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, 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 September 11, 2003
----- ---------------------------------
Common stock, $0.001 par value 529,222,965
TABLE OF CONTENTS
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
BALANCE SHEETS ...........................................................................................F-1
STATEMENTS OF OPERATIONS..................................................................................F-3
STATEMENT OF CASH FLOWS...................................................................................F-8
NOTES TO FINANCIAL STATEMENTS.............................................................................F-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.....................2
ITEM 3. CONTROLS AND PROCEDURES...................................................................................10
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.........................................................................................10
ITEM 2. CHANGES IN SECURITIES.....................................................................................10
ITEM 3. DEFAULTS UPON SENIOR SECURITIES...........................................................................11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................................................11
ITEM 5. OTHER INFORMATION.........................................................................................11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..........................................................................11
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JULY 31, 2003
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash, pledged for letter of credit $ 10,000
Accounts receivable, net 34,436
Inventories 89,644
Prepaid expenses 39,650
-------------
TOTAL CURRENT ASSETS $ 173,730
PROPERTY AND EQUIPMENT, NET OF
ACCUMULATED DEPRECIATION 93,798
OTHER ASSETS
Intellectual Properties Rights, net 174,000
Note receivable, officer $ 373,159
Less allowance for doubtful accounts 373,159 0
-------------
Deposits 2,500
-------------
TOTAL OTHER ASSETS 176,500
-------------
TOTAL ASSETS $ 444,028
=============
F-1
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Bank overdraft $ 298
Accounts payable and accrued expenses 641,451
Note payable, Gammage and Burnham 30,000
Accrued wages and bonuses 612,164
Accrued interest 676,732
Taxes payable 209,344
Deferred income 6,771
Convertible debentures, current portion 3,454,767
Note payable, factor 15,000
Note payable, other, current portion 4,920
-----------------
TOTAL CURRENT LIABILITIES $ 5,651,447
LONG -TERM LIABILITIES
Convertible debentures payable, long-term portion 750,000
-----------------
TOTAL LONG -TERM LIABILITIES 750,000
STOCKHOLDERS' ( DEFICIT)
Preferred stock
Authorized - 50,000,000 shares, par
value $.001 per share
Issued and outstanding -0- shares
3,500,000 shares reserved 0
Common stock
Authorized - 5,000,000,000 shares, par
value $.001 per share
Issued and outstanding - 460,674,002 shares 460,674
Additional paid in capital 17,338,115
Accumulated deficit ( 23,756,208)
-----------------
TOTAL STOCKHOLDERS' (DEFICIT) ( 5,957,419)
------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' (DEFICIT) $ 444,028
==================
F-2
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2003 AND 2002
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
-------------------------- --------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
SALES $ 146,445 $ 52,401 $ 282,392 $ 303,462
COST OF SALES 169,976 196,772 318,593 348,506
----------- ----------- ----------- -----------
GROSS (LOSS) (23,531) (144,371) (36,201) (45,044)
SELLING, GENERAL
AND ADMINISTRATIVE
EXPENSES 853,164 149,002 1,756,617 1,024,409
----------- ----------- ----------- -----------
OPERATING (LOSS) (876,695) (293,373) (1,792,818) (1,069,453)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Miscellaneous income 487 0 490 37
Cancellation of debt 11,960 32,051 12,769 74,082
Interest expense (95,909) (97,519) (261,422) (220,804)
Interest expense - convertible
debentures-beneficial
conversion feature (393,938) 0 (1,379,077) (182,880)
----------- ----------- ----------- -----------
TOTAL OTHER
INCOME (EXPENSE) (477,400) (65,468) (1,627,240) (329,565)
----------- ----------- ----------- -----------
(LOSS) FROM CONTINUING
OPERATIONS (1,354,095) (358,841) (3,420,058) (1,399,018)
DISCONTINUED OPERATIONS
(Loss) from operations of
discontinued business segments 0 (21,345) 0 (267,505)
Write-down of net assets
held for sale 0 0 0 (171,542)
----------- ----------- ----------- -----------
(LOSS) FROM DISCONTINUED
OPERATIONS 0 (21,345) 0 (439,047)
----------- ----------- ----------- -----------
NET (LOSS) $(1,354,095) $ (380,186) $(3,420,058) $(1,838,065)
=========== =========== =========== ===========
F-3
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2003 AND 2002
