UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A3
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL QUARTER ENDED JANUARY 31, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
--------------------
IBIZ TECHNOLOGY CORP.
(Exact name of small business registrant as specified in its charter)
COMMISSION FILE NUMBER 000-027619
FLORIDA 86-0933890
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2238 West Lone Cactus Drive, #200, Phoenix, Arizona 85021
(Address of principal executive offices)
(623) 492-9200
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 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
--- ---
As of March 15, 2004, the registrant had 2,565,805,769 shares of its $.001 par
value common stock outstanding.
Transitional Small Business Disclosure Format: YES NO X
--- ---
IBIZ TECHNOLOGY CORP.
INDEX TO
QUARTERLY REPORT ON FORM 10-QSB
FOR THE FISCAL QUARTER ENDED JANUARY 31, 2004
PART I. FINANCIAL INFORMATION
Page
ITEM 1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of January 31, 2004 (Unaudited)
and October 31, 2003 (Audited).......................................................................1
Condensed Consolidated Statements of Loss for the Three Months Ended
January 31, 2004 and 2003 (Unaudited)................................................................2
Condensed Consolidated Statement of Changes in Stockholders' Deficit for the
Three Months Ended January 31, 2004 (Unaudited)......................................................3
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
January 31, 2004 and 2003 (Unaudited)...............................................................4
Notes to Interim Condensed Consolidated Financial Statements (Unaudited).................................6
ITEM 2. OUR MANAGEMENT'S DISCUSSION AND ANALYSIS...........................................................12
ITEM 3. OUR CONTROLS AND PROCEDURES........................................................................19
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS..................................................................................19
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS..........................................................19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES....................................................................20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................................................20
ITEM 5. OTHER INFORMATION..................................................................................20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................................................................20
SIGNATURES..................................................................................................21
i
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JANUARY 31, OCTOBER 31,
2004 2003
(UNAUDITED AND (AUDITED)
RESTATED)
------------ ------------
ASSETS
Current assets:
Cash ................................................................... $ 262,649 $ 2,140
Restricted cash equivalent ............................................. 10,000 10,000
Accounts receivable, net ............................................... 48,995 111,322
Inventories, net (Note 4) .............................................. 62,228 43,842
Prepaid expenses ....................................................... 129,128 24,057
------------ ------------
Total current assets ...................................................... 513,000 191,361
Property and equipment, net ............................................... 59,851 63,329
Patents, net .............................................................. 53,130 --
Intellectual property rights, net ......................................... 55,455 61,000
Deposits .................................................................. 2,500 2,500
Note receivable from officer, net ......................................... -- --
------------ ------------
Total assets .............................................................. $ 683,936 $ 318,190
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable ....................................................... $ 679,784 $ 581,637
Accrued liabilities (Note 7) ........................................... 1,376,830 2,306,911
Deferred income ........................................................ -- 5,570
Notes payable .......................................................... 99,990 124,920
Current maturities of debentures (Note 9) .............................. 2,152,297 3,265,837
------------ ------------
Total current liabilities ................................................. 4,308,901 6,284,875
Convertible debentures .................................................... 467,000 750,000
------------ ------------
Total liabilities ......................................................... 4,775,901 7,034,875
------------ ------------
Commitments and contingencies (Notes 14and 15)
Stockholders' deficit (Note 10):
Preferred stock, $.001 par value; 50,000,000 shares authorized; none
issued or outstanding ................................................ -- --
Common stock, $.001 par value; 5,000,000,000 shares authorized;
2,273,572,909 and 649,893,721 issued and outstanding, respectively ... 2,273,573 649,894
Common stock to be issued (Note 5) .................................... 1,200,000 --
Additional paid-in capital ............................................. 23,580,291 17,431,753
Accumulated deficit .................................................... (31,145,829) (24,798,332)
------------ ------------
Total stockholders' deficit ............................................... (4,091,965) (6,716,685)
------------ ------------
Total liabilities and stockholders' deficit ............................... $ 683,936 $ 318,190
============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
1
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF LOSS (UNAUDITED)
THREE MONTHS ENDED
----------------------------------
JANUARY 31, JANUARY 31,
2004 2003
(RESTATED)
--------------- ---------------
Revenues:
Net product sales ......................................................... $ 152,216 $ 65,879
Maintenance services ...................................................... 9,733 9,431
--------------- ---------------
Total revenues .................................................................. 161,949 75,310
--------------- ---------------
Cost of revenues:
Cost of product sales ..................................................... 113,038 86,174
Cost of maintenance services .............................................. 8,707 5,561
--------------- ---------------
Total cost of revenues .......................................................... 121,745 91,735
--------------- ---------------
Gross income (loss) ............................................................. 40,204 (16,425)
Operating expenses:
Selling, general and administrative ....................................... 380,149 441,229
