UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED APRIL 30, 2004
COMMISSION FILE NO. 000-27619
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 April 30, 2004
----- -----------------------------
Common stock, $0.001 par value 2,763,291,274
TABLE OF CONTENTS
-----------------
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
BALANCE SHEETS ................................................. F-1
STATEMENTS OF OPERATIONS........................................ F-2
STATEMENTS OF EQUITY............................................ F-3-4
STATEMENT OF CASH FLOWS......................................... F-5
NOTES TO FINANCIAL STATEMENTS................................... F-6-19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS....................................... 1-17
ITEM 3. CONTROLS AND PROCEDURES......................................... 17
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS............................................... 17
ITEM 2. CHANGES IN SECURITIES........................................... 18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................. 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............. 18
ITEM 5. OTHER INFORMATION............................................... 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................ 18
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
APRIL 30, 2004
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 104,196
Cash, pledged for letter of credit 10,000
Accounts receivable, net 354,195
Inventories 127,250
Deposit for purchase of inventory 400,000
Prepaid expenses 369,155
-----------
Total current assets 1,364,796
-----------
PROPERTY AND EQUIPMENT, Net of
accumulated depreciation 56,379
-----------
OTHER ASSETS:
Technology and patents 1,126,350
Intellectual Properties Rights, net 61,000
Note receivable, officer 373,159
Less allowance for doubtful collection (373,159)
Deposits 47,005
-----------
Total other assets 1,234,355
-----------
TOTAL ASSETS $ 2,655,530
===========
(Continued)
F-1
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
APRIL 30, 2004
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 768,506
Loan payable, Enterprise Capital AG 30,603
Accrued wages 380,503
Accrued interest 376,469
Taxes payable 196,376
Deferred income 1,768
Convertible debentures, current portion 1,413,675
-----------
Total current liabilities 3,167,900
-----------
STOCKHOLDERS' DEFICIT:
Preferred stock - authorized, 50,000,000 shares,
par value $.001 per share; issued and outstanding,
-0- shares 0
Common stock - authorized, 5,000,000,000 shares,
par value $.001 per share; issued and outstanding,
2,763,291,274 shares; reserved for issuance of
options, 99,050,000 shares 2,763,291
Common stock to be issued for Synosphere, LLC,
38,447,278 shares 1,556,167
Common stock subscribed (1,500,000)
Additional paid-in capital 29,210,445
Accumulated deficit (32,542,273)
-----------
Total stockholders' deficit (512,370)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 2,655,530
===========
See accompanying notes to financial statements.
F-2
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 2004 AND 2003
(UNAUDITED)
Three Months Ended Six Months Ended
April 30 April 30
-------------------------- --------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
REVENUES:
Product sales $ 429,373 $ 52,633 $ 581,589 $ 118,358
Maintenance
Agreements 8,434 8,004 18,167 17,589
----------- ----------- ----------- -----------
Total revenues 437,807 60,637 599,756 135,947
----------- ----------- ----------- -----------
COST OF REVENUES:
Product sales 350,377 55,277 463,415 146,364
Maintenance
Agreements 3,269 1,605 11,976 2,253
----------- ----------- ----------- -----------
Total cost of
revenues 353,646 56,882 475,391 148,617
----------- ----------- ----------- -----------
GROSS INCOME (LOSS) 84,161 3,755 124,365 (12,670)
RESEARCH AND
DEVELOPMENT
EXPENSES 71,044 0 71,044 0
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES 1,113,246 462,224 1,493,152 903,453
CONSULTING FEES
PAID BY STOCK
OPTIONS 1,616,187 0 6,386,187 0
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (2,716,316) (458,469) (7,826,018) (916,123)
----------- ----------- ----------- -----------
(Continued)
F-3
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 2004 AND 2003
(UNAUDITED)
Three Months Ended Six Months Ended
April 30 April 30
------------------------------ ------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE):
Cancellation of debt 0 809 0 809
Cancellation of
principal and
interest by
debenture holders 134,289 0 197,017 0
Interest expense (39,381) (83,161) (141,661) (165,513)
Interest expense -
convertible
debentures -
beneficial
conversion feature 0 (147,141) 0 (985,139)
Other income 82 3 24,721 3
Gain on sale of
fixed asset 0 0 2,000 0
------------- ------------- ------------- -------------
Total other income
(expense), net 94,990 (229,490) 82,077 (1,149,840)
------------- ------------- ------------- -------------
LOSS BEFORE
INCOME TAXES (2,621,326) (687,959) (7,743,941) (2,065,963)
INCOME TAXES 0 0 0 0
------------- ------------- ------------- -------------
NET LOSS $ (2,621,326) $ (687,959) $ (7,743,941) $ (2,065,963)
============= ============= ============= =============
NET LOSS PER
COMMON SHARE
- Basic and
diluted $ (0.00) $ (0.01) $ (0.00) $ (0.17)
============= ============= ============= =============
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES
OUTSTANDING -
Basic and
diluted 2,577,706,090 124,826,349 2,010,835,118 124,826,511
============= ============= ============= =============
See accompanying notes to financial statements.
F-4
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE SIX MONTHS ENDED APRIL 30, 2004
(UNAUDITED)
Common Stock
Preferred Stock Common Stock To Be Issued
--------------- ------------ ------------
Shares Amount Shares Amount Shares Amount
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, OCTOBER 31, 2003 0 $ 0 649,893,721 $ 649,894 0 $ 0
CONVERSION OF DEBENTURES
FOR COMMON STOCK:
Principal 0 0 1,295,939,623 1,295,940 0 0
Interest 0 0 83,591,001 83,590 0 0
FEES AND COSTS FOR ISSUANCE
OF CONVERTIBLE DEBENTURES 0 0 0 0 0 0
ISSUANCE OF COMMON STOCK FOR:
Consulting fees 0 0 91,000,000 91,000 0 0
Legal fees 0 0 14,835,188 14,835 0 0
Miscellaneous expenses 0 0 1,533,784 1,534 0 0
Accrued employee bonuses 0 0 398,620,692 398,621 0 0
Accrued expenses and payables 0 0 9,574,324 9,574 0 0
Cash 0 0 122,788,235 122,788 0 0
Acquisition of Synosphere, LLC 0 0 0 0 38,447,278 1,556,167
Common stock subscribed 0 0 95,514,706 95,515 0 0
CONSULTING FEES BY STOCK OPTIONS 0 0 0 0 0 0
NET LOSS 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, APRIL 30, 2004 0 $ 0 2,763,291,274 $ 2,763,291 38,447,278 $ 1,556,167
=========== =========== =========== =========== =========== ===========
(Continued)
F-5
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (CONTINUED)
FOR THE SIX MONTHS ENDED APRIL 30, 2004
(UNAUDITED)
Common Stock
Subscribed
-------------------------------- Additional
Paid-in Accumulated
Shares Amount Capital Deficit Total
-------------- -------------- -------------- -------------- --------------
BALANCE, OCTOBER 31, 2003 0 $ 0 $ 17,431,753 $ (24,798,332) $ (6,716,685)
CONVERSION OF DEBENTURES
FOR COMMON STOCK:
Principal 0 0 1,313,622 0 2,609,562
Interest 0 0 237,870 0 321,460
FEES AND COSTS FOR ISSUANCE OF
CONVERTIBLE DEBENTURES 0 0 (26,250) 0 (26,250)
ISSUANCE OF COMMON STOCK FOR:
Consulting fees 0 0 405,360 0 496,360
Legal fees 0 0 180,397 0 195,232
Miscellaneous expenses 0 0 4,141 0 5,675
Accrued employee bonuses 0 0 179,379 0 578,000
Accrued expenses and payables 0 0 25,852 0 35,426
Cash 0 0 1,667,649 0 1,790,437
Acquisition of Synosphere, LLC 0 0 0 0 1,556,167
Common stock subscribed (95,514,706) (1,500,000) 1,404,485 0 0
CONSULTING FEES BY
STOCK OPTIONS 0 0 6,386,187 0 6,386,187
NET LOSS 0 0 0 (7,743,941) (7,743,941)
-------------- -------------- -------------- -------------- --------------
BALANCE, APRIL 30, 2004 (95,514,706) $ (1,500,000) $ 29,210,445 $ (32,542,273) $ (512,370)
============== ============== ============== ============== ==============
F-6
See accompanying notes to financial statements.
