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 JULY 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 September 19, 2002
----- ---------------------------------
Common stock, $0.001 par value 450,000,000
TABLE OF CONTENTS
-----------------
PART I. - FINANCIAL INFORMATION................................................1
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)......................................1
BALANCE SHEETS .......................................................1
STATEMENTS OF OPERATIONS..............................................3
STATEMENT OF STOCKHOLDERS' ...........................................5
STATEMENT OF CASH FLOWS...............................................6
NOTES TO FINANCIAL STATEMENTS.........................................8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS........................................................14
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS....................................................19
ITEM 2. CHANGES IN SECURITIES................................................19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES......................................20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................20
ITEM 5. OTHER INFORMATION....................................................20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.....................................20
PART I
------
Item 1. Financial Information
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 31, 2002
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,152
Account receivable, officer 1,861
Inventories 207,051
Prepaid expenses 8,208
-----------
TOTAL CURRENT ASSETS 222,272
-----------
PROPERTY AND EQUIPMENT, NET OF
ACCUMULATED DEPRECIATION 117,837
-----------
OTHER ASSETS
Deposits 11,040
Patent 200,000
-----------
TOTAL OTHER ASSETS 211,040
-----------
TOTAL ASSETS $ 551,149
===========
1
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Accounts payable, trade $ 577,062
Note payable, trade 30,000
Accrued liabilities 1,027,917
Taxes payable 123,226
Deferred income 18,633
Convertible debentures payable, current portion 1,972,469
Notes payable, other, current portion 7,037
Note payable, patent 200,000
-------------
TOTAL CURRENT LIABILITIES 3,956,344
-------------
LONG - TERM LIABILITIES
Convertible debentures payable 1,072,500
Notes payable, other 4,274
-------------
TOTAL LONG -TERM LIABILITIES 1,076,774
-------------
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
July 31, 2002 - 286,659,275 shares 286,659
Additional paid in capital 10,915,122
Accumulated deficit (15,683,750)
-------------
TOTAL STOCKHOLDERS' (DEFICIT) (4,481,969)
-------------
TOTAL LIABILITIES AND
STOCKHOLDERS' (DEFICIT) $ 551,149
=============
2
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2002 AND 2001
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
--------------------------- ---------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
SALES $ 52,401 $ 418,857 $ 303,462 $ 1,628,144
COST OF SALES 196,772 291,356 348,506 1,142,957
------------ ------------ ------------ ------------
GROSS PROFIT (LOSS) (144,371) 127,501 (45,044) 485,187
SELLING, GENERAL
AND ADMINISTRATIVE
EXPENSES (149,002) (467,349) (1,024,409) (2,364,197)
SETTLEMENT OF LAWSUIT 0 0 0 101,369
CANCELLATION OF DEBT 32,051 0 74,082 122,000
OTHER INCOME 0 5,253 0 26,215
------------ ------------ ------------ ------------
OPERATING (LOSS) (261,322) (334,595) (995,371) (1,629,426)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income 0 6,259 37 22,638
Interest expense (97,519) (76,379) (220,804) (169,703)
Interest expense - convertible
debentures-beneficial
conversion feature 0 (506,021) (182,880) (1,317,438)
------------ ------------ ------------ ------------
TOTAL OTHER
INCOME (EXPENSE) (97,519) (576,141) (403,647) (1,464,503)
------------ ------------ ------------ ------------
(LOSS) FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES (358,841) (910,736) (1,399,018) (3,093,929)
INCOME TAXES 0 0 0 0
------------ ------------ ------------ ------------
(LOSS) FROM CONTINUING
OPERATIONS (358,841) (910,736) (1,399,018) (3,093,929)
------------ ------------ ------------ ------------
DISCONTINUED OPERATIONS
(Loss) from operations of
discontinued business segments (21,345) (446,334) (267,505) (656,299)
Write-down of net assets
held for sale 0 0 (171,542) 0
------------ ------------ ------------ ------------
INCOME (LOSS) FROM
DISCONTINUED OPERATIONS (21,345) (446,334) (439,047) (656,299)
------------ ------------ ------------ ------------
NET (LOSS) $ (380,186) $(1,357,070) $(1,838,065) $(3,750,228)
============ ============ ============ ============
3
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2002 AND 2001
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
--------------------------- ---------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
NET (LOSS) PER
COMMON SHARE
Basic and Diluted:
Continuing operations $ .00 $ (.02) $ .00 $ (.06)
Discontinued operations .00 (.01) .00 (.01)
------------ ------------ ------------ ------------
NET (LOSS) $ .00 $ (.03) $ .00 $ (.07)
============ ============ ============ ============
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING
Basic and diluted 286,659,275 55,660,810 286,659,275 55,660,810
============ ============ ============ ============
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.
