UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JANUARY 31, 2003
COMMISSION FILE NO. 027619
IBIZ TECHNOLOGY CORP.
----------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 86-0933890
- ---------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2238 West Lone Cactus, Phoenix, Arizona 85027
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (623) 492-9200
----------------
Check whether the registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Class Outstanding at March 10, 2003
----- -----------------------------
Common stock, $0.001 par value 185,235,832
TABLE OF CONTENTS
-----------------
PART I. - FINANCIAL INFORMATION.............................................1
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED).....................................1
CONSOLIDATED BALANCE SHEET...........................................1
CONSOLIDATED STATEMENTS OF OPERATIONS................................2
CONSOLIDATED STATEMENTS OF CASH FLOWS................................3
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT)...................4
NOTES TO FINANCIAL STATEMENTS........................................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS..............................................19
PART II. - OTHER INFORMATION................................................22
ITEM 1. LEGAL PROCEEDINGS....................................................22
ITEM 2. CHANGES IN SECURITIES................................................22
ITEM 3. DEFAULTS UPON SENIOR SECURITIES......................................23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................23
ITEM 5. OTHER INFORMATION....................................................23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.....................................23
PART I
------
Item 1. Financial Information
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JANUARY 31, 2003
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 135,190
Accounts receivable, net 29,845
Inventories 132,671
Prepaid expenses 36,000
----------
TOTAL CURRENT ASSETS $ 333,706
PROPERTY AND EQUIPMENT, NET OF
ACCUMULATED DEPRECIATION 104,736
OTHER ASSETS
Intellectual Properties Rights 200,000
Note receivable, officer $ 373,159
Less allowance for doubtful accounts 373,159 0
----------
Deposits 2,500
---------
TOTAL OTHER ASSETS 202,500
----------
TOTAL ASSETS $ 640,942
==========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 620,292
Note payable, Gammage and Burnham 30,000
Accrued wages and bonuses 556,513
Accrued interest 507,714
Other accrued expenses 102,012
Taxes payable 177,603
Deferred income 2,183
Convertible debentures, current portion 3,108,927
Note payable, factor 15,000
Note payable, other, current portion 6,120
-----------
TOTAL CURRENT LIABILITIES $ 5,126,364
LONG-TERM LIABILITIES
Convertible debentures payable, long-term portion 850,000
Note payable, other, long-term portion 2,047
-----------
TOTAL LONG -TERM LIABILITIES 852,047
STOCKHOLDERS' ( DEFICIT)
Preferred stock
Authorized - 50,000,000 shares, par
value $.001 per share
Issued and outstanding -0- shares
3,500,000 shares reserved
Common stock 0
Authorized - 450,000,000 shares, par
value $.001 per share
Issued and outstanding - 74,228,725 shares 74,228
Additional paid in capital 16,302,457
Accumulated deficit (21,714,154)
-------------
TOTAL STOCKHOLDERS' (DEFICIT) (5,337,469)
-------------
TOTAL LIABILITIES AND
STOCKHOLDERS' (DEFICIT) $ 640,942
=============
1
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JANUARY 31, 2003 AND 2002
(UNAUDITED)
2003 2002
------------ ------------
SALES $ 75,310 $ 135,737
COST OF SALES 91,735 83,516
------------ ------------
GROSS PROFIT (LOSS) (16,425) 52,221
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 441,229 449,278
------------ ------------
OPERATING (LOSS) (457,654) (397,057)
------------ ------------
OTHER INCOME (EXPENSE)
Cancellation of debt 0 42,031
Interest expense (82,352) (85,753)
Interest expense - convertible debentures
-beneficial conversion feature (837,998) (116,214)
------------ ------------
TOTAL OTHER INCOME (EXPENSE) (920,350) (159,936)
------------ ------------
(LOSS) FROM CONTINUING OPERATIONS (1,378,004) (556,993)
DISCONTINUED OPERATIONS
(Loss) from operations of discontinued business segments 0 (240,847)
------------ ------------
NET (LOSS) $(1,378,004) $ (797,840)
============ ============
2