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 30, 2004 AND 2003
(UNAUDITED)
2004 2003
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(7,743,941) $(2,065,963)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 6,950 10,937
Amortization 109,623 13,000
Cancellation of principal and interest
By debenture holders (197,017)
Consulting fees expensed by stock options 6,386,186
Interest expense - convertible debentures
debentures - beneficial conversion
feature 0 985,139
Common stock issued for expenses 354,715 308,788
Common stock to be issued 375,000
Provision for uncollectible
accounts 20,625 4,217
Provision (adjustment) for obsolete
inventory (23,100)
Changes in operating assets and
liabilities:
Accounts receivable (251,069) (29,387)
Inventories (60,308) (29,279)
Prepaid expenses 1,945 (3,450)
Deposit for purchase of inventory (400,000)
Accounts payable 1,357 93,577
Accrued liabilities and taxes (179,932) 248,645
Deferred income (3,802) (4,114)
----------- -----------
Net cash used in operating activities (1,602,768) (467,890)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchase of interests from Synosphere, LLC (18,830)
Intellectual property rights (2,466)
----------- -----------
Net cash used in investing activities (21,296)
----------- -----------
(Continued)
F-7
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE SIX MONTHS ENDED APRIL 30, 2004 AND 2003
(UNAUDITED)
2004 2003
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft 14,688
Net proceeds from issuance of common stock
by stock options 1,790,437
Net proceeds from issuance of convertible
debentures payable 464,000
Net repayments on loan payable (59,397)
Repayment of note payable, other (4,920) (1,746)
----------- -----------
Net cash provided by financing activities 1,726,120 466,942
----------- -----------
NET INCREASE IN CASH 102,056 (948)
CASH, BEGINNING OF PERIOD 2,140 948
----------- -----------
CASH, END OF PERIOD $ 104,196 $ 0
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 2,003 $ 4,602
=========== ===========
Taxes $ 0 $ 0
=========== ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock for convertible
debentures, net of fees and costs $ 2,583,311 $ 96,099
=========== ===========
Issuance of common stock for fees, services
and expenses $ 701,750 $ 308,788
=========== ===========
Issuance of common stock for accounts
payable and accrued expenses $ 352,393 $ 4,661
=========== ===========
Issuance of common stock for accrued
employee bonuses $ 578,000 $ 0
=========== ===========
Interest expense - convertible debentures -
beneficial conversion feature $ 0 $ 985,139
=========== ===========
Consulting fees expensed by stock options $ 6,386,186 $ 0
=========== ===========
See accompanying notes to financial statements.
F-8
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - iBIZ Technology Corp. (hereinafter referred to as
"Ibiz" or 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.
Synosphere, LLC is a Plano, Texas based corporation specializing in the
development of innovative handheld computer technologies. On April 1,
2004, Synosphere, LLC was dissolved and merged into Synosphere, Inc.
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 six month period
ended April 30, 2004 are not necessarily indicative of the results that
may be expected for the year ended October 31, 2004. Accordingly, your
attention is directed to footnote disclosures found in the October 31,
2003 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, Qhost, Inc. and
Synosphere, LLC.
All material inter-company accounts and transactions have been eliminated.
F-9
CASH EQUIVALENTS - For purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
CASH PLEDGED FOR LETTER OF CREDIT - The Company has pledged $10,000 of its
cash to secure a letter of credit for a customer to guarantee payment of
rebates. The letter of credit expires in June 2004.
ACCOUNTS RECEIVABLE - Accounts receivable are reported at the customers'
outstanding balances less any allowance for doubtful accounts and
provision for returned merchandise. The Company's terms for repayment
range from 30 days to 60 days. Interest is not accrued on overdue accounts
receivable.
ALLOWANCE FOR DOUBTFUL ACCOUNTS AND PROVISION FOR RETURNED MERCHANDISE -
The allowance for doubtful accounts on accounts receivable and provision
for returned merchandise 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, age of account
balance, etc.). A provision for returned merchandise is also recorded
based on the Company's history of returns as a percentage of sales.
INVENTORIES - Inventories are stated at the lower of cost (determined
principally by average cost) or market. The inventories are comprised of
finished products at April 30, 2004.
PREPAID EXPENSE - The Company's prepaid expenses are being amortized over
a one-year period. During the six months ended April 30, 2004, the Company
issued 89 million shares of common stock valued at $416,360 for consulting
services to be performed in 2004. The agreements consist of retail-channel
marketing services and corporate finance services designed to assist the
Company in analyzing potential acquisition targets and the related
financing of such acquisitions. The agreements are being amortized
straight-line over their respective one-year terms.
F-10
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 depreciate 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
LONG-LIVED ASSETS - Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment and Disposal of Long-Lived Assets" requires
that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the historical cost-carrying value
of an asset may no longer be appropriate. The Company assesses the
recoverability of the carrying value of an asset by estimating the future
undiscounted net cash flows expected to result from the asset, including
eventual disposition. If the future net cash flows are less than the
carrying value of the asset, an impairment loss is recorded equal to the
difference between the asset's carrying value and fair value. Fair value
is determined based on discounted cash flows, appraised values or
management's estimates, depending on the nature of the assets.
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 98-5. The Company has recorded the fair value of the beneficial
conversion features as interest expense and an increase to Additional
Paid-in Capital.
ACCOUNTING FOR CONSULTING FEES PAID BY STOCK OPTIONS - The Company has
issued stock options which entitle the grantee to exercise the options at
fair market value less an agreed upon discount. The Company has recorded
the fair market value as "consulting fees paid by stock options" and an
increase to additional paid-in capital (see Notes 13 and 15).
F-11
TECHNOLOGY AND PATENTS - Technology and patents represents the fair market
value of the common stock issued to acquire Synosphere, LLC (see Note 6).
The Company will amortize the assets over their estimated useful life as
follows: Patents, 20 year amortization using the straight-line method;
Blue Dock Technology and other technologies, 3 years amortization using
the straight-line method. Estimated amortization is as follows:
Fiscal Year
2004 $ 295,596
2005 394,127
2006 394,127
2007 100,407
2008 2,500
Thereafter 38,125
----------
Total $1,224,882
==========
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company has
financial instruments, none of which are held for trading purposes. The
Company estimates that the fair value of all financial instruments at
April 30, 2004, as defined in FASB 107, does not differ materially from
the aggregate carrying values of its financial instruments recorded in the
accompanying balance sheet. The estimated fair value amounts have been
determined by the Company using available market information and
appropriate valuation methodologies. Considerable judgment is required in
interpreting market data to develop the estimates of fair value, and
accordingly, the estimates are not necessarily indicative of the amounts
that the Company could realize in a current market exchange.
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 or the value of the services,
whichever is more readily determinable.
AMENDMENT OF ARTICLES OF INCORPORATION - The Articles of Incorporation
were amended in November 2002 to increase the number of authorized shares
of common stock from 450,000,000 to 5,000,000,000 and authorized the
creation of 50,000,000 shares of blank check preferred stock.
F-12
REVENUE RECOGNITION - The Company recognizes revenue when persuasive
evidence of an arrangement exists, title transfer has occurred, the price
is fixed or readily determinable, and collectibility is probable. Sales
are recorded net of sales discounts. The Company recognizes revenue in
accordance with Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements", (SAB 101). Revenues are recorded under two
categories:
Product Sales - When the goods are shipped and title passes to the
customer. The Company provides a reserve for sales returns based on its
history of returns as a percentage to sales.