Officer bonuses ........................................................... -- --
Research and development .................................................. -- --
Acquired in-process research and development
(Notes 4 and 5) ......................................................... 1,200,000 --
Consulting fees paid in stock options (Note 7) ............................ 4,770,000 --
--------------- ---------------
Total operating expenses ........................................................ 6,350,149 441,229
--------------- ---------------
Loss from operations ............................................................ (6,309,945) (457,654)
Non-operating income (expenses):
Miscellaneous income (Note 8) ............................................. 64,728 --
Interest and financing expenses (Note 9) .................................. (102,280) (920,350)
--------------- ---------------
Total non-operating (expenses) income, net ...................................... (37,552) (920,350)
--------------- ---------------
--------------- ---------------
Net loss ........................................................................ $ (6,347,497) $ (1,378,004)
=============== ===============
--------------- ---------------
Net loss per common share - Basic and diluted (Note 3) .......................... $ (0.00) $ (0.02)
=============== ===============
Weighted average number of common shares outstanding - Basic and diluted (Note 3)
1,405,453,312 59,250,249
=============== ===============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE THREE MONTHS ENDED JANUARY 31, 2004 (UNAUDITED)
Common Stock
Common Stock To Be Issued Additional
-------------------------- ------------------------- Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit Total
------------- ---------- ---------- ------------ ----------- -------------- -----------
BALANCE,
October 31, 2003 649,893,721 $ 649,894 $17,431,753 $ (24,798,332) $(6,716,685)
Common stock issued
upon exercise of
options 86,950,000 86,950 647,473 734,423
Common stock issued
for services received
and in settlement of
liabilities 102,108,108 102,108 102,352 204,460
Common stock issued
to officers and other
employees as bonuses 398,620,692 398,621 179,379 578,000
Common stock issued
upon conversion of
debentures and
accrued interest, net
of related issuance
costs 1,036,000,388 1,036,000 449,334 1,485,334
Acquisition of
Synosphere, LLC 30,000,000 $ 1,200,000 1,200,000
Value assigned to
Services received in
exchange for options 4,770,000 4,770,000
Net loss (6,347,497) (6,347,497)
------------- ---------- ---------- ------------ ----------- -------------- -----------
BALANCE,
January 31, 2004 2,273,572,909 $2,273,573 30,000,000 $ 1,200,000 $23,580,291 $ (31,145,829) $(4,091,965)
============= ========== ========== ============ =========== ============== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED
----------------------------
JANUARY 31, JANUARY 31,
2004 2003
----------- -----------
(RESTATED)
Cash flows from operating activities:
Net loss ........................................................... $(6,347,497) $(1,378,004)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization ................................... 24,527 5,468
Provisions for sales returns, rebates and doubtful accounts ..... 3,100 3,099
Acquired in-process research and development (Notes 4 and 5) .... 1,200,000 --
Services received in exchange for common stock (Note 10) ........ 45,698 123,768
Services received in exchange for common stock options (Note 10) 4,770,000 --
Beneficial conversion feature of convertible debentures ......... -- 837,998
Gains on settlements of debenture obligations (Note 12) ......... (62,728) --
Gain on disposal of fixed asset ................................. (2,000)
Net changes in assets and liabilities:
Accounts receivable ............................................. 59,227 (21,077)
Inventories ..................................................... (18,386) (37,070)
Prepaid expenses ................................................ 5,785 (18,000)
Accounts payable and accrued liabilities ........................ (158,710) 258,479
----------- -----------
Net cash used in operating activities ................................. (480,984) (225,339)
----------- -----------
Cash flows from investing activities-Proceeds form sale of fixed asset 2,000 --
----------- -----------
Cash flows from financing activities:
Net proceeds from issuances of convertible debentures .............. -- 360,000
Net proceeds from exercises of common stock options ................ 734,423 --
Proceeds from note payable ........................................ 9,990 --
Principal payments on notes payable ................................ (4,920) (419)
----------- -----------
Net cash provided by financing activities ............................. 739,493 359,581
----------- -----------
Net increase (decrease) in cash and cash equivalents .................. 260,509 134,242
Cash at beginning of period ........................................... 2,140 948
----------- -----------
Cash at end of period ................................................. $ 262,649 $ 135,190
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
THREE MONTHS ENDED
-------------------------
JANUARY 31, JANUARY 31,
2004 2003
---------- ----------
(RESTATED)
Supplemental schedule of cash activities:
Interest paid in cash ........................................... $ 9,987 $ 2,334
Supplemental schedule of non-cash investing
and financing activities:
Debenture principal and accrued interest thereon converted to common
stock .............................................................. $1,482,308 $ 58,681
Issuance of common stock in settlement of:
Fees, services and expenses (including prepaid consulting ....... $ 172,058 $ 123,768
contract)
Accounts payable and accrued expenses ........................... $ 121,193 $ 1,870
Accrued employee bonuses ........................................ $ 578,000 $ --
Consulting fees paid with common stock options ..................... $4,770,000 $ --
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS, ORGANIZATIONAL STRUCTURE AND PRINCIPLES OF CONSOLIDATION
iBIZ Technology Corp., together with its wholly-owned subsidiaries (hereinafter
"the Company"), a Florida corporation, headquartered in Phoenix, Arizona, is
primarily a marketer and distributor of various accessories primarily intended
for use with Personal Digital Assistants ("PDAs"). The Company conducts
substantially all of its operations through its wholly-owned subsidiary, iBIZ,
Inc. The Company's other wholly-owned subsidiaries, Invnsys Technology
Corporation and Qhost, Inc. have been inactive since their respective operations
were discontinued in prior fiscal years.
2. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Periods
The Company's fiscal year-end is October 31. References to a fiscal year refer
to the calendar year in which such fiscal year ends.