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
2003 2002 2003 2002
-------------- ------------ ----------- --------------
NET (LOSS) PER
COMMON SHARE
Basic and Diluted:
Continuing operations $ (0.00) $ 0.00 $ (0.02) $ 0.00
Discontinued operations N/A 0.00 N/A 0.00
-------------- ------------ ----------- --------------
NET (LOSS) $ (0.01) $ 0.00 $ (0.02) $ 0.00
============== ============ =========== ==============
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING
Basic and diluted 361,484,542 286,659,275 203,712,366 286,659,275
============== ============ =========== ==============
F-5
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT)
FOR THE NINE MONTHS ENDED JULY 31, 2003
(UNAUDITED)
PREFERRED STOCK COMMON STOCK
SHARES AMOUNT SHARES AMOUNT
--------------- ------------- --------------- --------------
BALANCE, NOVEMBER 1, 2002 0 $ 0 45,000,097 $ 45,000
CONVERSION OF DEBENTURES FOR
COMMON STOCK:
PRINCIPAL 0 0 124,773,483 124,773
INTEREST 0 0 9,984,253 9,984
FEES AND COSTS FOR ISSUANCE OF
COMMON STOCK 0 0 0 0
ISSUANCE OF COMMON STOCK FOR:
CONSULTING FEES 0 0 12,852,941 12,853
LEGAL FEES 0 0 4,000,000 4,000
EMPLOYEE RETENTION BONUSES 0 0 253,063,228 253,064
ACCRUED EXPENSES AND PAYABLES 0 0 11,000,000 11,000
INTEREST EXPENSE - CONVERTIBLE
DEBENTURES - BENEFICIAL
CONVERSION FEATURE 0 0 0 0
NET (LOSS) FOR THE NINE MONTHS
ENDED JULY 31, 2003 0 0 0 0
--------------- ------------- --------------- --------------
BALANCE, JULY 31, 2003 0 $ 0 460,674,002 $ 460,674
=============== ============= =============== ==============
F-6
ADDITIONAL
PAID IN ACCUMULATED
CAPITAL DEFICIT TOTAL
BALANCE, NOVEMBER 1, 2002 $ 15,349,368 $ ( 20,336,150) $ ( 4,941,782)
CONVERSION OF DEBENTURES FOR
COMMON STOCK:
PRINCIPAL 38,067 0 162,840
INTEREST 2,076 0 12,060
FEES AND COSTS FOR ISSUANCE OF
COMMON STOCK ( 63,187) 0 ( 63,187)
ISSUANCE OF COMMON STOCK FOR:
CONSULTING FEES 110,088 0 122,941
LEGAL FEES 31,000 0 35,000
EMPLOYEE RETENTION BONUSES 442,126 0 695,190
ACCRUED EXPENSES AND PAYABLES 49,500 0 60,500
INTEREST EXPENSE - CONVERTIBLE
DEBENTURES - BENEFICIAL
CONVERSION FEATURE 1,379,077 0 1,379,077
NET (LOSS) FOR THE NINE MONTHS
ENDED JULY 31, 2003 0 ( 3,420,058) ( 3,420,058)
------------------ ---------------------- -----------------
BALANCE, JULY 31, 2003
$ 17,338,115 $ ( 23,756,208) $ ( 5,957,419)
================== ====================== =================
F-7
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 2003 AND 2002
(UNAUDITED)
2003 2002
----------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) from continuing operations $ ( 3,420,058) $ ( 1,399,018)
Adjustments to reconcile net (loss) to
net cash (used) in operating activities of
continuing operations:
Loss from discontinued operations 0 ( 439,047)
Write down of net assets held for sale 0 171,542
Depreciation 16,406 116,596
Amortization 26,000 0
Interest expense - convertible debentures -
beneficial conversion feature 1,379,077 182,880
Common stock issued for expenses 854,757 188,500
Provision for uncollectible accounts 13,520 ( 10,154)
Provision for obsolete inventory 10,000 0
Changes in operating assets and liabilities:
Accounts receivable ( 36,089) 93,747
Inventories ( 4,043) ( 40,309)
Prepaid expenses ( 21,650) 50,891
Cash, pledged for letter of credit ( 10,000) 0
Accounts and notes payable 65,408 607,141
Accrued liabilities and taxes 441,424 165,222
Deferred income 855 14,138
----------------- ------------------
NET CASH (USED) IN OPERATING ACTIVITIES ( 684,393) ( 297,871)
----------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment 0 ( 50,000)
Proceeds from sale of assets held for sale 0 48,635
----------------- ------------------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES 0 ( 1,365)
----------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft 298 0
Proceeds from issuance of common stock 0 79,500
Net proceeds from issuance of
convertible debentures payable 686,813 293,723
Repayments on note payable, factor 0 ( 70,734)
Repayment of note payable, other (3,666) ( 3,221)
Changes in notes and loan receivable, officer 0 ( 1,861)
----------------- ------------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 683,445 297,407
----------------- ------------------
F-8
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE NINE MONTHS ENDED JULY 31, 2003 AND 2002
(UNAUDITED)
2003 2002
----------------- ------------------
NET (DECREASE) IN CASH AND
CASH EQUIVALENTS $ ( 948) $ ( 1,829)
CASH AND CASH EQUIVALENTS, AT
BEGINNING OF PERIOD 948 6,981
----------------- ------------------
CASH AND CASH EQUIVALENTS, AT
END OF PERIOD $ 0 $ 5,152
================= ==================
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during year for:
Interest $ 6,759 $ 64,124
================= ==================
Taxes $ 0 $ 0
================= ==================
NON-CASH INVESTING AND FINANCING
ACTIVITIES
Issuance of common stock for convertible debentures $ 162,840 $ 334,777
================= ==================
Issuance of common stock for fees, services and