The Company will periodically provide rebates on selected products for a
limited sale period, normally 7 days. They contract with a company to
process and track the rebates. The Company provides a reserve for
outstanding rebates based on its history of rebates submitted as a
percentage of applicable sales.
Maintenance Agreements - Income from maintenance agreements is being
recognized on a straight-line basis over the life of the service
contracts, which range from 3 months to 1 year. The unearned portion
received is recorded as deferred income. The Company is not actively
pursuing this area of business and does not expect this to be significant
in subsequent periods.
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.
ADVERTISING - All direct advertising costs are expensed as incurred. The
Company charged to operations $50,991 and $18,577 in advertising costs for
the six months ended April 30, 2004 and 2003, respectively.
RESEARCH AND DEVELOPMENT - The Company expenses research and development
costs as incurred. The Company incurred $71,044 and $0 of such expenses
for the six months ended April 30, 2004 and 2003, respectively.
F-13
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 Statement No. 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.
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.
Recently, the Company has focused its sales efforts to large retailers
which can increase the credit risk. The Company routinely assesses the
financial strength of its customers. The Company normally does not require
a deposit to support large customer orders.
F-14
At April 30, 2004, two customers accounted for 67% and 27% of net
receivables, respectively.
Purchases - The Company relies primarily on three suppliers for its
products (Enterprise Capital AG, Poto Technology and Prolink). The loss of
a supplier could have a material impact on the Company's operations.
Purchases from these suppliers for the six months ended April 30, 2004
totaled 58%, 29% and 10% of gross purchases.
Revenues - For the six months ended April 30, 2004, the Company had one
customer whose sales were 90% 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 PRONOUNCEMENT - In May 2003, the FASB issued SFAS No.
150, "Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity". This Statement establishes standards for how
an issuer of debt classifies and measures certain financial instruments
with characteristics of both liabilities and equity. It requires that an
issuer classify certain financial instruments as a liability (or an asset
in some circumstances) instead of equity. The Statement is effective for
financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The Company adopted this Statement on July
1, 2003. The Company does not believe that this recent accounting
pronouncement will have a material impact on their financial position or
results of operations.
2. ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS AND PROVISION FOR
RETURNED MERCHANDISE
A summary of accounts receivable and allowance for doubtful accounts is as
follows:
Accounts receivable $429,058
Allowance for doubtful accounts and
provision for returned merchandise 74,863
--------
Net accounts receivable $354,195
========
Allowance for doubtful accounts and provision for return merchandise:
Balance, November 1, 2003 $ 50,738
Increase in estimate of provision for doubtful
accounts and returned merchandise 20,625
Recovery of uncollectible accounts 3,500
--------
Balance, April 30, 2004 $ 74,863
========
F-15
3. DEPOSIT FOR PURCHASE OF INVENTORY
During the second quarter of 2004, the Company paid Enterprise Capital AG
$400,000 for the purchase of 4,000 Virtual Keyboards. As of June 15, 2004,
these inventory items have not been received by Company. The Company is
confident this amount will be recovered in inventory in the near future.
See Note 19 for further discussion of the Virtual Keyboards and Enterprise
Capital AG.
4. PROPERTY AND EQUIPMENT
Property and equipment and accumulated depreciation at April 30, 2004
consists of:
Tooling $ 68,100
Machinery and equipment 37,641
Office furniture and equipment 81,027
Vehicle 3,140
Molds 25,000
---------
Total property and equipment 214,908
Less accumulated depreciation (158,529)
---------
Property and equipment, net $ 56,379
=========
F-16
5. 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. As of October 31, 2003, the Company has written off 50% of
the intellectual property rights due to impairment.
ESTIMATED AMORTIZATION EXPENSE:
For the year ended October 31, 2004 $22,182
For the year ended October 31, 2005 22,182
For the year ended October 31, 2006 16,636
-------
Total estimated amortization expense $61,000
=======
6. NOTE RECEIVABLE, OFFICER
INVNSYS TECHNOLOGY CORPORATION
A note due from the president of the Company, which is payable on demand
and accrues interest at 6%. Management believes the note is uncollectible
since iBIZ no longer has collateral for the note. The Company elected to
write-off the loan as uncollectible by establishing an allowance for
doubtful collections for the total amount due on the note.
Total amount of note $ 373,159
Less allowance for doubtful collection (373,159)
---------
Note receivable, net $ 0
=========
7. ACQUISITION OF SYNOSPHERE, LLC
On January 20, 2004, the Company acquired 100% of the 5,000,000 interests
of Synosphere, LLC. The results of Synosphere's operation from January 20,
2004 to January 31, 2004 were immaterial for this period.
F-17
Synosphere is developing and plans to manufacture and distribute the
following products:
BLUE DOCK(TM)
The Blue Dock is a PDA Docking Station that enables PDA users to work
productively in a desktop environment with their PDAs without the need for
an additional laptop or desktop computer. The Blue Dock provides a
keyboard, mouse, full-size monitor (optimizing the PDA video at an 800 x
600 resolution), and dedicated network connection. Synchronization is not
required. The Company expects to release Blue Dock in the 4th quarter this
year.
PDA TRAVEL KEYBOARD
The PDA Travel Keyboard is a unique travel keyboard. The PDA travel
keyboard enables PDA users to dock their PDA in a travel keyboard on the
go and use a PC mouse. In addition, a mouse cursor is placed on the PDA
screen (when docked), such that the user can control their PDA without
touching the screen. Also, when docked in the travel keyboard, the user
may charge their PDA.
VISUAL NOTIFICATION DEVICE
The Visual Notification Device represents a system which has lights
embedded in the SD card, such that when a phone call is received or an
appointment reminder occurs, the lights embedded within the card flash.
Currently, only tactile (vibration) and audible (sound) systems exist.
KEYBOARD/MOUSE CRADLE
The Keyboard/Mouse Cradle is a unique PDA cradle that allows a PDA user to
use their PDA with a full size standard PC keyboard and PC mouse. In
addition, a mouse cursor is placed on the screen of the PDA screen (when
docked), such that the user can control their PDA without touching the
screen. Also, when docked the user may use the cradle for synchronization
and to charge their PDA.
F-18
All of the devices above, with the exception of the PDA Travel Keyboard
are currently Patent-pending. The patent for this device is to be filed by
Friday March 25, 2004.
The aggregate purchase price was $1,224,882, payable in 30,000,000 shares
of common stock which was valued at the market value of the stock at the
date of acquisition. The purchase price was allocated to technology and
patents based on costs to develop patents to date (approximately $50,000)
and the projected cash flows from future product sales of the related
technologies under development. The following values have been assigned:
Patents Pending $ 50,000 Blue Dock Technology $806,600 Other Technologies
$368,282
Synosphere did not own any tangible assets and its only assets were
pending patents and technology.
8. 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 was paid in full November 4, 2003, in exchange for
8,108,108 shares of common stock.
9. LOAN PAYABLE, ENTERPRISE CAPITAL AG
The loan from Enterprise Capital AG totaling $30,603 is unsecured, bears
no interest and has no due date.