Use of Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make certain estimates and assumptions that affect the
reported amounts and timing of revenue and expenses, the reported amounts and
classification of assets and liabilities, and the disclosure of contingent
assets and liabilities. These estimates and assumptions are based on the
Company's historical results as well as management's future expectations. The
Company's actual results could vary materially from management's estimates and
assumptions.
Reclassifications
Certain amounts in the condensed consolidated financial statements for the
comparative prior fiscal periods have been reclassified to be consistent with
the current fiscal period's presentation.
Preparation of Interim Condensed Consolidated Financial Statements
These interim condensed consolidated financial statements for the periods ended
January 31, 2004 have been prepared by the Company's management, without audit,
in accordance with accounting principles generally accepted in the United States
of America and pursuant to the rules and regulations of the United States
Securities and Exchange Commission ("SEC"). In the opinion of management, these
interim condensed consolidated financial statements contain all adjustments
(consisting of only normal recurring adjustments, unless otherwise noted)
necessary to present fairly the Company's consolidated financial position,
results of operations and cash flows for the fiscal periods presented. Certain
information and note disclosures normally included in annual consolidated
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted in these
interim consolidated financial statements pursuant to the SEC's rules and
regulations, although the Company's management believes that the disclosures are
adequate to make the information presented not misleading. The consolidated
financial position, results of operations and cash flows for the interim periods
disclosed herein are not necessarily indicative of future financial results.
These interim condensed consolidated financial statements should be read in
conjunction with the annual consolidated financial statements and the notes
thereto included in the Company's most recent Annual Report on Form 10-KSB, as
amended, for the fiscal year ended October 31, 2003.
6
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Net Loss Per Share
Basic and diluted net loss per share has been computed by dividing net loss by
the weighted average number of common shares outstanding during the applicable
fiscal period. At January 31, 2004 and 2003, the Company had outstanding
commitments to issue preferred shares (See Note 10), outstanding debentures for
which the holders have unilateral rights to convert the unpaid principal, and
any accrued interest thereon, into common shares, and outstanding stock purchase
warrants and options for which the holders have unilateral rights to exercise
into common shares. However, as the effect of their inclusion would be
anti-dilutive given the net losses reported herein, these potential additional
common shares have been excluded from the computation of net loss per common
share - diluted. Should the Company report net income in a future fiscal period,
net income per common share -diluted will be separately computed and disclosed
giving effect to the potential dilution that would result if the then committed
and outstanding preferred shares and debentures were converted, and the then
outstanding stock purchase warrants and options were exercised, into common
shares. At January 31, 2004, an aggregate of 40.1 million additional common
shares were potentially issuable pursuant to outstanding financial instruments
that have fixed conversion and exercise prices. However, as the conversion and
exercise prices of certain outstanding financial instruments will not be
established until their respective conversion and exercise dates, if ever, the
maximum aggregate amount of potentially issuable common shares as of January 31,
2004 is not currently determinable.
Segment Reporting
The Company's chief operating decision makers consist of members of senior
management that work together to allocate resources to, and assess the
performance of, the Company's business. Senior management currently manages the
Company's business, assesses its performance, and allocates its resources as a
single operating segment. To date, the Company's products and services have been
principally marketed to customers residing within the United States of America.
Net revenues realized from customers residing in other geographic markets were
less than ten percent of consolidated net revenues for the interim fiscal
periods reported herein.
Recently Issued Accounting Standards Not Yet Adopted
There are no accounting standards with pending adoptions that have any
applicability to the Company.
3. RESTATEMENT OF PREVIOUSLY REPORTED FISCAL 2004 INTERIM FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements have been restated
to correct an error in the condensed consolidated financial statements that were
included in the Company's Form 10-QSB for the fiscal 2004 first quarter ended
January 31, 2004 as filed with the U.S. Securities and Exchange Commission
("SEC"). The detail of this restatement follows:
The restatement pertains to the accounting previously applied by the Company to
its January 20, 2004 acquisition of Synosphere, LLC (See Note 5 for further
details). As previously reported, certain acquired technology-related assets
with an aggregate assigned fair value of $1,200,000 were initially capitalized
and reflected as Patents and Technology on the Company's post-acquisition
interim condensed consolidated balance sheet at January 31, 2004. Subsequently,
it was determined by the Company's management that the technological feasibility
of these acquired assets had, in fact, not been sufficiently established prior
to the acquisition date in order to justify their capitalization. As restated
herein, these previously reported acquired assets have been eliminated from the
Company's interim condensed consolidated balance sheet at January 31, 2004 and
instead immediately expensed as acquired in-process research and development as
now reflected in the Company's interim condensed consolidated statement of loss
for the three months ended January 31, 2004.
7
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. ACQUISITION OF SYNOSPHERE, LLC
On January 20, 2004, the Company acquired all of the outstanding membership
interests in Synosphere, LLC ("Synosphere"), a Texas limited liability company
pursuing the development of certain handheld computer technologies, in exchange
for 30.0 million shares of its common stock with an aggregate value of
$1,200,000 based on the immediately preceding closing bid price of its common
stock (See Note 4 for details regarding the related purchase accounting
applied). A subsequent addendum to the acquisition agreement permitted certain
of Synosphere's shareholders to elect to receive cash in lieu of common shares.