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE THREE MONTHS ENDED JANUARY 31, 2003 AND 2002
(UNAUDITED)
2003 2002
--------------- ---------------
NET (LOSS) PER COMMON SHARE
Basic and Diluted:
Continuing operations $ (0.02) $ (0.05)
Discontinued operations (0.00) (0.02)
--------------- ---------------
NET (LOSS) $ (0.02) $ (0.07)
=============== ===============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Basic and diluted 59,250,249 11,072,185
=============== ===============
3
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT)
FOR THE THREE MONTHS ENDED JANUARY 31, 2003
(UNAUDITED)
PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------------- ---------------------------- PAID IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ---------- ------------- ------------- ------------- ------------- -------------
BALANCE, NOVEMBER 1, 2002 0 $ 0 45,000,097 $ 45,000 $ 15,349,368 $(20,336,150) $ (4,941,782)
CONVERSION OF DEBENTURES FOR
COMMON STOCK:
PRINCIPAL 0 0 17,943,270 17,943 40,738 0 58,681
ACCRUED INTEREST 0 0 505,930 506 1,364 0 1,870
INTEREST EXPENSE 0 0 279,428 279 489 0 768
FEES AND COSTS FOR ISSUANCE OF
COMMON STOCK 0 0 0 0 (40,000) 0 (40,000)
ISSUANCE OF COMMON STOCK FOR:
CONSULTING FEES 0 0 8,500,000 8,500 90,500 0 99,000
LEGAL FEES 0 0 2,000,000 2,000 22,000 0 24,000
INTEREST EXPENSE - CONVERTIBLE
DEBENTURES - BENEFICIAL
CONVERSION FEATURE 0 0 0 0 837,998 0 837,998
NET (LOSS) FOR THE THREE MONTHS
ENDED JANUARY 31, 2003 0 0 0 0 0 (1,378,004) (1,378,004)
--------- ---------- ------------- ------------- ------------- ------------- -------------
BALANCE, JANUARY 31, 2003 0 $ 0 74,228,725 $ 74,228 $ 16,302,457 $(21,714,154) $ 5,337,469)
========= ========== ============= ============= ============= ============= =============
4
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31, 2003 AND 2002
(UNAUDITED)
2003 2002
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) from continuing operations $(1,378,004) $ (556,993)
Adjustments to reconcile net (loss) to
net cash (used) in operating activities of
continuing operations:
Loss from discontinued operations 0 (240,847)
Write down of net assets held for sale 0 137,534
Depreciation 2,968 8,381
Amortization 2,500 0
Interest expense - convertible debentures
-beneficial conversion feature 837,998 116,214
Common stock issued for expenses 123,768 89,816
Provision for uncollectible accounts 3,100 (10,154)
Changes in operating assets and liabilities:
Accounts receivable (21,078) 54,404
Inventories (37,070) 2,833
Prepaid expenses (18,000) (1,338)
Accounts and notes payable 55,577 90,641
Accrued liabilities and taxes 206,635 250,438
Deferred income (3,733) (1,580)
------------ ------------
NET CASH (USED) IN OPERATING ACTIVITIES (225,339) (60,651)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets held for sale 0 48,635
------------ ------------
NET CASH PROVIDED BY
INVESTING ACTIVITIES 0 48,635
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of
convertible debentures payable 360,000 201,236
Repayments on note payable, factor 0 (58,313)
Repayment of note payable, other (419) 0
------------ ------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 359,581 142,923
------------ ------------
5
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE THREE MONTHS ENDED JANUARY 31, 2003 AND 2002
(UNAUDITED)
2003 2002
--------- ---------
NET INCREASE IN CASH AND
CASH EQUIVALENTS $134,242 $130,907
CASH AND CASH EQUIVALENTS, AT
BEGINNING OF PERIOD 948 6,981
--------- ---------
CASH AND CASH EQUIVALENTS, AT
END OF PERIOD $135,190 $137,888
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during year for:
Interest $ 2,334 $ 22,486
========= =========
Taxes $ 0 $ 0
========= =========
NON-CASH INVESTING AND FINANCING
ACTIVITIES
Issuance of common stock for convertible debentures $ 58,681 $183,681
========= =========
Issuance of common stock for fees, services and
expenses $123,768 $ 94,666
========= =========
Issuance of common stock for accounts payable
and accrued liabilities $ 1,870 $401,935
========= =========
Interest expense - convertible debentures-beneficial
conversion feature $837,998 $116,214
========= =========
6
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2003
(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.
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.
Invnsys Technology Corporation (hereinafter referred to as Invnsys) is
an inactive entity.
Qhost, Inc. is an inactive entity.