10. TAXES PAYABLE
Taxes payable consists of the following:
Payroll taxes payable, current and deferred $177,348
California income tax payable 19,028
--------
Total $196,376
========
F-19
11. INCOME TAXES
DEFERRED TAXES
The components of deferred tax assets are as follows:
Net operating loss carryforwards $3,156,700
Accrued expenses and miscellaneous 9,500
----------
3,166,200
Less valuation allowance 3,166,200
----------
Net deferred tax asset $ 0
==========
A reconciliation of the valuation allowance is as follows:
Balance, November 1, 2003 $2,909,300
Addition for the period 256,900
----------
Balance, April 30, 2004 $3,166,200
==========
TAX CARRYFORWARDS
The Company had the following tax carryforwards at April 30, 2004:
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
October 31, 2003 2,890,718 October 31, 2023
April 30, 2004 1,258,246 October 31, 2024
-----------
$15,783,184
F-20
12. CONVERTIBLE DEBENTURES
During the period from February 1, 2004 through March 9, 2004, the
convertible debenture holders converted $904,893 of principal and $197,635
of accrued interest for 243,682,486 shares. The balance of convertible
debentures at April 30, 2004 are as follows:
VARIOUS CONVERTIBLE DEBENTURES $1,150,817
On October 31, 2001, the Company issued 8% convertible debentures as
follows:
1. Due date - October 31, 2003.
2. Interest payable quarterly from January 1, 2001.
3. Default interest rate - 20%.
4. On the first $1,000,000 of financing, the Company issued warrants to
purchase 50,000 shares of stock at $ 4.80 per share. The Company
reserved an additional 124,000 shares for future borrowing on this
debenture line.
5. Put note purchase price - $4,000,000.
6. Fees and costs - 7% - 10% of cash received for debentures and
warrants plus legal fees.
7. The Company must reserve a number of common shares equal to, but not
less then, 200% of the amount of common shares necessary to allow
the debenture and warrant holder to be able to convert all such
outstanding notes and put notes to common stock.
8. Conversion price for put notes. The initial 50% of the put notes
shall be the lesser of: (i) 80% of the average of the three lowest
closing bid prices for the stock for twenty two days, or (ii) 80% of
the average of the five lowest closing bid prices for the stock for
sixty days. The conversion price of the balance of the put notes
shall be 86% of the average of the three lowest closing bid prices
for ten days.
F-21
9. The debentures have penalty clauses if the common stock is not
issued when required by the debenture holder.
10. The debentures are unsecured.
11. The Company's right to exercise the put commences on the actual
effective date of the SEC Registration Statement and expires three
years after the effective date.
12. Right of first refusal - The debenture holders have the right to
purchase a proportionate amount of new issued shares in order to
maintain their ownership interest percentage.
LAURUS MASTER FUND, LTD. $262,858
In April and July 2001, the Company issued $500,000 and $150,000 of 8%
convertible debentures under the following terms and conditions:
1. Due date - October 31, 2003.
2. Interest on September 30, 2001 and quarterly thereafter.
3. Default interest rate - 20%.
4. On the first financing, the Company issued warrants to purchase
150,000 shares of common stock at the lesser of $1.23 per share or
an amount equal to the average of the three lowest closing prices
for a ten day trading period. The Company may redeem the warrants
for $6.67 per share. On the second financing, the Company issued
warrants to purchase 150,000 shares of common stock at the lesser of
$0.48 or an amount equal to 105% of the average of the three lowest
closing bid prices for the common stock for the ten trading days
prior to, but not including, the date the warrants are exercised.
5. Conversion terms - The debenture holder shall have the right to
convert all or a portion of the outstanding principal amount of this
debenture plus any accrued interest into such number of shares of
common stock as shall equal the quotient obtained by dividing the
principal amount of this debenture by the applicable conversion
price.
F-22
6. Conversion price - Lower of eighty percent of the average of the
three lowest closing bid prices for a specified three day or
twenty-two day period.
7. Prepayment - The debenture may not be paid prior to the maturity
date without the consent of the holder.
TOTAL DEBENTURES $1,413,675
==========
Maturities of convertible debentures are as follows:
2004 $1,413,675
==========
13. CANCELLATION OF INTEREST BY DEBENTURE HOLDERS
During the period, the Company renegotiated their debenture balances with
the AJW entities and the AJW entities and converted in full, the debenture
balances with Lites Trading Company and Equire Trade and Finance which
resulted in the cancellation of approximately $197,000 in principal and
interest.
14. STOCK OPTIONS ISSUED FOR CONSULTING SERVICES
During the six months ending April 30, 2004, the Company granted stock
options to individuals in exchange for the following consulting services:
November 2003 - Options valued at $260,000 to purchase 200 million shares
of common stock (at a 40% discount from market, as defined) were issued to
D. Scott Elliott for general business and financial consulting services to
assist the Company with its expansion plans and entry into other markets.
December 2003 - Options valued at $60,000 to purchase 50 million shares of
common stock (at a 15% discount from market, as defined) were issued to
Jeffrey Firestone for providing legal counsel on international issues in
mergers and acquisitions.
January 2004 - Options valued at $4,450,000 to purchase 100 million shares
of common stock (at a 50% discount from market, as defined) were issued to
Pangea Investments GmbH for consulting and acquisition services in Europe
and Israel. Sam Elimalech, an officer of Enterprise Capital AG (see Note
8), is also a member of Pangea Investments Gmbh.
March 2004 - Options valued at $1,616,186 to purchase 151,045,455 shares
of common stock (at a 20% discount from market, as defined) were issued to
D. Scott Elliott for general business and financial consulting services to
assist the Company with its expansion plans and entry into other markets.
F-23
The Company has valued the options granted using the Black-Sholes stock
option pricing model, based on the following weighted average assumptions:
dividend yield - -0-, expected volatility - 44%, risk-free interest rate -
2.25%, expected life - 75 days to 10 years. The total fair value of the
options granted during the six months ending April 30, 2004 was $6,386,187
(see Note 15). Based on the uncertainty of any future value of these
agreements, the Company expensed the value of the options in the six
months ended April 30, 2004.
15. COMMITMENTS AND CONTINGENCIES
DEPOSIT FOR PURCHASE OF INVENTORY
The Company has received orders for the Virtual Keyboards from national
retailers. The Company paid Enterprise Capital AG $400,000 for the
keyboards necessary to fulfill these orders. Since January 2004, there
have been recurring production delays. Additional inventory which was to
flow at a rate that would include fulfilling outstanding orders by the end
of June, have not yet been delivered. The Company is confident that it
will receive the inventory or obtain reimbursement of the deposit of
$400,000.
OPERATING LEASE
The Company leases its office and warehouse facilities in Phoenix, Arizona
from a third party 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:
F-24
October 31, 2004 $50,163
October 31, 2005 13,029
-------
$63,192
Rent expense for the six months ended April 30, 2004 and 2003 was $24,104
and $19,363, respectively.
PAYROLL TAXES
The Company is negotiating a settlement regarding delinquent payroll taxes
of approximately $68,000. Interest is being accrued on the outstanding
balance. No amounts have been accrued for any penalties.
WORKERS' COMPENSATION INSURANCE
Through April 2004, 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 April 30, 2004, 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.
LEGAL
The Company is the defendant in one lawsuit for unpaid wages. Management
has recorded a liability in the amount of $20,000.
The Company is 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.
The Company is the defendant in a lawsuit by a former vendor of
connectivity services for breach of contract and failure to pay as
required. The Company sold the connectivity portion of its business in
October 2002 and feels this vendor is billing the contract incorrectly.
The Company plans to vigorously fight this lawsuit and does not anticipate
any material losses.
OFFICERS' COMPENSATION - IBIZ TECHNOLOGY CORP.
As of April 30, 2004, 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 at $0.20 per share which
will vest and be exercisable for a period of ten years. None
granted.
4. 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.
F-25
OFFICERS' COMPENSATION - SYNOSPHERE, LLC
The Company entered into employment agreements with two of the current
directors/officers of Synosphere. The term of these employee agreements
shall be two years following the closing and transferable in the event of
a sale of Synosphere to another entity or if Synosphere is spun-off. The
employees shall receive annual base salaries of $112,000 and $102,000 per
year with healthcare benefits. Furthermore, the employees shall receive an
Earn Out bonus of common stock in eight payments, each made quarterly, in
the amount of $62,500. A "golden parachute" clause shall be put in place,
such that if either of the employee agreements are terminated by the
Company or any successor, they are payable in full at the date of their
termination. Finally, one of the employees shall be appointed to the
Company's Board of Directors.