5. ACCRUED LIABILITIES Accrued liabilities consist of the following:
JANUARY 31, OCTOBER 31,
2004 2003
---------- ----------
Accrued wages, benefits and payroll taxes ................. $ 632,490 $ 915,040
Accrued interest .......................................... 685,195 741,398
Accrued officer bonuses ................................... -- 578,000
Accrued sales commissions and vendor royalties ............ 36,732 53,445
Taxes ..................................................... 19,300 19,028
Accrued customer deposits ................................. 3,113 --
---------- ----------
Total accrued liabilities ................................. $1,376,830 $2,306,911
========== ==========
The Company remains liable to the U.S. Internal Revenue Service ("IRS") for
approximately $65,000 in unpaid payroll taxes, and subsequently assessed
interest, for certain periods through its first quarter of 1999. The Company has
continued to accrue for this liability in its consolidated financial statements.
It is management's intention to seek a reduced settlement of this liability with
the IRS, if and when, the Company has surplus working capital allowing it to
timely honor any such settlement. As of January 31, 2004, the IRS had not yet
assessed, nor has the Company accrued for, any related penalties.
6. CONVERTIBLE DEBENTURES
The Company's outstanding convertible debentures consist of the following at
January 31, 2004:
- ----------------------------------------------------
DEBENTURE HOLDER AMOUNT
- ----------------------------------------------------
Keshet L.P. $ 988,843
Lites Trading Co. 467,000
Laurus Master Fund 307,701
Keshet Fund L.P. 201,941
AJW Offshore, Ltd. 177,160
Alpha capital Alktiengesellschaft 155,000
Talbiya B. Investments Ltd. 94,562
Celest Trust Reg 80,075
AJW Partners LLC 72,160
AJW Qualified Partners, Ltd. 63,830
Esquire Trade & Finance 11,025
- ----------------------------------------------------
Total 2,619,297
Current Maturities (2,152,297)
- ----------------------------------------------------
Long Term $ 467,000
- ----------------------------------------------------
8
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. CONVERTIBLE DEBENTURES (CONTINUED)
During the three-month period ended January 31, 2004, the Company issued
1,036,000,388 shares of its common stock in conversion of $1,422,793 in
principal and $88,791 of accrued interest, net of $26,250 in costs and $67,728
in gains on settlement of the conversion. The remaining convertible debentures
were due on October 31, 2003. The holders have made no demand for payment.
7. STOCKHOLDERS' DEFICIT
Preferred Stock Committed for Issuance
On December 20, 2001, the Company's Board of Directors authorized the issuance
of 3,500,000 shares of preferred stock to one former director in satisfaction of
a retention incentive and three officers (including one former officer) in
satisfaction of annual bonuses and retention incentives. These preferred shares
have been reserved although not yet issued. If and when issued, each of these
preferred shares will immediately entitle the holder to cast votes equivalent to
one-hundred common shares, or, at their election, to subsequently convert each
preferred share into ten common shares. The Board of Directors has not yet
designated any other rights to these preferred shares, including, but not
limited to, dividend and liquidation rights.
Common Stock Issued for Services Received and in Settlement of Liabilities
During the three months ended January 31, 2004, the Company issued shares of its
common stock for services received and in settlement of liabilities as follows:
November 2003
o 10 million shares valued at $37,000 for legal services provided by
Greg Sichenzia.
o 9.6 million shares valued at $35,425 to various creditors in
satisfaction of their outstanding amounts due.
o 0.5 million shares valued at $1,975 to a company that provided
edgarizing and related services during the quarter ended January 31,
2004.
o 1.0 million shares valued at $3,700 to a company for marketing
services during the quarter ended January 31, 2004.
December 2003
o 81.0 million shares valued at $126,360 in accordance with a one year
consulting contract with D. Scott Elliott for merger and acquisition
services.
Common Stock Issued to Officers and Other Employees as Bonuses
December 2003
o 204,482,763 shares valued at $296,500 in partial settlement of
accrued bonuses at October 31, 2003 to officers and employees.
January 2004
o 194,137,931 shares of our common stock in final settlement of
$281,500 in accrued bonus at October 31, 2003.
9
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' DEFICIT (CONTINUED)
Stock Options and Warrants
During the three months ending January 31, 2004, the Company granted stock
options to individuals in exchange for the following consulting services:
November 2003
o 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
o 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
o 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, is also a member of Pangea Investments Gmbh.
The Company has valued the options granted using the Black-Scholes stock option
pricing model. The total fair value of the options granted during the three
months ending January 31, 2004 was $4,770,000. Based on the uncertainty of any
future value of these agreements, the Company expensed the value of the options
in the quarter ended January 31, 2004.
8. MISCELLANEOUS INCOME
Miscellaneous income consists of the following during the three months ended
January 31, 2004:
2004
-------
Gains on settlements of debenture obligations .... 62,728
Gain on disposal of fixed asset................... 2,000
-------
Total interest and miscellaneous income........... $64,728
=======
During the period, the Company renegotiated their debenture balances with the
AJW Entities. As a result of the negotiation, the AJW entities converted in full
the debenture balances which resulted in the cancellation of approximately
$62,728 in principal and interest. The cancellation has been recorded as income
in the Statement of Operations for the three-month period ended January 31,
2004.