expenses $ 854,759 $ 218,083
================= ==================
Issuance of common stock for accounts payable
and accrued liabilities $ 70,932 $ 339,618
================= ==================
Interest expense - convertible debentures-beneficial
conversion feature $ 1,379,077 $ 182,880
================= ==================
F-9
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 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
nine month period ended July 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 July 31, 2003.
F-10
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 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 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.
F-11
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 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 $24,609 and $5,615 in advertising costs for the
nine months ended July 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.
During 2002, the Company enacted a 10 for 1 reverse stock split.
Weighted average shares outstanding and per share amounts have been
retroactively adjusted to reflect the stock split.
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.
F-12
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 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 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 July 31, 2003, two customers accounted for 54%, (42% and 11%), of
net receivables.
PURCHASES
The Company relies primarily on three suppliers for its products. The
loss of a supplier could have a material impact on the Company's
operations. Purchases from these suppliers for nine months ended July
31, 2003 totaled 20%, 18% and 7%.
REVENUES
For the nine months ended July 31, 2003, the Company had three
customers whose sales exceeded 54%, (22%, 21% and 11%), 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
F-13
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2003
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
FASB 149 - Amendment of statement 133 on derivative
instruments and hedging activities
FASB 150 - Accounting for certain financial instruments
with characteristics of both liabilities and
equity.
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.
F-14
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2003
(UNAUDITED)
NOTE 2 PROPERTY AND EQUIPMENT
Property and equipment and accumulated depreciation at July 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 182,111
----------------
Total property and equipment $ 93,798
================
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, 2005 66,667
For the year ended October 31, 2006 27,666
------------------
Total Estimated Amortization Expense $ 200,000
==================
F-15
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2003
(UNAUDITED)
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 July 31, 2003, the
Company is in default of their loan agreement.
NOTE 6 TAXES PAYABLE
Taxes payable consists of the following:
Payroll taxes payable, current and deferred $ 190,316
California income tax payable 19,028
------------------
$ 209,344
==================
F-16
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2003
(UNAUDITED)
NOTE 7 TAX CARRYFORWARDS
The Company has the following tax carryforwards at July 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, 2019
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
July 31, 2003 2,040,982 July 31, 2023
---------------------
$ 13,675,202
=====================
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 1,679,577 1,679,577
Laurus Master Fund, Ltd. 328,190 328,190
Alpha Capital 240,000 240,000
------------------- ------------------
Total Unsecured Debentures $ 2,997,767 $ 2,247,767
=================== ==================
F-17
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2003
(UNAUDITED)
NOTE 8 CONVERTIBLE DEBENTURES (CONTINUED)
CURRENT
TOTAL PORTION
SECURED DEBENTURES
AJW Entities $ 1,207,000 $ 1,207,000
------------------ ------------------
Total Secured Debentures $ 1,207,000 $ 1,207,000
================== ==================
Total Debentures $ 4,204,767 $ 3,454,767
================== ==================
Maturities of convertible debentures are as follows:
FISCAL
2003 $ 2,464,767
2004 990,000
2005 750,000
-----------------
Total $ 4,204,767
=================
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 discontinued use of 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 $ 12,769 $ 42,031
================== ==================
F-18
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 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:
October 31, 2003 $ 39,744
October 31, 2004 50,163
October 31, 2005 13,029
----------
$ 102,936
Rent expense for the nine months ended July 31, 2003 and 2002 was
$26,746 and $9,545, 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 August 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 August 31,
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.
