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. 000-50458
iBIZ, INC.
---------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 72-1530833
- --------------------------------------- --------------------------
(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 June 18, 2004
- ------------------------------ ----------------------------
Common stock, $0.001 par value 1,000
iBIZ, INC.
BALANCE SHEET
APRIL 30, 2004
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 79,701
Cash pledged for letter of credit 10,000
Accounts receivable, net 354,195
Inventories, net 127,250
Deposit on purchase of inventory 400,000
Prepaid expenses 9,374
-----------
TOTAL ASSETS $ 980,520
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 314,504
Accrued wages 8,453
Payroll taxes payable 39,829
Loan payable, Enterprise Capital AG 30,603
Deferred income 1,768
-----------
Total current liabilities 395,157
-----------
STOCKHOLDER'S EQUITY:
Preferred stock - authorized - 10,000,000 shares, par value $.001 per share;
issued and outstanding,
-0- shares 0
Common stock - authorized - 100,000,000 shares, par
value $.001 per share; issued and outstanding -
1,000 shares 1
Additional paid-in capital 2,494,036
Accumulated deficit (1,908,674)
-----------
Total stockholder's equity 585,363
-----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 980,520
===========
See accompanying notes to financial statements.
iBIZ, INC.
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)
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES 236,901 349,007 446,963 479,084
--------- --------- --------- ---------
LOSS FROM OPERATIONS (152,740) (345,252) (322,598) (491,754)
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense 0 (900) 0 (900)
Other income 24,721 3 24,721 3
--------- --------- --------- ---------
Total other income
(expense), net 24,721 (897) 24,721 (897)
--------- --------- --------- ---------
LOSS BEFORE INCOME TAXES (128,019) (346,149) (297,877) (492,651)
INCOME TAXES 0 0 0 0
--------- --------- --------- ---------
NET LOSS $(128,019) $(346,149) $(297,877) $(492,651)
========= ========= ========= =========
NET LOSS PER COMMON
SHARE - Basic and
diluted $ (128.02) $ (346.15) $ (297.88) $ (492.65)
========= ========= ========= =========
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING
--Basic and diluted 1,000 1,000 1,000 1,000
========= ========= ========= =========
See accompanying notes to financial statements.
iBIZ, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE SIX MONTHS ENDED APRIL 30, 2004
(UNAUDITED)
Preferred Stock Common Stock Additional
----------------- ----------------- Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit Total
------- ------- ------- ------- ----------- ----------- -----------
BALANCE, NOVEMBER 1, 2003 0 $ 0 1,000 $ 1 $ 1,148,818 $(1,610,797) $ (461,978)
NET LOSS 0 0 0 0 0 (297,877) (297,877)
CONTRIBUTION OF CAPITAL FROM
PARENT COMPANY 0 0 0 0 1,345,218 0 1,345,218
------- ------- ------- ------- ----------- ----------- -----------
BALANCE, APRIL 30, 2004 0 $ 0 1,000 $ 1 $ 2,494,036 $(1,908,674) $ 585,363
======= ======= ======= ======= =========== =========== ===========
See accompanying notes to financial statements.
iBIZ, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 30, 2004 AND 2003
(UNAUDITED)
2004 2003
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (297,877) $ (492,651)
Adjustments to reconcile net loss to
net cash used by operating activities:
Provision for doubtful accounts and
returned merchandise 24,125 4,217
Provision (adjustment) for obsolete
inventories (23,100) 0
Changes in operating assets and
liabilities:
Accounts receivable (254,569) (29,387)
Inventories (60,308) (29,279)
Prepaid expenses 4,256 (1,156)
Accounts payable and accrued expenses 25,003 193,187
Accrued wages and taxes (221,888) 18,781
Deferred income (3,802) (4,114)
----------- -----------
Net cash used by operating activities (1,208,160) (340,402)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft 0 14,820
Net proceeds received on loan payable (59,397) 0
Contribution of capital 1,345,218 324,905
----------- -----------
Net cash provided by financing activities 1,285,821 339,725
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 77,661 (677)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 2,040 677
----------- -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 79,701 $ 0
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during the period for:
Interest $ 0 $ 900
=========== ===========
Income taxes $ 0 $ 0
=========== ===========
See accompanying notes to financial statements.
iBIZ, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2004
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - iBIZ, Inc. was organized on October 30, 2001,
under the laws of the State of Nevada. The Company designs,
manufactures (through subcontractors), and distributes a line of
accessories for the PDA and handheld computer market which is
distributed through large retail chain stores and e-commerce sites
throughout the United States of America.
OWNERSHIP OF COMPANY - The Company is a wholly-owned subsidiary of iBIZ
Technology Corp.
CASH AND CASH EQUIVALENTS - For purposes of the statement of cash
flows, the Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents.
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 possible returned merchandise. Interest is not accrued on
overdue accounts receivable.
ALLOWANCE FOR DOUBTFUL ACCOUNTS AND PROVISION FOR RETURNED MERCHANDISE
- The allowance for doubtful accounts and provision for returned
merchandise on accounts receivable is charged to income in amounts
sufficient to maintain the allowance 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 (i.e.,
bankruptcy, lack of contact, age of account balance, etc.).
