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, 2002
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.)
2238 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 21, 2002
Common stock, $0.001 par value 239,159,275
Table of Contents
Part i. - financial Information.................................................................................1
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)..........................................................................
BALANCE SHEETS ...........................................................................................
STATEMENTS OF OPERATIONS..................................................................................
STATEMENT OF CASH FLOWS...................................................................................
NOTES TO FINANCIAL STATEMENTS.............................................................................
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDS............................................................................................
ITEM 2. CHANGES IN SECURITIES.....................................................................................
ITEM 3. DEFAULTS UPON SENIOR SECURITIES...........................................................................
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................................................
ITEM 5. OTHER INFORMATION.........................................................................................
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..........................................................................
PART I
Item 1. Financial Information
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001
TABLE OF CONTENTS
PAGE NO.
INDEPENDENT ACCOUNTANTS' REVIEW REPORT.......................................................... 1
FINANCIAL STATEMENTS
Consolidated Balance Sheets.............................................................. 2
Consolidated Statements of Operations.................................................... 3 - 4
Consolidated Statement of Stockholders' (Deficit)........................................ 5
Consolidated Statements of Cash Flows.................................................... 6 - 7
Notes to Consolidated Financial Statements............................................... 8 - 29
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To The Board of Directors and Stockholders
IBIZ Technology Corp. and Subsidiaries
Phoenix, Arizona
We have reviewed the accompanying consolidated balance sheet of IBIZ Technology
Corp. and Subsidiaries as of January 31, 2002 and the related consolidated
statements of operations and cash flows for the three months ended January 31,
2002 and 2001 and the statement of stockholders' (deficit) for the three months
ended January 31, 2002 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 Subsidiaries.
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, 2001, and the related consolidated
statements of operations, stockholders' (deficit) and cash flows for the year
then ended (not presented herein); and in our report dated February 8, 2002 we
expressed an unqualified opinion on those financial statements, with an
additional comment that there were conditions which raised substantial doubt
about the Company's ability to continue as a going concern. In our opinion, the
information set forth in the accompanying consolidated balance sheet as of
October 31, 2001, is fairly stated in all material respects in relation to the
balance sheet from which it has been derived.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 25 to the
financial statements, the Company has incurred significant operating losses, has
negative working capital, lacks sufficient operating cash to purchase products
to fill sales orders, is delinquent in payment of payroll taxes and is
delinquent in payment of some wages. These conditions raise uncertainty about
its ability to continue as a going concern. Management's plans regarding these
matters also are described in Note 25. The financial statements do not include
any adjustments that might result from the outcome of these uncertainties.
MOFFITT & COMPANY, P.C.
SCOTTSDALE, ARIZONA
March 18, 2002
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 2002 AND OCTOBER 31, 2001
ASSETS
January 31, October 31,
2002 2001
( Unaudited) (Audited)
CURRENT ASSETS
Cash and cash equivalents $ 137,888 $ 6,981
Accounts receivable, net 49,497 93,747
Inventories 163,909 166,742
Prepaid expenses 55,465 54,127
Net assets held for sale 249,918 438,871
----------------- ------------------
TOTAL CURRENT ASSETS 656,677 760,468
----------------- ------------------
PROPERTY AND EQUIPMENT, NET OF
ACCUMULATED DEPRECIATION 138,997 147,378
----------------- ------------------
OTHER ASSETS
Notes receivable, officers 0 0
Customer list, net of accumulated amortization 0 0
Deposits 16,012 16,012
----------------- ------------------
TOTAL OTHER ASSETS 16,012 16,012
----------------- ------------------
TOTAL ASSETS $ 811,686 $ 923,858
================= ==================
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
January 31, October 31,
2002 2001
( Unaudited) (Audited)
CURRENT LIABILITIES
Accounts payable, trade $ 626,101 $ 797,585
Note payable, trade 45,000 57,500
Accrued liabilities 811,643 727,050
Sales and payroll taxes payable 160,018 121,483
Corporation income taxes payable 19,028 19,028
Deferred income 2,915 4,495
Convertible debentures payable, current portion 2,123,564 2,305,929
Note payable, factor 12,421 70,734
Notes payable, other, current portion 7,198 5,721
----------------- ------------------
TOTAL CURRENT LIABILITIES 3,807,888 4,109,525
----------------- ------------------
LONG - TERM LIABILITIES
Convertible debentures payable 972,500 750,000
Notes payable, other 7,334 8,811
----------------- ------------------
TOTAL LONG - TERM LIABILITIES 979,834 758,811
----------------- ------------------
STOCKHOLDERS' EQUITY( DEFICIT)
Preferred stock
Authorized - 50,000,000 shares, par
value $.001 per share
Issued and outstanding - 0 shares 0 0
Common stock
Authorized - 450,000,000 shares, par
value $.001 per share
Issued and outstanding
January 31, 2002 - 175,038,406 shares 175,038 0
October 31, 2001 - 99,862,248 shares 0 99,862
Additional paid in capital 10,492,451 9,801,345
Accumulated deficit ( 14,643,525) ( 13,845,685)
-------------------- ---------------------
TOTAL STOCKHOLDERS' (DEFICIT) ( 3,976,036 ( 3,944,478)
------------------- --------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' (DEFICIT) $ 811,686 $ 923,858
================= ==================
See Accompanying Notes and Independent Accountants' Review Report.