F-19
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 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.
OFFICERS' COMPENSATION
As of July 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.
3. On February 7, 2003, the Company issued 105,775,711 shares of
restricted common stock to its current officers and employees as
a retention bonus.
4. On June 12, 2003, the Company issued 100,000,000 shares of
restricted common stock to its current offices and employees as a
retention bonus.
5. On June 9, 2003, the Company filed an S-8 registration Statement
with the SEC and subsequently issued 64,640,458 shares of common
stock to officers and employees for retention bonuses and
individuals for services rendered.
F-20
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2003
(UNAUDITED)
NOTE 12 COMMON STOCK (CONTINUED)
STOCK PURCHASE WARRANTS
As of July 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
March 20, 2003 500,000 7 years $ 0.01
May 9, 2003 500,000 7 years $ 0.01
June 12, 2003 750,000 7 years $ 0.01
---------------
5,187,116
===============
5,187,116 shares are exercisable at July 31, 2003.
F-21
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 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 CHANGE IN AUTHORIZED SHARES
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.
NOTE 16 SUBSEQUENT EVENTS
STOCK ISSUANCES
On August 18, 2003, the Company issued approximately 38 million shares
of common stock to individuals for services rendered.
LITIGATION
On August 5, 2003, the Company was named as a counter defendant in a
lawsuit with a former associate. Although there is a possibility that
the Company may be held liable, an estimated range of potential loss
cannot be determined at this time, but it is not believed to have a
material impact on the financial condition of the Company.
SPIN-OFF
On July 20, 3003, the Board of Directors approved the spin-off of IBIZ,
Inc., a wholly owned subsidiary of the Company, into a separate public
company.
The Company proposes to issue without consideration non-restricted
shares of common stock in IBIZ, Inc. pro rata to all shareholders of
the Company as of September 25, 2003 at the ratio of one share of IBIZ,
Inc. for each 500 shares of the Company common stock.
F-22
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2003
(UNAUDITED)
NOTE 16 SUBSEQUENT EVENTS (CONTINUED)
SPIN-OFF (CONTINUED)
The purpose of the spin-off of IBIZ, Inc. is that it will allow
management of each business to focus solely on that business. In
addition, it should enhance access to financing by allowing the
financial community to focus separately on each business.
IBIZ Technology Corp. will continue to distribute its product line in
the United States providing sub-licenses for all products to IBIZ, for
worldwide distribution. IBIZ, Inc. will sign distribution agreements
with IBIZ Technology Corp. for distribution of its products in the
United States. IBIZ will support IBIZ Technology Corp. in engineering,
production, and business development, through synergetic agreements
using Endeavour Capital and its affiliates infrastructure in Europe and
Israel.
Current funds available to IBIZ will not be adequate for it to be
competitive in the areas in which it intends to operate. IBIZ's
continued operations, as well as the implementation of its business
plan, therefore will depend upon its ability to raise additional funds
through bank borrowings, equity or debt financing. IBIZ estimates that
it will need to raise up to approximately $1,000,000 over the next 12
months for these purposes.
There is no guarantee that these funding sources, or any others, will
be available in the future, or that they will be available on favorable
terms. In addition, this funding amount may not be adequate for IBIZ to
fully implement its business plan. Thus, the ability of IBIZ to
continue as a going concern is dependent on additional sources of
capital and the success of IBIZ's business plan. Regardless of whether
IBIZ's cash assets prove to be inadequate to meet IBIZ's operational
needs, IBIZ might seek to compensate providers of services by issuance
of stock in lieu of cash.
If funding is insufficient at any time in the future, IBIZ may not be
able to take advantage of business opportunities or respond to
competitive pressures, any of which could have a negative impact on the
business, operating results and financial condition. In addition, if
additional shares were issued to obtain financing, current shareholders
may suffer a dilutive effect on their percentage of stock ownership in
IBIZ.
F-23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 eight
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. The Company does not normally
require collateral to support receivables and interest is not accrued
thereon.