2
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.
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 judgement is required
in interpreting market data to develop the estimates of fair value, and
accordingly, the estimates are not necessarily indicative of the
amounts that the Company could realize in a current market exchange.
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 - Revenue is recognized 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 a rebate 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 - Revenue 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.
3
ADVERTISING - All direct advertising costs are expensed as incurred.
The Company charged to operations $50,991 and $5,222 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.
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 directed to 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.
Cash in Bank - The Company has its cash and cash equivalents deposited
in one banking institution. Only $100,000 of the balance is insured by
the Federal Deposit Insurance Corporation.
Financial Instruments - Financial instruments that potentially subject
the Company to concentrations of credit risk consist principally of
trade accounts receivable.
4
Concentrations of credit risk with respect to trade receivables are
normally limited due to the large number of customers comprising the
Company's customer base and their dispersion across different
geographic areas. 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.
At April 30, 2004, two customers accounted for 67% and 27% of net
receivables.
Purchases - The Company relies primarily on three suppliers for its
products (Enterprise Capital AG, Poto Technology and Prolink). The loss
of any 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%, respectively.
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.
IMPACT OF NEW ACCOUNTING STANDARDS - 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 August 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.
5
GOING CONCERN - As shown in the accompanying financial statements, the
Company has incurred significant losses, has a 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. 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 financial statements do not include any
adjustments that might be necessary if the Company is unable to
continue as a going concern. The Company intends to continue to
increase sales through its new line of products - FM Radio for PDAs and
the Virtual Keyboard. The Company's ability to obtain additional equity
investments through private placements of its common stock will affect
its success in becoming a going concern.
2. ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS AND PROVISION
FOR RETURNED MERCHANDISE
A summary of accounts receivable and allowance for doubtful accounts
and provision for returned merchandise is as follows:
Accounts receivable $429,058
Less allowance for doubtful accounts
and provision for returned merchandise 74,863
--------
Accounts receivable, net $354,195
========
Allowance for doubtful accounts
and provision for returned merchandise
Balance, at 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 at April 30, 2004 $ 74,863
========
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 the Company. The
Company is confident this amount will be recovered in inventory in the
near future. See Note 6 for further discussion of the Virtual Keyboards
and Enterprise Capital AG.
6
4. INCOME TAXES
Deferred Taxes
The components of deferred tax assets are as follows:
Net operating loss carryforwards $ 207,200
Allowance for doubtful accounts and
provision for returned merchandise 16,300
---------
223,500
Less valuation allowance 223,500
---------
Net deferred tax asset $ 0
=========
A reconciliation of the valuation allowance is as follows:
Balance, at November 1, 2003 $ 241,100
Addition for the period (17,600)
---------
Balance, at April 30, 2004 $ 223,500
=========
The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future
taxable income and tax planning strategies in making this assessment.
Tax Carryforwards
The Company has the following tax carryforwards at April 30, 2004:
Expiration
Year Amount Date
---- ------ ----------
Net operating loss:
October 31, 2002 $ 303,000 October 31, 2022
October 31, 2003 712,000 October 31, 2023
April 30, 2004 293,545 October 31, 2024
----------
$1,035,845
Future changes in ownership may limit the ability of the Company to
utilize these net operating loss carryforwards prior to their expiration.
7
5. COMMITMENTS AND CONTINGENCIES
Operating Lease
The Company leases its office and warehouse facility 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:
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 $8,921, respectively.
Workers' Compensation Insurance
Through June 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 June, 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.
8
Unsecured Convertible Debentures
VARIOUS - CONVERTIBLE DEBENTURES-BALANCE OUTSTANDING - $1,150,817
On October 31, 2001, the Company issued 8% convertible debentures as
follows:
1. Due date - January 31, 2004.
2. Interest payable quarterly from January 1, 2001.
3. 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.
4. 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.
LAURUS MASTER FUND, LTD. - CONVERTIBLE DEBENTURES-BALANCE OUTSTANDING -
$262,858
In April and July 2001, the Company issued $500,000 and $150,000,
respectively, 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. 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.
9
6. 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 at 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.
7. SUBSEQUENT EVENT
The Company has filed a Form 10SB with the Securities and Exchange
Commission. The Form is still under review as of the date of this
filing.
The Company is currently negotiating agreements with its parent company
to license certain products for sale outside of North and South
America.
10
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 four
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.
11
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.
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.
12
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 $(152,740) $(345,251) $(322,598) $(491,754)
Net loss after tax $(128,019) $(346,149) $(297,877) $(492,651)
Net loss per share $ (128.02) $ (346.15) $ (297.88) $ (492.65)
Balance Sheet Data:
Total assets $ 980,520 $ 171,073 $ 980,520 $ 171,073
Total liabilities $ 395,157 $ 396,697 $ 395,157 $ 396,697
Total stockholders' deficit (equity) $ 585,363 $(225,624) $ 585,363 $(225,624)
RESULTS OF OPERATIONS
The three months ended April 30, 2004 compared to the three months ended April
30, 2003.
