1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JANUARY 31, 2001
COMMISSION FILE NO. 027619
iBIZ TECHNOLOGY CORP.
----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 86-0933890
- --------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1919 West Lone Cactus, Phoenix, Arizona 85027
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (623) 492-9200
----------------
Check whether the registrant: (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 [ ]
Class Outstanding at March 16, 2001
----- -----------------------------
Common stock, $0.001 par value 38,017,966
2
TABLE OF CONTENTS
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED).................................... 1
BALANCE SHEETS ..................................................... 2
STATEMENTS OF OPERATIONS............................................ 4
STATEMENT OF CASH FLOWS............................................. 6
NOTES TO FINANCIAL STATEMENTS....................................... 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................... 29
ITEM 2. CHANGES IN SECURITIES............................................... 29
ITEM 3. DEFAULTS UPON SENIOR SECURITIES..................................... 30
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................. 30
ITEM 5. OTHER INFORMATION................................................... 30
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................... 30
3
PART I
ITEM 1. FINANCIAL INFORMATION
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To The Board of Directors and Stockholders
iBIZ Technology Corp. and Subsidiary
Phoenix, Arizona
We have reviewed the accompanying consolidated balance sheet of IBIZ Technology
Corp. and Subsidiary as of January 31, 2001 and the related consolidated
statements of operations and cash flows for the three months ended January 31,
2001 and 2000 and the statement of stockholders' equity for the three months
ended January 31, 2001 in accordance with Statements on Standards for Accounting
and Review Services issued by the American Institute of Certified Public
Accountants. All information included in these financial statements is the
representation of the management of IBIZ Technology Corp. and Subsidiary.
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have audited, in accordance with auditing standards generally accepted in the
United States of America, the consolidated balance sheet of IBIZ Technology
Corp. and Subsidiary as of October 31, 2000, and the related consolidated
statements of operations, stockholders' equity and cash flows for the year then
ended (not presented herein); and in our report dated December 30, 2000 we
expressed an unqualified opinion on those financial statements. In our opinion,
the information set forth in the accompanying consolidated balance sheet as of
October 31, 2000, is fairly stated in all material respects in relation to the
balance sheet from which it has been derived.
/s/ Moffitt & Company, P.C.
MOFFITT & COMPANY, P.C.
SCOTTSDALE, ARIZONA
February 1, 2001 except for footnote number 28 which is dated March 2, 2001.
1
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IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 2001 AND OCTOBER 31, 2000
ASSETS
JANUARY 31, OCTOBER 31,
2001 2000
(UNAUDITED) (AUDITED)
---------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 577,571 $ 631,375
Accounts receivable 386,344 432,113
Inventories 544,481 439,582
Prepaid expenses 172,484 104,874
---------- ----------
TOTAL CURRENT ASSETS 1,680,880 1,607,944
---------- ----------
PROPERTY AND EQUIPMENT, NET OF
ACCUMULATED DEPRECIATION 1,978,083 1,948,715
---------- ----------
OTHER ASSETS
Notes receivable, officers 384,711 391,332
Customer list, net of accumulated amortization 6,940 7,932
Deposits 67,447 60,959
---------- ----------
TOTAL OTHER ASSETS 459,098 460,223
---------- ----------
TOTAL ASSETS $4,118,061 $4,016,882
========== ==========
2
5
LIABILITIES AND STOCKHOLDERS' EQUITY
JANUARY 31, OCTOBER 31,
2001 2000
(UNAUDITED) (AUDITED)
----------- ---------
CURRENT LIABILITIES
Accounts payable $ 643,126 $ 973,894
Accrued liabilities
Payroll 199,780 96,283
Other 149,353 101,736
Sales and payroll taxes payable 88,358 89,023
Corporation income taxes payable 19,028 19,028
Deferred income 54,169 85,798
Notes payable, current portion 5,430 5,335
----------- -----------
TOTAL CURRENT LIABILITIES 1,159,244 1,371,097
----------- -----------
LONG-TERM LIABILITIES
Convertible debentures payable 2,815,800 1,750,000
Notes payable, long-term portion 13,078 14,479
----------- -----------
TOTAL LONG-TERM LIABILITIES 2,828,878 1,764,479
----------- -----------
STOCKHOLDERS' EQUITY
Common stock
Authorized - 100,000,000 shares, par
value $.001 per shares
Issued and outstanding
January 31, 2001 - 38,017,966 shares 38,018 0
October 31, 2000 - 37,812,425 shares 0 37,813
Paid in capital in excess of par value of stock 8,121,323 7,940,384
Retained earnings (deficit) (8,029,402) (7,096,891)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 129,939 881,306
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 4,118,061 $ 4,016,882
=========== ===========
See Accompanying Notes and Independent Accountants' Review Report.
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IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JANUARY 31, 2001 AND 2000
(UNAUDITED)
THREE MONTHS ENDED JANUARY 31,
-------------------------------
2001 2000 (RESTATED)
------------ ---------------
SALES $ 1,005,328 $ 628,853
COST OF SALES 624,267 550,795
------------ ------------
GROSS PROFIT 381,061 78,058
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 1,208,952 (773,095)
------------ ------------
(LOSS) BEFORE OTHER INCOME (EXPENSE) (827,891) (695,037)
------------ ------------
OTHER INCOME (EXPENSE)
Settlement of lawsuit 101,369 0
Cancellation of debt 122,000 0
Other income 326 0
Interest income 9,616 5,398
Interest expense (35,541) (20,481)
Interest expense - convertible debentures-beneficial
conversion feature (302,390) (572,935)
------------ ------------
TOTAL OTHER INCOME (EXPENSE) (104,620) (588,018)
------------ ------------
NET (LOSS) $ (932,511) $ (1,283,055)
============ ============
NET (LOSS) PER COMMON SHARE
Basic and diluted $ (0.02) $ (.05)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Basic and diluted 37,929,185 26,721,059
============ ============
See Accompanying Notes and Independent Accountants' Review Report.