(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. Management determines the adequacy of the
allowance based on historical write-off percentages and information
collected from individual customers. Accounts receivable are charged
off against the allowance when collectibility is determined to be
permanently impaired (bankruptcy, lack of contact, account balance over
one year old, etc.).
(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.
2
(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.
3
SELECT FINANCIAL INFORMATION
THREE MONTH PERIOD ENDED
07/31/03 07/31/02 NINEMONTH PERIOD ENDED
(UNAUDITED) (UNAUDITED) 07/31/03 07/31/02
-------------- -------------- -------------- ----------------
Statement of Operations Data
Total revenue $ 146,445 $ 52,401 $ 282,392 $ 303,462
Operating income (loss) ( 876,695) ( 293,373) ( 1,792,818) ( 1,069,453)
Net earnings (loss) after tax ( 1,354,095) ( 380,186) ( 3,420,058) ( 1,838,065)
Net earnings (loss) per share (0.01) (0.00) (0.02) ( 0.00)
Balance Sheet Data
Total assets 444,028 551,149 444,028 551,149
Total liabilities 6,401,447 5,033,118 6,401,447 5,033,118
Stockholders' deficit ( 5,957,419) ( 4,481,969) ( 5,957,419) ( 4,481,969)
RESULTS OF OPERATIONS
The three months ended July 31, 2003 compared to the three months ended July 31,
2002.
REVENUES
Sales from continuing operations increased by approximately 179% to $146,445 in
the three months ended July 31, 2003 from $52,401 in the three months ended July
31, 2002. The increase was mainly a result of a sale in the amount of $61,250 to
one customer in the three months ended July 31, 2003.
COST OF SALES AND GROSS LOSS
The cost of sales of $169,976 (116% of sales) in the three months ended July 31,
2003 decreased from $196,772 (376% of sales) for the three months ended July 31,
2002.
The gross loss of $23,531 (<16%> of sales) in the three months ended July 31,
2003 decreased from $144,371 (<276%> of sales) for the three months ended July
31, 2002. This decrease is due to fixed costs, (primarily wages) being absorbed
by the increase in sales and decrease in variable costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased approximately 473% to
$853,164 in the three months ended July 31, 2003 from $149,002 in the three
months ended July 31, 2002. The main increase in expenses resulted from the
issuance of stock to employees in this quarter as retention bonuses, in the
amount of $510,000.
INTEREST EXPENSE
Interest expense decreased 2% to $95,909 in the three months ended July 31, 2003
from $97,519 in the three months ended July 31, 2002.
4
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 $393,938 and $-0- or three months ended July 31, 2003
and 2002, respectively.
NET LOSS FROM CONTINUING OPERATIONS
Net loss from continuing operations increased 271% to $1,354,095 for the three
months ended July 31, 2003 from a net loss of $358,841 for the three months
ended July 31, 2002. The increase in net loss was primarily the result of the
payment of retention bonuses by issuing restricted common stock in the amount of
$510,000, and the increase in beneficial conversion interest of $394,000.
DISCONTINUED OPERATIONS
Loss from discontinued operations was $21,345 for three months ended July 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.
The nine months ended July 31, 2003 compared to the nine months ended July 31,
2002.
REVENUES
Sales from continuing operations decreased by approximately 7% to $282,392 in
the nine months ended July 31, 2003 from $303,462 in the nine months ended July
31, 2002. The decrease was mainly a result of the focus by management on raising
financing for IBIZ, Inc. earlier in the year, a transition to a new line of
industry unique products and the overall slow down in the national economic
conditions.
COST OF SALES AND GROSS LOSS
The cost of sales of $318,593 (113% of sales) in the nine months ended July 31,
2003 decreased from $348,506 (115% of sales) for the nine months ended July 31,
2002.
The gross loss of $36,201 (<13%> of sales) in the nine months ended July 31,
2003 decreased from $45,044 (<15%> of sales) for the nine months ended July 31,
2002. The decrease is a result of fixed costs being absorbed as variable costs
decrease.
5
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased approximately 71% to
$1,756,617 in the nine months ended July 31, 2003 from $1,024,409 in the nine
months ended July 31, 2002. The main increase in expenses resulted from the
issuance of stock to employees in the 2nd and 3rd quarters as retention bonuses
in the amount of $695,000.
