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 April 30, 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 June 13, 2001
----- ----------------------------
Common stock, $0.001 par value 38,017,966
Table of Contents
Part i. - financial Information.................................................................................2
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED).........................................................................2
BALANCE SHEETS ..........................................................................................2
STATEMENTS OF OPERATIONS.................................................................................4
STATEMENT OF CASH FLOWS..................................................................................7
NOTES TO FINANCIAL STATEMENTS...........................................................................11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................38
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDS..........................................................................................42
ITEM 2. CHANGES IN SECURITIES...................................................................................42
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.........................................................................43
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................................................43
ITEM 5. OTHER INFORMATION.......................................................................................43
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................................................................43
PART I
Item 1. Financial Information
IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
APRIL 30, 2001 AND OCTOBER 31, 2000
ASSETS
April 30, October 31,
2001 2000
(Unaudited) (Audited)
CURRENT ASSETS
Cash and cash equivalents ............................................................. $ 374,623 $ 631,375
Accounts receivable ................................................................... 197,242 432,113
Inventories ........................................................................... 479,937 439,582
Prepaid expenses ...................................................................... 129,973 104,874
----------- -----------
TOTAL CURRENT ASSETS ........................................................... 1,181,775 1,607,944
----------- -----------
PROPERTY AND EQUIPMENT, NET OF
ACCUMULATED DEPRECIATION .................................................................. 1,927,024 1,948,715
----------- -----------
OTHER ASSETS
Notes receivable, officers ............................................................ 365,736 391,332
Customer list, net of accumulated amortization ........................................ 5,948 7,932
Deposits .............................................................................. 60,012 60,959
----------- -----------
TOTAL OTHER ASSETS ............................................................. 431,696 460,223
----------- -----------
TOTAL ASSETS ................................................................... $ 3,540,495 $ 4,016,882
=========== ===========
See Accompanying Notes
2
LIABILITIES AND STOCKHOLDERS' EQUITY
April 30, October 31,
2001 2000
(Unaudited) (Audited)
CURRENT LIABILITIES
Accounts payable ...................................................................... $ 614,274 $ 973,894
Customer deposits ..................................................................... 77,180 0
Accrued liabilities
Payroll .............................................................................. 60,332 96,283
Other ................................................................................ 249,475 101,736
Sales and payroll taxes payable ....................................................... 93,532 89,023
Corporation income taxes payable ...................................................... 19,028 19,028
Deferred income ....................................................................... 41,052 85,798
Notes payable, current portion ........................................................ 5,692 5,335
Convertible debentures payable ........................................................ 500,000 0
----------- -----------
TOTAL CURRENT LIABILITIES ...................................................... 1,660,565 1,371,097
----------- -----------
LONG - TERM LIABILITIES
Convertible debentures payable ........................................................ 2,815,800 1,750,000
Notes payable, long-term portion ...................................................... 11,528 14,479
----------- -----------
TOTAL LONG - TERM LIABILITIES .................................................. 2,827,328 1,764,479
----------- -----------
STOCKHOLDERS' EQUITY
Common stock
Authorized - 100,000,000 shares, par
value $.001 per shares
Issued and outstanding
April 30, 2001 - 38,017,966 shares ............................................... 38,018 0
October 31, 2000 - 37,812,424 shares ............................................ 0 37,813
Paid in capital in excess of par value of stock ....................................... 8,504,633 7,940,384
