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, 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 [ ] No [X]
Class Outstanding at August 20, 2002
- ------------------------------ ------------------------------
Common stock, $0.001 par value 289,118,972
TABLE OF CONTENTS
-----------------
PART I. - FINANCIAL INFORMATION.............................................1
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED).....................................3
BALANCE SHEETS ......................................................6
STATEMENTS OF OPERATIONS.............................................7
STATEMENT OF CASH FLOWS..............................................10
NOTES TO FINANCIAL STATEMENTS........................................12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS....................................................41
ITEM 2. CHANGES IN SECURITIES................................................41
ITEM 3. DEFAULTS UPON SENIOR SECURITIES......................................42
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................42
ITEM 5. OTHER INFORMATION....................................................42
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.....................................42
2
PART I
- ------
Item 1. Financial Information
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND 2001
3
TABLE OF CONTENTS
PAGE NO.
--------
INDEPENDENT ACCOUNTANTS' REVIEW REPORT.................................... 5
FINANCIAL STATEMENTS
Consolidated Balance Sheets........................................ 6
Consolidated Statements of Operations..............................7 - 8
Consolidated Statement of Stockholders' (Deficit).................. 9
Consolidated Statements of Cash Flows..............................10-11
Notes to Consolidated Financial Statements.........................12-32
4
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To The Board of Directors and Stockholders
IBIZ Technology Corp. and Subsidiaries
We have reviewed the accompanying consolidated balance sheet of IBIZ Technology
Corp. and Subsidiaries as of April 30, 2002 and the related consolidated
statements of operations and cash flows for the three and six months ended April
30, 2002 and 2001 and the statement of stockholders' (deficit) for the six
months ended April 30, 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 26 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 26. The financial statements do not include
any adjustments that might result from the outcome of these uncertainties.
/s/ Moffitt & Company, P.C.
MOFFITT & COMPANY, P.C.
SCOTTSDALE, ARIZONA
June 25, 2002
5
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 2002 AND OCTOBER 31, 2001
ASSETS
APRIL 30, OCTOBER 31,
2002 2001
(UNAUDITED) (AUDITED)
------------- -------------
CURRENT ASSETS
Cash and cash equivalents $ 0 $ 6,981
Accounts receivable, trade, net 16,008 93,747
Account receivable, factor 17,570 0
Account receivable, officer 8,670 0
Inventories 185,864 166,742
Prepaid expenses 60,356 54,127
Net assets held for sale 0 438,871
------------- -------------
TOTAL CURRENT ASSETS 288,468 760,468
------------- -------------
PROPERTY AND EQUIPMENT, NET OF
ACCUMULATED DEPRECIATION 74,206 147,378
------------- -------------
OTHER ASSETS
Deposits 16,012 16,012
------------- -------------
TOTAL ASSETS $ 378,686 $ 923,858
============= =============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
APRIL 30, OCTOBER 31,
2002 2001
(UNAUDITED) (AUDITED)
------------- -------------
CURRENT LIABILITIES
Bank overdraft $ 4,483 $ 0
Accounts payable, trade 545,370 797,585
Note payable, trade 32,500 57,500
Accrued liabilities 839,586 727,050
Taxes payable 129,284 140,511
Deferred income 10,487 4,495
Convertible debentures payable, current portion 2,032,469 2,305,929
Note payable, factor 0 70,734
Notes payable, other, current portion 7,474 5,721
------------- -------------
TOTAL CURRENT LIABILITIES 3,601,653 4,109,525
------------- -------------
LONG-TERM LIABILITIES
Convertible debentures payable 1,012,500 750,000
Notes payable, other 5,816 8,811
------------- -------------
TOTAL LONG -TERM LIABILITIES 1,018,316 758,811
------------- -------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock
Authorized - 50,000,000 shares, par
value $.001 per share
Issued and outstanding -0- shares
Common stock
Authorized - 450,000,000 shares, par
value $.001 per share
Issued and outstanding
April 30, 2002 - 249,159,275 shares 249,159 0
October 31, 2001 - 99,862,248 shares 0 99,862
Additional paid in capital 10,813,122 9,801,345
Accumulated deficit (15,303,564) (13,845,685)
------------- -------------
TOTAL STOCKHOLDERS' (DEFICIT) (4,241,283) (3,944,478)
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' (DEFICIT) $ 378,686 $ 923,858
============= =============
See Accompanying Notes and Independent Accountants' Review Report.