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IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS
OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JANUARY 31, 2001
(UNAUDITED)
COMMON STOCK
--------------------------
SHARES AMOUNT
---------- ----------
BALANCE, NOVEMBER 1, 2000 37,812,425 $ 37,813
CONVERSION OF DEBENTURES FOR
COMMON STOCK 205,541 205
FEES AND COSTS FOR ISSUANCE OF
COMMON STOCK AND DEBENTURES 0 0
INTEREST EXPENSE - CONVERTIBLE
DEBENTURES - BENEFICIAL CONVERSION
FEATURE 0 0
NET (LOSS) FOR THE THREE MONTHS ENDED
JANUARY 31, 2001 0 0
---------- ----------
BALANCE, JANUARY 31, 2001 38,017,966 $ 38,018
========== ==========
PAID IN
CAPITAL IN
EXCESS OF RETAINED
PAR VALUE EARNINGS
OF STOCK (DEFICIT)
----------- ------------
$ 7,940,384 $ (7,096,891)
34,371 0
(155,822) 0
302,390 0
0 (932,511)
----------- ------------
$ 8,121,323 $ (8,029,402)
=========== ============
See Accompanying Notes and Independent Accountants' Review Report.
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IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31, 2001 AND 2000
(UNAUDITED)
THREE MONTHS ENDED JANUARY 31,
-----------------------------------
2001 2000 (RESTATED)
------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (932,511) $(1,283,055)
Adjustments to reconcile net (loss) to
net cash (used) by operating activities:
Depreciation and amortization 61,151 10,774
Interest expense - convertible debentures-beneficial
conversion feature 302,390 572,935
Changes in operating assets and liabilities:
Accounts receivable 45,769 (170,337)
Inventories (104,899) 30,028
Prepaid expenses (67,610) 10,738
Accounts payable (330,768) (241,024)
Accrued liabilities and taxes 150,449 12,523
Customer deposits 0 (85,394)
Deferred income (31,629) 31,336
Changes in deposits (6,488) 347
----------- -----------
NET CASH (USED) BY OPERATING
ACTIVITIES (914,146) (1,111,129)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (89,527) (70,615)
Purchase of customer list 0 (11,900)
----------- -----------
NET CASH (USED) BY INVESTING
ACTIVITIES (89,527) (82,515)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 0 137,000
Proceeds from issuance of convertible debentures payable 944,554 1,600,000
Repayment of notes payable (1,306) (62,590)
Changes in notes receivable, officers 6,621 (55,352)
----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES $ 949,869 $ 1,619,058
----------- -----------
See Accompanying Notes and Independent Accountants' Review Report.
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IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE THREE MONTHS ENDED JANUARY 31, 2001 AND 2000
(UNAUDITED)
THREE MONTHS ENDED JANUARY 31,
-----------------------------------
2001 2000 (RESTATED)
------------- ---------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ (53,804) $ 425,414
CASH AND CASH EQUIVALENTS, AT
BEGINNING OF PERIOD 631,375 25,343
--------- ---------
CASH AND CASH EQUIVALENTS, AT
END OF PERIOD $ 577,571 $ 450,757
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during period:
Interest $ 67,275 $ 3,787
========= =========
Taxes $ 0 $ 0
========= =========
NON CASH INVESTING AND FINANCING
ACTIVITIES
Issuance of common stock for convertible debentures $ 34,576 $ 200,000
========= =========
Interest expense - convertible debentures-beneficial
conversion feature $ 302,390 $ 572,935
========= =========
See Accompanying Notes and Independent Accountants' Review Report.
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IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2001
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF BUSINESS
IBIZ Technology Corp. (hereinafter referred to as the Company) was
organized on April 6, 1994, under the laws of the State of Florida.
The Company operates as a holding company for subsidiary acquisitions.
Invnsys Technology Corporation (hereinafter referred to as Invnsys) is
in the business of designing, manufacturing and distributing desktop
computers, monitors, transactional printers, financial application
keyboards, numeric keypads and related products. Invnsys also provides
network integration services, digital subscriber line high speed
internet connection services, business-to-business sale of software
and a co-location computer data and server facility. Invnsys also
provides repair services and sells maintenance contracts. The
corporation operates a service center in Phoenix, Arizona.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of IBIZ
Technology Corp. and its wholly owned subsidiary, Invnsys Technology
Corporation.
All material inter-company accounts and transactions have been
eliminated.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of
three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost (determined principally by
average cost) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Major renewals and
improvements are charged to the asset accounts while replacements,
maintenance and repairs, which do not improve or extend the lives of
the respective assets, are expensed. At the time property and
equipment are retired or otherwise disposed of, the asset and related
accumulated depreciation accounts are relieved of the applicable
amounts. Gains or losses from retirements or sales are credited or
charged to income.
See Accompanying Notes and Independent Accountants' Review Report.
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IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2001
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT (CONTINUED)
Invnsys depreciates its property and equipment for financial reporting
purposes using the straight-line method based upon the following
useful lives of the assets:
Tooling 3 Years
Machinery and equipment 5-10 Years
Office furniture and equipment 5-10 Years
Vehicles 5 Years
Leasehold improvements 5 Years
Computer software 3-5 Years
Co-location equipment 5-25 Years
ACCOUNTING FOR CONVERTIBLE DEBT SECURITIES
The Company has issued convertible debt securities with a
non-detachable conversion feature that were "in the money" at the date
of issue. The Company accounts for such securities in accordance with
Emerging Issues Task Force Topic D-60. The Company has recorded the
fair value of the beneficial conversion feature as interest expense
and an increase to Paid in Capital in Excess of Par Value of Stock.
CUSTOMER LISTS
The customer list is recorded at cost and is being amortized on a
straight-line basis over three years.
ACCOUNTING ESTIMATES
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent assets
and liabilities, and the reported revenues and expenses. Actual
results could vary from the estimates that were used.
REVENUE RECOGNITION
Invnsys recognizes revenue from product sales when the goods are
shipped and title passes to customers.