2
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JANUARY 31, 2002 AND 2001
(UNAUDITED)
2002 2001
----------------- ------------------
SALES $ 135,737 $ 789,164
COST OF SALES 83,516 490,065
----------------- ------------------
GROSS PROFIT 52,221 299,099
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 449,293 1,015,017
----------------- ------------------
OPERATING (LOSS) ( 397,072) ( 715,918)
----------------- ------------------
OTHER INCOME (EXPENSE)
Cancellation of debt 42,031 223,369
Interest income 15 9,616
Interest expense ( 85,753) ( 35,541)
Interest expense - convertible debentures-beneficial
conversion feature ( 116,214) ( 302,390)
Other income 0 326
----------------- ------------------
TOTAL OTHER INCOME (EXPENSE) ( 159,921) ( 104,620)
----------------- ------------------
(LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES ( 556,993) ( 820,538)
INCOME TAXES 0 0
----------------- ------------------
(LOSS) FROM CONTINUING OPERATIONS ( 556,993) ( 820,538)
DISCONTINUED OPERATIONS
(Loss) from operations of discontinued business segments ( 240,847) ( 111,973)
----------------- ------------------
NET (LOSS) $ ( 797,840) $ ( 932,511)
================= ==================
See Accompanying Notes and Independent Accountants' Review Report.
3
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE THREE MONTHS ENDED JANUARY 31, 2002 AND 2001
(UNAUDITED)
2002 2001
----------------- ------------------
NET (LOSS) PER COMMON SHARE
Basic and Diluted:
Continuing operations $ ( .01) $ ( 0.02)
Discontinued operations $ .00 $ ( 0.00)
----------------- ------------------
NET (LOSS) $ ( .01) $ ( 0.02)
================= ==================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Basic and diluted 110,721,848 37,929,185
=================== ===================
See Accompanying Notes and Independent Accountants' Review Report.
4
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT)
FOR THE THREE MONTHS ENDED JANUARY 31, 2002
(UNAUDITED)
Preferred Stock Common Stock
Shares Amount Shares Amount
BALANCE, NOVEMBER 1, 2001 0 $ 0 99,862,248 $ 99,862
CONVERSION OF DEBENTURES FOR
COMMON STOCK:
PRINCIPAL 0 0 18,855,247 18,855
ACCRUED INTEREST 0 0 956,511 957
FEES AND COSTS FOR ISSUANCE OF
COMMON STOCK 0 0 0 0
ISSUANCE OF COMMON STOCK FOR:
PAYMENT OF ACCOUNTS
PAYABLE 0 0 22,750,000 22,750
PAYMENT OF SALARIES AND
RETENTION BONUSES 0 0 26,900,000 26,900
DONATION OF STOCK BACK TO THE
COMPANY FOR TREASURY STOCK 0 0 ( 9,285,600) ( 9,286)
ISSUANCE OF COMMON STOCK TO THE
PRESIDENT TO REIMBURSE HIM FOR
SHARES GIVEN TO DEBENTURE
HOLDERS FROM:
TREASURY STOCK 0 0 9,285,600 9,286
NEW SHARES 0 0 5,714,400 5,714
INTEREST EXPENSE - CONVERTIBLE
DEBENTURES - BENEFICIAL
CONVERSION FEATURE 0 0 0 0
NET (LOSS) FOR THE THREE MONTHS
ENDED JANUARY 31, 2002 0 0 0 0
---------------- --------------- --------------- ----------------
BALANCE, JANUARY 31, 2002 0 $ 0 175,038,406 $ 175,038
================ =============== =============== ================
See Accompanying Notes and Independent Accountants' Review Report.
5
Additional
Paid in Accumulated
Capital Deficit Total
$ 9,801,345 $ ( 13,845,685) $ ( 3,944,478)
164,826 0 183,681
7,993 0 8,950
( 21,264) 0 ( 21,264)
251,875 0 274,625
91,460 0 118,360
( 122,998) 0 ( 132,284)
122,998 0 132,284
80,002 0 85,716
116,214 0 116,214
0 ( 797,840) ( 797,840)
------------------ ---------------------- ------------------
$ 10,492,451 $ ( 14,643,525) $ ( 3,976,036)
=================== ======================= ==================
See Accompanying Notes and Independent Accountants' Review Report.
5
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31, 2002 AND 2001
(UNAUDITED)
2002 2001
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) ........................................... $(556,993) $(820,538)
Adjustments to reconcile net (loss) to
net cash (used) by operating activities of
continuing operations:
Loss from discontinued operations ................ (240,847) (111,973)
Write-down of net assets held for sale ........... 137,534 0
Depreciation ..................................... 8,381 61,151
Interest expense - convertible debentures-beneficial
conversion feature ............................. 116,214 302,390
Common stock issued for expenses ................. 89,816 374
Allowance for uncollectible accounts, net ........ (10,154) 0
Changes in operating assets and liabilities:
Accounts receivable .............................. 54,404 45,769
Inventories ...................................... 2,833 (104,899)
Prepaid expenses ................................. (1,338) 0
Deposits ......................................... 0 (330,768)
Accounts and notes payable, trade ................ 90,641 (67,610)
Accrued liabilities and taxes .................... 250,438 150,449
Customer deposits ................................ 0 (6,488)
Deferred income .................................. (1,580) (31,629)
---------- ----------
NET CASH (USED) IN OPERATING
ACTIVITIES ................................. (60,651) (913,772)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment .................. 0 (89,527)
Proceeds from sale of net assets held for sale ....... 48,635 0
---------- ----------
NET CASH PROVIDED (USED) IN
INVESTING ACTIVITIES ........................ 48,635 (89,527)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of convertible
debentures payable ................................ 201,236 944,180
Repayment of note payable, factor .................... (58,313) 0
Repayment of notes payable, other .................... 0 (1,306)
Changes in notes receivable, officer ................. 0 6,621
---------- ----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES .................................. 142,923 949,495
---------- ----------
See Accompanying Notes and Independent Accountants' Review Report.