6
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 2002 AND 2001
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
APRIL 30, APRIL 30,
--------------------------- ---------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
SALES $ 115,324 $ 369,185 $ 251,061 $ 1,209,287
COST OF SALES 68,218 306,269 151,734 851,601
------------ ------------ ------------ ------------
GROSS PROFIT 47,106 62,916 99,327 357,686
SELLING, GENERAL
AND ADMINISTRATIVE
EXPENSES (426,102) (917,160) (875,407) (1,896,848)
SETTLEMENT OF LAWSUIT 0 0 0 101,369
CANCELLATION OF DEBT 0 0 42,031 122,000
OTHER INCOME 0 20,636 0 20,962
------------ ------------ ------------ ------------
OPERATING (LOSS) (378,996) (833,608) (734,049) (1,294,831)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income 22 6,763 37 16,379
Interest expense (37,532) (57,783) (123,285) (93,324)
Interest expense - convertible
debentures-beneficial
conversion feature (66,666) (509,026) (182,880) (811,417)
------------ ------------ ------------ ------------
TOTAL OTHER
INCOME (EXPENSE) (104,176) (560,046) (306,128) (888,362)
------------ ------------ ------------ ------------
(LOSS) FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES (483,172) (1,393,654) (1,040,177) (2,183,193)
INCOME TAXES 0 0 0 0
------------ ------------ ------------ ------------
(LOSS) FROM CONTINUING
OPERATIONS (483,172) (1,393,654) (1,040,177) (2,183,193)
------------ ------------ ------------ ------------
DISCONTINUED OPERATIONS
(Loss) from operations of
discontinued business segments (5,313) (66,992) (246,160) (209,965)
Write-down of net assets
held for sale (171,542) 0 (171,542) 0
------------ ------------ ------------ ------------
(LOSS) FROM DISCONTINUED
OPERATIONS (176,855) (66,992) (417,702) (209,965)
------------ ------------ ------------ ------------
NET (LOSS) $ (660,027) $(1,460,646) $(1,457,879) $(2,393,158)
============ ============ ============ ============
See Accompanying Notes and Independent Accountants' Review Report.
7
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 2002 AND 2001
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
APRIL 30, APRIL 30,
--------------------------- ---------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
NET (LOSS) PER
COMMON SHARE
Basic and Diluted:
Continuing operations $ .00 $ (.04) $ (.01) $ (.06)
Discontinued operations .00 .00 .00 .00
------------ ------------ ------------ ------------
NET (LOSS) $ .00 $ (.04) $ (.01) $ (.06)
============ ============ ============ ============
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING
Basic and diluted 239,688,609 37,989,702 239,688,609 37,989,702
============ ============ ============ ============
Stock options and warrants to purchase 20,186,155 shares of common stock were
not included in the computations of diluted loss per common share amounts.
See Accompanying Notes and Independent Accountants' Review Report.