INTEREST EXPENSE
Interest expense increased 18% to $261,422 in the nine months ended July 31,
2003 from $220,804 in the nine months ended July 31, 2002. The increase in
interest is a result of approximately $1,850,000 new convertible debentures
issued at 12% from August 2002 to June 2003.
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 $1,379,077 and $182,880 for the nine months ended
July 31, 2003 and 2002, respectively.
NET LOSS FROM CONTINUING OPERATIONS
Net loss from continuing operations increased 144% to $3,420,058 for the nine
months ended July 31, 2003 from a net loss of $1,399,018 for the nine months
ended July 31, 2002. The increase in net loss was primarily the result of the
reduction in sales, higher unit costs, the payment of retention bonuses by
issuing restricted common stock in the amount of $695,000, and the increase in
beneficial conversion interest of $1,196,197.
DISCONTINUED OPERATIONS
Loss from discontinued operations was $439,047 for nine months ended July 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 nine months ended July 31, 2003
was $684,393 compared to $297,871 (used) by operating activities for the nine
months ended July 31, 2002. The $386,522 change, net of non-cash transactions
was primarily due to:
6
a. Accounts receivable increased $36,089 in the nine months ending July
31, 2003 as compared to a decrease of $93,747 in the nine months ending
July 31, 2002. The net use of operating cash in 2003 is a result of the
Company's major customers paying on extended terms instead of the
original agreed upon terms.
b. Inventories increased $4,043 in the nine months ending July 31, 2003 as
compared to an increase of $40,309 in the nine months ending July 31,
2002. The net operating cash used in 2003 is a result of the Company's
fulfillment of sales orders and the decision to purchase inventory on
an as needed basis due to cash flow restrictions.
c. Prepaid expenses increased $21,650 in the nine months ending July 31,
2003 as compared to a decrease of $50,891 in the nine months ending
July 31, 2002. The net use of operating cash in 2003 is a result of
prepaying for services in order to secure their use in the nine months
ending July 31, 2003.
d. Cash, pledged for letter of credit increased $10,000 in the nine months
ending July 31, 2003. The result of this use of operating cash is due
to the Company's major customer requiring the establishment of a letter
of credit in order to service rebates.
e. Accounts and notes payable increased $65,408 in the nine months ending
July 31, 2003 as compared to a increase of $607,141 in the nine months
ending July 31, 2002. The increase in cash provided in 2003 is a result
of the Company's need to purchase items on a cash basis and therefore
being unable to reduce accounts and notes payable by any significant
amount in the nine months ending July 31, 2003.
f. Accrued liabilities and taxes increased $441,424 in the nine months
ending July 31, 2003 as compared to an increase of $165,222 in the nine
months ending July 31, 2002. The net increase in cash provided in 2003
is the result of the Company's increase of $99,500 of accrued payroll
and the increase of $248,000 in interest due on convertible debentures
in the nine months ending July 31, 2003.
The Company plans to remedy the deficiency of operating cash flows by increasing
income from its new product line.
Our investing activities for the nine months ended July 31, 2003 provided no
cash, as compared to $1,365 which was used in the nine months ended July 31,
2002. The primary change was that the Company received cash from the sale of
assets in the amount of $48,635 and purchased a mold in the amount of $50,000
for a new product line during the nine months ended July 31, 2002 and had no
investing activities in the nine months ended July 31, 2003.
7
Our financing activities for the nine months ended July 31, 2003 provided cash
of $683,445 compared to $297,407 for the nine months ended July 31, 2002. The
primary change was that the Company obtained $686,813 of new debenture financing
for the nine months ended July 31, 2003 compared to $293,723 for the nine months
ended July 31, 2002. The Company also repaid $70,734 on its note payable factor
during the nine months ended July 31, 2002 and $-0- during the nine months ended
July 31, 2003.
CAPITAL RESOURCES
Working capital is summarized and compared as follows:
JULY 31, 2003 JULY 31, 2002
----------------- ----------------
Current assets $ 173,730 $ 222,272
Current liabilities 5,651,447 3,956,344
----------------- -----------------
Working capital (deficit) $ ( 5,477,717) $ ( 3,734,072)
================= =================
This increase in the deficit in working capital was primarily due to the net
loss sustained from operations and the increase in the convertible debentures,
current portion.
