etc. during the period that it grew from 900 to over 3,000 stores. In August 2002, we hired Fred Morache as Vice President of Marketing of our subsidiaries Cyber Centers, Inc. and Postal Connections of America Franchise Corp. Fred has over 30 years of franchise marketing experience including being the former vice president of marketing at Mail Boxes Etc. As of March 31, 2003 Fred has resigned his position with the company. In September 2002, we hired Andy Thompson, PhD as vice president of operations and Training, for our subsidiaries Cyber Centers, Inc. and Postal Connections of America Franchise Corp. Andy has over 25 years of franchise operations training and systems experience, including being the former director of worldwide training at Mail Boxes Etc. In September 2002, we switched our money order and money transfer business to Western Union in all of our stores. In December 2002, we sold our first Franchise Area Agreement in the Portland OR area. Franchise Area Agreements are a crucial part of our growth strategy. In December 2002, we agreed to sell $300,000 of common stock to Knightsbridge Capital in weekly installments of $25,000 at a discount to the closing market price. In February 2003, we hired Michael Handelman to be the Chief Financial officer. Michael brings over 22 years of accounting and financial experience. In April 2003, we sold our second Franchise Area Agreement, in the Phoenix, AZ area. Results of Operations - Periods Ended March 31, 2003 and March 31, 2002 Total revenues increased 1% to $1,780,000 in 2003 from $1,764,000 in 2002. 8 Store revenues decreased 15% to $1,364,000 in 2003 from $1,609,000 in 2002. Federal Express and UPS revenues increased to $403,000 from $319,000; US Postage Stamps and Metered Mail decreased to $650,000 from $680,000; and all other revenues decreased to $311,000 from $610,000 to March 31, 2003 from 2002, respectively. Franchise sales and royalties increased 172% to $415,000 in 2003 from $153,000 in 2002. Our company only records Franchise Sales upon the opening of new stores. In addition the company sold an area franchise however, these revenues is recognized over a period of time as certain milestones are reached. Our store sales gross profit percentage decreased to 28% from 44%. Sales volume of lower margin items such as postage stamps and United States Postal Service metered mail have increased as a part of total revenues of 48% and 42% in 2003 and 2002 respectively, while the sales volumes of higher margin items such as Federal Express and UPS shipments, and other services have decreased 24% and 14% in 2003 and 2002 respectively. Our Lake Havasu City store is a contract post office for the United States Postal Service and receives a flat fee for such services, rather than marking-up stamps and metered mail as do our other stores. Selling expenses increased 244% to $30,000 in 2003 from $9,000 in 2002. General and administrative expenses increased 227% to $3,055,000 in 2003 from $1,346,000 in 2002. The largest increase in expenditures were investor relations and investment banking fees of $251,000 compared to none; legal and accounting of $96,000 compared to 44,000; consulting of $361,000 compared to $110,000; advertising of $175,000 compared to $32,000; rent of $280,000 compared to $202,000; salary expenses of $1,153,000 to $585,000; respectively. A portion of these expenses, $687,000, was paid in stock including Investor relations and investment banking fees of $42,000, consulting fees of $335,000, salaries $233,000 and bonuses of $77,000. Depreciation and amortization increased approximately 14% to $86,000 from $76,000. Interest expense increased 42% to $98,000 from $69,000 in 2002. This is due to increase in the levels of debt to $1,838,000 from $416,000 as of March 31, 2003 and 2002, respectively. Critical Accounting Policies Goodwill All of our goodwill results from the 7 stores and the store franchising company we purchased during fiscal 2000 and 2001. The franchise operation and 6 of these 7 stores are currently producing positive cash flow. Our marketing vice president has projected significant sales growth, based upon recent past performance and planned near-term changes. In each store, such near-term sales growth easily supports the carrying value of the goodwill originally assigned to that store at acquisition. Our franchising operation is growing as well. We believe the discounted present values of estimated future cash flows from each store independently support the carrying value of the goodwill assigned to each store. If our cash flow projections are grossly overstated, goodwill of up to $1,004,184 would have to be written off as an expense in fiscal 2003. 9 Item 3. Controls and Procedures Our Chief Executive Officer, President, and Chief Financial Officer (the "Certifying Officers") are responsible for establishing and maintaining disclosure controls and procedures for the Company. The Certifying Officers have designed such disclosure controls and procedures to ensure that material information is made known to them, particularly during the period in which this report was prepared. The Certifying Officers have evaluated the effectiveness of the Company's disclosure controls and procedures within 90 days of the date of this report and believe that the Company's disclosure controls and procedures are effective based on the required evaluation. There have been no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Between January 1 and March 31, 2002 we issued an aggregate of 561,956 shares for services rendered. Of these 547,145 shares (valued at approximately $69,000) were issued to 2 of our employees and directors; and 14,811 shares (valued at $3,000) were issued for legal services. During the same period an additional 512,650 shares of common stock were sold for cash to four persons, all of whom were accredited investors as that term is defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended. The exemption from registration afforded by Section 3(b) and/or Section 4(2) under the Act is claimed with respect to all of the aforementioned transactions. There were no underwriting discounts or commissions paid with respect to the cash sales. Between January 1 and March 31, 2002 Cyber Centers, Inc., our wholly-owned subsidiary, issued debentures in the aggregate principal amount of $252,500 to three persons. The debentures are convertible into common stock at the rate of $2.50 per share. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. 10 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K None. (a) EXHIBITS 99.1 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) REPORTS ON FORM 8-K None 11 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: June 6, 2003 GLOBAL BUSINESS SERVICES, INC. By: /s/ Stephen M. Thompson ------------------------------- Chief Executive Officer (Principal Executive Officer) By: /s/ Michael D. Handelman ------------------------------- (Principal Financial Officer and Principal Accounting Officer) 12 CERTIFICATION I, Stephen M. Thompson, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of GLOBAL BUSINESS SERVICES, INC. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: June 6, 2003 /s/ Stephen M. Thompson ----------------------- Stephen M. Thompson Chief Executive Officer 13 CERTIFICATION I, Michael D. Handelman, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of GLOBAL BUSINESS SERVICES, INC.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: June 6, 2003 /s/ Michael D. Handelman ------------------------ Michael D. Handelman Chief Financial Officer 14