SALES OF MAINTENANCE AGREEMENTS
The revenue received for the maintenance agreements is being
recognized on a straight-line basis
See Accompanying Notes and Independent Accountants' Review Report.
9
12
over the life of the contracts. The unearned portion is recorded as
deferred income.
IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2001
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Provisions for income taxes are based on taxes payable or refundable
for the current year and deferred taxes on temporary differences
between the amount of taxable income and pretax financial income and
between the tax basis of assets and liabilities and their reported
amounts in the financial statements. Deferred tax assets and
liabilities are included in the financial statements at currently
enacted income tax rates applicable to the period in which the
deferred tax assets and liabilities are expected to be realized or
settled as prescribed in FASB Statement No.109, Accounting for Income
Taxes. As changes in tax laws or rates are enacted, deferred tax
assets and liabilities are adjusted through the provision for income
taxes.
NET (LOSS) PER SHARE
The Company adopted Statement of Financial Accounting Standards No.
128 that requires the reporting of both basic and diluted (loss) per
share. Basic (loss) per share is computed by dividing net (loss)
available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted (loss) per share
reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into
common stock. In accordance with FASB 128, any anti-dilutive effects
on net (loss) per share are excluded.
RISKS AND UNCERTAINTIES
The Company is in the computer and computer technology industry. The
Company's products are subject to rapid obsolescence and management
must authorize funds for research and development costs in order to
stay competitive.
NOTE 2 DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has financial instruments, none of which are held for
trading purposes. The Company estimates that the fair value of all
financial instruments as of January 31, 2001 and October 31, 2000, as
defined in FASB 107, does not differ materially from the aggregate
carrying values of its financial instruments recorded in the
accompanying balance sheets. The estimated fair value amounts have
been determined by the Company using available market information and
appropriate valuation methodologies. Considerable judgement is
required in interpreting market data to develop the estimates of fair
value, and accordingly, the estimates are not necessarily indicative
of the amounts that the Company could realize in a current market
exchange.
See Accompanying Notes and Independent Accountants' Review Report.
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IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2001
(UNAUDITED)
NOTE 3 ACCOUNTS RECEIVABLE
A summary of accounts receivable and allowance for doubtful accounts
is as follows:
JANUARY 31, OCTOBER 31,
2001 2000
(UNAUDITED) (AUDITED)
--------- ---------
Accounts receivable $ 411,344 $ 457,113
Allowance for doubtful accounts 25,000 25,000
--------- ---------
Net accounts receivable $ 386,344 $ 432,113
========= =========
Allowance for doubtful accounts
Balance, beginning of period $ 25,000 $ 2,500
Additions for the period 0 97,500
Write-off of uncollectible accounts
for the period 0 (75,000)
--------- ---------
Balance, end of year $ 25,000 $ 25,000
========= =========
NOTE 4 INVENTORIES
The inventories are comprised of the following:
JANUARY 31, OCTOBER 31,
2001 2000
(UNAUDITED) (AUDITED)
----------- -----------
Finished products $496,168 $391,479
Demonstration and loaner units 4,070 4,070
Office 44,243 44,033
-------- --------
$544,481 $439,582
======== ========
See Accompanying Notes and Independent Accountants' Review Report.
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IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2001
(UNAUDITED)
NOTE 5 PROPERTY AND EQUIPMENT
Property and equipment and accumulated depreciation consists of:
JANUARY 31, OCTOBER 31,
2001 2000
(UNAUDITED) (AUDITED)
----------------- ------------------
Co-location equipment $ 1,806,194 $ 1,719,479
Tooling 68,100 68,100
Machinery and equipment 49,855 49,404
Office furniture and equipment 125,669 123,308
Vehicles 39,141 39,141
Leasehold improvements 23,179 23,179
Software 96,858 96,858
----------------- ------------------
2,208,996 2,119,469
Less accumulated depreciation 230,913 170,754
----------------- ------------------
Total property and equipment $ 1,978,083 $ 1,948,715
================= ==================
Depreciation expense for the three months ended January 31, 2001 and
2000 was $60,159 and $10,179, respectively.
NOTE 6 NOTES RECEIVABLE, OFFICERS
JANUARY 31, OCTOBER 31,
2001 2000
(UNAUDITED) (AUDITED)
----------- -----------
IBIZ Technology Corp.
Notes to two corporation officers
The notes are unsecured, bear interest at
6% and are due on January 7, 2002. $ 0 $ 12,079
Invnsys Technology Corporation
The related note is secured by 2,000,000 shares
of common stock in the Company, payable on
demand and accrues interest at 6%. Management
believes the notes will not be collected
within the current operating cycle and classified
the asset as a long-term asset. 384,711 379,253
-------- --------
Total notes receivable $384,711 $391,332
======== ========
See Accompanying Notes and Independent Accountants' Review Report.
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IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2001
(UNAUDITED)
NOTE 7 CUSTOMER LIST
The customer list and accumulated amortization consists of:
JANUARY 31, OCTOBER 31,
2001 2000
(UNAUDITED) (AUDITED)
----------- -----------
Cost $ 11,900 $ 11,900
Less accumulated amortization (4,960) (3,968)
-------- --------
Net customer list $ 6,940 $ 7,932
======== ========
The amortization expense for the three months ended January 31, 2001
and 2000 was $992 and $595, respectively.