At July 31, 2003, stockholders' deficit was $5,957,419 as compared to a
stockholders' deficit of $4,941,782 at October 31, 2002. The $1,015,637 change
in stockholders' deficit was accounted for as follows:
Increase in Stockholders' Equity
Issuance of common stock $ 913,631
Conversion of convertible
debentures, net of costs 111,713
Interest expense - convertible
debentures - beneficial
conversion feature 1,379,077
Decreases in stockholders'equity
net loss ( 3,420,058)
------------------
Net Change $ ( 1,015,637)
==================
The Company currently has no material commitments for capital expenditures.
The Company has $3,454,767 and $750,000 of debt payments related to convertible
debentures due within the next year and next two to five years, respectively.
8
On July 20, 3003, the Board of Directors approved the spin-off of IBIZ, Inc., a
wholly owned subsidiary of the Company, into a separate public company.
The Company proposes to issue without consideration non-restricted shares of
common stock in IBIZ, Inc. pro rata to all shareholders of the Company as of
September 25, 2003 at the ratio of one share of IBIZ, Inc. for each 500 shares
of the Company common stock.
The purpose of the spin-off of IBIZ, Inc. is that it will allow management of
each business to focus solely on that business. In addition, it should enhance
access to financing by allowing the financial community to focus separately on
each business.
IBIZ Technology Corp. will continue to distribute its product line in the United
States providing sub-licenses for all products to IBIZ, for worldwide
distribution. IBIZ, Inc. will sign distribution agreements with IBIZ Technology
Corp. for distribution of its products in the United States. IBIZ will support
IBIZ Technology Corp. in engineering, production, and business development,
through synergetic agreements using Endeavour Capital and its affiliates
infrastructure in Europe and Israel.
Current funds available to IBIZ will not be adequate for it to be competitive in
the areas in which it intends to operate. IBIZ's continued operations, as well
as the implementation of its business plan, therefore will depend upon its
ability to raise additional funds through bank borrowings, equity or debt
financing. IBIZ estimates that it will need to raise up to approximately
$1,000,000 over the next 12 months for these purposes.
There is no guarantee that these funding sources, or any others, will be
available in the future, or that they will be available on favorable terms. In
addition, this funding amount may not be adequate for IBIZ to fully implement
its business plan. Thus, the ability of IBIZ to continue as a going concern is
dependent on additional sources of capital and the success of IBIZ's business
plan. Regardless of whether IBIZ's cash assets prove to be inadequate to meet
IBIZ's operational needs, IBIZ might seek to compensate providers of services by
issuance of stock in lieu of cash.
If funding is insufficient at any time in the future, IBIZ may not be able to
take advantage of business opportunities or respond to competitive pressures,
any of which could have a negative impact on the business, operating results and
financial condition. In addition, if additional shares were issued to obtain
financing, current shareholders may suffer a dilutive effect on their percentage
of stock ownership in IBIZ.
9
ITEM 3. CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the
participation of our management, including the chief executive officer, or CEO,
and chief financial officer, or CFO, of the effectiveness of the design and
operation of our disclosure procedures. Based on that evaluation, our
management, including the CEO and CFO, concluded that our disclosure controls
and procedures were effective as of July 31, 2003. There have been no
significant changes in our internal control over financial reporting in the
third quarter of 2003 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None for the period ending July 31, 2003.
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, 2003, 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 in 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. The funds were provided to us as
follows:
- $300,000 was disbursed on January 31, 2003.
- $100,000 was disbursed on March 20, 2003.
- $100,000 was disbursed on May 9, 2003.
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.
To obtain funding for our ongoing operations, we entered into a
Securities Purchase Agreement with three accredited investors on June 12, 2003
for the sale of (i) $150,000 in convertible debentures and (ii) warrants to buy
750,000 shares of our common stock.
10
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
On June 12, 2003, we issued the following shares to the following
employees in lieu of salaries:
1. 40,000,000 shares of common stock to Kenneth W. Schilling
2. 40,000,000 shares of common stock to Mark Perkins
3. 8,000,000 shares of common stock to Mr. Matthews
4. 8,000,000 shares of common stock to Mr. Ligammari
5. 4,000,000 shares of common stock to Mr. Russo
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.
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:
31.1 Certification by Chief Executive Officer and Chief
Financial Officer pursuant to Sarbanes-Oxley Section 302, provided
herewith.
32.1 Certification by Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S. C. Section 1350, provided
herewith.
(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 15th day of September 2003
IBIZ TECHNOLOGY CORP.
By:/s/ KENNETH W. SCHILLING
--------------------------------------
Kenneth W. Schilling, President, and
acting principal accounting officer
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