Retained earnings (deficit) ........................................................... (9,490,049) (7,096,891)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY ..................................................... (947,398) 881,306
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ........................................................ $ 3,540,495 $ 4,016,882
=========== ===========
See Accompanying Notes
3
IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 2001 AND 2000
(UNAUDITED)
Three Months Ended Six Months Ended
April 30, April 30,
---------------------------- ----------------------------
2000 2000
2001 (Restated) 2001 (Restated)
------------ ------------ ------------ ------------
SALES ............................... $ 604,357 $ 1,436,126 $ 1,609,685 $ 2,064,979
COST OF SALES ....................... 472,601 1,224,326 1,096,868 1,775,121
------------ ------------ ------------ ------------
GROSS PROFIT ................. 131,756 211,800 512,817 289,858
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES .......... (1,052,992) (1,028,002) (2,261,944) (1,828,556)
SETTLEMENT OF LAWSUIT ............... 0 0 101,369 0
CANCELLATION OF DEBT ................ 0 0 122,000 0
OTHER INCOME ........................ 20,636 0 20,962 0
------------ ------------ ------------ ------------
OPERATING (LOSS) ............ (900,600) (816,202) (1,504,796) (1,538,698)
OTHER INCOME (EXPENSE)
Interest income .............. 6,763 11,575 16,379 16,973
Interest expense ............. (57,783) (36,199) (93,324) (29,221)
Interest expense - convertible
debentures-beneficial
conversion feature .................. (509,026) (669,504) (811,417) (1,242,439)
------------ ------------ ------------ ------------
NET (LOSS) .......................... $ (1,460,646) $ (1,501,330) $ (2,393,158) $( 2,793,385)
============ ============ ============ ============
NET (LOSS) PER COMMON SHARE
Basic and diluted ............ $ (.04) $ (.05) $ (.06) $ (.10)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
Basic and diluted ............ 37,989,702 27,799,927 37,989,702 27,799,927
============ ============ ============ ============
See Accompanying Notes
4
IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT
OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED APRIL 30, 2001
(UNAUDITED)
Common Stock
Shares Amount
BALANCE, NOVEMBER 1, 2000 ........... 37,812,424 $ 37,813
CONVERSION OF DEBENTURES FOR
COMMON STOCK ..................... 205,542 205
FEES AND COSTS FOR ISSUANCE OF
COMMON STOCK AND CONVERTIBLE
DEBENTURES ....................... 0 0
INTEREST EXPENSE - CONVERTIBLE
DEBENTURES - BENEFICIAL CONVERSION
FEATURE .......................... 0
0
NET (LOSS) FOR THE SIX MONTHS ENDED
APRIL 30, 2001 ................... 0 0
---------- ----------
BALANCE, APRIL 30, 2001 .... 38,017,966 $ 38,018
========== ==========
See Accompanying Notes
5
Paid in
Capital in
Excess of Retained
Par Value Earnings
of Stock (Deficit)
$ 7,940,384 $ (7,096,891)
34,371 0
(281,539) 0
811,417 0
0 (2,393,158)
---------- -----------
$ 8,504,633 $ (9,490,049)
========== ===========
See Accompanying Notes
6
IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 30, 2001 AND 2000
(UNAUDITED)
2000
2001 (Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) .............................................$ (2,393,158) $ (2,793,385)
Adjustments to reconcile net (loss) to
net cash (used) by operating activities:
Depreciation and amortization ...................... 122,507 25,924
Issuance of common stock for interest, services
and payroll bonuses .............................. 374 287,913
Interest expense - convertible debentures-beneficial
conversion feature ............................... 811,417 1,242,439
Changes in operating assets and liabilities:
Accounts receivable ................................ 234,871 (423,648)
Inventories ........................................ (40,355) 3,952
Prepaid expenses ................................... (25,099) 9,326
Deposits ........................................... 947 359
Accounts payable ................................... (359,620) (252,830)
Accrued liabilities and taxes ...................... 116,297 53,826
Customer deposits .................................. 77,180 (115,408)
Deferred income .................................... (44,746) 63,411
----------- -----------
NET CASH (USED) BY OPERATING
ACTIVITIES ................................... (1,499,385) (1,898,121)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment .................... (98,832) (240,189)
Loans to related parties ............................... 596 (101,176)
Purchase of customer list .............................. 0 (11,900)
----------- -----------
NET CASH (USED) BY INVESTING
ACTIVITIES .................................... (98,236) (353,265)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock ............. 0 394,349
Proceeds from issuance of convertible debentures ....... 1,343,463 3,200,000
Repayments on notes payable ............................ (2,594) (64,853)
----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES .................................... $ 1,340,869 $ 3,529,496
----------- -----------
See Accompanying Notes
7
IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE SIX MONTHS ENDED APRIL 30, 2001 AND 2000
(UNAUDITED)
2000