PRESENTATION
------------
The interim consolidated financial statements of the Company are
condensed and do not include some of the information necessary to
obtain a complete understanding of the financial data. Management
believes that all adjustments necessary for a fair presentation of
results have been included in the unaudited consolidated financial
statements for the interim periods presented. Operating results for the
three-month period ended January 31, 2003 are not necessarily
indicative of the results that may be expected for the year ended
October 31, 2003. Accordingly, your attention is directed to footnote
disclosures found in the October 31, 2002 Annual Report and
particularly to Note 1 which includes a summary of significant
accounting policies.
PRINCIPLES OF CONSOLIDATION
---------------------------
The consolidated financial statements include the accounts of IBIZ
Technology Corp. and its wholly owned subsidiaries - IBIZ, Inc.,
Invnsys Technology Corporation and Qhost, Inc.
All material inter-company accounts and transactions have been
eliminated.
INVENTORIES
-----------
Inventories are stated at the lower of cost (determined principally by
average cost) or market. The inventories are comprised of finished
products at January 31, 2003.
7
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2003
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
----------------------
Property and equipment are stated at cost. Major renewals and
improvements are charged to the asset accounts while replacements,
maintenance and repairs, which do not improve or extend the lives of
the respective assets, are expensed. At the time property and equipment
are retired or otherwise disposed of, the asset and related accumulated
depreciation accounts are relieved of the applicable amounts. Gains or
losses from retirements or sales are credited or charged to income.
The Companies depreciates their 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.
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.
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.
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.
8
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2003
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING
-----------
All direct advertising costs are expenses as incurred. The Company
charged to operations $4,481 and $12,621 in advertising costs for the
three months ended January 31, 2003 and 2002, respectively.
RESEARCH AND DEVELOPMENT
------------------------
The Company expenses research and development costs as incurred.
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 bases of assets and liabilities and their reported
amounts in the financial statements. Deferred tax assets and
liabilities are included in the financial statements at currently
enacted income tax rates applicable to the period in which the deferred
tax assets and liabilities are expected to be realized or settled as
prescribed in FASB Statement No.109, Accounting for Income Taxes. As
changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
NET (LOSS) PER SHARE
--------------------
The Company adopted Statement of Financial Accounting Standards No. 128
that requires the reporting of both basic and diluted (loss) per share.
Basic (loss) per share is computed by dividing net (loss) available to
common stockholders by the weighted average number of common shares
outstanding for the period. Diluted (loss) per share reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock. In
accordance with FASB 128, any anti-dilutive effects on net (loss) per
share are excluded.
CONCENTRATION OF RISK
---------------------
INDUSTRY
The Company's products are intended for the computer and
technology-related industry. This industry experiences a high degree of
obsolescence and changes in buying patterns. The Company must expend
funds for research and development and identification of new products
in order to stay competitive.
9
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2003
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL INSTRUMENTS
---------------------
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade accounts
receivable.
Concentrations of credit risk with respect to trade receivables are
normally limited due to the large number of customers comprising the
Company's customer base and their dispersion across different
geographic areas. The Company routinely assesses the financial strength
of its customers. The Company normally does not require a deposit to
support large customer orders.
At January 31, 2003, three customers accounted for 51% of net
receivables.
PURCHASES
---------
The Company relies primarily on two suppliers for its products. The
loss of either supplier could have a material impact on the Company's
operations. Purchases for three months ended January 31, 2003 totaled
97% and 3% from each supplier.
REVENUES
--------
For the three months ended January 31, 2003, the Company had one
customer which exceeded 10% of total revenues.
PERVASIVENESS OF ESTIMATES
--------------------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
The FASB recently issued the following statements:
FASB 144 - Accounting for the impairment or disposal of long-lived
assets
FASB 145 - Rescission of FASB statements 4, 44 and 64 and
amendment of FASB 13
FASB 146 - Accounting for costs associated with exit or disposal
activities
FASB 147 - Acquisitions of certain financial institutions
FASB 148 - Accounting for stock based compensation
10
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2003
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
--------------------------------------------
These FASB statements did not have a material impact on the Company's
financial position and results of operations.
GOING CONCERN
-------------
These consolidated 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 substantial doubt as to the Company's ability to continue
as a going concern:
A. Continued operating losses
B. Negative working capital
C. Lack of cash from continuing operations
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. Paid some, but not all, delinquent payables and unpaid wages
through the issuance of common stock.
B. Increase sales through new line of products acquired on July
11, 2002.