6
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE THREE MONTHS ENDED JANUARY 31, 2002 AND 2001
(UNAUDITED)
2002 2001
----------------- ------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ 130,907 $ ( 53,804)
CASH AND CASH EQUIVALENTS, AT
BEGINNING OF PERIOD 6,981 631,375
----------------- ------------------
CASH AND CASH EQUIVALENTS, AT
END OF PERIOD $ 137,888 $ 577,571
================= ==================
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during period for:
Interest $ 22,486 $ 67,275
================= ==================
Taxes $ 0 $ 0
================= ==================
NON-CASH INVESTING AND FINANCING
ACTIVITIES
Issuance of common stock for convertible debentures $ 183,681 $ 34,576
================= ==================
Issuance of common stock for fees, services and
expenses $ 94,666 $ 0
================= ==================
Issuance of common stock for accounts payable and
accrued liabilities $ 401,935 $ 0
================= ==================
Interest expense - convertible debentures-beneficial
conversion feature $ 116,214 $ 302,390
================= ==================
See Accompanying Notes and Independent Accountants' Review Report.
7
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 a management company that pays the general and
administrative expenses for the Company and all of the
subsidiaries.
IBIZ, Inc. designs, manufactures (through subcontractors), and
distributes a line of accessories for the PDA and handheld
computer market which are distributed through large retail chain
stores and e-commerce sites. IBIZ Inc. also markets LCD
monitors, OEM notebook computers, third party software, and
general purpose financial application keyboards.
Qhost. Inc. provides Web-enabling services which included
Co-Location services, Web design and development, and data
center technical management services. These segments of the
Company's operations were discontinued on October 31, 2001.
Principles of Consolidation
The consolidated financial statements include the accounts
of IBIZ Technology Corp. and its wholly owned subsidiaries -
Invnsys Technology Corporation, IBIZ, Inc. and Qhost, Inc.
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.
Accounts Receivable
Accounts receivable are reported at the customers' outstanding
balances less any allowance for doubtful accounts.
Allowance for Doubtful Accounts
The allowance for doubtful accounts on accounts receivables is
charged to income in amounts sufficient to maintain the
allowance for uncollectible accounts at a level management
believes is adequate to cover any possible losses.
See Accompanying Notes and Independent Accountants' Review Report.
8
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
replacement, 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.
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 ...... 10 Years
Office furniture and equipment 5-10 Years
Vehicles ..................... 5 Years
Computer software ............ 5 Years
Accounting for Convertible Debt Securities
The Company has issued convertible debt securities with
non-detachable conversion features. 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 features as interest expense and an
increase to Additional Paid in Capital.
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
Product 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.
See Accompanying Notes and Independent Accountants' Review Report.
9
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Prepaid Expenses
The Company's prepaid expenses are being amortized over a one
year period.
Long-Lived Assets
Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long- Lived Assets and for Long-Lived
Assets to be Disposed Of," requires that long-lived assets be
reviewed for impairment whenever events or changes in
circumstances indicate that the historical cost-carrying value
of an asset may no longer be appropriate. The Company assesses
the recoverability of the carrying value of an asset by
estimating the future net cash flows expected to result from the
asset, including eventual disposition. If the future net cash
flows are less than the carrying value of the asset, an
impairment loss is recorded equal to the difference between the
asset's carrying value and fair value.
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.
Shipping and Handling Costs
The Company's policy is to classify shipping and handling costs
as part of cost of goods sold in the statement of operations.
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.
See Accompanying Notes and Independent Accountants' Review Report.
10
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Risks and Uncertainties
IBIZ, Inc. is in the computer and computer technology industry
and its 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 at the stock closing price at the date the
transaction is finalized.
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 at January 31, 2002 and October 31,
2001, 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.
NOTE 3 AMENDMENT OF ARTICLES OF INCORPORATION
The Articles of Incorporation were amended to increase the
number of authorized shares of common stock from 100,000,000 to
450,000,000 and authorized the creation of 50,000,000 shares of
blank check preferred stock.
NOTE 4 ACCOUNTS RECEIVABLE
A summary of accounts receivable and allowance for doubtful
accounts is as follows:
January 31, October 31,
2002 2001
(Unaudited) (Audited)
Accounts receivable $ 89,343 $ 143,747
Allowance for doubtful accounts 39,846 50,000
----------------- ------------------
Net accounts receivable $ 49,497 $ 93,747
================= ==================
See Accompanying Notes and Independent Accountants' Review Report.
11
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001
(UNAUDITED)
NOTE 4 ACCOUNTS RECEIVABLE (CONTINUED)
January 31, October 31,
2002 2001
(Unaudited) (Audited)
Allowance for doubtful accounts
Balance, at beginning of period $ 50,000 $ 25,000
Additions for the period 0 80,534
Recovery for the period 1,860 0
Write-off of uncollectible accounts
for the period ( 12,014) ( 55,534)
----------------- ------------------
Balance, at end of period $ 39,846 $ 50,000
================= ==================
NOTE 5 INVENTORIES
The inventories are comprised of the following:
January 31, October 31,
2002 2002
(Unaudited) (Audited)
Finished products $ 158,909 $ 161,742
Office 5,000 5,000
----------------- ------------------
$ 163,909 $ 166,742
================= ==================
NOTE 6 NET ASSETS HELD FOR SALE
On December 21, 2001, Invnsys sold all of the properties, rights
and assets used in connection with the internet service segment
of Invnsys' operations. The services sold include the provision
of dial up Internet access, dedicated internet access, Web
hosting and Web page development services, Co- Location and
bandwidth and managed server services to residential and
commercial customers.
The Co-Location operations are included in Discontinued
Operations.
In accordance with provisions of SFAS No. 121, the assets
included in net assets held for sale will not be depreciated.
See Accompanying Notes and Independent Accountants' Review Report.