2001 (Restated)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ....................................... $ (256,752) $1,278,110
CASH AND CASH EQUIVALENTS, AT
BEGINNING OF PERIOD .................................... 631,375 25,343
---------- ----------
CASH AND CASH EQUIVALENTS, AT
END OF PERIOD .......................................... $ 374,623 $1,303,453
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during period for:
Interest ........................................ $ 2,354 $ 19,196
========== ==========
Taxes ........................................... $ 0 $ 50
========== ==========
NON CASH INVESTING AND FINANCING
ACTIVITIES
Issuance of common stock for convertible debentures $ 34,576 $1,501,946
========== ==========
Issuance of common stock for interest, services and
payroll ......................................... $ 374 $ 744,804
========== ==========
Issuance of common stock on stock
subscriptions ................................... $ 0 $ 75,000
========== ==========
Issuance of common stock for accounts payable ...... $ 0 $ 50,000
========== ==========
Fees paid for issuance of debentures by reduction
of notes receivable, officer .................... $ 25,000 $ 0
========== ==========
Interest expense - convertible debentures-beneficial
conversion feature .............................. $ 811,417 $1,242,439
========== ==========
See Accompanying Notes
8
IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 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
See Accompanying Notes
9
IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2001
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and related accumulated depreciation accounts are relieved of
the applicable amounts. Gains or losses from retirements or
sales are credited or charged to income.
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
Computer equipment 5 Years
Rack systems 10 Years
Cabling and leasehold improvements 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 98-5. 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.
The beneficial interest is computed by subtracting the stock
conversion price from the market price of the stock times the
number of shares and warrants eligible for conversion.
Customer Lists
The customer list is recorded at cost and is being amortized on
a straight-line basis over three years.
See Accompanying Notes
10
IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2001
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 its revenue as follows:
Products sales - When the goods are shipped and title
passes to the customer.
Maintenance agreements - Income from maintenance
agreements is being recognized on a straight-line
basis over the life of the service contracts. The
unearned portion is recorded as deferred income.
Service income - When services are performed.
Internet sales (DSL and Co-location) - When services
are performed and completed.
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.
See Accompanying Notes
11
IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2001
(UNAUDITED)
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.
Common Stock Issued for Non-Cash Transactions
It is the Company's policy to value stock issued for non-cash
transactions such as accounts payable, payroll or services at
the stock closing price at the date the transaction is
completed.
NOTE 2 DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates that the fair value of all financial
instruments as of April 30, 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
12
NOTE 3 ACCOUNTS RECEIVABLE
A summary of accounts receivable and allowance for doubtful
accounts is as follows:
April 30, October 31,
2001 2000
(Unaudited) (Audited)
Accounts receivable $ 222,242 $ 457,113
Allowance for doubtful accounts 25,000 25,000
----------------- -----------------
Net accounts receivable $ 197,242 $ 432,113
================= =================
Allowance for doubtful accounts
Balance, beginning of period $ 25,000 $ 2,500
Additions for the period 13,616 97,500
Write-off of uncollectible accounts
for the period ( 13,616) (75,000)
----------------- -----------------
Balance, end of period $ 25,000 $ 25,000
================= =================
NOTE 4 INVENTORIES
The inventories are comprised of the following:
April 30, October 31,
2001 2000
(Unaudited) (Audited)
Finished products $ 426,926 $ 391,479
Demonstration and loaner units 1,447 4,070
Office 51,564 44,033
--------------- ------------------
$ 479,937 $ 439,582
=============== ===================
See Accompanying Notes
13
IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2001
(UNAUDITED)
NOTE 5 PROPERTY AND EQUIPMENT
Property and equipment and accumulated depreciation consists of:
April 30, October 31,
2001 2000
(Unaudited) (Audited)
Co-location
Computer equipment $ 632,489 $ 566,761
Rack Systems 297,317 297,317
Cabling and leasehold improvements 885,693 855,401
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
---------------- -------------
2,218,301 2,119,469
Less accumulated depreciation 291,277 170,754
---------------- -------------
Total property and equipment $ 1,927,024 $ 1,948,715
================ =============
Depreciation expense for the six months ended April 30, 2001 and
2000 was $120,523 and $23,940, respectively.