16. COMMON STOCK
STOCK PURCHASE WARRANTS
As of April 30, 2004, the Company has issued the following common stock
purchase warrants:
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
August 30, 2000 3,413 5 years $ 9.37
October 31, 2000 50,000 5 years $ 4.76
December 20, 2000 40,000 5 years $ 2.28
F-26
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
July 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
-------
822,205
All warrants are exercisable at April 30, 2004.
OPTIONS
On November 1, 2003, the Company granted an individual the option to
purchase 200,000,000 shares of common stock at the exercise price of the
average closing price for the three days prior to exercise less a 40%
discount. The option is exercisable commencing November 1, 2003 and
expires after January 15, 2004. The option holder exercised 60,000,000
shares of common stock on December 10, 2003 and the Company received
$93,600 cash. The option holder exercised an additional 17,352,941 shares
of common stock during the three months ended April 30, 2004 and the
Company received $350,000 cash and a $150,000 promissory note.
On December 15, 2003, the Company granted an individual the option to
purchase 50,000,000 shares of common stock at the exercise price of market
value at the date of exercise less a 15% discount. The options expire five
years from date of grant. The option holder exercised 26,956,000 shares of
common stock during December 2003 and January 2004 and the Company
received $640,823 cash. The option holder exercised an additional
14,000,000 shares of common stock during the three months ended April 20,
2004 and the Company received $531,015 cash.
On January 28, 2004, the Company granted Pangea Investments GmbH the
option to purchase 100,000,000 shares of common stock at the exercise
price of market value at the date of exercise less a 50% discount. The
option is exercisable commencing January 28, 2004 and expires after
January 29, 2014. The option holder exercised 10,000,000 during March 2004
and the Company received $175,000 cash. The balance, 90,000,000 shares, is
held in escrow.
F-27
Total options issued 350,000,000
Less options exercised (128,308,941)
Less options expired (140,000,000)
------------
Options exercisable at April 30, 2004 81,691,059
============
COMMON STOCK
During the quarter ended January 31, 2004, the Company issued the
following shares of common stock:
(1) 10 million shares valued at $37,000 (fair market value on date of
grant) for legal services provided by Greg Sichenzia during the
quarter ended January 31, 2004.
(2) 9.6 million shares valued at $35,425 (fair market value on date of
grant was used to determine number of shares to be issued) to
various creditors in satisfaction of their outstanding amounts due.
(3) 0.5 million shares valued at $1,975 (fair market value on date of
grant was used to determine number of shares to be issued) to a
company that provided edgarizing and related services during the
quarter ended January 31, 2004.
(4) 1.0 million shares valued at $3,700 (fair market value on date of
grant was used to determine number of shares to be issued) to a
company for marketing services during the quarter ended January 31,
2004.
(5) 81 million shares valued at $126,360 (fair market value on date of
grant) in accordance with a one year consulting contract (see Note
1, Prepaid Expenses).
(6) 60 million shares issued in connection with the exercise of options
at $0.00156 per share.
(7) 10 million shares issued in connection with the exercise of options
at $0.017 per share.
(8) 11.65 million shares issued in connection with the exercise of
options at $0.026 per share.
(9) 5.3 million shares issued in connection with the exercise of options
at $0.032 per share.
F-28
(10) 398 million shares valued at $578,000 (fair market value on date of
grant) for accrued employee bonuses at October 31, 2003 (see 10ksb
for the year ended October 31, 2003).
During the quarter ended April 30, 2004, the Company issued the following
shares of common stock:
(1) On February 18 and 20, 2004, the Company issued 2,335,188 shares of
common stock, under the S8 Registration Amendment filed December 5,
2003 to individuals for services rendered.
(2) On March 5, 2004, the Company issued 12,500,000 shares of common
stock under the S8 Registration Amendment filed December 5, 2003 to
individuals for services rendered.
(3) On February 3 and March 3, 2004, the Company issued 12,000,000
shares of common stock to an individual under the option dated
December 15, 2003 and received $448,090 cash.
17. 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.
18. 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.
19. SPIN-OFF
On July 20, 2003, the Board of Directors approved the spin-off of iBIZ,
Inc., a wholly-owned subsidiary of the Company, into a separate company.
Management estimates that the transaction should be completed in the
second quarter of fiscal 2004.
F-29
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
North and South America providing sub-licenses for all products to iBIZ,
Inc. for worldwide distribution, excluding North and South America. iBIZ,
Inc. will support iBIZ Technology Corp. in engineering, production, and
business development, through synergetic agreements using Enterprises
Capital AG and its affiliates infrastructure in Europe and Israel.
F-30
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 of America.
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.
ACCOUNTS RECEIVABLE
Accounts receivable are reported at the customer's outstanding balances less any
allowance for doubtful accounts and provision for returned merchandise. Our
terms for repayment range from 30 days to 60 days. We do not normally require
collateral to support receivables and interest is not accrued thereon.
ALLOWANCE FOR DOUBTFUL ACCOUNTS AND PROVISION FOR RETURNED MERCHANDISE
The allowance for doubtful accounts on accounts receivables and provision for
returned merchandise 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. We determine 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, age of account balance, etc.). We also provide a provision for returned
merchandise based on our history of returns as a percentage of sales.
INVENTORIES
Inventories are stated at the lower of cost (determined principally by average
cost) or market.
1
TECHNOLOGY AND PATENTS
We have capitalized the fair market value of stock issued in connection with the
acquisition of Synosphere, LLC. We will amortize the assets over the estimated
useful life once the patents are approved and the products are developed and
ready for market.
ACCOUNTING FOR CONVERTIBLE DEBT SECURITIES
We have issued convertible debt securities with non-detachable conversion
features. We have recorded the fair value of the beneficial conversion features
as interest expense and an increase to Additional Paid-in Capital.
ACCOUNTING FOR CONSULTING FEES PAID BY STOCK OPTIONS
We have issued stock options which entitle the grantee to exercise the options
at fair market value less an agreed upon discount. We have recorded the fair
market value as "consulting fees paid by stock options" and an increase to
additional paid-in capital.
REVENUE RECOGNITION
We recognize revenue when persuasive evidence of an arrangement exists, title
transfer has occurred, the price is fixed or readily determinable, and
collectibility is probable. Sales are recorded net of sales discounts. We
recognize revenue in accordance with Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements", (SAB 101). Our revenues are recorded under
two categories:
Product Sales - Product Sales represent primarily sales of PDA accessories to
retailers. Revenue is recorded when the goods are shipped and title passes to
the customer. We provide a reserve for sales returns based on our history of
returns as a percentage to sales.
We will periodically provide rebates on selected products for a limited sale
period, normally 7 days. We contract with a company to process and track the
rebates. We provide a reserve for outstanding rebates based on our history of
rebates submitted as a percentage of applicable sales.
2
Maintenance Agreements - We continue to sell service agreements to maintain and
service computers and printers that were a part of our product line several
years ago. We no longer sell such products but continue to offer renewals of
maintenance agreements. Income from maintenance agreements is being recognized
on a straight-line basis over the life of the service contracts, which range
from 3 months to 1 year. The unearned portion is recorded as deferred income.