NOTE 8 INCOME TAXES
JANUARY 31,
JANUARY 31, 2000
2001 (UNAUDITED)
(UNAUDITED) (RESTATED)
----------- -----------
(Loss) from continuing operations
before income taxes $ (932,511) $(1,283,055)
----------- -----------
The provision for income taxes is estimated as follows:
Currently payable $ 0 $ 0
----------- -----------
Deferred $ 0 $ 0
----------- -----------
Significant components of the Company's deferred tax assets and
liabilities are as follows:
Deferred tax assets:
Net operating loss carryforwards $ 596,000 $ 451,000
Accrued expenses and miscellaneous 8,100 8,100
Tax credit carryforward 38,424 38,424
----------- -----------
642,524 497,524
Less valuation allowance 642,524 497,524
----------- -----------
Net deferred tax asset $ 0 $ 0
=========== ===========
See Accompanying Notes and Independent Accountants' Review Report
13
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IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2001
(UNAUDITED)
NOTE 8 INCOME TAXES (CONTINUED)
JANUARY 31, OCTOBER 31,
2001 2000
(UNAUDITED) (AUDITED)
----------- ---------
Deferred tax liabilities
Property and equipment related $ 6,199 $ 6,199
======== ========
A reconciliation of the valuation allowance is as follows:
Balance, beginning of period $497,524 $356,638
Addition to allowance for the three months
ended January 31, 2001 and 2000 145,000 140,886
-------- --------
Balance, end of period $642,524 $497,524
======== ========
NOTE 9 TAX CARRYFORWARDS
The Company has the following tax carryforwards at January 31, 2001:
EXPIRATION
YEAR AMOUNT DATE
------------------ ----------- ----------------
Net operating loss
October 31, 1995 $ 2,500 October 31, 2010
October 31, 1997 253,686 October 31, 2012
October 31, 1998 71,681 October 31, 2013
October 31, 1999 842,906 October 31, 2019
October 31, 2000 3,575,081 October 31, 2020
January 31, 2001 630,121 October 31, 2021
-----------
$5,375,975
==========
Capital loss
October 31, 1997 25,600 October 31, 2002
Contribution
October 31, 1997 545 October 31, 2002
October 31, 1999 2,081 October 31, 2004
October 31, 2000 3,008 October 31, 2005
-----------
Research tax credits 38,424
See Accompanying Notes and Independent Accountants' Review Report.
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IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2001
(UNAUDITED)
NOTE 10 CONVERTIBLE DEBENTURES
JANUARY 31, OCTOBER 31,
2001 2000
(UNAUDITED) (AUDITED)
----------- ---------
LITES TRADING COMPANY - $1,600,000 DEBENTURE $ 750,000 $ 750,000
- ---------------------------------------------
On March 27, 2000, the Company issued $1,600,000 of 7%
convertible debentures under the following terms and conditions:
1. Due date - March 27, 2005.
2. Interest only on May 1 and December 1 of each year commencing May 1, 2000.
3. Default interest rate - 18%.
4. Warrants to purchase 375,000 shares of common stock at $1.45 per share.
5. Conversion terms - The debenture holder shall have the right to convert all
or a portion of the outstanding principal amount of this debenture plus any
accrued interest into such number of shares of common stock as shall equal
the quotient obtained by dividing the principal amount of this debenture by
the applicable conversion price.
6. Conversion price - Lesser of (i) $1.45 (fixed price) or (ii) the product
obtained by multiplying the average closing price by .80.
7. Average closing price - The debenture holder shall have the election to
choose any three trading days out of twenty trading days immediately
preceding the date on which the holder gives the Company a written notice
of the holder's election to convert outstanding principal of this
debenture.
8. Redemption by Company - If there is a change in control of the Company, the
holder of the debenture can request that the debenture be redeemed at a
price equal to 125% of the aggregate principal and accrued interest
outstanding under this debenture.
9. The debentures are unsecured.
10. Any further issuance of common stock or debentures must be approved by
debenture holders.
11. Debenture holders have a eighteen month right of first refusal on future
disposition of stock by the Company.
12. Restriction on payment of dividends, retirement of stock or issuance of new
securities.
See Accompanying Notes and Independent Accountants' Review Report.
15
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IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2001
(UNAUDITED)
NOTE 10 CONVERTIBLE DEBENTURES (CONTINUED)
JANUARY 31, OCTOBER 31,
2001 2000
(UNAUDITED) (AUDITED)
-------------- --------------
$5,000,000 CONVERTIBLE DEBENTURE $ 2,065,800 $ 1,000,000
--------------------------------
On October 31, 2000, the Company issued the following 8%
convertible debentures:
1. Due date - October 30, 2002.
2. Interest payable quarterly from January 1, 2001.
3. Default interest rate - 20%.
4. On the first $ 1,000,000 of financing, the Company issued warrants to
purchase 500,000 shares of stock at $ 0.48 per share. The Company reserved
an additional 1,240,000 shares for future borrowing on this debenture line.
5. Put note purchase price - $4,000,000.
6. Fees and costs - 7% - 10% of cash received for debentures and warrants plus
legal fees.
7. The Company must reserve a number of common shares equal to not less then
200% of the amount of common shares necessary to allow the debenture and
warrant holder to be able to convert all such outstanding notes and put
notes to common stock.
8. Conversion price for put notes. The initial 50% of the put notes shall be
the lesser of: (i) 80% of the average of the three lowest closing bid
prices for the stock for twenty two days or (ii) 80% of the average of the
five lowest closing bid prices for the stock for sixty days. The conver-
sion price of the balance of the put notes shall be 86% of the average of
the three lowest closing bid prices for ten days.
9. The debentures have penalty clauses if the common stock is not issued when
required by the debenture holder.
10. The debentures are unsecured.
11. The Company's right to exercise the put commences on the actual effective
date of the SEC Registration Statement and expires three years after the
effective date.
12. Right of first refusal - The debenture holders have the right to purchase a
proportionate amount of new issued shares in order to maintain their
ownership interest percentage.
-------------- --------------
Total debentures $ 2,815,800 $ 1,750,000
============== ==============
See Accompanying Notes and Independent Accountants' Review Report.