10
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INTEREST AND FINANCING EXPENSES
Interest and financing expenses consist of the following:
THREE MONTHS ENDED JANUARY
2004 2003
-------- --------
Interest expense ..................................$102,280 $ 82,352
Beneficial conversion features of
debentures issued ................................ -- 837,998
-------- --------
Total interest and financing expenses..............$102,280 $920,350
======== ========
10. COMMITMENTS AND CONTINGENCIES
Legal and Administrative Proceedings
The Company, including its subsidiaries, is periodically involved in litigation
and administrative proceedings primarily arising in the normal course of its
business. In the opinion of management, the Company's gross liability, if any,
and without any consideration given to the availability of indemnification or
insurance coverage, under any pending or existing litigation or administrative
proceedings would not materially affect its financial position, results of
operations or cash flows.
11
ITEM 2. OUR MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion includes certain forward-looking statements within the
meaning of the safe harbor protections of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Statements that include words such as "believe," "expect," "should,"
intend," "may," "anticipate," "likely," "contingent," "could," "may," or other
future-oriented statements, are forward-looking statements. Such forward-looking
statements include, but are not limited to, statements regarding our business
plans, strategies and objectives, and, in particular, statements referring to
our expectations regarding our ability to continue as a going concern, generate
increased market awareness of, and demand for, our current products, realize
profitability and positive cash flow, and timely obtain required financing.
These forward-looking statements involve risks and uncertainties that could
cause actual results to differ from anticipated results. The forward-looking
statements are based on our current expectations and what we believe are
reasonable assumptions given our knowledge of the markets; however, our actual
performance, results and achievements could differ materially from those
expressed in, or implied by, these forward-looking statements. Factors, within
and beyond our control, that could cause or contribute to such differences
include, among others, the following: those associated with our marketing of
relatively new PDA accessories for consumers in an evolving marketplace,
consumer preferences, perceptions and receptiveness with respect to our PDA
accessories, our critical capital raising efforts in an uncertain and volatile
economical environment, our ability to maintain an existing relationships with
critical customers and vendors, including related licensing and marketing
arrangements, our cash-preservation and cost-containment efforts, our ability to
retain key management personnel, our relative inexperience with advertising, our
competition and the potential impact of technological advancements thereon, the
impact of changing economic, political, and geo-political environments on our
business, as well as those factors discussed elsewhere in this Form 10-QSB/A and
in "Item 1 - Our Business," "Item 6 - Our Management's Discussion and Analysis,"
particularly the discussion under "Risk Factors - Substantial Doubt as to our
Ability to Continue as a Going Concern" and elsewhere in our most recent Form
10-KSB for our fiscal year ended October 31, 2003, as amended, filed with the
United States Securities and Exchange Commission. Readers are urged to carefully
review and consider the various disclosures made by us in this report, in the
aforementioned Form 10-KSB, as amended, and those detailed from time to time in
our reports and filings with the United States Securities and Exchange
Commission that attempt to advise interested parties of the risks and factors
that are likely to affect our business.
Our fiscal year ends on October 31. References to a fiscal year refer to the
calendar year in which such fiscal year ends.
INTRODUCTION
We are a marketer and distributor of various accessories primarily intended for
use with PDAs. Our current line of products principally consists of over eighty
individual accessories for a wide array of PDAs. These accessories range in
complexity and price from simple connector cables with suggested retail prices
starting at $9.99 at the low end to our multi-faceted XELA Keyboard with a
suggested retail price of $69.99 at the high end. However, during the three
months ended January 31, 2004 and 2003, and as reported herein, our product
sales revenues were substantially attributable to the following principal
products (See Item 1. Our Business - Our Principal Products in our most recently
filed Form 10-KSB for the fiscal year ended October 31, 2003, as amended, for
further details):
DATA INPUT DEVICES:
o Our Keysync Keyboard - We introduced our Keysync Keyboard to the
consumer marketplace in November 1998 as a more practicable and
user-friendly alternative to the traditional PDA stylus for
inputting significant amounts of data. Our Keysync Keyboard has a
suggested retail price of $69.00.
o Our XELA Keyboard - We introduced our XELA Keyboard to the consumer
marketplace in March 2003 as another more practicable and
user-friendly alternative to the traditional PDA stylus for
inputting significant amounts of data. Our XELA Keyboard has a
suggested retail price of $69.00.
12
POWER DEVICES:
o Our Travel Kits - We introduced our first Travel Kit to the consumer
marketplace in March 2002. We currently offer fifteen such Travel
Kits to accommodate a wide array of PDAs. Each of our Travel Kits
includes an AC charger, a 12-volt automobile adapter/charger, a USB
charging cable, and a synchronization cable. Our Travel Kits have a
suggested retail price of $39.99.
ENTERTAINMENT DEVICES:
o Our pocketRADIO - We introduced our pocketRADIO to the consumer
marketplace in October 2003. Our pocketRADIO is an FM Stereo card
that allows a PDA user to listen to FM Stereo while simultaneously
running other programs. Our pocketRADIO have a suggested retail
price of $49.99.
With the exception of the free technical support services we provide as part of
the one year parts and labor warranty that accompanies each of our products, the
only other services we performed during the fiscal periods reported herein were
pursuant to maintenance agreements associated with our technical servicing and
support of computer terminals and printers for financial institutions, which
business we no longer actively market or pursue. Our maintenance service
revenues, which constituted 6.5% of our total consolidated revenues for the
fiscal year ended October 31, 2003, will continue to decrease in future fiscal
years.