8
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT)
FOR THE SIX MONTHS ENDED APRIL 30, 2002
(UNAUDITED)
PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------- ----------------------------- PAID IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------- ------ ------------- ------------- ------------- ------------- -------------
BALANCE, NOVEMBER 1, 2001 0 $ 0 99,862,248 $ 99,862 $ 9,801,345 $(13,845,685) $ (3,944,478)
CONVERSION OF DEBENTURES FOR
COMMON STOCK:
PRINCIPAL 0 0 58,415,455 58,416 276,361 0 334,777
ACCRUED INTEREST 0 0 4,305,172 4,305 17,453 0 21,758
FEES AND COSTS FOR ISSUANCE OF
COMMON STOCK 0 0 0 0 (28,777) 0 (28,777)
ISSUANCE OF COMMON STOCK FOR:
PAYMENT OF ACCOUNTS
PAYABLE 0 0 31,212,000 31,212 286,648 0 317,860
PAYMENT OF SALARIES AND
RETENTION BONUSES 0 0 26,900,000 26,900 91,460 0 118,360
CONSULTING FEES 0 0 17,000,000 17,000 31,000 0 48,000
LEGAL FEES 0 0 5,750,000 5,750 74,750 0 80,500
DONATION OF STOCK BACK TO THE
COMPANY FOR TREASURY STOCK 0 0 (9,285,600) (9,286) (122,998) 0 (132,284)
ISSUANCE OF COMMON STOCK TO THE
PRESIDENT TO REIMBURSE HIM FOR
SHARES GIVEN TO DEBENTURE
HOLDERS FROM:
TREASURY STOCK 0 0 9,285,600 9,286 122,998 0 132,284
NEW SHARES 0 0 5,714,400 5,714 80,002 0 85,716
INTEREST EXPENSE - CONVERTIBLE
DEBENTURES - BENEFICIAL
CONVERSION FEATURE 0 0 0 0 182,880 0 182,880
NET (LOSS) FOR THE SIX MONTHS
ENDED APRIL 30, 2002 0 0 0 0 0 (1,457,879) (1,457,879)
------- ------ ------------- ------------- ------------- ------------- -------------
BALANCE, APRIL 30, 2002 0 $ 0 249,159,275 $ 249,159 $ 10,813,122 $(15,303,564) $ (4,241,283)
======= ====== ============= ============= ============= ============= =============
See Accompanying Notes and Independent Accountants' Review Report.
9
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 30, 2002 AND 2001
(UNAUDITED)
2002 2001
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(1,040,177) $(2,183,193)
Adjustments to reconcile net (loss) to
net cash (used) by operating activities of
continuing operations:
Loss from discontinued operations (417,702) (209,965)
Write-down of net assets held for sale 171,542 0
Depreciation 110,222 122,507
Interest expense - convertible debentures-beneficial
conversion feature 182,880 811,417
Common stock issued for expenses 128,500 374
Allowance for uncollectible accounts, net (10,154) 0
Changes in operating assets and liabilities:
Accounts receivable, trade 87,893 234,871
Accounts receivable, factor (17,570) 0
Inventories (19,122) (40,355)
Prepaid expenses (6,229) (25,099)
Deposits 0 947
Accounts and notes payable, trade 309,322 (359,620)
Accrued liabilities and taxes 241,427 116,297
Customer deposits 0 77,180
Deferred income 5,992 (44,746)
------------ ------------
NET CASH (USED) BY OPERATING
ACTIVITIES (273,176) (1,499,385)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment 0 (98,236)
Proceeds from sale of net assets held for sale 48,635 0
------------ ------------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES 48,635 (98,236)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft 4,483 0
Net proceeds from issuance of convertible
debentures payable 293,723 1,343,463
Repayment of note payable, factor (70,734) 0
Repayment of notes payable, other (1,242) (2,594)
Changes in notes and loan receivable, officer (8,670) 0
------------ ------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 217,560 1,340,869
------------ ------------
See Accompanying Notes and Independent Accountants' Review Report.
10
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE SIX MONTHS ENDED APRIL 30, 2002 AND 2001
(UNAUDITED)
2002 2001
---------- ----------
NET (DECREASE) IN CASH
AND CASH EQUIVALENTS $ (6,981) $(256,752)
CASH AND CASH EQUIVALENTS, AT
BEGINNING OF PERIOD 6,981 631,375
---------- ----------
CASH AND CASH EQUIVALENTS, AT
END OF PERIOD $ 0 $ 374,623
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during period for:
Interest $ 26,972 $ 2,354
========== ==========
Taxes $ 0 $ 0
========== ==========
NON-CASH INVESTING AND FINANCING
ACTIVITIES
Issuance of common stock for convertible debentures $ 334,777 $ 34,576
========== ==========
Issuance of common stock for fees, services and
expenses $ 218,083 $ 374
========== ==========
Issuance of common stock for accounts payable and
accrued liabilities $ 339,618 $ 0
========== ==========
Interest expense - convertible debentures-beneficial
conversion feature $ 182,880 $ 811,417
========== ==========
See Accompanying Notes and Independent Accountants' Review Report.
11
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 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 administers subsidiary companies.
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.
12
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND 2001
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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
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.
13
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND 2001
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
14
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND 2001
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 April 30, 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.