12
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001
(UNAUDITED)
NOTE 7 PROPERTY AND EQUIPMENT
Property and equipment and accumulated depreciation consists of:
January 31, October 31,
2002 2001
(Unaudited) (Audited)
Tooling $ 68,100 $ 68,100
Machinery and equipment 41,821 41,821
Office furniture and equipment 81,027 81,027
Vehicles 39,141 39,141
Software 90,159 90,159
----------------- ------------------
320,248 320,248
Less accumulated depreciation 181,251 172,870
----------------- ------------------
Total property and equipment $ 138,997 $ 147,378
================= ==================
NOTE 8 NOTES RECEIVABLE, OFFICERS
January 31, October 31,
2002 2001
(Unaudited) (Audited)
Invnsys Technology Corporation
A note due from the president of the Company, which is
payable on demand and accrues interest at 6%. Management
believes the note is uncollectible since IBIZ no longer has
collateral for the note. The Company elected to write-off the
loan as uncollectible by establishing an allowance for
doubtful collections for the total amount due on the note.
Total amount of note $ 373,159 $ 373,159
Less allowance for doubtful collection ( 373,159) ( 373,159)
----------------- ------------------
Net note $ 0 $ 0
================= ==================
See Accompanying Notes and Independent Accountants' Review Report.
13
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001
(UNAUDITED)
NOTE 9 TRADE NOTE PAYABLE TO GAMMAGE AND BURNHAM
In July 2001, the Company issued a note to Gammage and Burnham,
PLC for the payment of $80,000 of legal fees previously recorded
in accounts payable. The note is secured by accounts receivable
but the security is waived in favor of the note payable to
Platinum Funding Corporation provided Gammage and Burnham PLC
receives $2,500 each time that Invnsys draws against its
factoring line.
NOTE 10 ACCRUED LIABILITIES
Accrued liabilities consist of the following:
January 31, October 31,
2002 2001
(Unaudited) (Audited)
Interest $ 253,301 $ 201,987
Officers' bonuses 30,210 104,552
Bonuses, other 0 41,140
Wages 305,069 231,806
Severance wages 150,000 75,000
Vacation pay 41,238 41,238
Other 31,825 31,327
----------------- ------------------
$ 811,643 $ 727,050
================= ==================
NOTE 11 INCOME TAXES
January 31, January 31,
2002 2001
(Unaudited) (Unaudited)
(Loss) from continuing operations
before income taxes $ ( 556,993) $ ( 932,511)
The provision for income taxes is estimated as follows:
Currently payable $ 0 $ 0
----------------- ------------------
Deferred $ 0 $ 0
----------------- ------------------
See Accompanying Notes and Independent Accountants' Review Report.
14
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001
(UNAUDITED)
NOTE 11 INCOME TAXES (CONTINUED)
January 31, October 31,
2002 2001
(Unaudited) (Audited)
Significant components of the Company's deferred tax assets and
liabilities are as follows:
Deferred tax assets:
Net operating loss carryforwards $ 2,397,774 $ 2,241,000
Accrued expenses and miscellaneous 134,700 134,700
Tax credit carryforward 38,424 38,424
----------------- ------------------
2,570,898 2,414,124
Less valuation allowance 2,570,898 2,414,124
----------------- ------------------
Net deferred tax asset $ 0 $ 0
================= ==================
A reconciliation of the valuation allowance is as follows:
Balance, at beginning of period $ 2,414,124 $ 1,158,265
Addition for the period 156,775 1,255,859
----------------- ------------------
Balance, at end of period $ 2,570,899 $ 2,414,124
================= ==================
NOTE 12 TAX CARRYFORWARDS
The Company has the following tax carryforwards at January 31,
2002.
Expiration
Year Amount Date
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
October 31, 2001 5,051,232 October 31, 2021
January 31, 2002 681,629 October 31, 2022
----------------
$ 10,477,720
============
Capital loss
October 31, 1997 25,600 October 31, 2002
See Accompanying Notes and Independent Accountants' Review Report.
15
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001
(UNAUDITED)
NOTE 12 TAX CARRYFORWARDS (CONTINUED)
Expiration
Year Amount Date
Contribution
October 31, 1997 $ 545 October 31, 2002
October 31, 1999 2,081 October 31, 2004
October 31, 2000 3,008 October 31, 2005
October 31, 2001 1,000 October 31, 2006
Research tax credits 38,424
NOTE 13 CONVERTIBLE DEBENTURES
January 31, October 31,
2002 2001
(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.
See Accompanying Notes and Independent Accountants' Review Report.
16
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001
(UNAUDITED)
NOTE 13 CONVERTIBLE DEBENTURES (CONTINUED)
January 31, October 31,
2002 2001
(Unaudited) (Audited)
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 an 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.
$5,000,000 Convertible Debenture $ 1,856,482 $ 1,891,456
--------------------------------
On October 31, 2001, the Company issued 8% convertible
debentures as follows:
1. Due date - October 30, 2002 and January 15, 2003.
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 but 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:
See Accompanying Notes and Independent Accountants' Review Report.
17
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001
(UNAUDITED)
NOTE 13 CONVERTIBLE DEBENTURES (CONTINUED)
January 31, October 31,
2002 2001
(Unaudited) (Audited)
(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.
Laurus Master Fund, Ltd. $ 327,082 $ 414,473
------------------------
In April and July 2001, the Company issued $500,000 and $150,000
of 8% convertible debentures under the following terms and
conditions:
1. Due dates - April 2002 and July 2002.
2. Interest on September 30, 2001 and quarterly
thereafter.
3. Default interest rate - 20%.
4. On the first financing, the Company issued 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 prices for a ten day trading period.
The Company may redeem the warrants for $.666 per share.