NOTE 6 NOTES RECEIVABLE, OFFICERS
April 30, 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
A note to an officer of the Company,
payable on demand and accruing interest at 6%.
The note is collateralized by 2,000,000 shares
See Accompanying Notes
14
IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2001
(UNAUDITED)
of common stock in the Company. However,
in April 2001, the officer pledge the same
stock as collateral for a $500,000 debenture
from Laurus Master Fund, Ltd. (See Note 10).
The Company now has a second position in
the 2,000,000 share collateral. 365,736 379,253
----------------- ------------------
Total notes receivable $ 365,736 $ 391,332
================= ==================
NOTE 7 CUSTOMER LIST
The customer list and accumulated amortization consists of:
April 30, October 31,
2001 2000
(Unaudited) (Audited)
Cost $ 11,900 $ 11,900
Less accumulated amortization 5,952 3,968
----------------- ------------------
Net customer list $ 5,948 $ 7,932
================= ==================
The amortization expense for the six months ended April 30, 2001
and 2000 was $1,984 for each period.
NOTE 8 INCOME TAXES
April 30,
April 30, 2000
2001 (Unaudited)
(Unaudited) (Restated)
(Loss) from continuing operations
before income taxes $ ( 2,393,158) $ ( 2,793,385)
----------------- ------------------
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
are as follows:
See Accompanying Notes
15
IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2001
(UNAUDITED)
NOTE 8 INCOME TAXES (CONTINUED)
April 30, October 31,
2001 2000
(Unaudited) (Audited)
Deferred tax assets:
Net operating loss carryforwards $ 949,000 $ 1,096,190
Accrued expenses and miscellaneous 8,100 23,651
Tax credit carryforward 38,424 38,424
----------------- ----------------
995,524 1,158,265
Less valuation allowance 995,524 1,158,265
----------------- ----------------
Net deferred tax asset $ 0 $ 0
================= ================
April 30, October 31,
2001 2000
(Unaudited) (Audited)
A reconciliation of the valuation allowance is as follows:
Balance, beginning of period $ 497,524 $ 356,638
Addition to allowance 498,000 801,627
---------------- --------------------
Balance, end of period $ 995,524 $ 1,158,265
================ ====================
NOTE 9 TAX CARRYFORWARDS
The Company has the following tax carryforwards at April 30,
2001:
See Accompanying Notes
16
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 3,574,086 October 31, 2020
April 30, 2001 1,581,741 October 31, 2021
------------------
$ 6,326,600
==================
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
NOTE 10 CONVERTIBLE DEBENTURES
April 30, 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
See Accompanying Notes
17
IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2001
(UNAUDITED)
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.
NOTE 10 CONVERTIBLE DEBENTURES (CONTINUED)
April 30, 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 $
0.4755 per share. On the second investment of $1,100,00, the
Company issued warrants to purchase 550,000 shares of stock
at $0.2275 per share.
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.
See Accompanying Notes
18
IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2001
(UNAUDITED)
NOTE 10 CONVERTIBLE DEBENTURES (CONTINUED)
April 30, October 31,
2001 2000
(Unaudited) (Audited)
Laurus Master Fund, Ltd. $ 500,000 $ 0
------------------------
In April 2001, the Company issued $500,000 of 8% convertible
debentures under the following terms and conditions:
1. Due date - April 2002.
2. Interest on September 30, 2001 and quarterly
thereafter.