15
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND 2001
(UNAUDITED)
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:
APRIL 30, OCTOBER 31,
2002 2001
(UNAUDITED) (AUDITED)
------------- -------------
Accounts receivable $ 61,861 $ 143,747
Allowance for doubtful accounts 45,853 50,000
------------- -------------
Net accounts receivable $ 16,008 $ 93,747
============= =============
APRIL 30, OCTOBER 31,
2002 2001
(UNAUDITED) (AUDITED)
------------- -------------
Allowance for doubtful accounts
Balance, at beginning of period $ 50,000 $ 25,000
Additions for the period 6,007 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 $ 45,853 $ 50,000
============= =============
16
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND 2001
(UNAUDITED)
NOTE 5 INVENTORIES
The inventories are comprised of the following:
APRIL 30, OCTOBER 31,
2002 2001
(UNAUDITED) (AUDITED)
------------- -------------
Finished products $ 180,864 $ 161,742
Office 5,000 5,000
------------- -------------
$ 185,864 $ 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 Note 36 for current year disposition of net assets held for sale.
NOTE 7 PROPERTY AND EQUIPMENT
Property and equipment and accumulated depreciation consists of:
APRIL 30, 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 0 90,159
------------- -------------
230,089 320,248
Less accumulated depreciation 155,883 172,870
------------- -------------
Total property and equipment $ 74,206 $ 147,378
============= =============
17
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND 2001
(UNAUDITED)
NOTE 8 NOTES RECEIVABLE, OFFICERS
APRIL 30, 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
============= =============
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
providing 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:
APRIL 30, OCTOBER 31,
2002 2001
(UNAUDITED) (AUDITED)
------------- -------------
Interest $ 298,300 $ 201,987
Officers' bonuses 35,233 104,552
Bonuses, other 0 41,140
Wages 283,275 231,806
Severance wages 150,000 75,000
Vacation pay 41,238 41,238
Other 31,540 31,327
------------- -------------
$ 839,586 $ 727,050
============= =============
18
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND 2001
(UNAUDITED)
NOTE 11 TAXES PAYABLE
APRIL 30, OCTOBER 31,
2002 2001
(UNAUDITED) (AUDITED)
------------- -------------
Taxes payable consists of the following:
Payroll taxes payable $ 110,256 $ 121,483
California income tax payable 19,028 19,028
------------- -------------
$ 129,284 $ 140,511
============= =============
NOTE 12 INCOME TAXES
APRIL 30, OCTOBER 31,
2002 2001
(UNAUDITED) (AUDITED)
------------- -------------
(Loss) from continuing operations
before income taxes $ (1,040,177) $ (2,183,193)
The provision for income taxes is
estimated as follows:
Currently payable $ 0 $ 0
------------- -------------
Deferred $ 0 $ 0
------------- -------------
Significant components of the Company's
deferred tax assets and liabilities
are as follows:
APRIL 30, OCTOBER 31,
2002 2001
(UNAUDITED) (AUDITED)
------------- -------------
Deferred tax assets:
Net operating loss carryforwards $ 2,639,876 $ 2,241,000
Accrued expenses and miscellaneous 134,700 134,700
Tax credit carryforward 38,424 38,424
------------- -------------
2,813,000 2,414,124
Less valuation allowance 2,813,000 2,414,124
------------- -------------
Net deferred tax asset $ 0 $ 0
============= =============
19
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND 2001
(UNAUDITED)
NOTE 12 INCOME TAXES (CONTINUED)
A reconciliation of the valuation allowance is as follows:
APRIL 30, OCTOBER 31,
2002 2001
(UNAUDITED) (AUDITED)
------------- -------------
Balance, at beginning of period $ 2,414,124 $ 1,158,265
Addition for the period 398,876 1,255,859
------------- -------------
Balance, at end of period $ 2,813,000 $ 2,414,124
============= =============
NOTE 13 TAX CARRYFORWARDS
The Company has the following tax carryforwards at April 30, 2002:
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
October 31, 2001 5,051,232 October 31, 2021
April 30, 2002 1,457,879 October 31, 2022
------------
$ 11,253,970
============
Capital loss
October 31, 1997 25,600 October 31, 2002
20
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND 2001
(UNAUDITED)
NOTE 13 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 14 CONVERTIBLE DEBENTURES
APRIL 30, 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.