C. Requested abatement of delinquent payroll tax penalties.
Should the Company be unsuccessful in its plans, the operations of the
company could be discontinued.
NOTE 2 PROPERTY AND EQUIPMENT
Property and equipment and accumulated depreciation at January 31, 2003
consists of:
Tooling $ 68,100
Machinery and equipment 37,641
Office furniture and equipment 81,027
Vehicle 39,141
Molds 50,000
------------
275,909
Less accumulated depreciation 171,173
------------
Total property and equipment $ 104,736
============
11
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2003
(UNAUDITED)
NOTE 3 INTELLECTUAL PROPERTY RIGHTS AND RELATED ROYALTY AGREEMENT
On July 11, 2002, the Company purchased the Xela Case Keyboard and all
related Intellectual Property and Resale Rights from ttools, LLC for
$200,000. The Company is obligated to pay a royalty of $2.00 per unit
sold on the first one million units. In accordance with FASB 142, the
Company will amortize the Intellectual Property Rights over its
estimated useful life of three years from the date the products are
fully developed and ready for sale.
Estimated Amortization Expense:
-------------------------------
For the year ended October 31, 2003 $ 39,000
For the year ended October 31, 2004 66,667
For the year ended October 31, 2004 66,667
For the year ended October 31, 2005 27,666
------------
Total Estimated Amortization Expense $ 200,000
============
NOTE 4 NOTES RECEIVABLE, OFFICERS
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 receivable $ 373,159
Less allowance for doubtful collection (373,159)
------------
Note Receivable, Net $ 0
============
NOTE 5 NOTE PAYABLE, 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. As of January 31, 2003, the
Company is in default of their loan agreement.
12
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2003
(UNAUDITED)
NOTE 6 TAXES PAYABLE
Taxes payable consists of the following:
Payroll taxes payable, current and deferred $ 158,575
California income tax payable 19,028
-----------
$ 177,603
===========
NOTE 7 TAX CARRYFORWARDS
The Company has the following tax carryforwards at January 31, 2003:
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, 20l9
October 31, 2000 3,574,086 October 31, 2020
October 31, 2001 5,051,232 October 31, 2021
October 31, 2002 1,838,129 October 31, 2022
January 31, 2003 540,006 January 31, 2023
-------------
$ 12,174,226
=============
NOTE 8 CONVERTIBLE DEBENTURES
See detail of terms and conditions in Form 10-KSB for the year ended
October 31, 2002.
CONVERTIBLE DEBENTURES
----------------------
CURRENT
TOTAL PORTION
------------ ------------
UNSECURED DEBENTURES
Lites Trading Company - $1,600,000 debenture $ 750,000 $ 0
$5,000,000 convertible debenture 1,681,737 1,681,737
Laurus Master Fund, Ltd. 328,190 328,190
Alpha Capital 240,000 140,000
------------ ------------
Total Unsecured Debentures $ 2,999,927 $ 2,149,927
============ ============
13
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2003
(UNAUDITED)
NOTE 8 CONVERTIBLE DEBENTURES (CONTINUED)
CURRENT
TOTAL PORTION
----------- -----------
SECURED DEBENTURES
------------------
AJW Entities $ 959,000 $ 959,000
----------- -----------
Total Secured Debentures $ 959,000 $ 959,000
=========== ===========
Total Debentures $ 3,958,927 $ 3,108,927
=========== ===========
Maturities of convertible debentures are as follows:
2003 $ 3,108,927
2004 100,000
2005 750,000
-----------
Total $ 3,958,927
===========
NOTE 9 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%. At
October 31, 2002, the Company is no longer using the services of
Platinum Funding Corporation and plans to settle the account balances
for an estimated $15,000.
NOTE 10 CANCELLATION OF DEBT
2003 2002
---------- ----------
Settlement of prior year liabilities $ 0 $ 42,031
---------- ----------
$ 0 $ 42,031
========== ==========
14
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2003
(UNAUDITED)
NOTE 11 COMMITMENTS AND CONTINGENCIES
OPERATING LEASE
---------------
The Company leases 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:
January 31, 2004 $ 44,304
January 31, 2005 52,116
----------
$ 96,420
==========
Rent expense for the three months ended January 31, 2003 and 2002 was
$10,442 and $27,829, respectively.