OUR RECENT SIGNIFICANT DEVELOPMENTS
There are no recent significant developments.
OUR CRITICAL ACCOUNTING POLICIES
The following discussions of our consolidated results of operations and
financial condition, including our liquidity and capital resources, are based
upon our consolidated financial statements as included elsewhere in this filing.
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires us to make certain estimates and assumptions that affect the reported
amounts and timing of revenue and expenses, the reported amounts and
classification of assets and liabilities, and disclosure of contingent assets
and liabilities. Our actual results have differed, and will likely continue to
differ, to some extent from our initial estimates and assumptions. We currently
believe that the following significant accounting policies entail making
particularly difficult, subjective or complex judgments of inherently uncertain
matters that, given any reasonably possible variance therein, would make such
policies particularly critical to a materially accurate portrayal of our
historical or reasonably foreseeable financial condition or results of
operations:
o Revenue Recognition for Product Sales and Related Allowances for
Sales Returns and Rebates. In accordance with SEC Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements," we
recognize a product sale, including related shipping and handling
income, and the cost of the sale, upon product shipment provided
that all material risks and rewards of ownership are concurrently
transferred from us to our customer, the price is fixed or readily
determinable, collection of the related receivable by us is
reasonably assured, and we are able to reliably estimate appropriate
allowances for probable sales returns and rebates based on our
relevant historical experience and future expectations. We
unconditionally accept product returns during the initial thirty
days following the date of sale. We periodically offer promotional
rebates of a limited duration, typically one week, on certain
product sales, for which we outsource the processing and tracking of
related customer submissions. The periodic provisions made by us to
establish and maintain appropriate allowances for sales returns and
rebates are charged to our results of operations via offsets to our
gross product sales. Actual sales returns and rebates realized by us
are charged against the related allowances with any favorable or
unfavorable experience, as compared to our preceding estimates,
having a correspondingly impact on our results of operations.
13
o Accounts Receivable and Related Allowance for Doubtful Accounts. In
addition to corresponding reductions made for the allowances for
sales returns and rebates, as discussed above, we further reduce our
consolidated accounts receivable by an appropriate allowance for
accounts where doubt exists in our opinion, based on known specifics
or the passage of time, as to their ultimate collectability. We
routinely offer our customers payment terms that range from 30 to 60
days. We do not assess interest on, nor do we require any securing
collateral of, past due customer balances. The periodic provisions
made by us to establish and maintain an appropriate allowance for
doubtful accounts are charged to our results of operations via
increases to our selling, general and administrative expenses.
Actual collection experience realized by us on previously designated
doubtful accounts, including final determinations of
uncollectability, is charged against the allowance for doubtful
accounts with any favorable or unfavorable experience, as compared
to our preceding estimates, having a corresponding impact on our
results of operations.
o Inventories. Our consolidated inventories, which consist solely of
finished products available for sale, are stated at the lower of
average cost or market, reduced by an appropriate allowance
estimated by us for probable obsolescence. We record an allowance
for obsolescence based on our historical experience and future
expectations. The periodic provisions made by us to establish and
maintain an appropriate allowance for obsolescence are charged to
our results of operations via increases to our cost of goods sold.
Actual disposition experience realized by us on previously
designated obsolete inventory is charged against the allowance for
obsolescence with any favorable or unfavorable experience, as
compared to our preceding estimates, having a corresponding impact
on our results of operations.
o Impairment of Long-Lived Assets. We evaluate, on at least a
quarterly basis, each of our long-lived assets for impairment by
comparing our then estimate of its related future cash flows, on an
undiscounted basis, to its net book value. If impairment is
indicated, we reduce the net book value of the asset to an amount
equal to our estimate of related future cash flows, on an
appropriately discounted basis, with a corresponding impairment
charge to our results of operations.
o Convertible Debt Securities. We have periodically issued debentures
that have non-detachable conversion features. In those instances
where the stated conversion price reflects a discount from the then
prevailing market price for our common stock, we make, at the date
of the debenture issuance, an estimate as to the fair value of this
beneficial conversion feature. The value assigned to the beneficial
conversion feature is then immediately recognized in our results of
operations via an interest/financing charge with a corresponding
incremental credit to additional paid-in capital.
14
OUR CONSOLIDATED RESULTS OF OPERATIONS
Our consolidated total revenues for the three months ended January 31, 2004
("fiscal 2004 first quarter") were $161,949, an increase of $86,639, or 115%, as
compared to $75,310 for the three months ended January 31, 2003 ("fiscal 2003
first quarter"). Our product sales constituted 93% of our consolidated total
revenues for the fiscal 2004 first quarter as compared to 87% of our
consolidated total revenues for the fiscal 2003 first quarter. Our maintenance
revenues, which constituted the balance of our consolidated total revenues for
each respective fiscal period, will continue to decrease in future fiscal
periods as we no longer actively market or pursue maintenance services.