4
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT)
FOR THE NINE MONTHS ENDED JULY 31, 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
ISSUANCE OF COMMON STOCK FOR:
Consulting fees 0 0 5,000,000 5,000 35,000 0 40,000
Legal fees 0 0 2,500,000 2,500 17,500 0 20,000
Cash 0 0 30,000,000 30,000 49,500 0 79,500
NET (LOSS) FOR THE NINE MONTHS
ENDED JULY 31, 2002 0 0 0 0 0 (1,838,065) (1,838,065)
-------- -------- ------------- ------------- ------------- ------------- -------------
BALANCE, JULY 31, 2002 0 $ 0 286,659,275 $ 286,659 $ 10,915,122 $(15,683,750) $ (4,481,969)
======= ======== ============= ============= ============= ============= =============
5
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 2002 AND 2001
(UNAUDITED)
2002 2001
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(1,399,018) $(3,093,929)
Adjustments to reconcile net (loss) to
net cash (used) by operating activities of
continuing operations:
Loss from discontinued operations (439,047) (656,299)
Write-down of net assets held for sale 171,542 0
Depreciation 116,596 204,922
Interest expense - convertible debentures-beneficial
conversion feature 182,880 1,317,438
Common stock issued for expenses 188,500 33,174
Allowance for uncollectible accounts, net (10,154) 0
Changes in operating assets and liabilities:
Accounts receivable, trade 93,747 168,757
Accounts receivable, factor 0 0
Inventories (40,309) 60,606
Prepaid expenses 45,919 (16,701)
Deposits 4,972 (4,053)
Accounts and notes payable, trade 607,141 (339,292)
Accrued liabilities and taxes 165,222 265,941
Customer deposits 0 9,559
Deferred income 14,138 (39,104)
------------ ------------
NET CASH (USED) BY
OPERATING ACTIVITIES (297,871) (2,088,981)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (50,000) (144,093)
Proceeds from loans by related party 0 23,699
Proceeds from sale of net assets held for sale 48,635 0
------------ ------------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES (1,365) (120,394)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 79,500 0
Net proceeds from issuance of convertible
debentures payable 293,723 1,754,997
Repayment of note payable, factor (70,734) 0
Repayment of notes payable, other (3,221) (3,924)
Changes in notes and loan receivable, officer (1,861) 0
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 297,407 1,751,073
------------ ------------
6
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE NINE MONTHS ENDED JULY 31, 2002 AND 2001
(UNAUDITED)
2002 2001
------------ ------------
NET (DECREASE) IN CASH
AND CASH EQUIVALENTS $ (1,829) $ (458,302)
CASH AND CASH EQUIVALENTS, AT
BEGINNING OF PERIOD 6,981 631,375
------------ ------------
CASH AND CASH EQUIVALENTS, AT
END OF PERIOD $ 5,152 $ 173,073
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during period for:
Interest $ 64,124 $ 44,795
============ ============
Taxes $ 0 $ 0
============ ============
NON-CASH INVESTING AND FINANCING
ACTIVITIES
Issuance of common stock for convertible debentures $ 334,777 $ 0
============ ============
Issuance of common stock for fees, services and
expenses $ 218,083 $ 33,174
============ ============
Issuance of common stock for accounts payable and
accrued liabilities $ 339,618 $ 0
============ ============
Interest expense - convertible debentures-beneficial
conversion feature $ 182,880 $ 1,317,438
============ ============
Fees paid for issuance of debentures by reduction
of notes receivable, officer $ 0 $ 25,000
============ ============
7
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 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 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.
8
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 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
Molds 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.
9
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 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.
10
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 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 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
-------------------------- --------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Payroll $ 62,569 $ 280,213 $ 439,050 $ 1,214,817
Consulting, net 22,907 27,270 127,206 69,911
Legal 21,416 (11,324) 115,940 98,182
Other 42,110 171,190 34,213 981,287
------------ ------------ ------------ ------------
$ 149,002 $ 467,349 $ 1,024,409 $ 2,364,197
============ ============ ============ ============
11
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2002 AND 2001
(UNAUDITED)
NOTE 3 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 July 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:
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
NOTE 4 COMPUTATION OF EARNINGS PER SHARE
JULY 31,
JULY 31, 2001
2002 RESTATED
-------------- --------------
From continuing operations
Net (loss) from continuing operations $ (1,399,018) $ (3,093,929)
-------------- --------------
Weighted average number of common
shares outstanding 286,659,275 55,660,810
(Loss) per share $ (.00) $ (.06)
From discontinued operations
Net (loss) from discontinued operations $ (439,047) (656,299)
-------------- --------------
Weighted average number of common
shares outstanding 286,659,275 55,660,810
(Loss) per share $ (.00) $ (.01)
NOTE 5 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:
12
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2002 AND 2001
(UNAUDITED)
NOTE 5 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. 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 6 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 7 UNAUDITED FINANCIAL INFORMATION
The accompanying financial information as of July 31, 2002 is
unaudited. In management's opinion, such information includes all
normal recurring entries necessary to make the financial information
not misleading.