16
19
IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2001
(UNAUDITED)
NOTE 11 NOTE PAYABLE
JANUARY 31, OCTOBER 31,
2001 2000
(UNAUDITED) (AUDITED)
----------- ---------
Note payable to Community First National Bank due in monthly
payments of principal and interest of $545 with interest at 7
percent until March 7, 2004. The note is secured by an
automobile which costs $ 36,000 and has a book value of $7,800 $18,508 $19,814
Less: current portion 5,430 5,335
------- -------
Net long-term debt $13,078 $14,479
======= =======
Maturities of long-term debt are as follows:
2001 $ 5,430 $ 5,476
2002 5,822 5,721
2003 6,243 6,135
2004 1,013 2,482
------- -------
$18,508 $19,814
======= =======
NOTE 12 REAL ESTATE LEASE
On June 1, 1999, Invnsys leased a new facility from a related entity.
The lease commenced on July 1, 1999, requires initial annual rentals
of $153,600 (with annual increases) plus taxes and operating costs and
expires on December 31, 2024. Invnsys has also guaranteed the mortgage
on the premises in the amount of $938,219 and given a security
interest in all of its assets, (excluding $544,481 of
See Accompanying Notes and Independent Accountants' Review Report.
17
20
inventory) in the amount of $3,573,580.
Future minimum lease payments excluding taxes and expenses, are as
follows:
2001 $ 122,632
2002 169,344
2003 177,816
2004 186,708
November 1, 2004 - December 31, 2024 6,482,145
-----------------
Total $ 7,138,645
==================
Rent expense for the three months ended January 31, 2001 and 2000 was
$38,648 and $38,400 respectively.
See Accompanying Notes and Independent Accountants' Review Report.
18
21
IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2001
(UNAUDITED)
NOTE 13 ADVERTISING
All direct advertising costs are expensed as incurred. For the three
months ended January 31, 2001, the Company charged $14,317 in
advertising expenses less a $41,909 refund for a net advertising cost
of $(27,592). For the three months ended January 31, 2000, advertising
costs were $9,110.
NOTE 14 INTEREST
The Company incurred interest expenses for the three months ended
January 31, 2001 and 2000 as follows:
JANUARY 31,
JANUARY 31, 2000
2001 (UNAUDITED)
(UNAUDITED) (RESTATED)
----------- ----------
For operations $ 35,541 $ 20,481
For convertible debentures-beneficial
conversion feature 302,390 572,935
-------- --------
Total $337,931 $593,416
======== ========
NOTE 15 PRODUCT WARRANTY PROVISION
Invnsys established a provision for product warranty to cover any
potential warranty costs on computer equipment that are not covered by
the computer manufacturer's warranty.
Warranty summary
JANUARY 31, JANUARY 31
2001 2000
(UNAUDITED) (UNAUDITED)
----------- -----------
Balance, beginning of year $20,000 $50,000
Reduction for the year 0 14,432
------- -------
Balance, end of year $20,000 $35,568
======= =======
NOTE 16 RESEARCH AND DEVELOPMENT
Invnsys incurred research and development cost for the three months
ended January 31, 2001 and 2000 of $4,035 and $0, respectively.
NOTE 17 OFFICERS' COMPENSATION
At January 31, 2001, officers' compensation was as follows:
President and Chief Executive Officer $ 250,000
Vice President 150,000
Chief Financial Officer 150,000
Chief Operating Officer 150,000
See Accompanying Notes and Independent Accountants' Review Report.
19
22
IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2001
(UNAUDITED)
NOTE 18 ECONOMIC DEPENDENCY
For the three months ended January 31, 2001, Invnsys had $405,706 of
sales to one customer.
Invnsys purchased approximately 20% of its PDA's from one supplier.
NOTE 19 EMPLOYEE STOCK OPTIONS
On January 31, 1999, the corporation adopted a stock option plan for
the purpose of providing an incentive based form of compensation to
the officers, directors, key employees and service providers of the
Company.
The stock subject to the plan and issuable upon exercise of options
granted under the plan are shares of the corporation's common stock,
$.001 par value, which may be either unissued or treasury shares. The
aggregate number of shares of common stock covered by the plan and
issuable upon exercise of all options granted shall be 5,000,000
shares, which shares shall be reserved for use upon the exercise of
options to be granted from time to time.
The exercise price is the fair market value of the shares (average of
bid and ask price) at the date of the grant of the options.
Vesting terms of the options range from immediately to ten years.
The Company has elected to continue to account for stock-based
compensation under APB Opinion No. 25, under which no compensation
expense has been recognized for stock options granted to employees at
fair market value.
A summary of the option activity for the three months ended January
31, 2001 and 2000 pursuant to the terms of the plan is as follows:
JANUARY 31, JANUARY 31,
2001 2000
(UNAUDITED) (UNAUDITED)
----------- -----------
Balance, beginning of year 3,385,000 2,350,000
Granted 0 625,000
Exercised 0 0
Canceled (170,000) 0
---------- ----------
Balance, end of year 3,215,000 2,975,000
========== ==========
2,692,500 shares are exercisable at January 31, 2001.
See Accompanying Notes and Independent Accountants' Review Report.
20
23
IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2001
(UNAUDITED)
NOTE 19 EMPLOYEE STOCK OPTIONS (CONTINUED)
Information regarding stock options outstanding as of January
31, 2001 and 2000 is as follows:
2001 2000
-------------- -----------------
Price range $0.53 - $2.00 $ 0.75
Weighted average exercise price $0.92 $ 0.92
Weighted average remaining contractual life 8 years, 5 months 9 years, 3 months
Options exercised
Price range 0 0
Shares 0 0
Weighted average exercise price 0 0
The weighted average fair value of options granted were
estimated as of the date of grant using the Black-Scholes stock
option pricing model, based on the following weighted average
assumptions:
Dividend yield 0 0
Expected volatility 50% 30%
Risk free interest rate 5.13% - 6.65% 6.40%
Expected life 10 years 10 years
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows:
JANUARY 31,
JANUARY 31, 2000
2001 (UNAUDITED)
(UNAUDITED) (RESTATED)
----------- ----------
Net (loss)
As reported $ (932,511) $ (710,120)
Pro forma $ (1,003,246) $ (799,820)
(Loss) per share attributable to
common stock
As reported $ (.02) $ (.03)
Pro forma $ (.03) $ (.03)
See Accompanying Notes and Independent Accountants' Review Report.
