U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
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(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT
For the transition period from _____________ to _______________
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Commission File Number 0-27721
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EBIZ ENTERPRISES, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
Nevada 84-1075269
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
13715 Murphy Road, Suite D
Stafford, Texas 77477
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(281) 403-8500
(ISSUER'S TELEPHONE NUMBER)
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 [ ]
The number of shares of the issuer's common equity outstanding as of
January 31, 2002 was 34,062,328 shares of common stock, par value $.001.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
EBIZ ENTERPRISES, INC.
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED DECEMBER 31, 2001
TABLE OF CONTENTS
PART I PAGE
FINANCIAL INFORMATION NUMBER
Item 1. Financial Statements .......................................... 3
Consolidated Balance Sheets
December 31, 2001 (unaudited) and June 30, 2001 ............ 3
Consolidated Statements of Operations
For the Three and Six Months Ended December 31, 2001
(unaudited) and 2000 (unaudited) ............................ 4
Consolidated Statements of Cash Flows
For the Six Months Ended December 31, 2001 (unaudited)
and 2000 (unaudited) ........................................ 5
Notes to the Financial Statements ............................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................... 7
PART II
OTHER INFORMATION
Item 1. Legal Proceedings ............................................. 10
Item 2. Changes in Securities and Use of Proceeds ..................... 10
Item 6. Exhibits and Reports on Form 8-K .............................. 10
SIGNATURES.............................................................. 12
2
EBIZ ENTERPRISES, INC.
Consolidated Balance Sheets
December 31, 2001 (Unaudited) and June 30, 2001
December 31, June 30,
2001 2001
------------ ------------
Assets (Unaudited)
Current Assets:
Cash $ 120,418 $ 557,894
Accounts receivable, net of allowance for doubtful accounts
of $785,224 and $1,085,815 at December 31, 2001 and
June 30, 2001, respectively 27,213 1,958,486
Inventory, net 123,190 999,365
Prepaid expenses and other current assets 168,973 179,543
------------ ------------
Total current assets 439,794 3,695,288
Property and Equipment, net 846,270 1,183,361
Deferred Loan Fees, net 37,808 52,443
Restricted cash 0 258,879
Goodwill, net 2,832,230 2,832,230
Other Assets 68,231 69,557
------------ ------------
$ 4,224,333 $ 8,091,758
============ ============
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities:
Accounts payable $ 9,463,893 $ 9,499,695
Accrued expenses 2,344,425 2,383,609
Notes payable 1,014,517 4,722,873
Related party notes payable 5,107,688 2,330,986
Convertible Debenture, net of discount 2,960,117 2,889,579
------------ ------------
Total current liabilities 20,890,640 21,826,742
Notes Payable 0 486,812
------------ ------------
Total liabilities 20,890,640 22,313,554
Commitments and Contingencies
Stockholders' Equity (Deficit):
Convertible preferred stock; $0.001 par value; 5,000,000 shares
authorized; 7,590 shares issued and outstanding at December 31, 2001
and June 30 2001 366,737 366,737
Common stock; $0.001 par value; 70,000,000 shares authorized;
34,062,328 shares issued and outstanding at December 31, 2001
and June 30, 2001 34,063 34,063
Additional paid-in capital 46,715,220 46,715,220
Accumulated deficit (63,782,327) (61,337,816)
------------ ------------
Total stockholders' equity (deficit) (16,666,307) (14,221,796)
------------ ------------
$ 4,224,333 $ 8,091,758
============ ============
See the accompanying notes to these consolidated financial statements
3
EBIZ ENTERPRISES, INC.