3. Default interest rate - 20%.
4. Five year warrants to purchase 1,500,000 shares of common
stock at the lesser of $.1225 per share or an amount equal
to the average of the three lowest closing bid prices for a
ten day trading period. The Company may redeem the warrants
for $.6666 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 - Lower of eighty percent of the average of
the three lowest closing bid prices for a specified three
day or twenty-two day period.
7. Prepayment - The debenture may not be paid prior to
the maturity date without the consent of the holder.
8. The debenture is secured by 9,285,600 shares of common stock
owned by an officer of the Company and the Company paid the
officer $50,000 for pledging these shares.
Total debentures 3,315,800 1,750,000
Less current portion 500,000 0
----------------- --------------
Long-term portion $ 2,815,800 $ 1,750,000
================= ==============
See Accompanying Notes
19
IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2001
(UNAUDITED)
NOTE 11 NOTE PAYABLE
April 30, 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. $ 17,220 $ 19,814
Less: current portion 5,692 5,335
----------------- -----------------
Net long-term debt $ 11,528 $ 14,479
================= =================
Maturities of long-term debt are as follows:
2001 $ 4,142 $ 5,476
2002 5,822 5,721
2003 6,243 6,135
2004 1,013 2,482
----------------- -----------------
$ 17,220 $ 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 $935,052 and given a security interest in all of its assets,
(excluding $479,937 of inventory) in the amount of $3,060,558.
Future minimum lease payments, excluding taxes and expenses, are
as follows:
April 30, 2002 $ 168,000
April 30, 2003 176,404
April 30, 2004 185,226
April 30, 2005 194,488
November 1, 2005 - December 31, 2024 6,536,243
-----------------
Total $ 7,260,361
=================
See Accompanying Notes
20
IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2001
(UNAUDITED)
Rent expense for the six months ended April 30, 2001 and 2000
was $80,433 and $76,931 respectively.
NOTE 13 ADVERTISING
All direct advertising costs are expensed as incurred. For the
six months ended April 30, 2001, the Company charged $58,159 in
advertising expenses less a $37,058 refund for a net advertising
cost of $21,101. For the six months ended April 30, 2000,
advertising costs were $282,277.
NOTE 14 INTEREST
The Company incurred interest expenses for the six months ended
April 30, 2001 and 2000 as follows:
April 30,
April 30, 2000
2001 (Unaudited)
(Unaudited) (Restated)
For operations $ 93,324 $ 29,221
For convertible debentures-beneficial
conversion feature 811,417 1,242,439
----------------- ----------------
Total $ 904,741 $ 1,271,660
================= ================
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
April 30, April 30,
2001 2000
(Unaudited) (Unaudited)
Balance, beginning of period $ 20,000 $ 50,000
Reduction for the period 1,654 0
----------------- -----------------
Balance, end of period $ 18,346 $ 50,000
================= =================
See Accompanying Notes
21
IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2001
(UNAUDITED)
NOTE 16 RESEARCH AND DEVELOPMENT
Invnsys incurred research and development cost for the six
months ended April 30, 2001 and 2000 of $5,871 and $2,798,
respectively.
NOTE 17 OFFICERS' COMPENSATION
At April 30, 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
NOTE 18 ECONOMIC DEPENDENCY
For the six months ended April 30, 2001, Invnsys had $487,865 of
sales to one customer.
Invnsys purchased approximately 24% 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.
See Accompanying Notes
22
IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2001
(UNAUDITED)
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 six months ended April
30, 2001 and 2000 pursuant to the terms of the plan is as
follows:
NOTE 19 EMPLOYEE STOCK OPTIONS (CONTINUED)
Shares Weighted
Under Average
Option Exercise Price
Options outstanding at November 1, 1999 2,350,000 $ 0.75
Granted 1,310,000 1.15
Exercised (70,000) .75
Canceled (180,000) .75
----------------- --------------------
Options outstanding at April 30, 2000 3,410,000 $ 0.95
================= ====================
Options outstanding at November 1, 2000 3,385,000 $ 0.92
Granted 0 .00
Exercised 0 .00
Canceled ( 282,500) 1.60
----------------- ---------------------
Outstanding at April 30, 2001 3,102,500 $ 0.90
================= =====================
2,932,500 shares are exercisable at April 30, 2001.