21
24
IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2001
(UNAUDITED)
NOTE 20 COMMON STOCK PURCHASE WARRANTS
As of January 31, 2001 the Company has issued the following
common stock purchase warrants:
NUMBER EXERCISE
DATE OF SHARES TERM PRICE
-------------------- ---------- --------- ---------------
May 13, 1999 100,000 3 years $ 1.00
May 7, 1999 80,000 10 years $ 0.75
May 13, 1999 100,000 10 years $ 1.00
November 9, 1999 100,000 4 years $ .94
December 14, 1999 75,000 3 years $ 1.66
December 28, 1999 200,000 4 years $ .94
January 10, 2000 281,250 5 years $ .99
March 27, 2000 615,000 5 years $ 1.45 - 2.05
May 17, 2000 125,000 5 years $ 1.04 - 5.00
June 16, 2000 150,000 1 year $ 1.50 - 2.00
August 30, 2000 34,125 5 years $ .937
August 30, 2000 250,000 3 years $ .50
August 30, 2000 250,000 3 years $ .75
August 30, 2000 36,364 3 years $ 1.00
September 3, 2000 109,000 3 years $ 1.00
September 27, 2000 278,750 3 years $ .90
October 31, 2000 1,740,000 2 years $ 105%
of average
closing price
of stock
December 20, 2000 400,000 5 years $ 105%
of average
closing price
of stock
December 20, 2000 150,000 5 years $ 105%
--------- of average
closing price
of stock
4,524,489
=========
3,614,489 shares are exercisable at January 31, 2001.
See Accompanying Notes and Independent Accountants' Review Report.
22
25
IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2001
(UNAUDITED)
NOTE 21 COMMON STOCK AVAILABLE FOR ISSUANCE
Total share authorized 100,000,000
Less shares issued and outstanding (38,017,966)
------------
61,982,034
Less
Reserved for employee stock options (4,910,000)
Reserved for purchase warrants (4,524,489)
Convertible debentures - estimated (2,700,000)
------------
Common stock available for issuance 49,847,545
============
NOTE 22 FINANCIAL PROJECT MANAGEMENT AGREEMENTS
In May 2000, the Company entered into a fourteen month agreement with
Silverman Heller Associates to promote financial and corporate
communication activities.
The project manager will be compensated as follows:
1. A monthly fee of $5,500 beginning on May 17, 2000.
2. In connection with the services the project manager will provide,
warrants to purchase 75,000 shares of common stock at the closing
price on May 17, 2000 and an additional 50,000 shares at $5.00
per share. These warrants and the shares to be issued upon the
exercise of the warrants will vest and be exercisable as of May
17, 2000 and expire five years from the issue date. The warrants
will be granted registration rights on the next stock
registration within the five-year term.
The individuals will be compensated as follows:
1. 80,000 shares of common stock valued at $.80 per share on or
before June 15, 2000.
2. 400,000 shares of common stock valued at $.80 per share on or
before June 15, 2000.
NOTE 24 CASH IN BANK
The Company has $708,840 deposited in one banking institution. Only
$200,000 of the balance is insured by the Federal Deposit Insurance
Corporation.
NOTE 25 SETTLEMENT OF LAWSUIT
Invnsys settled its lawsuit with Epson America, Inc. for $2,500 which
generated $101,369 of income on the settlement.
See Accompanying Notes and Independent Accountants' Review Report.
23
26
IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2001
(UNAUDITED)
NOTE 26 CANCELLATION OF DEBT
The Company negotiated a cancellation of a $122,000 account payable
with a supplier. This cancellation resulted in $122,000 of
cancellation of debt income.
NOTE 27 RESTATEMENT OF JANUARY 31, 2000 NET (LOSS), PAID IN CAPITAL, RETAINED
EARNINGS AND NET (LOSS) PER SHARE
The January 31, 2000 financial statements did not record the interest
expense - convertible debentures - beneficial conversion feature in
the amount of $572,935. The statements are restated as follows:
Net (loss)
As previously reported $ (710,120)
Adjustment
Interest expense - convertible debentures - beneficial
conversion feature 572,935
-----------
As restated $(1,283,055)
===========
Paid-in capital
As previously reported $ 1,443,650
Adjustment
Interest expense - convertible debentures - beneficial
conversion feature 572,935
-----------
As restated $ 2,016,585
===========
Retained earnings
As previously reported $(2,351,283)
Adjustment
Interest expense - convertible debentures - beneficial
conversion feature 572,935
-----------
As restated $(2,924,218)
===========
Net (loss) per share
As previously reported $ (.03)
Adjustment
Interest expense - convertible debentures - beneficial
conversion feature (.02)
-----------
As restated $ (.05)
===========
See Accompanying Notes and Independent Accountants' Review Report.
24
27
IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2001
(UNAUDITED)
NOTE 28 SECURITIES AND EXCHANGE PROCEEDING
On February 28, 2001, the Securities and Exchange Commission commenced
an administrative proceeding against the Company. The Company has
negotiated and submitted a settlement offer, which has been formally
approved by the Commission. Pursuant to this settlement agreement, an
administrative order has been issued which orders the Company to cease
and desist from committing or causing any future violations of Section
10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5
thereunder. No other relief against the Company is being sought.
NOTE 29 BUSINESS SEGMENT INFORMATION
The Company has elected to organize its business based principally
upon products and services.
The Company operates in three reportable business segments: internet
sales, product sales and services and other. The internet sales
segment has responsibility for providing co-location and DSL income.
The product sales segment has responsibility for sales of co-location
equipment, software and licenses, computer equipment and PDA's. The
service segment provides miscellaneous services to Invnsys' customers
and absorbs all general and administrative expenses that are not
allocated to internet sales and product sales.