Consolidated Statements of Operations
For the Three and Six Months Ended December 31, 2001 and 2000
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------------ ------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
Net Revenue $ 2,039,197 $ 3,159,651 $ 3,664,732 $ 5,589,458
Cost of Sales 1,720,600 2,521,636 3,107,964 4,583,544
------------ ------------ ------------ ------------
Gross profit 318,597 638,015 556,768 1,005,914
Selling, General and Administrative Expenses 822,921 2,385,294 $ 2,205,633 3,514,744
Depreciation and Amortization 176,557 1,599,059 $ 353,114 1,768,202
Provisions for Doubtful Accounts -- 55,779 $ 30,000 117,493
------------ ------------ ------------ ------------
Loss from Operations (680,881) (3,402,117) (2,031,979) (4,394,525)
Other Income (Expense):
Interest Expense (108,573) (2,024,710) $ (397,488) (3,203,828)
Interest & Other income 585 69,843 $ 3,931 138,274
------------ ------------ ------------ ------------
Net loss (788,869) (5,356,984) (2,425,536) (7,460,079)
Dividends on preferred stock (18,975) $ (18,975) (37,950)
------------ ------------ ------------ ------------
Net Loss Attributable To Common Stockholders $ (788,869) $ (5,375,959) $ (2,444,511) $ (7,498,029)
============ ============ ============ ============
Net Loss Per Common Share, Basic and Diluted $ (0.02) $ (0.25) $ (0.07) $ (0.49)
============ ============ ============ ============
Weighted Average Common Shares: Basic and Diluted 34,062,328 21,640,150 34,062,328 15,368,505
============ ============ ============ ============
See the accompanying notes to these consolidated financial statements.
4
EBIZ ENTERPRISES, INC
Consolidated Statements of Cash Flows
For the Six Months Ended December 31, 2001 and 2000
(UNAUDITED)
SIX MONTHS ENDED DECEMBER 31,
2001 2000
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(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,425,536) $(7,460,079)
Adjustments to reconcile net loss to net cash used in operating activities-
Depreciation and amortization 353,114 1,768,202
Stock exchanged for services 54,923
Warrants issued to debt holders -- 1,075,623
Interest costs of Beneficial Conversion Feature -- 1,153,910
Amortization of discount and loan fees 85,173 575,847
Accrued interest added to principle
balance of debt 295,824 --
Accounts payable converted to debt 88,042 --
Changes in assets and liabilities:
Accounts receivable 1,931,273 (353,104)
Inventory 876,175 (280,003)
Prepaid expenses and other assets 11,896 (55,511)
Accounts payable (35,802) 290,252
Accrued expenses (58,159) 102,187
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Net cash provided (used) in operating activities 1,122,000 (3,127,753)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES: (net of effect of business acquisitions):
Cash from Business acquisition 128,355
Purchase of furniture, fixtures, intellectual property and equipment,net (16,023) (865,795)
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Net cash used in investing activities (16,023) (737,440)
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CASH FLOWS FROM FINANCING ACTIVITIES: (net of effect of business acquisitions):
Net (repayments) borrowings under line of credit (1,764,243) (20,000)
Borrowings under secured convertible note -- 500,000
Borrowings (repayments) under Related parties notes payable (23,543) --
Principal repayments of notes payable (14,546) --
Transfer from/(to) restricted cash (non-current), net 258,879 2,403,636
Transfer from/(to) restricted cash, net (1,782,381)
Sale of stock, net of expenses -- 3,000,000
---------- ----------
Net cash provided (used) by financing activities (1,543,453) 4,101,255
---------- ----------
Net increae (decrease) in cash (437,476) 236,062
Cash, beginning of year 557,894 50,997
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Cash, end of year $ 120,418 $ 287,059
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest 16,389 6,990
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND OPERATING ACTIVITIES:
Dividends accrued on preferred stock 18,975 37,950
Issuance of warrants to Debenture holder -- 125,166
Issuance of common stock for furniture, equipment and intangible assets -- 3,400,000
Conversion of debt and related interest to common stock -- 64,205
Accrued interest added to priciple balance of debt 295,824 --
Account payable converted to debt 88,042 --
See the accompanying notes to these consolidated financial statements.
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EBIZ ENTERPRISES, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDING DECEMBER 31, 2001 AND 2000
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States 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 ("GAAP") for complete
financial statements. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary for a fair presentation of
the results for the interim periods presented have been made. The results for
the three and six month periods ending December 31, 2001 may not necessarily be
indicative of the results for the entire fiscal year. These consolidated
financial statements should be read in conjunction with the Company's Form
10-KSB for the year ended June 30, 2001.
(2) RECENT DEVELOPMENTS
POST-PETITION FINANCING TRANSACTION APPROVED. On November 14, 2001, we
obtained approval from the bankruptcy court to proceed with a post-petition
financing transaction through our financial advisor, First Financial Equity
Corporation ("FFEC"). Through the transaction we are to incur indebtedness from
post petition lenders in an amount that shall not exceed $1,100,000.