CONSULTING AGREEMENTS
We issued common stock and options for payment of consulting services. The cost
of the consulting services paid with common stock was determined by multiplying
the common shares issued by the market price, for the shares at the inception
date of the agreement. The cost of the consulting services paid with options was
valued using the Black-Sholes stock option pricing model, based on the following
weighted average assumptions: dividend yield - -0-, expected volatility - 44%,
risk-free interest rate - 2.25%, expected life - 75 days to 10 years. The total
fair value of the options granted during the six months ending April 30, 2004
was $6,386,187. Based on the uncertainty of any future value of these
agreements, the Company expensed the value of the options in the six months
ended April 30, 2004. A summary of the common stock and options issued is as
follows:
COMMON STOCK
During November 2003, the Company issued the following shares of common stock:
(1) 10 million shares valued at $37,000(fair market value on date of grant)
for legal services provided by Greg Sichenzia during the quarter ended
April 30, 2004.
(2) 9.6 million shares valued at $35,425 (fair market value on date of grant
was used to determine number of shares to be issued) to various creditors
in satisfaction of their outstanding amounts due.
(3) 0.5 million shares valued at $1,975 (fair market value on date of grant
was used to determine number of shares to be issued) to a company that
provided edgarizing and related services during the quarter ended April
30, 2004.
(4) 1.0 million shares valued at $3,700 (fair market value on date of grant
was used to determine number of shares to be issued) to a company for
marketing services during the quarter ended April 30, 2004.
During December 2003, the Company issued the following shares of common stock:
(1) 81 million shares valued at $126,360 (fair market value on date of grant)
in accordance with one-year consulting contracts. The agreements consist
of retail-channel marketing services and corporate finance services
designed to assist the Company in analyzing potential acquisition targets
and the related financing of such acquisitions. The agreements are being
amortized straight-line over their respective one-year terms.
(2) 60 million shares issued in connection with the exercise of options at
$0.00156 per share.
3
During January 2004, the Company issued the following shares of common stock:
(1) 10 million shares issued in connection with the exercise of options at
$0.017 per share.
(2) 11.65 million shares issued in connection with the exercise of options at
$0.026 per share.
(3) 5.3 million shares issued in connection with the exercise of options at
$0.032 per share.
(4) 398 million shares valued at $578,000 (fair market value on date of grant)
for accrued employee bonuses at October 31, 2003 (see 10ksb for the year
ended October 31, 2003).
During February 2004, the Company issued the following shares of common stock:
(1) 1 million shares valued at $40,000 (fair market value on date of grant)
for legal services provided by Greg Sichenzia during the month ended
February 29, 2004.
(2) 1,085,188 shares valued at $34,726 (value of services rendered) for legal
services provided by Steven Thrasher.
(3) 250,000 shares valued at $8,507 (value of services rendered) for legal
services provided by Sammy Fleschler.
(4) 10 million shares issued in connection with the exercise of options at
$0.0363 per share.
During March 2004, the Company issued the following shares of common stock:
(1) 2.5 million shares valued at $75,000 (fair market value on date of grant)
for legal services provided by Greg Sichenzia during the month ended March
31, 2004.
(2) 10 million shares issued in connection with the exercise of options at
$0.0175 per share.
(3) 7,352,941 shares issued in connection with the exercise of options at
$0.0272 per share.
(4) 2 million shares issued in connection with the exercise of options at
$0.0425 per share.
(5) 2 million shares issued in connection with the exercise of options at
$0.0415 per share.
During April 2004, the Company issued the following shares of common stock:
(1) 5 million shares valued at $200,000 (fair market value on date of grant)
in accordance with a one-year consulting contract. See Note 1, Prepaid
Expenses.
4
(2) 10 million shares issued in connection with the exercise of options at
$0.03 per share.
(3) 2 million shares valued at $76,800 (fair market value on date of grant) to
a company for public relation services during the six months ending April
30, 2004.
(4) 90 million shares issued in connection with the exercise of options at
$0.015 per share.
(5) 3 million shares valued at $90,000 (fair market value on date of grant) to
a company for investment banking and financial advising services under a
one-year contract. See Note 1, Prepaid Expenses.
5
STOCK OPTIONS
The Company issued options to purchase 350 million shares of common stock as
follows:
November 2003 - Options valued at $260,000 to purchase 200 million shares of
common stock (at a 40% discount from market, as defined) were issued to D. Scott
Elliott for general business and financial consulting services to assist the
Company with its expansion plans and entry into other markets.
December 2003 - Options valued at $60,000 to purchase 50 million shares of
common stock (at a 15% discount from market, as defined) were issued to Jeffrey
Firestone for providing legal counsel on international issues in mergers and
acquisitions.
January 2004 - Options valued at $4,450,000 to purchase 100 million shares of
common stock (at a 50% discount from market, as defined) were issued to Pangea
Investments GmbH for consulting and acquisition services in Europe and Israel.
Sam Elimalech, an officer of Enterprise Capital AG (see Note 8), is also a
member of Pangea Investments Gmbh.
March 2004 - Options valued at $1,616,186 to purchase 151,045,455 shares of
common stock (at a 20% discount from market, as defined) were issued to D. Scott
Elliott for general business and financial consulting services to assist the
Company with its expansion plans and entry into other markets.
The Company has valued the options granted using the Black-Sholes stock option
pricing model, based on the following weighted average assumptions: dividend
yield - -0-, expected volatility - 44%, risk-free interest rate - 2.25%,
expected life - 75 days to 10 years. The total fair value of the options granted
during the three months ending April 30, 2004 was $6,386,187 (see Note 15).
Based on the uncertainty of any future value of these agreements, the Company
expensed the value of the options in the six months ended April 30, 2004.
6
SELECT FINANCIAL INFORMATION
For the Three Months For the Six Months
Ended Ended
04/30/2004 04/30/2003 04/30/2004 04/30/2003
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
Statement of Operations Data:
Total revenue $ 437,807 $ 60,637 $ 599,756 $ 135,947
Operating loss (2,716,316) (458,469) (7,826,018) (916,123)
Net loss after tax (2,621,326) (687,959) (7,743,941) (2,065,963)
Net loss per share (0.00) (0.01) (0.00) (0.01)
Balance Sheet Data:
Total assets $ 2,655,530 $ 472,134 $ 2,655,530 $ 472,134
Total liabilities 3,167,900 6,131,192 3,167,900 6,131,192
Total stockholders' deficit (512,370) (5,659,058) (512,370) (5,659,058)
RESULTS OF OPERATIONS
The three months ended April 30, 2004 compared to the three months ended April
30, 2003.
For the Three Months Ended
04/30/2004 04/30/2003 Increase (Decrease)
(Unaudited) (Unaudited) Amount Percentage
----------- ----------- -------- ----------
Revenues:
Product sales $429,373 $52,633 $376,740 716%
Maintenance agreements 8,434 8,004 430 5%
Total revenues $437,807 $60,637 $377,170 622%
Revenues - Revenues increased by approximately 622% to $437,807 in the three
months ended April 30, 2004 from $60,637 in the three months ended April 30,
2003. The increase was in product sales resulting from the addition of new
customers, the increase in volume sales to an existing national retailer and
introduction and sales of our new products. The majority of our increased sales
came from our FM Radio accessories and travel kits which increased from
approximately $26,000 in 2003 to over $380,000 in 2004.
$10,685 and $356,940 of revenues for the three months ended April 30, 2004 were
from Comp USA and Circuit City, respectively. Our maintenance revenues remained
relatively comparable at $8,434 in 2004 and $8,004 in 2003. We are not actively
pursuing this area of business and do not expect this to be significant in
subsequent periods.
7
For the Three Months Ended Increase (Decrease)
04/30/2004 04/30/2003 Amount Percentage
(Unaudited) (Unaudited) ------ ----------
Cost of revenues: ----------- -----------
Product sales $344,651 $ 54,353 $290,298 534%
Maintenance agreements 8,995 2,529 6,466 256%
Total cost of revenues $353,646 $ 56,882 $296,764 522%
Gross profit:
Product sales - amount $ 84,722 $(1,720)
Product sales - percentage 20% (3%)
Maintenance agreements - amount (561) 5,475
Maintenance agreements - percentage (7%) 68%
Total gross profit $ 84,161 $ 3,755
19% 6%
Cost of Revenues - The cost of revenues of $353,646 (81% of sales) in the three
months ended April 30, 2004 increased from $56,882 (94% of revenues) for the
three months ended April 30, 2003.