Our product sales were $152,216 for the fiscal 2004 first quarter, an increase
of $86,337, or 131%, as compared to $65,879 in product sales for the fiscal 2003
first quarter. We substantially attribute the preceding increase to sales of our
pocketRADIOs (shipments began in late October 2002) which increased from
approximately $33,000 in 2003 to over $100,000 in 2004. Partially offsetting the
preceding product sales increases principally were sales decreases of varying
degrees realized in our accessories for non-PDA hand-held computing devices, the
marketing of which we continue to de-emphasize as we focus our currently limited
operating and financial resources on the PDA accessories marketplace. We also
realized a significant decrease in sales of our Keysync Keyboard which we
primarily attribute to the introduction of competing products into the
marketplace. Sales of our Travel Kits also decreased slightly, which we believe
generally corresponded to the overall softening of sales realized by the
underlying PDA manufacturers. Variances in the average prices realized by us on
products in existence during both fiscal periods did not have a significant
impact, favorably or unfavorably, on the overall net increase in our product
sales for fiscal 2004. Approximately 63% of our product sales in the first
quarter of fiscal 2004 were to one large retailer. It must be noted that, absent
significant contributions from the introduction of new products, our future
revenues will be materially dependent upon sales of our pocketRADIOs and, to a
significantly lesser extent, our Travel Kits.
We incurred consolidated gross income of $40,204 for the fiscal 2004 first
quarter, and consolidated gross losses of $16,425 for the fiscal 2003 first
quarter. In turn, we experienced a gross margin of 25% for the fiscal 2004 first
quarter and a negative gross margin of 22% for the fiscal 2003 first quarter.
Our fiscal 2004 consolidated gross income and gross margin were attributable to
gross income of $39,178, and a resulting gross margin of 26%, on our product
sales during the fiscal 2004 first quarter. Conversely, our fiscal 2003
consolidated gross loss and negative gross margin was attributable to a gross
loss of $20,295, and a resulting negative gross margin of 31%, on our product
sales during the fiscal 2003 first quarter. Product Sales in 2004 consists of
$104,182 (68% of sales) of direct material, packaging and freight, a reduction
in our provision for obsolete inventories totaling $23,100 (15% of sales) and
$31,956 (21% of sales) of salaries and employee related costs. Cost of Revenues-
Product Sales in 2003 consists of $46,410 (70% of sales) of direct material,
packaging and freight and $39,764 (60% of sales) of salaries and employee
related costs. Our products are often purchased from different vendors and can
fluctuate significantly based on our sales mix. We do not expect our material
costs to fluctuate significantly in coming quarters. Our current labor force is
also expected to be adequate to meet demand of our products sales through the
remainder of 2004. Cost of Revenues-Maintenance Agreements in 2004 consists of
$3,935 of parts and accessories (40% of revenues) and $4,772 of wages and
benefits (49% of revenues). Cost of Revenues-Maintenance Agreements in 2003
consists of $648 of parts and accessories (7% of revenues) and $4,913 of wages
and benefits (52% 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 first quarter
of 2004, we made a bulk sale of items which were fully reserved for in our
reserve and, accordingly, the reserve was adjusted.
Our consolidated total operating expenses were $6,350,149 for the fiscal 2004
first quarter, an increase of $5,908,920, or 1339%, from the $441,229 incurred
during the fiscal 2003 first quarter.
15
Our consolidated selling, general and administrative ("SG&A") expenses were
$380,149 for the fiscal 2004 first quarter, a decrease of $61,080, or 14%, from
the $441,229 incurred during the fiscal 2003 first quarter. The main components
in these expenses are salaries and wages for its key employees and officers
(2004 - $72,531; 2003 - $145,300), professional fees (2004 - $128,713; 2003 -
$74,155) and travel (2004 - $33,585; 2003 - $1,100). The reduction in salaries
and wages is attributable to the decrease in operations and cash flows which
resulted in a reduction in staff compared to the prior quarter. Professional
fees increased significantly due to the costs associated with our attempt to
spin-off the iBIZ, Inc. subsidiary and the acquisition of Synosphere LLC. Travel
expenses increased during this period due to our extensive travel and related
costs for the transaction with Enterprise (Israel), the acquisition of
Synosphere LLC and search for new opportunities.
We incurred an expense totaling $1.2 million for acquired research and
development in the first quarter of fiscal 2004. As noted in Note 3 to the
attached financial statements, this cost represents the fair value of the common
stock issued in connection with our acquisition of Synosphere LLC.
We incurred consulting expenses paid in stock options totaling $4.77 million in
the first quarter of fiscal 2004. This cost represents the fair value of stock
options issued for services to the following entities:
November 2003
o 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
o 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
o 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, is also a member of Pangea Investments Gmbh.
The Company has valued the options granted using the Black-Scholes stock option
pricing model. The total fair value of the options granted during the three
months ending January 31, 2004 was $4,770,000. Based on the uncertainty of any
future value of these agreements, the Company expensed the value of the options
in the quarter ended January 31, 2004. We expect to continue utilizing our
common stock and options to procure necessary consulting services during this
fiscal year since our financial condition makes the probability of securing
additional capital difficult and costly. Please refer to Note 7 to the Condensed
Consolidated Financial Statements included in this filing for further details of
our stock activity.
Our resulting losses from operations for the fiscal 2004 first quarter and 2003
were $6,309,945 and $457,654, respectively.