(3) SUBSEQUENT EVENTS
PLAN OF REORGANIZATION AND DISCLOSURE STATEMENT FILED. We had the exclusive
right for 120 days after our bankruptcy filing on September 7, 2001 to file a
plan of reorganization and 60 additional days to obtain necessary acceptance. On
January 4, 2002 we filed a plan of reorganization and disclosure statement for
ourselves and our wholly owned subsidiary Jones Business Systems, Inc. ("JBSI").
A hearing has been scheduled for the disclosure statement on February 20, 2002.
Confirmation of a plan of reorganization is necessary for us to continue as a
going concern. The bankruptcy filing was precipitated by our inability to timely
raise additional capital, the loss of the asset based credit facility for our
wholly owned subsidiary, JBSI, and debt that we are unable to adequately
support. The long-term implementation of our business plan and our company
strategies, as well as the achievement of the objectives of those strategies, is
dependent upon our ability to successfully restructure through a confirmed plan
of reorganization.
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Even with the transactions set forth above, we have need for additional
capital and are continuing our efforts to locate and raise additional capital.
POST-PETITION FINANCING. Through the efforts of our financial advisor FFEC,
we completed the issuance of secured debt instruments with a total principal
balance of $591,000 in January and February 2002 for which we received $523,809
of proceeds after expenses and fees. Our expectation is to use these proceeds to
support our working capital, debt repayment, key employee recruitment, product
development and product marketing. This additional capital has provided some
temporary relief for the cash flow challenges we continue to face. Even with the
post petition financing transaction set forth above, we have a need for
additional capital and are continuing our efforts to locate and raise additional
capital.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. Such forward-looking statements include, but are not limited to,
statements regarding future events, our plans and expectations, financial
projections and performance and acceptance of our products and services in the
marketplace. Our actual results could differ materially from those discussed
herein. Factors that could cause or contribute to such differences include, but
are not limited to, those discussed elsewhere in this Form 10-QSB or
incorporated herein by reference. See "Special Note on Forward-Looking
Statements" below.
OVERVIEW
We entered into the quarter ended December 31, 2001 without a functioning
revolving line of credit, which limited our ability to source the product
necessary to fill the orders placed by our customers. Since August 2001, when
The Canopy Group ("CANOPY") assumed Finova Capital Corporation's ("FINOVA")
first position lien by purchasing the $2,000,000 balance of the term note and
the approximately $350,000 balance of the revolving line of credit ("RLOC"), we
have had access to collected accounts receivable, but this has been insufficient
to meet our capital needs.
Subsequent to our Chapter 11 filings made on September 7, 2001, we have
made considerable reductions in operating expenses, primarily in personnel.
Although these reductions will have significant impact on our future operations,
it will be necessary to raise additional capital, reestablish the relationships
with existing customers, generate new customers, and receive confirmation from
the bankruptcy court of a plan of reorganization to successfully reorganize
under Chapter 11 of the Bankruptcy Code. Our failure to successfully achieve
confirmation of a plan of reorganization will eliminate our continuation as a
going concern.
7
COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 2001 AND DECEMBER 31, 2000
Net revenues for the three months ended December 31, 2001 were $ 2,039,197
compared to $3,159,651 in the three months ended December 31, 2000. The
$1,120,454 decrease, 35.5%, from the prior period, was due to the inability to
source product to meet the orders placed.
Cost of sales for the three months ended December 31, 2001 was $1,720,600
as compared to $2,521,636, a decrease of $801,036 related to the decrease in
revenues. The cost of sales percentage increased to 84.4% of sales, up from
79.8% of sales for the same period in 2000, which resulted in a corresponding
gross profit margin decrease to 15.6% from 20.2% for the respective periods. The
decrease reflects some of the special pricing we afforded customers during the
quarter in an attempt to maintain relationships. The gross profit for the fiscal
quarter ended December 31, 2001 was $318,597, a decrease of $319,418 from the
fiscal quarter ended December 31, 2000.
Selling, general and administrative expense was $822,921, or 40% of
revenue, for the three months ended December 31, 2001 as compared to $2,385,294,
or 75% of revenue, for the same period in 2000. The decrease of $1,562,373, or
65.5%, was due to decreases in personnel related costs, travel, marketing and
advertisement, professional fees and administrative fees related to a
subsidiary, partnerAxis.