Information regarding stock options outstanding as of April 30,
2001 and 2000 is as follows:
2001 2000
------------------- ---------------------
Price range $0.75 - $2.00 $0.75 - $2.00
Weighted average exercise and grant
date prices $0.90 $0.95
See Accompanying Notes
23
IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2001
(UNAUDITED)
Weighted average remaining
contractual life 8 years, 3 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 .13% - 6.65% 6.40 %
Expected life 5 - 10 years 5 - 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:
NOTE 19 EMPLOYEE STOCK OPTIONS (CONTINUED)
April 30,
April 30, 2000
2001 (Unaudited)
(Unaudited) (Restated)
Net (loss)
As reported $ (2,393,158) $ (2,793,385)
Pro forma $ (2,563,752) $ (2,972,784)
(Loss) per share attributable to
common stock
As reported $ (.06) $ (.10)
Pro forma $ (.07) $ (.11)
See Accompanying Notes
24
NOTE 20 COMMON STOCK PURCHASE WARRANTS
As of April 30, 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 500,000 2 years $ .4755
NOTE 20 COMMON STOCK PURCHASE WARRANTS (CONTINUED)
Number Exercise
Date of Shares Term Price
December 20, 2000 400,000 5 years .2275
December 20, 2000 150,000 5 years .2275
April 26, 2001 1,500,000 5 years $ .1225
-------------------
5,334,489
===================
3,614,489 shares are exercisable at April 30, 2001.
See Accompanying Notes
25
IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 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 (3,102,500)
Reserved for purchase warrants (5,334,489)
Convertible debentures (2,700,000)
------------------
Common stock available for issuance 50,845,045
==================
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.
NOTE 22 FINANCIAL PROJECT MANAGEMENT AGREEMENTS (CONTINUED)
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.
See Accompanying Notes
26
NOTE 23 CASH IN BANK
The Company has $456,533 deposited in one banking institution.
Only $200,000 of the balance is insured by the Federal Deposit
Insurance Corporation.
NOTE 24 SETTLEMENT OF LAWSUIT
Invnsys settled its lawsuit with Epson America, Inc. for $2,500
which generated $101,369 of income on the settlement.
NOTE 25 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 26 RESTATEMENT OF APRIL 30, 2000 NET (LOSS), PAID IN CAPITAL, RETAINED
EARNINGS AND NET (LOSS) PER SHARE
The April 30, 2000 financial statements did not record the
interest expense - convertible debentures - beneficial
conversion feature in the amount of $1,242,439. The statements
are restated as follows:
Net (loss)
As previously reported $ (1,550,946)
Adjustment
Interest expense -convertible debentures- beneficial
conversion feature (1,242,439)
-------------------
As restated $ (2,793,385)
===================
Paid-in capital
As previously reported $ 3,309,799
Adjustment
Interest expense -convertible debentures- beneficial
conversion feature 1,242,439
------------------
As restated $ 4,552,238
===================
See Accompanying Notes
27
IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2001
(UNAUDITED)
NOTE 26 RESTATEMENT OF APRIL 30, 2000 NET (LOSS), PAID IN CAPITAL, RETAINED
EARNINGS AND NET (LOSS) PER SHARE (CONTINUED)
Retained earnings
As previously reported $ (3,192,109)
Adjustment
Interest expense -convertible debentures- beneficial
conversion feature (1,242,439)
------------------
As restated $ (4,434,548)
===================
Net (loss) per share
As previously reported $ (.06)
Adjustment
Interest expense -convertible debentures- beneficial
conversion feature (.04)
------------------
As restated $ (.10)
===================
NOTE 27 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 28 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
See Accompanying Notes
28
IBIZ TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2001
(UNAUDITED)
NOTE 28 BUSINESS SEGMENT INFORMATION (CONTINUED)
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 six months ended April 30,
2001 is as follows:
Internet Product Services General and
Sales Sales and Other Administrative
Consolidated
Sales ................. $ 338,449 $ 1,086,315 $ 184,921 $ 0 $ 1,609,685
Operating profit (loss) (366,332) 71,809 (2,098,635) 0 (2,393,158)
Identifiable assets ... 1,815,499 0 402,803 1,322,193 3,540,495
Depreciation .......... 94,875 0 25,648 0 120,523
Expenditures for long- 96,020 0 2,812 0 98,832
lived assets
NOTE 29 UNAUDITED FINANCIAL INFORMATION
The accompanying financial information as of April 30, 2001 is
unaudited. In managements opinion, such information includes all
normal recurring entries necessary to make the financial
information not misleading.