Summary of business segment for the three months ended January 31,
2001
INTERNET PRODUCT SERVICES
SALES SALES AND OTHER CONSOLIDATED
----- ----- --------- ------------
Sales $ 216,164 $ 705,535 $ 83,629 $ 1,005,328
Operating profit (loss) (111,973) 144,062 (964,600) (932,511)
Identifiable assets 1,806,195 0 402,801 2,208,996
Depreciation 47,335 0 12,824 60,159
Expenditures for long-lived 86,715 0 2,812 89,527
assets
NOTE 30 UNAUDITED FINANCIAL INFORMATION
The accompanying financial information as of January 31, 2001 is
unaudited. In managements opinion, such information includes all
normal recurring entries necessary to make the financial information
not misleading.
See Accompanying Notes and Independent Accountants' Review Report.
25
28
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
Through its operating subsidiary, INVNSYS, iBIZ designs, manufacturers,
and distributes an expanding line of accessories for the fast-growing PDA
(personal digital assistants) and handheld computer market which are distributed
through large retail chains such as CompUSA and Fry's Electronics as well as
numerous e-commerce sites such as Walmart.com, Mobile Planet and others. The
Company also provides Web-enabling services which include co-location services,
web design and development, and data center technical management services. The
Company's infrastructure cabling services include design and installation of
corporate voice and data networks, inside/outside plant, computer and phone room
build-outs, and wireless and fiber optic telecommunications systems.
Additionally, the Company markets LCD monitors, OEM notebook computers, digital
subscriber line services, third party software, and general purpose financial
application keyboards.
SELECTED FINANCIAL INFORMATION.
Three Month Period Ended
------------------------
1/31/2001 1/31/2000
--------- ---------
(Restated)
Statement of Operations Data
Net sales $1,005,328 $ 628,853
Gross profit $ 381,061 $ 78,058
Operating income (loss) $ (827,891) $ (695,037)
Net earnings (loss) after tax $ (932,511) $(1,283,055)
Net earnings (loss) per share $ (0.02) $ (0.05)
1/31/2001 10/31/2000
--------- ----------
Balance Sheet Data
Total assets $4,118,061 $ 4,016,882
Total liabilities $3,988,122 $ 3,135,576
Stockholders' equity (deficit) $ 129,939 $ 881,306
RESULTS OF OPERATIONS.
Three month period ended January 31, 2001, compared to three month period ended
January 31, 2000.
Revenues. Sales increased by approximately 60% to $1,005,328 for the
three month period ended January 31, 2001 from $628,853 for the three month
period ended January 31, 2000. The increase was mainly as a result of growth in
PDA products and co-location service sales.
Cost of Sales. The cost of sales increased by approximately 13% to
$624,267 in the three month period ended January 31, 2001 from $550,795 for the
three month period ended January 31,
26
29
2000. The increase in cost of sales is attributable primarily to additional
sales of PDA and co-location service sales and reflects the sale of products
which have greater relative margins than past products.
Gross Profit. Gross profit increased to approximately $381,061 for
the three month period ended January 31, 2001 from approximately $78,058 for the
three month period ended January 31, 2000. The increase of approximately 388%
resulted primarily from the increase in revenues coupled with a lower cost of
sales that did not increase in direct proportion to the increase in revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately 56% to $1,208,952 from $773,095
for the three month period ended January 31, 2001. The increase was primarily
due to costs associated with expanding the PDA products and co-location facility
services, as well as fees paid in connection with financing activities.
Interest Expense. Interest expense of $35,541 for the three month
period ended January 31, 2001 and $20,481 for the three month period ended
January 31, 2000 was interest accrued primarily relating to the convertible
debentures. The Company has issued convertible debt securities with a
non-detachable conversion feature that was "in the money" at the date of issue.
The Company accounts for such securities in accordance with Emerging Issues Task
Force Topic D-60. The Company has recorded the fair value of the beneficial
conversion feature as interest expense and an increase to Paid-in Capital in
Excess of Par Value of Stock. Interest expense under the convertible debenture
beneficial conversion feature totaled $302,390 for the three month period ended
January 31, 2001, a decrease of 47% from the same type of interest expense of
$572,935 for the three month period ended January 31, 2000. The decrease
resulted from the reduction in new convertible debentures issued as compared to
the corresponding period from the prior year.
Net Losses. Net losses decreased to $932,511 for the three month
period ended January 31, 2001 from $1,283,055 for the three month period ended
January 31, 2000. The decrease in losses resulted primarily from the decrease in
the interest expenses for the Company's convertible debenture-beneficial
conversion feature coupled with an increase in the Company's gross profits.
Liquidity and Capital Resources. Historically, IBIZ has had problems
with liquidity. The Company has been unable to generate sufficient internal cash
flow to fund all of its obligations. The Company has spent substantial funds on
construction and installation of its co-location facility and expansion of its
sales and marketing efforts.
In December, 2000 the Company raised $1.1 million by issuing 8%
convertible notes. The notes are due and payable on December 20, 2002, unless
converted into common stock of the Company prior to that time. In December 2000,
two parties converted their prior existing 8% convertible notes totaling $34,574
and received 205,542 shares of common stock, including stock paid for interest
due.
The Company currently has commitments for an additional $2.9 million
to be invested pursuant to the 8% convertible notes, subject to meeting certain
representations, warranties, covenants and conditions. The Company believes that
amount, if received, should be sufficient to finance the Company's business
plans through October, 2001. Management anticipates exercising its rights to
obtain $900,000 of that amount before May, 2001, but there is no assurance that
it will meet the conditions
27
30
necessary to do so. Without obtaining a portion of the $2.9 million, the Company
may be required to alter or suspend planned growth initiatives.