13
ITEM 2.
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
NINE MONTHS ENDED
-----------------------------
JULY 31, JULY 31,
2002 2001
------------ ------------
Statement of Operations Data
Net sales $ 303,462 $ 1,628,144
Gross profit (loss) (45,044) 485,187
Loss from continuing operations (1,399,018) (3,093,929)
Net (loss) after tax (1,838,065) (3,750,228)
Net (loss) per share .00 (.06)
Continuing operations
Discontinued operations .00 (.01)
THREE MONTHS ENDED
-----------------------------
JULY 31, JULY 31,
2002 2001
------------ ------------
Statement of Operations Data
Net sales $ 52,401 $ 418,857
Gross profit (loss) (144,371) 127,501
Loss from continuing operations (358,841) (910,736)
Net (loss) after tax (380,186) (1,357,070)
Net (loss) per share .00 (.02)
Continuing operations
Discontinued operations .00 (.01)
JULY 31, OCTOBER 31,
2002 2001
------------ ------------
Balance Sheet Data
Total assets $ 551,149 $ 923,858
Total liabilities 5,033,118 4,868,336
Stockholders' (deficit) (4,481,969) (3,944,478)
14
CRITICAL ACCOUNTING POLICIES
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
Accounts receivable are reported at the customer' 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 beleves is adequate to cover any possible losses.
INVENTORIES
Inventories are stated at the lower of cost (determined principally by average
cost) or market.
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.
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.
15
STOCK-BASED COMPENSATION
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 $52,401 for the three month period ended
July 31, 2002 as compared to $418,857 for the quarter ended July 31, 2001
resulting in a decrease of $366,456 or 87%. This decrease lead to an overall 81%
decrease in sales revenue for the nine month period ended July 31, 2002 as sales
declined to $303,462 for the nine months ended July 31, 2002 from $1,628,144 for
the nine months ended July 31, 2001.
GROSS MARGINS
The Company's gross margin (loss) for the nine months ended July 31, 2002 and
2001 were (15%) and 30% and for the three months ended July 31, 2002 and 2001
were (275%) and 30%. The change in the gross margin is due to the fact that the
Company discontinued selling many less profitable products and liquidating
inventories to increase cash flow.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased 68% to $149,002 in the
three months ended July 31, 2002 from $467,349 in the three months ended July
31, 2001 and decreased 57% to $1,024,409 in the nine months ended July 31, 2002
from $2,364,197 in the nine months ended July 31, 2001.
The decreases were primarily due to staff reductions and reductions in rent,
utilities and voluntary salary reductions from officers.
16
RESULTS OF OPERATIONS (CONTINUED)
INTEREST EXPENSE
Interest expense increased 28% to $97,519 in the three months ended July 31,
2002 from $76,379 in the three months ended July 31, 2001 and increased 30% to
$220,804 for the nine months ended July 31, 2002 from $169,703 for the nine
months ended July 31, 2001. The changes in interest expenses is due to changes
in the amounts of convertible debentures redeemed for common stock and minimum
factor charges.
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 $0 for the
three months ended July 31, 2002 compared to $506,021 for the three months ended
July 31, 2001 and $182,880 for the nine months ended July 31, 2002 compared to
$1,317,438 for the nine months ended July 31, 2001.
NET LOSS
Net loss from continuing operations decreased to $358,841 for the three months
ended July 31, 2002 from a loss of $910,736 for the three months ended July 31,
2001 and $1,399,018 for the nine months ended July 31, 2002 compared to
$3,093,929 for the nine months ended July 31, 2001. The loss resulted primarily
from the decrease in sales.
DISCONTINUED OPERATIONS
For the period ended July 31, 2002, the Company completed the process of
discontinuing certain segments of its operations. The losses from the
discontinued operations were $21,345 for the three months ended July 31, 2002
and $446,334 for the nine months ended July 31, 2001.
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LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL
Working capital deficit at July 31, 2002 was $3,734,072 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 July 31, 2002, long-term debt was $1,076,774 compared to $758,811 at
October 31, 2001.
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash used by operating activities for the nine months ended July 31, 2002
was $297,871 and $2,088,981 for the nine months ended July 31, 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 nine months ended July 31, 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 nine months ended July 31,
2002 and 2001 were $297,407 and $1,751,073. 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 nine month period ended July 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 not involved 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 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 3,000,000 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
-------------
None.
ISSUANCES OF STOCK FOR SERVICES OR IN SATISFACTION OF OBLIGATIONS
-----------------------------------------------------------------
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
-------------- -----------
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.
20
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 20th day of September 2002
IBIZ TECHNOLOGY CORP.
By: /s/ KENNETH W. SCHILLING
-----------------------------------------
Kenneth W. Schilling, President
By: /s/ MARK H. PERKINS
-----------------------------------------
Mark H. Perkins, Executive Vice President
21