On the second financing, the Company issued warrants to
purchase
See Accompanying Notes and Independent Accountants' Review Report.
18
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001
(UNAUDITED)
NOTE 13 CONVERTIBLE DEBENTURES (CONTINUED)
January 31, October 31,
2002 2001
(Unaudited) (Audited)
1,500,000 shares of common stock at the lesser of $.048 or
an amount equal to 105% of the average of the three lowest
closing bid prices for the common stock for the ten
trading days prior to but not including the date the
warrants are exercised.
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.
Alpha Capital $ 162,500 $ 0
-------------
In January 2002, the Company issued an 8% convertible debenture
as follows:
1. Due date - January 30, 2004.
2. Interest payable quarterly from March 31, 2002.
3. Default interest rate - 20%.
4. Fees and costs - 7% - 10% of cash received for
debentures and warrants plus legal fees.
5. Conversion price -
(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 three lowest closing bid
prices for the stock for sixty days.
6. The debentures are unsecured.
------------------ ------------------
Total debentures $ 3,096,064 $ 3,055,929
Less current portion 2,123,564 2,305,929
------------------ ------------------
Long-term portion $ 972,500 $ 750,000
================== ==================
See Accompanying Notes and Independent Accountants' Review Report.
19
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001
(UNAUDITED)
NOTE 14 NOTE PAYABLE, FACTOR
On October 9, 2001, the Company entered into a two year
factoring agreement with Platinum Funding Corporation. The terms
of the agreement provide that Platinum Funding Corporation may
purchase Invnsys' accounts receivable, without recourse, by
advancing 70% of the sales invoice to Invnsys. The interest
charged on the loan is based upon the period of time an invoice
is unpaid and ranges from 3% to 15%.
NOTE 15 NOTE PAYABLE, OTHER
January 31, October 31,
2002 2001
(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 $1,800. $ 14,532 $ 14,532
Less: current portion 7,198 5,721
------------------ ------------------
Net long-term debt $ 7,334 $ 8,811
================== ==================
Maturities of long-term debt are as follows:
January 31, 2002 $ 0 $ 1,859
January 31, 2003 7,198 5,339
January 31, 2004 6,229 6,229
January 31, 2005 1,105 1,105
------------------ ------------------
$ 14,532 $ 14,532
================== ==================
NOTE 16 DISCONTINUED OPERATIONS
APB 30 requires that an entity restate prior year financial
statements to disclose the results of subsequent discontinued
operations. The network integration services, digital subscriber
line high speed internet connection services, and Co-Location
computer data and server facility were discontinued on October
31, 2001. The January 31, 2001 statements of operations and cash
flows were restated to segregate the (loss) from discontinued
operations from continued operations.
The following information is presented for the discontinued
operations:
See Accompanying Notes and Independent Accountants' Review Report.
20
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001
(UNAUDITED)
NOTE 16 DISCONTINUED OPERATIONS (CONTINUED)
A. Segments discontinued - as indicated above
B. Discontinued date - October 31, 2001
C. Manner of disposal - write-down of assets to fair market
value and sale of segments D. Remaining assets - asset held
for sale of $249,918 after write-down of assets E. Income or
loss on October 31, 2001 - none F. Partial proceeds from
disposal of assets - $188,953.
NOTE 17 COMPUTATION OF EARNINGS PER SHARE
January 31, Restated
2002 2001
------------------ ------------------
From continuing operations
Net (loss) from continuing operations $ ( 556,993) $ ( 820,538)
------------------------------------- ------------------ ------------------
Weighted average number of common shares
outstanding 110,721,848 37,929,185
(Loss) per share $ ( 0.01) $ ( 0.02)
From discontinued operations
Net (loss) from continuing operations $ ( 240,847) $ ( 111,973)
------------------------------------- ------------------ ------------------
Weighted average number of common shares
outstanding 110,721,848 37,929,185
(Loss) per share $ ( 0.00) $ ( 0.00)
NOTE 18 CANCELLATION OF DEBT
2002 2001
------------------ ------------------
Settlement of lawsuit $ 0 $ 101,369
Invnsys settled its lawsuit with Epson America, Inc.
for $2,500 which generated $101,369 of income.
Account payable
The Company negotiated a cancellation of $122,000
account payable with a supplier. This cancellation
resulted in $122,000 of income. 0 122,000
Settlement of prior year liabilities 42,031 0
------------------ ------------------
$ 42,031 $ 223,369
================== ==================
See Accompanying Notes and Independent Accountants' Review Report.
21
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001
(UNAUDITED)
NOTE 19 REAL ESTATE LEASE
On January 8, 2002, IBIZ, Inc. leased its office and warehouse
facilities under the following terms and conditions:
1. Term - Three years from February 1, 2002 to
January 31, 2005
2. Size of facility - 4,343 square feet
3. Base rent - Monthly rentals plus taxes and common
area operating expenses
4. Base rental schedule -
Months Rent
1 - 12 $2,172
13 - 24 3,692
26 - 36 4,343
Future minimum lease payments excluding taxes and expenses, are
as follows:
January 31, 2003 $ 26,064
January 31, 2004 44,304
January 31, 2005 52,116
--------
$122,484
========
Rent expense for the three months ended January 31, 2002 and
2001 was $27,829 and $38,648, respectively.
NOTE 20 ADVERTISING
All direct advertising costs are expensed as incurred. Invnsys
charged to operations $12,621 and $(27,592) in advertising costs
for the three months ended January 31, 2002 and 2001,
respectively.
NOTE 21 RESEARCH AND DEVELOPMENT
Invnsys incurred research and development cost for the three
months ended January 31, 2002 and 2001 of $0 and $4,035,
respectively.