21
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND 2001
(UNAUDITED)
NOTE 14 CONVERTIBLE DEBENTURES (CONTINUED)
APRIL 30, OCTOBER 31,
2002 2001
(UNAUDITED) (AUDITED)
------------- -------------
7. Average closing price - The debenture
holder shall have the election to choose
any three trading days out of twenty trading
days immediately preceding the date on
which the holder gives the Company a written
notice of the holder's election to convert
outstanding principal of this debenture.
8. Redemption by Company - If there is a change
in control of the Company, the holder of the
debenture can request that the debenture be
redeemed at a price equal to 125% of the
aggregate principal and accrued interest
outstanding under this debenture.
9. The debentures are unsecured.
10. Any further issuance of common stock or
debentures must be approved by the 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 $ 1,705,387 $ 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.
22
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND 2001
(UNAUDITED)
NOTE 14 CONVERTIBLE DEBENTURES (CONTINUED)
APRIL 30, OCTOBER 31,
2002 2001
(UNAUDITED) (AUDITED)
------------- -------------
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:
(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 conversion 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:
23
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND 2001
(UNAUDITED)
NOTE 14 CONVERTIBLE DEBENTURES (CONTINUED)
APRIL 30, OCTOBER 31,
2002 2001
(UNAUDITED) (AUDITED)
------------- -------------
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 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 $ 262,500 $ 0
In January and April 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%.
24
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND 2001
(UNAUDITED)
NOTE 14 CONVERTIBLE DEBENTURES (CONTINUED)
APRIL 30, OCTOBER 31,
2002 2001
(UNAUDITED) (AUDITED)
------------- -------------
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 $ 3,044,969 $ 3,055,929
Less current portion 2,032,469 2,305,929
------------- -------------
Long-term portion $ 1,012,500 $ 750,000
============= =============
NOTE 15 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 16 NOTE PAYABLE, OTHER
APRIL 30, 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. $ 13,290 $ 14,532
Less: current portion 7,474 5,721
------------- -------------
Net long-term debt $ 5,816 $ 8,811
============= =============
25
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND 2001
(UNAUDITED)
NOTE 16 NOTE PAYABLE, OTHER (CONTINUED)
APRIL 30, OCTOBER 31,
2002 2001
(UNAUDITED) (AUDITED)
------------- -------------
Maturities of long-term debt are as follows:
April 30, 2002 $ 0 $ 1,859
April 30, 2003 7,474 5,339
April 30, 2004 5,816 6,229
April 30, 2005 0
------------- -------------
$ 13,290 $ 14,532
============= =============
NOTE 17 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
THREE MONTHS ENDED SIX MONTHS ENDED
APRIL 30, APRIL 30,
------------------------ ------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Payroll $ 110,877 $ 47,406 $ 376,481 $ 592,224
Consulting, net (35,003) 17,550 52,207 42,641
Legal 94,183 34,521 94,524 109,506
Other 256,045 817,683 352,195 1,152,477
----------- ----------- ----------- -----------
$ 426,102 $ 917,160 $ 875,407 $1,896,848
=========== =========== =========== ===========
NOTE 18 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 April 30, 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:
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
26
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND 2001
(UNAUDITED)
NOTE 19 COMPUTATION OF EARNINGS PER SHARE
APRIL 30,
APRIL 30, 2001
2002 RESTATED
------------- -------------
From continuing operations
Net (loss) from continuing operations $ (1,040,177) $ (2,183,193)
Weighted average number of common
shares outstanding 239,688,609 37,989,702
(Loss) per share $ (.01) $ (.06)
From discontinued operations
Net (loss) from discontinued operations $ (417,702) $ (209,965)
Weighted average number of common
shares outstanding 239,688,609 37,989,702
(Loss) per share $ .00 $ .00
NOTE 20 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
============= =============
27
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND 2001
(UNAUDITED)
NOTE 21 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
25 - 36 4,343
Future minimum lease payments excluding taxes and expenses, are as
follows:
April 30, 2003 $ 30,624
April 30, 2004 46,257
April 30, 2005 39,087
-----------
$ 115,968
===========
Rent expense for the six months ended April 30, 2002 and 2001 was
$35,099 and $80,433, respectively.