See Accompanying Notes
29
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 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. iBIZ also provides Web-enabling services
which include Co-location services, Web design and development, and data center
technical management services. IBIZ 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, iBIZ 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
4/30/2000
04/30/2001 (Restated)
----------
Statement of Operations Data
Net sales $ 604,357 $ 1,436,126
Gross profit $ 131,756 $ 211,800
Operating income (loss) $ (900,600) $ (816,202)
Net earnings (loss) after tax $(1,460,646) $ (1,501,330)
Net earnings (loss) per share $ ( 0.04) $ (0.05)
4/30/2001 10/31/2000
--------- ----------
Balance Sheet Data
Total assets $3,540,495 $ 4,016,882
Total liabilities $4,487,893 $ 3,135,576
Stockholders' equity (deficit) $ (947,398) $ 881,306
Results of Operations.
Three month period ended April 30, 2001, compared to three month period ended
April 30, 2000.
Revenues. Sales decreased by approximately 58% to $604,357 for
the three month period ended April 30, 2001 from $1,436,126 for the three month
period ended April 30, 2000. The decrease was mainly as a result of an industry
wide delay in technology capital spending coupled with the cessation of the
Northpoint Communications DSL Service offering.
See Accompanying Notes
30
Cost of Sales. The cost of sales decreased by approximately
61.40% to $472,601 in the three month period ended April 30, 2001 from
$1,224,326 in three month period ended April 30, 2000. The decrease in cost of
sales is attributable primarily to the decrease in sales over the period and a
shift to higher margin products and services
Gross Profit. Gross profit decreased to approximately $131,756
for the three month period ended April 30, 2001 from approximately $211,800 for
the three month period ended April 30, 2000. The decrease of approximately
37.79% resulted primarily from the decrease in period revenues as compared to
the same prior year period.
Selling, General and Administrative Expenses. Selling, general
and administrative expenses increased approximately 2.43% to $1,052,992 from
$1,028,002 for the three month period ended April 30, 2001. The increase was
primarily due to costs associated with expanding the PDA and co-location product
offerings, as well as fees paid in connection with financing activities.
Interest Expense. Interest expenses increased to $57,783 for
the three month period ended April 30, 2001 from $36,199 for the three month
period ended April 30, 2000. Interest accrued is primarily related to the
convertible debentures.
Interest Expense. Convertible Debenture-Beneficial Conversion
Feature. 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-98-5. 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 of $509,026 for the three month
period ended April 30, 2001, a decrease of 23.9% from the interest expense of
$669,504 for the three month period ended April 30, 2000 was incurred under the
Company's convertible debenture-conversion feature. The decrease resulted from
the reduction in new convertible debentures issued as compared to the
corresponding period from the prior year.
Net Earnings. Net losses decreased to $1,460,646 for the three
month period ended April 30, 2001 from $1,510,330 for the three month period
ended April 30, 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 a decrease in Cost of
Sales.
Six month period ended April 30, 2001, compared to six month period ended April
30, 2000.
Revenues. Sales decreased by approximately 22% to $1,609,685
for the the six month period ended April 30, 2001 from $2,064,979 for the six
month period ended April 30, 2000. The decrease was mainly as a result of an
industry wide delay in technology capital spending coupled with the cessation of
the Northpoint Communications DSL Service offering.