PAYROLL TAXES
-------------
The Company is negotiating a settlement regarding delinquent payroll
taxes of approximately $65,000. Interest is being accrued on the
outstanding balance. No amounts have been accrued for any penalties.
WORKERS' COMPENSATION INSURANCE
-------------------------------
Through February 2003, the Company did not carry general liability or
workers' compensation coverage, nor was it self-insured. The Company
accrues liabilities when it is probable that future costs will be
incurred and such costs can be reasonably estimated. As of February 28,
2003, there were no known liability claims. No amounts have been
accrued for any penalties which may be assessed by the State of Arizona
for non-compliance with the laws and regulations applicable to workers'
compensation insurance.
15
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2003
(UNAUDITED)
NOTE 11 COMMITMENTS AND CONTINGENCIES (CONTINUED)
LEGAL
-----
The Company is the defendant in one lawsuit for unpaid wages.
Management has recorded a liability in the amount of $20,000.
REAL ESTATE
-----------
The Company has pledged all of its assets, except inventory, to
guarantee a mortgage of $905,000 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.
OFFICERS' COMPENSATION
----------------------
As of January 31, 2003, the Company has employment agreements with two
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.
2. Bonuses of 1% of total sales for each officer.
3. Options for 120,000 shares of common stock which will vest and be
exercisable for a period of ten years.
4. Option price of $0.20 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.
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 filing, the debentures
have not been issued.
NOTE 12 COMMON STOCK
STOCK ISSUANCES
---------------
1. On November 26, 2002, the Company filed an S-B Registration
Statement with the SEC and subsequently issued 9,000,000 shares of
common stock to individuals for services rendered.
2. On December 6, 2002, the Company issued 1,500,000 shares of
restricted common stock in consideration of services rendered.
16
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2003
(UNAUDITED)
NOTE 12 COMMON STOCK (CONTINUED)
STOCK PURCHASE WARRANTS
-----------------------
As of January 31, 2003, the Company has issued the following common
stock purchase warrants:
NUMBER EXERCISE
DATE OF SHARES TERM PRICE
----------------- --------- ------- ------------------
December 28, 1999 20,000 5 years $ 9.40
January 10, 2000 28,125 5 years $ 9.90
March 27, 2000 61,500 5 years $ 14.50 - 20.50
May 17, 2000 12,500 3 years $ 10.20 - 50.00
August 30, 2000 3,413 5 years $ 9.37
August 30, 2000 25,000 3 years $ 5.00
August 30, 2000 25,000 3 years $ 7.50
August 30, 2000 3,636 3 years $ 10.00
September 3, 2000 10,900 3 years $ 10.00
September 27, 2000 27,875 3 years $ 9.00
October 31, 2000 50,000 2 years $ 4.76
December 20, 2000 40,000 5 years $ 2.28
December 20, 2000 15,000 5 years $ 2.28
April 26, 2001 150,000 5 years $ 1.23
June 22, 2001 150,000 5 years $ 0.42
June 27, 2001 150,000 5 years $ 0.21
August 21, 2001 52,500 5 years $ 0.39
October 9, 2001 35,000 5 years $ 0.26
January 15, 2002 16,667 5 years $ 105% of Closing
January 15, 2002 50,000 5 years $ 105% of Closing
January 30, 2002 500,000 5 years $ 0.06
April 23, 2002 300,000 5 years $ 0.06
August 15, 2002 105,000 5 years $ 0.05
October 9, 2002 75,000 5 years $ 0.05
November 5, 2002 30,000 5 years $ 0.05
January 31, 2003 1,500,000 5 years $ 0.01
------------
3,437,116
============
3,437,116 shares are exercisable at January 31, 2003.
17
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2003
(UNAUDITED)
NOTE 13 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. The Company has
not designated any other rights or dividend policy in regard to the
Preferred Stock.
NOTE 14 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
this property.
NOTE 15 SUBSEQUENT EVENTS
On February 24, 2003, the Articles of Incorporation were amended to
increase the number of authorized shares of common stock from
450,000,000 shares to 5,000,000,000 shares.
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------
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
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses. In consultation with our Board of Directors, we have identified seven
accounting principles that we believe are key to an understanding of our
financial statements. These important accounting policies require management's
most difficult, subjective judgments.
(1) ACCOUNTS RECEIVABLE
Accounts receivable are reported at the customer's outstanding balances
less any allowance for doubtful accounts.
(2) 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 probable losses.