NOTE 22 ADVERTISING
All direct advertising costs are expensed as incurred. Invnsys charged
to operations $4,931 and $(21,101) in advertising costs for the six
months ended April 30, 2002 and 2001, respectively.
NOTE 23 RESEARCH AND DEVELOPMENT
Invnsys incurred research and development cost for the six months ended
April 30, 2002 and 2001 of $0 and $5,871, respectively.
NOTE 24 WORKERS' COMPENSATION INSURANCE
As of the date of this report, the Company does not have workers'
compensation insurance for its employees.
28
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND 2001
(UNAUDITED)
NOTE 25 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 26 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:
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. 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.
29
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND 2001
(UNAUDITED)
NOTE 26 GOING CONCERN (CONTINUED)
G. Requested abatement of delinquent payroll tax penalties.
H. Purchased products to complete sales orders from funds received
from the new debenture financing.
NOTE 27 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.
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,
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 $ .92
Granted 0 .00
Exercised 0 .00
Cancelled and expired 685,000 .62
------------- -------------
Options outstanding at April 30, 2002 2,460,000 .55
=============
2,460,000 shares are exercisable at April 30, 2002
30
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND 2001
(UNAUDITED)
NOTE 27 EMPLOYEE STOCK OPTIONS (CONTINUED)
Information regarding stock options outstanding as of April 30, 2002
and 2001 is as follows:
2002 2001
------------- -------------
Price range $.02 - $1.06 $ .75- $2.00
Weighted average exercise price $ .55 $ .90
Weighted average remaining contractual 8 years, 8 years,
life 0 months 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 in the six months
ended April 30, 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 0
Expected volatility 50% 50%
Risk free interest rate 5.13% - 6.65% 5.13 - 6.65%
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:
APRIL 30, APRIL 30,
2002 2001
------------- -------------
Net (loss) from continuing operations
As reported $ (1,040,197) $ (2,183,193)
Pro forma $ (1,223,638) $ (2,353,787)
(Loss) per share attributable to
common stock
As reported $ (.01) $ (.06)
Pro forma $ (.01) $ (.06)
31
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND 2001
(UNAUDITED)
NOTE 27 EMPLOYEE STOCK OPTIONS (CONTINUED)
On November 21, 2001, the stockholders 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 28 COMMON STOCK PURCHASE WARRANTS
As of April 30, 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
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
32
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND 2001
(UNAUDITED)
NOTE 28 COMMON STOCK PURCHASE WARRANTS (CONTINUED)
NUMBER EXERCISE
DATE OF SHARES TERM PRICE
----------------- --------- ------------ -------------
May 13, 1999 100,000 3 years $ 1.00
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
April 23, 2002 3,000,000 5 years $ FMV
----------
17,726,155
==========
17,726,155 shares are exercisable at January 31, 2002.
NOTE 29 LEGAL PROCEEDINGS
The Company is the defendant in three lawsuits for unpaid accounts
payable and wages. Management has recorded a liability in the amount of
$45,000 for these debts and is negotiating with the creditors to reduce
the amounts of the final settlements.
NOTE 30 ECONOMIC DEPENDENCY
For the six months ended April 30, 2002, IBIZ, Inc. had sales of
approximately 19% of its PDA's to one customer.
NOTE 31 SECURITIES AND EXCHANGE PROCEEDING
On February 28, 2001, the Securities and Exchange Commission commenced
an administrative proceeding against the Company. The Company
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 32 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.
33
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND 2001
(UNAUDITED)
NOTE 33 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 34 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 $.02.
NOTE 35 UNAUDITED FINANCIAL INFORMATION
The accompanying financial information as of April 30, 2002 is
unaudited. In management's opinion, such information includes all
normal recurring entries necessary to make the financial information
not misleading.
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 a mortgage of $915,000 on the premises it previously occupied
at 1919 W. Lone Cactus Drive, Phoenix, Arizona. Ken Schilling, the
President of the Company has an ownership interest in the property at
1919 W. Lone Cactus Drive.
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.