Cost of Sales. The cost of sales decreased by approximately
38.21% to $1,096,868 in the six month period ended April 30, 2001 from
$1,775,121 in six month period ended April 30, 2000. The decrease in cost of
sales is attributable primarily to an overall reduction in revenues coupled with
the sale of products which have greater relative margins than past products.
See Accompanying Notes
31
Gross Profit. Gross profit increased to approximately $512,817
for the six month period ended April 30, 2001 from approximately $289,858 for
the six month period ended April 30, 2000. The increase of approximately 76.92%
resulted primarily from the sale of products which have greater relative margins
than past products.
Selling, General and Administrative Expenses. Selling, general
and administrative expenses increased approximately 23.70% to $2,261,944 from
$1,828,556 for the six month period ended April 30, 2001. The increase was
primarily due to costs associated with expanding the PDA and co-location product
offerings, as well as fees paid in connection with financing activities.
Interest Expense. Interest expense increased to $93,324 for
the six month period ended April 30, 2001 compared to $29,221 for the six month
period ended April 30, 2000. Interest accrued primarily related to the
convertible debentures.
Interest Expense. Convertible Debenture-Beneficial Conversion
Feature. 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-98-5. 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 of $811,417 for the six month
period ended April 30, 2001, a decrease of 34.69% from the interest expense of
$1,242,439 for the six month period ended April 30, 2000 was incurred under the
Company's convertible debenture-conversion feature. The decrease resulted from
the reduction in new convertible debentures issued as compared to the
corresponding period from the prior year.
Net Earnings. Net losses decreased to $2,393,158 for the six
month period ended April 30, 2001 from $2,793,385 for the six month period ended
April 30, 2000. The decrease in losses resulted primarily from the decrease in
the interest expenses for the Company's convertible debenture-beneficial
conversion feature, as well as a decrease in Cost of Sales coupled with an
increase in Gross Profit.
Liquidity and Capital Resources.
Historically, IBIZ has had difficulty obtaining sufficient
capital to fund its operations. 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 April 2001, the Company issued $500,000 of 8% convertible
notes. The notes are due and payable on April 26, 2002, unless converted into
common stock of the Company prior to that time. Certain investors have orally
agreed to fund approximately $750,000 through additional convertible debentures.
We believe this should satisfy our funding requirements for approximately the
next 12 months, although there can be no assurance such funds will be adequate.
In the event we do not receive additional funds within the next three months, we
may be required to curtail certain operations until funds become available.
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 it's 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 established to insure available funding for
anticipated growth in PDA sales volumes.
The Company's server co-location facility was opened in
September, 2000. 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.
See Accompanying Notes
32
PART II - Other Information
Item 1. Legal Proceedings
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 has negotiated and submitted a settlement offer, which has been
formally approved by the Commission itself. 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 sought.
The Company neither admits nor denies 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 April 30, 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.
In April 2001, the Company issued an aggregate of $500,000 of
8% Convertible Notes (the "Notes"). The conversion price for 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 for the 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 April 26, 2002, with interest only
payments due quarterly commencing September 30, 2001, and the principal is due
in one lump sum on April 26, 2002. The Company also issued warrants to purchase
1,500,000 shares of Common Stock. The warrants give the holder the right to
purchase common stock for the lower of $0.1225 per share or the average of the
lowest three closing prices for the Common Stock for the ten trading days prior
to conversion, subject to certain equitable anti-dilution provisions. The
warrants are immediately exercisable.
See Accompanying Notes
33
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
None.
B. Reports on Form 8-K
None.
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 14th day of June, 2001
IBIZ TECHNOLOGY CORP.
By:/s/ KENNETH W. SCHILLING
--------------------
Kenneth W. Schilling, President
By:/s/ TERRY S. RATLIFF
--------------------
Terry S. Ratliff, Vice
President, Chief Financial
Officer and Secretary