For the Three Months Increase (Decrease)
Ended
04/30/2004 04/30/2003 AMOUNT PERCENTAGE
(Unaudited) (Unaudited)
-------- -------- -------- ----------
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.
13
$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.
For the Three Months Increase (Decrease)
Ended
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 (11% 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. The increased sales
volume over 2003 provided a positive margin for 2004.
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.
14
For the Three Months Increase (Decrease)
Ended
04/30/2004 04/30/2003 AMOUNT PERCENTAGE
(Unaudited) (Unaudited)
--------- --------- --------- ---------
Selling, general and administrative expenses:
Salaries and wages $ 21,852 $ 38,339 $ (16,487) (43%)
Bonuses 0 207,519 (207,519) (100%)
Accounting, legal and professional fees 64,948 61,711 3,237 5%
Advertising 15,453 2,382 13,071 549%
Commissions to outside sales representatives 79,592 1,509 78,083 5174%
Travel 22,756 7,941 14,815 187%
Other selling, general and administrative expenses 32,300 29,606 2,694 9%
Total selling, general and administrative expenses $ 236,901 $ 349,007 $(112,106) (32%)
15
Selling, General and Administrative Expenses - Selling, general and
administrative expenses decreased approximately 32% to $236,901 in the three
months ended April 30, 2004 from $349,007 in the three months ended April 30,
2003. A description of the major decreases follows:
(1) Salaries and wages decreased $16,487 or 43% in the three
months ended April 30, 2004 due to the reduction of two sales
personnel from the comparative period. We expect to fill these
positions during the 4th quarter.
(2) Bonuses decreased $207,519 or 100% in the three months ended
April 30, 2004 as the Company issued bonuses in the form of
stock during the 2nd quarter of 2003 and did not repeat those
bonuses in 2004.
(3) Accounting, legal and professional fees increased in the three
months ended April 30, 2004 ($64,948) as compared to the three
months ended April 30, 2003 ($61,711) 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
marketed our new products and continue to look for new sales
channels and representatives.
The six months ended April 30, 2004 compared to the six months ended April 30,
2003.
For the Six Months Increase (Decrease)
Ended
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.
16
$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.
For the Six Months Increase (Decrease)
Ended
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.
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.
17
For the Six Months Increase (Decrease)
Ended
04/30/2004 04/30/2003 AMOUNT PERCENTAGE
(Unaudited) (Unaudited)
--------- --------- --------- ---------
Selling, general and administrative expenses:
Salaries and wages $ 57,930 $ 108,639 $ (50,709) (47%)
Bonuses 0 209,025 (209,025) (100%)
Accounting, legal and professional fees 144,188 61,711 82,477 134%
Advertising 50,991 5,222 45,769 876%
Commissions to outside sales representatives 101,083 2,764 98,319 3557%
Travel 56,701 9,037 47,664 527%
Other selling, general and administrative
expenses 36,070 82,686 (46,616) (56%)
Total selling, general and administrative expenses $ 446,963 $ 479,084 $ (32,121) (7%)
Selling, General and Administrative Expenses - Selling, general and
administrative expenses decreased approximately 7% to $446,963 in the six months
ended April 30, 2004 from $479,084 in the six months ended April 30, 2003. A
description of the major decreases follows:
(1) Salaries and wages decreased $50,709 or 47% in the six months
ended April 30, 2004 as a result of the reduction of two sales
personnel in the 1st and 2nd quarters. We expect to fill these
positions by the 4th quarter to manage the increased sales
activity expected.
(2) Bonuses decreased $209,025 or 100% in the six months ended
April 30, 2004 as the Company issued bonuses in the form of
stock during the first six months of 2003 and did not repeat
those bonuses in 2004.
(3) Accounting, legal and professional fees increased in the six
months ended April 30, 2004 ($144,188) as compared to the six
months ended April 30, 2003 ($61,711) 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
marketing our new products and continue to look for new sales
channels and representatives.
LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 2004, we had an accumulated deficit of $1,908,674 and a working
capital surplus of $185,361 as compared to a working capital deficit of $225,625
at April 30, 2003. The change from a working capital deficit to a working
capital surplus is the result of increased sales of products to major retail
chains in the three months ended April 30, 2004 and our ability to reduce
accruals in the six months ended April 30, 2004 with our increased cash flows.
Cash Flows from Operations - Our cash flow from operations used $1,208,160 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. 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 in investing activities was
$-0- in 2004 and 2003.
18
Cash Flows from Financing Activities - Cash provided by financing activities
consisted of payments on the loan with Enterprise Capital AG of $59,397 offset
by $1,345,218 of capital contributed by the Company's parent company.
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.
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.
ITEM 2. CHANGES IN SECURITIES
None for the period ending April 30, 2004.
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
19
(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 21st day of June, 2004
iBIZ, INC.
By: /s/ KENNETH W. SCHILLING
------------------------
Kenneth W. Schilling, President, and acting
principal accounting officer
21