NOTE 22 WORKERS' COMPENSATION INSURANCE
As of the date of this report, the Company does not have
workers' compensation insurance for its employees.
See Accompanying Notes and Independent Accountants' Review Report.
22
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001
(UNAUDITED)
NOTE 23 OFFICERS' COMPENSATION
The Company entered into employment agreements with four of its
corporate officers. The contracts are for three years beginning
July 2001 and provide for the following:
1. Salaries from $150,000 to $250,000 for each officer. On
November 1, 2001, the officers voluntarily reduced their
salaries to $100,000 and $125,000.
2. Bonuses of 1% of total sales for each of its officers
3. Options for 1,200,000 shares of common stock which will
vest and be exercisable for a period of ten years
4. Option price of $.02 a share
5. Termination -
Termination by the Company without cause - the employee
shall receive six months salary Change of control - in the
event of change of control, the Company shall pay the
employee a lump sum payment of three years annual salary
NOTE 24 BUSINESS SEGMENT INFORMATION
The Company organizes its business based principally upon
products and services.
The Company operated in three reportable segments until October
2001, when it discontinued its Co- Location services, Web design
and development and data center technical management services.
A summary of business segments for the three months ended
January 31, 2002 is as follows:
Services General
Product and and
Sales Other Administrative Consolidated
Sales $ 127,700 $ 8,037 $ 0 $ 135,737
Operating income (loss) 24,259 ( 21,292) ( 559,960) ( 556,993)
Identifiable assets 561,768 0 249,918 811,686
Expenditures for
Long-term assets 0 0 0 0
NOTE 25 GOING CONCERN
These financial statements are presented on the basis that the
Company is a going concern. Going concern contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business over a reasonable length of time. The
following factors raise uncertainty as to the Company's ability
to continue as a going concern:
See Accompanying Notes and Independent Accountants' Review Report.
23
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001
(UNAUDITED)
NOTE 25 GOING CONCERN (CONTINUED)
A. Continued operating losses
B. Negative working capital
C. Lack of cash to purchase products to complete sales orders
D. Delinquent payroll taxes
E. Unpaid wages
F. Decline in national economy
Management's plans to eliminate the going concern situation
include but are not limited to:
A. Reduction in operating overhead. The Company reduced its
payroll from approximately 50 employees to 7.
B. Moved its office and warehouse facility. The Company
anticipates that rent, utilities and
property taxes will be reduced by $200,000 per year.
C. Discontinued segments that were not profitable.
D. Partial sale of assets held for sale.
E. Arranged for new financing through convertible debentures.
F. Paid, some but not all, delinquent payables and unpaid
wages through the issuance of common stock.
G. Requested abatement of delinquent payroll tax penalties.
H. Purchased products to complete sales orders from funds
received from the new debenture financing.
NOTE 26 EMPLOYEE STOCK OPTIONS
On January 31, 1999, the corporation adopted the 1999 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 10,000,000 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 five
years.
See Accompanying Notes and Independent Accountants' Review Report.
24
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001
(UNAUDITED)
NOTE 26 EMPLOYEE STOCK OPTIONS (CONTINUED)
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, 2002 and 2001, pursuant to the terms of the plan is
as follows:
Shares Weighted
Under Average
Option Exercise Price
Options outstanding at October 31, 2001 3,145,000 $ 0.92
Granted 0 .00
Exercised 0 .00
Cancelled and expired 0 .00
------------
Options outstanding at January 31, 2002 3,145,000 0.92
============
1,885,000 shares are exercisable at January 31, 2002
Information regarding stock options outstanding as of January
31, 2002 and 2001 is as follows:
2002 2001
----------------- ----------------------
Price range $0.02 - $2.00 $0.53 - $2.00
Weighted average exercise price $0.56 $0.92
Weighted average remaining contractual life 8 years, 1 months 8 years, 5 months
Options exercised
Price range 0 $0.00
Shares 0 0
Weighted average exercise price 0 $0.00
The weighted average fair value of options granted in the three
months ended January 31, 2002 and 2001 were estimated as of the
date of grant using the Black-Scholes stock option pricing
model, based on the following weighted average assumptions:
2002 2001
---------------------- ----------------------
Dividend yield - 0
Expected volatility - 50 %
Risk free interest rate - 5.13% - 6.65 %
Expected life - 10 years
See Accompanying Notes and Independent Accountants' Review Report.
25
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001
(UNAUDITED)
NOTE 26 EMPLOYEE STOCK OPTIONS (CONTINUED)
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,
2002 2001
---------------------- ----------------------
Net (loss) from continuing operations
As reported $ ( 556,993) $ ( 820,538)
Pro forma $ ( 588,218) $ ( 891,273)
(Loss) per share attributable to
common stock
As reported $ ( .01) $ ( .02)
Pro forma $ ( .01) $ ( .02)
On November 21, 2001, the stockholder approved the IBIZ
Technology Corp. 2001 stock option plan. The plan provides for
the grant of stock options to purchase common stock to eligible
directors, officers, key employees and service providers to
IBIZ. The 2001 stock option plan covers an aggregate maximum of
10,000,000 shares of common stock and provides for the granting
of both incentive stock options and non-qualified stock options.
The exercise price may not be less than the fair market value of
the common stock on the date of the grant of the option.
NOTE 27 COMMON STOCK PURCHASE WARRANTS
As of January 31, 2002 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
August 30, 2000 34,125 5 years $ .937
See Accompanying Notes and Independent Accountants' Review Report.