Interest expense for the three months ended December 31, 2001 was $108,573
as compared to $2,024,710 for the three months ended December 31, 2000. The
decrease of $1,916,137 was principally due to the costs recorded in the prior
year for expenses recorded for the warrants issued to the Debenture holder for
the release of restricted cash in July 2000, a beneficial conversion feature of
$130,000 recorded on the Secured Convertible Promissory Note issued to Canopy,
and the higher interest and amortization expenses related to the Debenture. The
interest and other income of $585 for the three months ended December 31, 2001
as compared to $69,843 for the same period in 2000, was primarily related to the
reduced Debenture balance.
The preceding factors resulted in a net loss attributable to common
stockholders of $788,869 or $0.02 per basic and diluted share for the three
months ended December 31, 2001 as compared to a net loss attributable to common
stockholders of $5,375,959, or $0.25 per basic and diluted share, for the three
months ended December 31, 2000.
COMPARISON OF THE SIX MONTHS ENDED DECEMBER 31, 2001 AND DECEMBER 31, 2000
Net revenues for the six months ended December 31, 2001 were $3,664,732
compared to $5,589,458 in the six months ended December 31, 2000. The $1,924,726
decrease, 34.4%, from the prior period, was due to the inability to source
product to meet the orders placed.
Cost of sales for the six months ended December 31, 2001 was $3,107,964 as
compared to $4,583,544, a decrease of $1,475,580 related to the decrease in
revenues. The cost of sales percentage increased to 84.8% of sales, up from
82.0% of sales for the same period in 2000, which resulted in a corresponding
gross profit margin decrease to 15.2% from 18.0% for the respective periods. The
decrease reflects some of the special pricing we afforded customers during the
period in an attempt to maintain relationships. The gross profit for the six
months ended December 31, 2001 was $556,768, a decrease of $449,146 from the six
months ended December 31, 2000.
8
Selling, general and administrative expense was $2,205,633, or 60% of
revenue, for the six months ended December 31, 2001 as compared to $3,514,744,
or 63% of revenue, for the same period in 2000. The decrease of $1,309,111, or
37.2%, was due to decreases in personnel related costs, travel, marketing and
advertisement, professional fees and administrative fees related to a former
subsidiary, partnerAxis.
Interest expense for the six months ended December 31, 2001 was $397,488 as
compared to $3,203,828 for the six months ended December 31, 2000. The decrease
of $2,806,340 was principally due to the costs recorded in the prior year for
expenses recorded for the warrants issued to the Debenture holder for the
release of restricted cash in July 2000, a beneficial conversion feature of
$130,000 recorded on the Secured Convertible Promissory Note issued to Canopy,
and the higher interest and amortization expenses related to the Debenture. The
interest, and other income of $3,931 for the six months ended December 31, 2001
as compared to $138,274 for the same period in 2000, was primarily related to
the reduced Debenture balance.
The preceding factors resulted in a net loss attributable to common
stockholders of $2,444,511 or $0.07 per basic and diluted share for the six
months ended December 31, 2001 as compared to a net loss attributable to common
stockholders of $7,498,029, or $0.49 per basic and diluted share, for the six
months ended December 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Our net cash provided in operating activities for the six months ended
December 31, 2001 was $1,122,000 as compared to $3,127,753 used in the six
months ended December 31, 2000. The operating cash shortage was financed through
financing activities discussed below. The primary source of cash resulted from
the reduction in accounts receivable and inventory. The reduction in receivables
was primarily used to reduce the RLOC.
The net cash used by investing activities during the six months ending
December 31, 2001 was $16,023.
The net cash used from financing activities during the six months ended
December 31, 2001 was $1,159,587. Most of the reduction was used to reduce the
RLOC, which was terminated on June 30, 2001. From June 30, 2001 until the date
that Canopy assumed the RLOC, all collections of accounts receivable were
applied to reducing the RLOC.
On September 13, 2001 we entered into a Stipulation for Use of Cash
Collateral ("STIPULATION") with Canopy which allows us to use 95% of the
collections received from pre-petition accounts receivable on which Canopy holds
a security interest. In exchange for this agreement, we granted to Canopy a
first lien security interest in all of our post petition receivables, inventory
and the proceeds thereof. In addition, we may use 95% of the proceeds from all
post petition accounts receivable and inventory to operate our business. The
remaining 5% is to be applied to the outstanding balance of the debt owed to
Canopy which approximates $4,100,000. The Stipulation has provided some
temporary relief for the cash flow challenges we continue to experience.