34
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2002 AND 2001
(UNAUDITED)
NOTE 37 RELATED PARTY TRANSACTION
On February 1, 2002, the Company transferred $249,918 of net assets
held for sale in full payment of delinquent rent and property taxes in
the amount of $78,376 on property previously rented by the Company. Ken
Schilling, the President of the Company, has an ownership interest in
lessor of this property.
35
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. IBIZ also offered, digital subscriber line
high-speed Internet connection services, a co-location server facility and
business-to-business software sales. These products were discontinued in 2001.
SELECTED FINANCIAL INFORMATION
SIX MONTHS ENDED
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APRIL 30, APRIL 30,
2002 2001
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Statement of Operations Data
Net sales $ 251,061 $ 1,209,287
Gross profit 99,327 357,686
Loss from continuing operations (1,040,177) (2,183,193)
Net (loss) after tax (1,457,879) (2,393,158)
Net (loss) per share (.01) (.06)
Continuing operations
Discontinued operations (.00) (.00)
THREE MONTHS ENDED
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APRIL 30, APRIL 30,
2002 2001
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Statement of Operations Data
Net sales $ 115,324 $ 369,185
Gross profit 47,106 62,916
Loss from continuing operations (483,172) (1,393,654)
Net (loss) after tax (660,027) (1,460,646)
Net (loss) per share (.00) (.04)
Continuing operations
Discontinued operations (.00) (.00)
APRIL 30, OCTOBER 31,
2002 2001
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Balance Sheet Data
Total assets $ 378,686 $ 923,858
Total liabilities 4,619,969 4,868,336
Stockholders' (deficit) (4,241,283) (3,944,478)
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CRITICAL ACCOUNTING POLICIES
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Our discussion and analysis of our financial condition and results of operations
are based upon our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States. The
preparation of these financial statements requires us to make estimates and
judgements that affect the reported amounts of assets, liabilities, revenues and
expenses. In consultation with our Board of Directors and Audit Committee, we
have identified five accounting principles that we believe are key to an
understanding of our financial statements. These important accounting policies
require management's most difficult, subjective judgements.
ACCOUNTS RECEIVABLE
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Accounts receivable are reported at the customers' outstanding balances less any
allowance for doubtful accounts.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
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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.
INVENTORIES
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Inventories are stated at the lower of cost (determined principally by average
cost) or market.
ACCOUNTING FOR CONVERTIBLE DEBT SECURITIES
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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.
REVENUE RECOGNITION
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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.
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STOCK-BASED COMPENSATION
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The Company has elected to follow Accounting Principles Board Opinion No. 25
Accounting for Stock Issued to Employees (APB 25) and the related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of employee stock options equals the market price of
the underlying stock on the date of grant, no compensation expense is recorded.
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation"
(Statement No. 123).
RESULTS OF OPERATIONS
SALES REVENUE
The current economic downturn has seriously impacted the Company's sales
revenues. A number of the Company's major retail customers retroactively
cancelled many of their open purchase orders for our PDA products. The Company
did not have sufficient working capital to begin a marketing program to acquire
more customers and sales.
The Company reported sales revenues of $115,324 for the three month period ended
April 30, 2002 as compared to $369,185 for the quarter ended April 30, 2001
resulting in a decrease of $253,861 or 69%. This decrease lead to an overall 79%
decrease in sales revenue for the six months period ended April 30, 2002 as
sales declined to $251,061for the six months ended April 30, 2002 from
$1,209,287 for the six months ended April 30, 2001.
GROSS MARGINS
The Company's gross margin for the three and six months ended April 30, 2002
were 40% for each period compared to 17% for the three months ended April 30,
2001 and 30% for the six months ended April 30, 2001. The increase in the gross
margin is due to the fact that the Company discontinued selling many less
profitable products and is concentrating on the sale of PDA products, which have
a higher gross profit margin.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decrease 50% to $462,102 in the
three months ended April 30, 2002 from $917,160 in the three months ended April
30, 2001 and decrease 54% to $875,407 in the six months ended April 30, 2002
from $1,896,848 in the six months ended April 30, 2001.
The decreases were primarily due to staff reductions and reductions in rent,
utilities and voluntary salary reductions from officers.