Management believes that its recent diversification into broadband
connectivity services, third-party software sales, and its server co-location
facility should improve its liquidity and cash flow. iBIZ recently expanded its
distribution of PDA accessory line and certain hardware into several major
retail and e-commerce stores. A continuing increase in orders from various PDA
retail outlets may require greater capital than is presently available to the
Company. The Company has entered into a purchase order and receivables financing
agreement with Millennium Funding (a Canfield Capital Management LLC Company)
whereby the Company can borrow up to a "to be determined" amount on a
case-by-case basis of the purchase orders it receives and 70% of the receivables
it accrues. This agreement was executed to insure available funding for
anticipated growth in PDA sales volumes and provides for a 2.5% to 3% monthly
financing fee for all amounts drawn against it. At the present time, the Company
does not intend to draw upon this financing arrangement, but may be required to
do so if its operations cannot be financed through its cash flow and other
financing commitments.
The Company's server co-location facility was opened in September,
2000. The co-location facility and related services currently generate revenue
of approximately $72,000 per month. If the consumer demand that the Company
anticipates for the server co-location facility fails to continue to increase,
the Company may need additional funding. There is no assurance that the sales
revenue currently received and high margins experienced, as well as currently
anticipated sales growth from both the PDA accessory and the co-location
facility will continue. Entry of additional competitors with substantially
greater resources than those of the Company could put downward pressure on the
anticipated margins.
28
31
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
INVNSYS was the defendant in a civil matter filed by Epson America,
Inc. ("Epson"), in the Superior Court of the State of Arizona (Case No.
CV2000-008155), filed 28 April 2000. The complaint alleged that over the past
three (3) years, INVNSYS became indebted to Epson in the amount of $151,665.96.
Since February 2, 1999, no payment had been made to Epson, leaving an unpaid
balance of $102,636.05 plus interest. Epson sought to recover $102,636.05 plus
interest accruing at a rate of ten percent (10%) from February 2, 1999,
attorneys fees, incurred costs and expenses, together with accruing costs. IBIZ
sought to recover additional commissions that it believed Epson owed it and
intended to file a counterclaim in the amount of $480,100. As of January 29,
2001, the Company and Epson have agreed to the dismissal of the suit and the
settlement of all outstanding issues, with the Company paying a single lump sum
of $2,500 to Epson.
iBIZ has been assessed approximately $62,000 in penalties and
interest by the IRS in connection with payroll taxes due through the first
quarter of 1999. The Company has paid the taxes, interest, and some portion of
the penalty, but has requested an abatement of the remaining penalty imposed.
The Company is awaiting a final disposition by the IRS.
On February 28, 2001, the Securities and Exchange Commission (the
"Commission") commenced an administrative proceeding against the Company. The
Company entered into a settlement agreement with the Commission. Pursuant to
this settlement agreement, an administrative order has been issued which orders
the Company to cease and desist from committing or causing any future violations
of Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5
thereunder. No other relief against the Company was sought.
This administrative proceeding was based on the Commission's
allegations that the Company, through its President and CEO Ken Schilling,
referenced certain reports prepared by Michael A. Furr in its press releases,
and posted hyperlinks to Furr's reports on its website. The Commission alleged
that the Furr reports contained false revenue and stock price projections. The
Commission also alleged that the Company falsely characterized Furr as
independent of the Company. The Company neither admitted nor denied the
allegations as part of the settlement agreement.
ITEM 2. CHANGES IN SECURITIES
(c) Recent Sales of Unregistered Securities
The securities described below represent equity securities of iBIZ
sold by iBIZ during the three month period ended January 31, 2001 that were not
registered under the Securities Act of 1933, as amended (the "Securities Act"),
all of which were issued by the Company pursuant to exemptions under the
Securities Act. Underwriters were involved in none of these transactions. In
each case, the securities were sold to accredited investors, as determined by an
investor questionnaire executed in conjunction with the respective subscription
agreements.
Pursuant to a previously executed stock purchase agreement with
various individuals and institutions, in December 2000, the Company exercised
its "Put Right" to require such investors to purchase an aggregate of $1.1
million of 8% Convertible Notes (the "Notes"). The Conversion Price for
29
32
all of the Notes is the lesser of (i) 80% of the average of the three lowest
closing bid prices of the Common Stock on the Principal Market for the
twenty-two (22) trading days prior to the Closing Date, or (ii) 80% of the
average of the five lowest closing bid prices of the Common Stock on the
Principal Market for the sixty (60) trading days prior to the Conversion Date,
as defined in the Note. The maximum share of the Company that any Subscriber may
own after conversion at any given time is 4.99%, unless the Subscriber gives 75
days prior notice. The Notes mature on December 20, 2002, with interest only
payments due quarterly commencing April 1, 2001, and the principal is due in one
lump sum on December 20, 2002. The Company also issued warrants to purchase
550,000 shares of Common Stock at an exercise price as calculated below. The
warrants will give the holder the right to purchase common stock for $0.2275 per
share, subject to certain equitable anti-dilution provisions. The warrants are
immediately exercisable.
In December 2000, two parties converted their 8% Convertible Notes
totaling $34,574 and received 205,542 shares of common stock, including stock
paid for interest due.
iBIZ relied on either Regulation D, Rule 506 or Section 4(2) under
the Securities Act with respect to these transactions.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
10.39 Millennium Funding Receivables Factoring
and PO Funding Proposal
23.06 Consent of Moffitt & Company, P.C.
B. Reports on Form 8-K
A report on Form 8-K was filed with the SEC on
January 19, 2001, reporting a press release
issued on January 12, 2001.
30
33
Pursuant to the requirements of Section 12 of the Securities Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned thereunto duly authorized.
Dated this 16th day of March, 2001
iBIZ TECHNOLOGY CORP., A FLORIDA
CORPORATION
By: /s/ KENNETH W. SCHILLING
---------------------------------------
Kenneth W. Schilling, President,
Director
By: /s/ TERRY S. RATLIFF
---------------------------------------
Terry S. Ratliff, Vice President,
Comptroller, Secretary, Director
By: /s/ MARK H. PERKINS
---------------------------------------
Mark H. Perkins,
Executive Vice President
Director
34
EXHIBIT INDEX
Exhibit Number
- --------------
10.39 Millennium Funding Receivables Factoring and PO
Funding Proposal
23.06 Consent of Moffitt & Company
ii