26
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001
(UNAUDITED)
NOTE 27 COMMON STOCK PURCHASE WARRANTS (CONTINUED)
Number Exercise
Date of Shares Term Price
-------------------- ------------------ ------------------ ------------------
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
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
June 22, 2001 1,500,000 5 years $ .042
June 27, 2001 1,500,000 5 years $ .048
August 21, 2001 525,000 5 years $ .039
October 9, 2001 350,000 5 years $ .0256
January 15, 2002 166,666 5 years $ .0097
January 15, 2002 500,000 5 years $ .0097
January 30, 2002 5,000,000 5 years $ FMV
----------------
14,726,155
================
14,726,155 shares are exercisable at January 31, 2002.
NOTE 28 LEGAL PROCEEDINGS
Invnsys had six lawsuits filed against it for unpaid accounts
payable and wages. Three of the lawsuits totaling $73,000 were
settled with an agreement to issue stock to the debtor or to
make payments on the debt.
One of the lawsuits for unpaid wages was settled. Two lawsuits
for unpaid wages and breach of contract totaling $12,250 are
being negotiated for final settlements.
The $12,250 on the lawsuits is included in accounts payable and
accrued liabilities.
NOTE 29 ECONOMIC DEPENDENCY
For the three months ended January 31, 2002, IBIZ, Inc. had
sales of approximately 24% of its PDA's to one customer.
See Accompanying Notes and Independent Accountants' Review Report.
27
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001
(UNAUDITED)
NOTE 30 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 31 UNPAID OFFICERS' SALARIES
On December 20, 2001, the Board of Directors authorized the
issuance of convertible debentures to the officers of the
Company as consideration for their unpaid wages. As of the date
of this report, the debentures have not been issued.
NOTE 32 PREFERRED STOCK
On December 20, 2001, the Board of Directors authorized the
issuance of 3,500,000 shares of preferred stock to three
officers and one director in lieu of their annual bonus and
retention incentives. The preferred stock will have a 10:1
conversion rate from common stock to preferred stock and will
have a "super" voting right of 100:1. As of the date of this
report the preferred stock had not been issued.
NOTE 33 CONVERTIBLE LOCK AGREEMENT
In January 2002, the debenture holders agreed that they would
not convert any debentures for 60 days and further that they
would not convert any debentures for six months unless the
market price of the stock exceeds $0.02.
NOTE 34 OFF-BALANCE SHEET RISK
The Company has $149,975 deposited in one banking institution.
Only $100,000 of the balance is insured by the Federal Deposit
Insurance Corporation.
NOTE 35 UNAUDITED FINANCIAL INFORMATION
The accompanying financial information as of January 31, 2002 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.
28
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001
(UNAUDITED)
NOTE 36 CONTINGENCIES
Real Estate at 1919 W. Lone Cactus Drive, Phoenix, Arizona
The Company has pledged all of its assets, except inventory, to
guarantee the mortgage of $925,448 on the premises it previously
occupied at 1919 W. Lone Cactus Drive, Phoenix, Arizona.
Contract Termination Fees on Co-Location Operations
The connectivity providers for the discontinued Co-Location
operations charged a $130,000 termination fee. The Company does
not believe this fee is payable as the Co-Location operations
were transferred to Arizona Internet L.L.C. without any
termination activity by the provider.
See Accompanying Notes and Independent Accountants' Review Report.
29
MANAGEMENT'S DISCUSSION AND ANALYSIS
Through its operating subsidiary, iBIZ Inc. designs, manufactures, and
distributes personal digital assistant accessories (PDA accessories), small
footprint desktop computers, transaction printers, general purpose financial
application keyboards, numeric keypads, TFT-LCD monitors and related products.
iBIZ also markets a line of OEM notebook computers and distributes a line of
transactional and color printers. To provide a greater range of products, iBIZ
resells third-party hardware, software and related supplies.
Selected Financial Information.
YEAR ENDED
January 31, 2002 January 31, 2001
Statement of Operations Data $ $
Net sales .................... 135,737 789,164
Gross profit ................. 52,221 299,099
Operating income from
continuing operations(loss) .. ( 556,993) ( 820,538)
Net earnings (loss) after tax ( 797,840) ( 932,511)
Net earnings (loss) per share (0.01) (0.02)
Balance Sheet Data .................January 31, 2002 October 31, 2001
Total assets ................. 811,882 923,858
Total liabilities ............ 4,787,722 4,868,336
Stockholders' equity (deficit) (3,976,036) (3,944,478)
RESULTS OF OPERATIONS.
Three months ended January 31, 2002 compared to the three months ended January
31,2001.
Revenues. Sales from continuing operations decreased by approximately
83% to $135,737 in the three months ended January 31, 2002 from $ 789,164 in the
three months ended January 31, 2001. The decrease was mainly a result of the
drain on working capital from costs associated with the data center which
resulted in delayed shipments for our PDA products to our high volume retail
accounts. A continued impact from the drop of consumer spending for PDA products
also had a negative first quarter impact. Shipments for goods have improved
since January 31, 2002 and with the drain on working capital minimized by
discontinued operations shipments should continue to improve throughout the
remainder of this fiscal.
Cost of Sales. The cost of sales of $83,516 in the three months ended
January 31, 2002 decreased from $490,065 in the three months ended January 31,
2001, or approximately an 83% decrease. This reduction reflects a drop in
purchases from our overseas suppliers as well as the decrease in costs related
to providing data center services.
Gross Profit. Gross profit decreased by approximately 83% to $52,221 in
the three months ended January 31, 2002 from $299,099 in the three months ended
January 31, 2001. The decrease was due to a reduction of sales. The gross profit
on sales was 38% for each period and is expected to increase as orders for goods
continue to improve.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased approximately 56% to $449,293 in the three
months ended January 31, 2002 from $1,015,017 for the three months ended January
31, 2001. The decrease was primarily due to staff reductions and related costs,
rent, utilities and voluntary salary reductions from officers.