Cost of Revenues - Product Sales in 2004 consists of $295,377 (69% of sales) of
direct material, packaging and freight and $49,276 (% of sales) of salaries and
employee related costs. Cost of Revenues - Product Sales in 2003 consists of
$39,649 (75% of sales) of direct material, packaging and freight and $14,704
(28% of sales) of salaries and employee related costs.
8
Cost of Revenues - Maintenance Agreements in 2004 consists of $8,021 of parts
and accessories (95% of revenues) and $974 of wages and benefits (16% of
revenues). Cost of Revenues - Maintenance Agreements in 2003 consists of $1,605
of parts and accessories (20% of revenues) and $924 of wages and benefits (11%
of revenues). Based on the nature of the equipment being serviced and the
applicable age thereof, parts and accessories can fluctuate significantly each
period.
Our products experience a high degree of technological obsolescence based on the
rapidly changing market for PDA-related products and the introduction of new
PDAs. We evaluate our inventories based on sales over a rolling six-month period
and industry publications of PDA-related product changes in order to determine
the write-off of slow-moving and obsolete inventories. During the six months
ended April 30, 2004, we did not write-off additional inventories and sold
approximately $3,000 of inventory previously written-off.
Research and development expense is directly related to our acquisition of
Synosphere, LLC and the continuing efforts to develop products such as the Blue
Dock (TM) PDA docking station, the PDA travel keyboard, the Visual Notification
Device and the Keyboard/Mouse Cradle. See Note 6 of the financial statements for
further description of these products.
For the Three Months Ended Increase (Decrease)
04/30/2004 04/30/2003 Amount Percentage
(Unaudited) (Unaudited) ------ ----------
----------- -----------
Selling, general and administrative expenses:
Salaries and wages $118,140 $ 92,400 $ 25,740 28%
Bonuses 375,000 207,519 167,481 81%
Accounting, legal and professional fees 340,050 90,019 250,031 278%
Advertising 15,453 9,615 5,838 61%
Commissions to outside sales representatives 79,592 1,509 78,083 5174%
Travel 17,209 7,941 9,268 116%
Other selling, general and administrative expenses 167,802 53,221 114,581 215%
Total selling, general and administrative expenses $1,113,246 $462,224 $651,022 141%
Selling, General and Administrative Expenses - Selling, general and
administrative expenses increased approximately 120% to $1,014,714 in the three
months ended April 30, 2004 from $462,224 in the three months ended April 30,
2003. A description of the major increases follows:
(1) Salaries and wages increased $25,740 or 28% in the three months ended
April 30, 2004 due to the addition of Synosphere's employees and the
employment agreements signed with the two officers of Synosphere, LLC.
(2) Bonuses increased $167,481 or 81% in the three months ended April 30, 2004
due to the signing bonuses and quarterly bonuses called for in the
employment agreements with the two officers of Synosphere, LLC.
9
(3) Accounting, legal and professional fees dramatically increased in the
three months ended April 30, 2004 ($340,050) as compared to the three
months ended April 30, 2003 ($90,019) due to increased activity with our
SEC filings. We do not anticipate this trend to continue.
(4) Advertising, travel and commissions increased as we actively market our
new products and continue to look for new sales channels and
representatives.
(5) Other selling, general and administrative expenses includes $98,532 during
the quarter related to amortization of the patents and technology of
Synosphere.
Consulting Fees - We granted options for services to consultants during the
quarter ended April 30, 2004. We valued the options using the Black-Scholes
formula. See discussion of Stock Options above.
Cancellation of Principal and Interest - The Company recorded other income of
$134,289 related to the cancellation of principal and interest on convertible
debentures that were renegotiated and converted during the period.
Interest Expense - Interest expense decreased 53% to $39,381 in the three months
ended April 30, 2004 from $81,780 in the three months ended April 30, 2003. The
decrease is a result of convertible debenture debt instruments being paid in
full and no longer accruing interest.
Beneficial Interest Expense - We record the excess of the fair value of the
stock price at the date of issuance of convertible debentures over the
conversion price on the same date as interest expense-beneficial conversion
feature. The amount decreased to $0 in 2004 from $147,141 in 2003 due to no
debentures being issued in the three months ending April 30, 2004.
10
The six months ended April 30, 2004 compared to the six months ended April 30,
2003.
For the Six Months Ended Increase (Decrease)
04/30/2004 04/30/2003 Amount Percentage
(Unaudited) (Unaudited) ------ ----------
Revenues: ----------- ----------
Product sales $581,589 $118,358 $463,231 391%
Maintenance agreements 18,167 17,589 578 3%
Total revenues $599,756 $135,947 $463,809 341%
Revenues - Revenues increased by approximately 341% to $599,756 in the six
months ended April 30, 2004 from $135,947 in the six months ended April 30,
2003. The increase was in product sales resulting from the addition of new
customers, the increase in volume sales to an existing national retailer and
introduction and sales of our new products. The majority of our increased sales
came from our FM Radio accessories and travel kits which increased from
approximately $63,000 in 2003 to over $480,000 in 2004.
$107,030 and $356,940 of revenues for the six months ended April 30, 2004 were
from Comp USA and Circuit City, respectively. Our maintenance revenues remained
relatively comparable at $18,167 in 2004 and $17,589 in 2003. We are not
actively pursuing this area of business and do not expect this to be significant
in subsequent periods.
11
For the Six Months Ended Increase (Decrease)
04/30/2004 04/30/2003 Amount Percentage
(Unaudited) (Unaudited) ------ ----------
Cost of revenues: ----------- -----------
Product sales $460,733 $ 144,826 $315,907 218%
Maintenance agreements 14,658 3,791 10,867 287%
Total cost of revenues $475,391 $ 148,617 $326,774 220%
Gross profit:
Product sales - amount $120,856 $(26,468)
Product sales - percentage 21% (22%)
Maintenance agreements - amount 3,509 13,798
Maintenance agreements - percentage 19% 78%
Total gross profit $124,365 $(12,670)
21% (9%)
Cost of Revenues - The cost of revenues of $475,391 (79% of sales) in the six
months ended April 30, 2004 increased from $148,617 (109% of revenues) for the
six months ended April 30, 2003.
Cost of Revenues - Product Sales in 2004 consists of $376,437 (63% of sales) of
direct material, packaging and freight and $84,296 (14% of sales) of salaries
and employee related costs. Cost of Revenues - Product Sales in 2003 consists of
$86,060 (63% of sales) of direct material, packaging and freight and $58,766
(43% of sales) of salaries and employee related costs.
Cost of Revenues - Maintenance Agreements in 2004 consists of $11,976 of parts
and accessories (2% of revenues) and $2,682 of wages and benefits (0% of
revenues). Cost of Revenues - Maintenance Agreements in 2003 consists of $2,253
of parts and accessories (2% of revenues) and $1,538 of wages and benefits (1%
of revenues). Based on the nature of the equipment being serviced and the
applicable age thereof, parts and accessories can fluctuate significantly each
period.
12
Our products experience a high degree of technological obsolescence based on the
rapidly changing market for PDA-related products and the introduction of new
PDAs. We evaluate our inventories based on sales over a rolling six-month period
and industry publications of PDA-related product changes in order to determine
the write-off of slow-moving and obsolete inventories. During the six months
ended April 30, 2004, we did not write-off additional inventories and sold
approximately $12,000 of inventory previously written-off.
Research and development expense is directly related to our acquisition of
Synosphere, LLC and the continuing efforts to develop products such as the Blue
Dock (TM) PDA docking station, the PDA travel keyboard, the Visual Notification
Device and the Keyboard/Mouse Cradle. See Note 6 of the financial statements for
further description of these products.