9
On September 24, 2001 we entered into an Agreement for Secured Line of
Credit (the "SECURED LINE") with Caldera Systems, Inc. ("CALDERA"). Under terms
of the Secured Line, Caldera provided a $250,000 line of credit which will
facilitate our ability to purchase product from Caldera. In exchange for the
granting of the line of credit, we executed a promissory note for $542,125.61
representing the pre-petition debt owed to Caldera and granted a junior security
interest in all of our assets to Caldera to secure the promissory note and all
amounts that may become due and owing under the line of credit.
On November 8, 2001 we entered into a Dealer Loan and Security Agreement
for Secured Line of Credit (the "DEALER LOAN") with Textron Financial
Corporation ("TEXTRON") and an Agreement to Provide Letter of Credit and
Financial Accommodations (the "LOC") with Canopy. Under the terms of the Dealer
Loan, Textron will provide to us credit and financing in the amount of $500,000
to facilitate the purchase of goods and inventory on favorable terms from our
suppliers. This will provide assistance in filling orders from our clients and
meeting the demand for our products. Under the LOC, Canopy has provided a
$500,000 letter of credit to secure the credit extended by Textron under the
Dealer Loan.
Even with the transactions set forth above, we have need for additional
capital and are continuing our efforts to locate and raise additional capital.
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, this Form 10-QSB
contains express or implied forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. We intend that such forward-looking statements be subject
to the safe harbors created thereby. We may make written or oral forward-looking
statements from time to time in filings with the SEC, in press releases,
quarterly conference calls or otherwise. The words "believes," "EXPECTS,"
"ANTICIPATES," "INTENDS," "FORECASTS," "PROJECT," "PLANS," "ESTIMATES" and
similar expressions identify forward-looking statements. Such statements reflect
our current views with respect to future events and financial performance or
operations and speak only as of the date the statements are made.
Forward-looking statements involve risks and uncertainties and readers are
cautioned not to place undue reliance on forward-looking statements. Our actual
results may differ materially from such statements. Factors that cause or
contribute to such differences include, but are not limited to, those discussed
elsewhere in this Form 10-QSB, as well as those discussed in our Form 10-KSB for
the fiscal year ended June 30, 2001, including those in the Notes to
Consolidated Financial Statements and in "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION" and "DESCRIPTION OF BUSINESS -
Factors Affecting Future Performance" sections which are incorporated by
reference in this Form 10-QSB.
Although we believe that the assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate and,
therefore, there can be no assurance that the results contemplated in such
forward-looking statements will be realized. The inclusion of such
forward-looking information should not be regarded as a representation that the
future events, plans or expectations contemplated will be achieved. We undertake
no obligation to publicly update, review or revise any forward-looking
statements to reflect any change in our expectations or any change in events,
10
conditions or circumstances on which any such statements are based. Our filings
with the SEC, including the Form 10-KSB referenced above, may be accessed at the
SEC's Web site, www.sec.gov.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved in various legal proceedings and have certain outstanding
claims as described in our Form 10-KSB for the year ended June 30, 2001. Certain
outstanding vendor claims have been settled. Management believes that all such
matters are within ordinary levels for an organization of our size and nature.
Management believes that these disputes will be resolved without material
adverse consequences to operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
10.26 Stipulation Providing For Use of Cash Collateral and
Adequate Protection of Secured Ceditor's Lien between
Ebiz, JBSI and Canopy dated September 13, 2001.
10.27 Agreement for Secured Line of Credit between Ebiz, JBSI
and Caldera approved September 24, 2001.
10.28 Dealer Loan and Security Agreement for Secured Line of
Credit between Ebiz, JBSI and Textron approved November 8,
2001 and Amendment thereto.
10.29 Agreement to provide Letter of Credit and Finacial
Accomidations between Ebiz, JBSi and Canopy approved
November 8, 2001
10.30 Financial Advisory Agreement between Ebiz, JBSI and FFEC
approved November 14, 2001.
(B) REPORTS ON FORM 8-K
During the quarter ending December 31, 2001, no reports on Form 8-K were filed.
11
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed by the undersigned, thereunto duly authorized.
EBIZ ENTERPRISES, INC.
Dated February 14, 2002 By /s/ Bruce Parsons
--------------------------------------
Bruce Parsons
Chief Executive Officer
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