Interest Expense. Interest expense of $85,753 for the three months
ended January 31, 2002 and of $35,541 for the three months ended January 31,
2001 was incurred on factoring lines and on convertible debentures issued to
various investors.
Interest Expense -- Convertible Debenture - Beneficial Conversion
Feature. The Company has issued convertible debt securities with a
non-detachable conversion feature 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. Interest expense of
$116,214 for the three months ended January 31, 2002 was incurred under the
Company's convertible debenture-beneficial conversion feature.
Net Loss. Net loss from continuing operations decreased to $556,993 for
the three months ended January 31, 2002 from a net loss of $820,538 for the
three months ended January 31, 2001. The loss resulted from the increase in the
selling, general and administrative expenses and the imposition of interest
expenses for the Company's convertible debenture-beneficial conversion feature.
Discontinued Operations. Net Loss from discontinued operations
increased from $111,973 the three months ended January 31, 2002 to $240,847 in
the three months ended January 31, 2001. The reason for the increase was the
company had costs to "Wind Down" the operations and loss on liquidation of
certain assets.
LIQUIDITY AND CAPITAL RESOURCES
The Company has spent substantial funds on construction and
installation of its co-location facility and expansion of its sales and
marketing efforts. As a result, the Company has needed capital to maintain the
business as a going concern.
Since December 1, 1999, the Company has raised approximately $5,900,000
through the sale of convertible debentures, convertible notes, common stock and
warrants to various individuals. The Company relied upon either Section 4(2) or
Regulation D, Rule 506 promulgated under the Securities Act of 1933 with respect
to these sales of common stock. The Company currently has commitments for an
additional $2,900,000, subject to meeting certain representations, warranties,
covenants, and conditions.
Working Capital deficit decreased from $3,349,057 from as of year end
October 31, 2001, to $3,151,211 as of January 31, 2002. The decrease was a
result of payment of company debt through the issuance of Common Stock.
The company anticipates that the liquidity will increase in the next
fiscal year due to the following measures it has instituted:
1. Reduction in selling, general and administrative expenses especially
from:
a. Reduction in payroll from approximately 50 employees to 7.
b. Reduction in rent by $200,000 per year due to moving to new
facilities.
2. Discontinued non profitable business segments.
3. Sale of assets held for sale.
4. Payments of some, but not all payables and wages through the issuance
of common stock.
5. Obtained new debenture financing which enables the company to purchase
new products to fulfill sales orders.
The Company believes that the amounts committed (assuming the
Company meets the representations, warranties, covenants, and conditions to
receive those amounts) should be sufficient to finance the Company's revised
business plans through the Company's fiscal year ended October 31, 2002.
PART II - Other Information
Item 1. Legal Proceedings
From time to time we are subject to litigation incidental to our
business. We are not currently a party to any legal proceedings that we consider
to be material.
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, 2002 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.
Private Placements of Common Stock and Warrants for Cash
None.
Sales of Debt and Warrants for Cash
Convertible debentures were issued to three accredited purchasers
during our first quarter of 2002. The debentures were in the aggregate principal
amount of $222,500. The debentures were convertible into common stock at a
conversion price of the lower of 80% of the average of the three lowest closing
bid prices for the common stock twenty two days prior to the closing date or 80%
of the average of the three lowest closing bid prices for the common stock sixty
days prior to conversion. In addition, these same purchasers received an
aggregate amount of 5,666,666 warrants to purchase common stock. The offering of
convertible debentures and warrants was exempt from registration under Rule 504
of Regulation D and under Section 4(2) of the Securities Act. No advertising or
general solicitation was employed in offering the securities. All persons were
accredited investors, represented that they were capable of analyzing the merits
and risks of their investment.
Option Grants
None.
Issuances of Stock for Services or in Satisfaction of Obligations
In November 2001, we issued 15,000,000 million shares of our common
stock valued at $1,5000 to our president, Ken Schilling, as compensation for his
contribution of 9,285,600 shares of common stock to iBiz prior to iBiz receiving
shareholder approval to increase its authorized capital.
In December 2001, we issued 21,750,000 shares of common stock valued at
$217,500 to four consultants as payment for consulting services.
The above offerings and sales were deemed to be exempt under Regulation
D and Section 4(2) of the Securities Act. No advertising or general solicitation
was employed in offering the securities. The offerings and sales were made to a
limited number of persons, all of whom were business associates of iBiz or
executive officers and/or directors of iBiz, and transfer was restricted by iBiz
in accordance with the requirements of the Securities Act. All unregistered
shares of common stock outstanding, except those issued in November 2001, were
registered through our Registration Statement on Form S-8, which was declared
effective in January 2002.
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security
Holders
(a) The annual meeting of our shareholders was held on November
21, 2001.
(b) Our shareholders voted for:
1. The reelection of Kenneth W. Schilling, Terry S. Ratliff, and Mark H.
Perkins, as directors of iBiz for a 1 year term:
For Against Abstained
82,479,573 173,325 1,575,043
2. The increase to approve authorized shares and creation of 50,000,000
shares of blank check preferred stock.
For Against Abstained
27,812,977 6,724,198 233,890
3. Approval of the 1999 Stock Option Plan.
For Against Abstained
29,450,749 4,445,531 874,785
4. Approval of the 2001 Stock Option Plan.
For Against Abstained
29,219,395 4,922,551 629,119
5. Ratification of the appointment of the firm Moffitt & Co. PC as
independent accountants for the fiscal year ended October 31, 2001.
For Against Abstained
81,844,931 1,924,475 458,535
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 21st day of March 2002
IBIZ TECHNOLOGY CORP.
By:/s/ KENNETH W. SCHILLING
Kenneth W. Schilling, President
By:/s/ MARK H. PERKINS
Mark H. Perkins, Executive Vice
President