OTHER INCOME
Other income decrease from $244,331 in the six months ended April 30, 2001 to
$42,031 in the six months ended April 30, 2002. The reductions were due to the
settlement of a lawsuit and cancellation of debt income in the six month period
ended April 30, 2001.
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RESULTS OF OPERATIONS (CONTINUED)
INTEREST EXPENSE
Interest expense decrease 35% to $37,532 in the three months ended April 30,
2002 from $57,783 in the three months ended April 30, 2001 and increased 32% to
$123,285 for the six months ended April 30, 2002 from $93,324 for the six months
ended April 30, 2001. The changes in interest expenses is due to changes in the
amounts of convertible debentures redeemed for common stock.
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 was $66,666 for the
three months ended April 30, 2002 compared to $509,046 for the three months
ended April 30, 2001 and $182,880 for the six months ended April 30, 2002
compared to $811,417 for the six months ended April 30, 2001.
NET LOSS
Net loss from continuing operations decreased to $483,172 for the three months
ended April 30, 2002 from a loss of $1,393,654 for the three months ended April
30, 2001 and $1,040,177 for the six months ended April 30, 2002 compared to
$2,183,193 for the six months ended April 30, 2001. The loss resulted primarily
from the decrease in sales.
DISCONTINUED OPERATIONS
For the period ended April 30, 2002, the Company completed the process of
discontinuing certain segments of its operations. The losses from the
discontinued operations were $176,855 for the three months ended April 30, 2002
and $417,702 for the six months ended April 30, 2001.
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LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL
Working capital deficit at April 30, 2002 was $3,313,185 compared to a deficit
of $3,349,057 at October 30, 2001. The decrease was a result of payments of
Company debt through the issuance of common stock.
LONG-TERM DEBT
As of April 30, 2002, long-term debt was $1,018,316 compared to $758,811 at
October 31, 2001.
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash used by operating activities for the six months ended April 30, 2002
was $273,176 and $1,499,385 for the six months ended April 30, 2001. Reduced
sales volumes and increased losses were the main causes for the cash used by
operating activities.
CASH FLOWS FROM INVESTING ACTIVITIES
For the six months ended April 30, 2002 and 2001, the cash flows used and
provided were from purchases and sales of property and equipment.
CASH FLOW FROM FINANCING ACTIVITIES
Cash flows provided by financing activities for the six months ended April 30,
2002 and 2001 were $217,560 and $1,340,869. The increases in cash flow were
predominately from receipt of the proceeds from issuance of convertible
debentures.
GOING CONCERN
The Company has continued to incur operating losses. Management is seeking new
national retail customers for its products and is negotiating with various
investors to receive new financing to provide working capital.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are a defendant in three lawsuits for unpaid accounts payable and
wages. We have recorded a liability in the amount of $45,000 for these debts and
are negotiating with the creditors to reduce the amounts of the final
settlements.
ITEM 2. CHANGES IN SECURITIES
(c) RECENT SALES OF UNREGISTERED SECURITIES
The securities described below represent securities of iBIZ sold by
iBIZ during the six month period ended April 30, 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 not involved these transactions.
PRIVATE PLACEMENTS OF COMMON STOCK AND WARRANTS FOR CASH
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None.
SALES OF DEBT AND WARRANTS FOR CASH
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Convertible debentures were issued to three accredited investors 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 506
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.
A convertible debenture was issued to one accredited investor during
our second quarter of 2002. The debenture was in the principal amount of
$100,000. The debenture is 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, this same investor received 3,000,0000 warrants to
purchase common stock. The offering of convertible debentures and warrants was
exempt from registration under Rule 506 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
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None.
ISSUANCES OF STOCK FOR SERVICES OR IN SATISFACTION OF OBLIGATIONS
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None.
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.
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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.
Exhibit Number Description
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99.1 Certification of the Chief Executive Officer and
Chief Financial Officer of iBiz Technologies Corp.
Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(b) Reports on Form 8-K
None.
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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 22nd day of August 2002
IBIZ TECHNOLOGY CORP.
By: /s/ KENNETH W. SCHILLING
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Kenneth W. Schilling, President
By: /s/ MARK H. PERKINS
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Mark H. Perkins, Executive Vice President
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