For the Six Months Ended Increase (Decrease)
04/30/2004 04/30/2003 Amount Percentage
(Unaudited) (Unaudited) ------ ----------
Selling, general and administrative expenses: ----------- -----------
Salaries and wages $192,149 $248,816 $(56,667) (23%)
Bonuses 375,000 209,025 165,975 79%
Accounting, legal and professional fees 502,795 294,655 208,140 71%
Advertising 50,991 14,096 36,895 262%
Commissions to outside sales representatives 101,083 2,764 98,319 3557%
Travel 50,797 9,037 41,760 462%
Other selling, general and administrative expenses 220,337 125,060 95,277 76%
Total selling, general and administrative expenses $1,493,152 $903,453 $589,699 65%
13
Selling, General and Administrative Expenses - Selling, general and
administrative expenses increased approximately 54% to $1,394,620 in the six
months ended April 30, 2004 from $903,453 in the six months ended April 30,
2003. A description of the major increases follows:
(1) Salaries and wages decreased $56,667 or 23% in the six months ended April
30, 2004 as a result of reducing employee base in the first three months
of the 2004 year as compared to the first three months of the 2003 year
offset by the hiring of new employees in the second three months of the
2004 year to manage the increased sales activity and the employment
agreements signed with the two officers of Synosphere, LLC.
(2) Bonuses increased $165,975 or 79% in the six months ended April 30, 2004
due to the signing bonuses and quarterly bonuses called for in the
employment agreements with the two officers of Synosphere, LLC.
(3) Accounting, legal and professional fees increased in the six months ended
April 30, 2004 ($502,795) as compared to the six months ended April 30,
2003 ($294,655) due to increased activity with our SEC filings. We do not
anticipate this trend to continue.
(4) Advertising, travel and commissions increased as we actively market our
new products and continue to look for new sales channels and
representatives.
(5) Other selling, general and administrative expenses includes $98,532 during
the six-months related to amortization of the patents and technology of
Synosphere.
Consulting Fees - We granted options for services to consultants during the six
months ended April 30, 2004. We valued the options using the Black-Scholes
formula. See discussion of Stock Options above.
Cancellation of Principal and Interest - The Company recorded other income of
$197,017 related to the cancellation of principal and interest on convertible
debentures that were renegotiated and converted during the period.
Interest Expense - Interest expense decreased 14% to $141,661 in the six months
ended April 30, 2004 from $165,513 in the six months ended April 30, 2003. The
decrease is a result of convertible debenture debt instruments being paid in
full and no longer accruing interest.
14
Beneficial Interest Expense - We record the excess of the fair value of the
stock price at the date of issuance of convertible debentures over the
conversion price on the same date as interest expense-beneficial conversion
feature. The amount decreased to $0 in 2004 from $985,139 in 2003 due to no
debentures being issued in the six months ending April 30, 2004.
LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 2004, we had an accumulated deficit of $32,542,273 and a working
capital deficit of $1,803,104 as compared to a working capital deficit of
$5,197,825 at April 30, 2003. The decrease in the deficit is primarily due to
approximately $1.4 million in convertible debentures converted into common stock
in 2003. We have $1,413,675 of debt payments related to convertible debentures
that was due October 31, 2003. Based on discussions with the holders, the
balance of these debentures is expected to be converted into common stock in the
third quarter. Based on the current stock price, the conversion would result in
the issuance of approximately 47 million shares of common stock, or 1.7% of our
outstanding shares at April 2004.
Cash Flows from Operations - Our cash flow from operations used $1,602,768 in
2004 compared to $467,890 in 2003. Our net loss after adjusting for non-cash
items decreased from $744,000 in 2003 to $646,000 in 2004. Our increase of
accounts receivable in 2004 is due to increased sales in the 2nd quarter of
fiscal 2004. Cash used was primarily due to our ability to purchase inventory,
pay overdue accounts payable and accrued wages and expenses based on our
proceeds ($1,790,000) from exercise of stock options in this quarter. This
accounted for a use of cash amounting to $681,000 in 2004 versus an increase in
cash in 2003 amounting to $275,000 due to our poor cash position in 2003 and
reduced sales. Based on the initial reception of our new product, the "Virtual
Keyboard" (set to be delivered to retailers in third quarter 2004) and the
continued success of our Pocket Radio product, we are confident that our cash
flows will be positive in 2004. We currently have a backlog of orders totaling
$650,000. As with other technology-related products, our success depends on
acceptance of our products in the market and introduction of new products. If
our products do not continue to receive acceptance in the market, our cash flows
can quickly turn negative.
Cash Flows from Investing Activities - Cash used for investing activities was
$21,296 in 2004 due to cash payments to members of Synosphere, LLC per the
acquisition agreement. We had no investing activities in 2003.
15
Cash Flows from Financing Activities - Cash provided by financing activities
consisted of $1,790,000 net proceeds from the exercise of stock options and
repayments of $59,397 of the loan from a foreign company (Enterprise Capital
AG). We may need to raise additional capital through the issuance of common
stock options and/or debt, which will be used to expand our infrastructure and
acquire additional product lines and complimentary businesses.
In January 2004 we entered into an agreement to purchase the assets of
Synosphere LLC for 30 million shares of common stock valued at $1.2 million. We
currently have no other material commitments for capital expenditures other than
the completion of the Synosphere products which is currently estimated at $2.4
million over the next 12 months.
Backlog - The Company has received orders for the Virtual Keyboards from
national retailers. The Company paid Enterprise Capital AG $400,000 for the
keyboards necessary to fulfill these orders. Since January 2004, there have been
recurring production delays. Additional inventory which was to flow as a rate
that would include fulfilling outstanding orders by the end of June, have not
yet been delivered, nor do we have any indication from Enterprise Capital AG
when the Virtual Keyboards will be shipped at this time.
Enterprise Capital AG's inability to meet agreed upon delivery schedules, even
after prepayment of goods, has forced the Company to pursue other venues in an
effort to safeguard their existing orders as well as fulfill future orders for
the Virtual Keyboard.
The Company has made tremendous advances providing product awareness to the
Virtual Keyboard technology. As a result of the overwhelming success the Company
has experienced in this regard, it is the Company's intent to build a redundant
supply chain that will support their ongoing efforts.
Spin-off - On October 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.
16
iBIZ Technology Corp. will continue to distribute its product line in North and
South America providing sub-licenses for all products to iBIZ, Inc. for
worldwide distribution with the exception of North and South America. iBIZ, Inc.
and iBIZ Technology Corp. are in the process of negotiating the terms of the
license agreements. It is currently planned that iBIZ, Inc. will support iBIZ
Technology Corp. in engineering, production, and business development, through
synergetic agreements (to be negotiated) using Enterprise 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.
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 April 30, 2004. There have been no significant changes in our
internal control over financial reporting 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 April 30, 2004.
17
ITEM 2. CHANGES IN SECURITIES
(c) Recent Sales of Unregistered Securities
The securities described below represent securities of iBIZ sold by iBIZ during
the six month period ended April 30, 2004, 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
In April 2004, IBIZ issued 2,000,000 shares of restricted common stock to a
company for public relations services.
SALES OF DEBT AND WARRANTS FOR CASH
None
OPTION GRANTS
In March 2004, IBIZ issued an option to purchase up to 151,045,455 shares of
common stock to D. Scott Elliott for general business and financial consulting
services.
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.
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.
18
Pursuant to the requirements of Section 12 of the Securities Act of 1934, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned thereunto duly authorized.
DATED THIS 21ST DAY OF JUNE 2004
IBIZ TECHNOLOGY CORP.
By: /s/ KENNETH W. SCHILLING
---------------------------------------
Kenneth W. Schilling, President,
and acting principal accounting officer
19