(3) INVENTORIES
Inventories are stated at the lower of cost (determined principally by
average cost) or market.
(4) ACCOUNTING FOR CONVERTIBLE DEBT SECURITIES
The Company has issued convertible debt securities with non-detachable
conversion features. The Company has
recorded the fair value of the beneficial conversion features as
interest expense and an increase to Additional Paid in Capital.
(5) 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.
(6) GOING CONCERN
As shown in the accompanying financial statements, the Company has
incurred significant losses, has negative working capital and needs
additional capital to finance its operations. These factors create
uncertainty about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern. The
Company also intends to finance its operations through sales of its
securities as well as entering into loans and other types of financing
arrangements such as convertible debenture.
(7) CONSULTING AGREEMENTS
The Company issued common stock for payment of consulting services. The
cost of the consulting services was determined by multiplying the
common shares issued by the market price of the shares at the inception
date of the agreement.
19
RESULTS OF OPERATIONS
The three months ended January 31, 2003 compared to the three months ended
January 31, 2002.
REVENUES. Sales from continuing operations decreased by approximately 45% to
$75,310 in the three months ended January 31, 2003 from $135,737 in the three
months ended January 31, 2002. The decrease was mainly a result of the focus by
management on raising financing for IBIZ, Inc., a transition to a new line of
industry unique products and the overall slow down in the national economic
conditions.
COST OF SALES. The cost of sales of $91,735 in the three months ended January
31, 2003 increased from $83,516 for the three months ended January 31, 2002.
This increase of 10% is a result of higher product costs and increases in
employee salaries.
GROSS PROFIT. Gross profit as a percentage of sales was a negative 22% in the
three months ended January 31, 2003 as compared to a positive 38% for the three
months ended January 31, 2002. The decrease in gross profit resulted from
reductions in sales, higher product costs and increases in employee salaries.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased approximately 2% to $441,229 in the three
months ended January 31, 2003 from $449,278 in the three months ended January
31, 2002. The minimal decrease in expenses resulted from reductions in overall
expenses.
INTEREST EXPENSE. Interest expense decreased 4% to $82,352 in the three months
ended January 31, 2003 from $85,753 in the three months ended January 31, 2002.
The minimal decrease in interest is a result of lower interest rate convertible
debentures being converted and new higher interest rate convertible debentures
being issued.
INTEREST EXPENSE - CONVERTIBLE DEBENTURES-BENEFICIAL CONVERSION FEATURE. The
Company has issued convertible debt securities with a non-detachable convertible
feature that were "in-the-money" at the date of issuance. .
The Company has recorded the fair value of the beneficial conversion feature as
interest expense and an increase in paid-in-capital. Interest expense on the
convertible debentures was $837,998 and $116,214 for three months ended January
31, 2003 and 2002, respectively.
NET LOSS FROM CONTINUING OPERATIONS. Net loss from continuing operations
increased 147% to $1,378,004 for the three months ended January 31, 2003 from a
net loss of $556,993 for the three months ended January 31, 2002. The increase
in net loss was primarily the result of the reduction in sales, higher product
costs, increases in employee salaries and the increase in beneficial conversion
interest.
DISCONTINUED OPERATIONS. Loss from discontinued operations was $240,847 for
three months ended January 31, 2002 as a result of management's election to
discontinue non-profitable segments of the Company's operations and to focus on
profitable business units as of October 31, 2001. The Company completed the
discontinuance at October 31, 2002 and incurred no further expenses from that
date.
LIQUIDITY.
Net cash (used) by operating activities for the three months ended January 31,
2003 was $225,339 compared to $60,651 (used) by operating activities for the
three months ended January 31, 2002. The $164,688 change was primarily due to:
a. Increase in accounts receivable resulting from the Company's major
customer paying on approximately 60 day terms instead of the
agreed upon terms of 45 days.
b. Increase in inventories resulting from the purchase of new product
line for shipment in the second quarter of this fiscal year
c. Increase in prepaid expenses resulting from the purchase of
packaging to accompany the new product line
d. Decrease in accounts and notes payable and accrued liabilities and
taxes
e. Increase in net loss after adjustments for non-cash activities.
The Company plans to remedy the deficiency of operating cash flows by increasing
income from its new product line.
Our investing activities for the three months ended January 31, 2003 provided no
cash, as compared to $48,635 which was provided in the three months ended
January 31, 2002. The primary change was that the Company received cash from the
sale of assets for during the three months ended January 31, 2002 and had no
investing activities in the three months ended January 31, 2003.
20
Our financing activities for the three months ended January 31, 2003 provided
cash of $359,581 compared to $142,923, for the three months ended January 31,
2002. The primary change was that the Company obtained $360,000 of new debenture
financing for the three months ended January 31, 2003 compared to $201,236 for
the three months ended January 31, 2002. The Company also repaid $58,313 on its
note payable, factor during the three months ended January 31, 2002 and $0
during the three months ended January 31, 2003.
Capital Resources
Working capital is summarized and compared as follows:
January 31, 2003 January 31, 2002
---------------- ----------------
Current assets $ 333,706 $ 656,677
Current liabilities 5,126,364 3,807,888
---------------- ----------------
Working capital (deficit) $ (4,792,658) $ (3,151,211)
================ ================
The increase in the deficit in working capital was primarily due to the net loss
sustained from operations, liquidation of net assets held for sale and the
increase in the convertible debentures, current portion.
At January 31, 2003, stockholders' deficit was $5,337,469 as compared to a
stockholders' deficit of $4,941,782 at October 31, 2002. The $395,687 change in
stockholders' deficit was accounted for as follows:
Increase in Stockholders' Equity
Issuance of common stock $ 29,228
Conversion of convertible debentures,
net of costs 115,091
Interest expense - convertible
debentures - beneficial conversion
feature 837,998
Decreases in stockholders' equity
net loss (1,378,004)
---------------
Net Change $ (395,687)
===============
The Company currently has no material commitments for capital expenditures.
The Company has $3,108,927 and $850,000 of debt payments related to convertible
debentures due within the next year and next two to five years, respectively.
ITEM 3. CONTROLS AND PROCEDURES
As of January 31, 2003, an evaluation was performed by our Chief Executive
Officer and Acting Chief Financial Officer, of the effectiveness of the design
and operation of our disclosure controls and procedures. Based on that
evaluation, Our Chief Executive Officer and Acting Chief Accounting Officer,
concluded that our disclosure controls and procedures were effective as of
January 31, 2003. There have been no significant changes in our internal
controls or in other factors that could significantly affect internal controls
subsequent to January 31, 2003.
21
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
iBIZ has been assessed approximately $62,000 in penalties and interest
by the IRS in connection with payroll taxes due through the first quarter of
1999. The Company has paid the taxes, interest, and some portion of the penalty,
but has requested an abatement of the remaining penalty imposed. The Company is
awaiting a final disposition by the IRS.
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
To obtain funding for our ongoing operations, we entered into a
Securities Purchase Agreement with three accredited investors on January 31,
2003 for the sale of (i) $500,000 in convertible debentures and (ii) warrants to
buy 2,500,000 shares of our common stock. This registration statement covers the
resale of the common stock underlying these securities. The investors are
obligated to provide us with the funds as follows:
- $300,000 was disbursed on January 31, 2003
- $100,000 will be disbursed within ten days of filing this
prospectus with the Securities and Exchange Commission
- $100,000 will be disbursed within ten days of the effectiveness of
this prospectus.
The debentures bear interest at 12%, mature one year from the date of
issuance, and are convertible into our common stock, at the investors' option,
at the lower of (i) $0.01 or (ii) 50% of the average of the three lowest
intraday trading prices for the common stock on a principal market for the 20
trading days before but not including the conversion date. The full principal
amount of the convertible debentures are due upon default under the terms of the
convertible debentures. The warrants are exercisable until seven years from the
date of issuance at an exercise price of $0.01 per share.
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.
22
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.
23
Pursuant to the requirements of Section 12 of the Securities Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned thereunto duly authorized.
Dated this 14th day of March 2003
IBIZ TECHNOLOGY CORP.
By: /s/ KENNETH W. SCHILLING
-------------------------------------------
Kenneth W. Schilling, President, and acting
principal accounting officer
By: /s/ MARK H. PERKINS
-------------------------------------------
Mark H. Perkins, Executive Vice President
24
CERTIFICATION
I, Kenneth Schilling, CEO and Acting CFO, certify that:
1. I have reviewed this annual report on Form 10-QSB of IBIZ Technology Corp.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. I have disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. I have indicated in this annual report whether there were significant changes
in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
March 14, 2003
/S/ KENNETH SCHILLING
- --------------------------
CEO AND ACTING ACTING CFO
25