Our non-operating other income and expenses primarily consist of interest
expense, including non-cash charges attributable to the non-detachable
beneficial conversion feature of newly issued debentures. Our interest expense
was $102,280 for the fiscal 2004 first quarter, a decrease of $818,070, or 89%,
from the $920,350 incurred during the fiscal 2003 first quarter. This decrease
is due to $837,998 of beneficial conversion features of debentures issued during
the three months of fiscal 2003. These charges were not repeated during fiscal
2004. During the fiscal 2004 three month period we realized non-cash aggregate
gains of $62,728 on settlements of debenture obligations. The balance of our
non-operating income and expenses items, including interest income, were
inconsequential to our consolidated results of operations.
16
Primarily as a result of the foregoing, we incurred a loss of $6,347,497 ($0.00)
(per basic and diluted share) for the fiscal 2004 first quarter. The preceding
compares to a loss of $1,378,004 ($0.02) (per basic and diluted share) for the
fiscal 2003 first quarter.
Our future ability to achieve profitability in any given future fiscal period
remains highly contingent upon our realizing significantly increased product
sales sufficient to leverage our non-variable, likely to be recurring expenses.
For instance, our ability to achieve gross profits and positive gross margins in
any given future fiscal period remains highly contingent upon us being able to
leverage through significant incremental product sales the significant
non-variable direct labor and overhead components of our costs of goods sold.
Similarly, our ability to realize income from operations is further dependent
upon our ability to additionally leverage through significant incremental sales
our SG&A expenses, the majority of which currently are non-variable and
recurring in nature. To the extent that we incur other less frequent or
non-recurring operating expenses, as in fiscal 2004, we will require additional
incremental product sales in order to leverage them. Lastly, our ability to
realize net income and net income per common share remains highly contingent
upon us being able to leverage through incremental product sales any significant
net non-operating expenses, such as charges for the beneficial conversion
features of any issued debentures and our interest expense on any outstanding
debt. Correspondingly, our ability to realize significant incremental product
sales in any given future fiscal period remains highly contingent upon us
obtaining significant equity infusions and/or long-term debt financing
sufficient to fund the increased and sustained campaign of marketing and
advertising activities we believe necessary to build broad consumer awareness
of, and demand for, our PDA accessories. Even if we were to be successful in
procuring such funding, there can be no assurance that we will be successful in
our marketing and advertising efforts, and that we will subsequently realize the
significant incremental product sales we require.
OUR CONSOLIDATED LIQUIDITY AND CAPITAL RESOURCES
Overview
We have historically sustained our operations through an ongoing combination of
trade credit arrangements, short-term financings, and debt and equity issuances.
As our working capital requirements generally precede the realization of product
sales and related accounts receivable, we routinely draw upon our existing cash
and cash equivalent balances and seek short and long-term financing to fund our
procurement of inventory. We currently have no established credit facilities in
place for future borrowings.
During the course of transitioning our Company over the last several years from
our discontinued computer service businesses to our current business of
marketing and distributing various accessories primarily intended for use with
PDAs, we have incurred substantial operating and net losses, as well as negative
operating cash flows. As of our fiscal quarter ended January 31, 2004, our
working capital deficit was $3,795,901 and our stockholders' deficit was
$4,091,965. Such reflects a decrease from our preceding fiscal year ended
October 31, 2003 when our working capital deficit was $6,093,514 and our
stockholders' deficit was $6,716,685. We had an unrestricted cash balance of
$262,649 at January 31, 2004, as compared to $2,140 at October 31, 2003.
We had outstanding convertible debentures with an aggregate principal face
amount of $2,619,297 at January 31, 2004, of which $2,152,297 was due within one
year and and $694,090 was to become due and payable by our fiscal year ending
October 31, 2005. Subsequent to January 31, 2004 and through March 15, 2004,
debentures totaling $1,039,968 were converted into 228,074,146 shares of common
stock. We had outstanding convertible debentures with an aggregate principal
face amount of $4,015,837 at October 31, 2003, of which $3,265,837 and $750,000
was to become due and payable during our fiscal years ending October 31, 2004
and 2005, respectively.
17
Our Consolidated Cash Flows
Our operating activities utilized $480,984 in cash during the fiscal 2004 three
month period, an increase of $255,645, or 113%, from the $225,339 in cash
utilized during the fiscal 2003 three month period. Our increased utilization
substantially reflects a $5,008,264, or 516%, net increase in our non-cash
charges, being substantially offset by the $4,969,493 increase in our net loss.
The most significant reductions in our non-cash charges were a $837,998
reduction in the charges associated with the beneficial conversion features of
issued convertible debentures. This reduction is offset by increases of
$1,200,000 and $4,770,000 in our non-cash acquisition of in-process research and
development and services rendered in exchange for common stock options,
respectively. Partially offsetting these non-cash charge items were a $59,227
increase in accounts receivable, an $18,386 increase in inventories and a
$158,710 decrease in accounts payable and accrued liabilities. Based on the
exercise of stock options in the quarter, we were able to pay certain accounts
payable and accrued liabilities to continue our operations. Cash flows from
operations in 2003 reflect the increase in our accounts payable and accrued
liabilities due to our decreased cash flows experience continuing from late 2002
into early 2003.
Our investing activities provided $2,000 during the fiscal 2004 three month
period from the sale of the company automobile. There was no cash used in
investing activities during the fiscal 2003 three month period.
Our financing activities provided $739,493 in cash during the fiscal 2004 first
quarter, an increase of $379,912, or 106%, from the $359,581 in cash provided by
financing activities during the fiscal 2003 three month period. Our fiscal 2004
three month period reflects cash inflows primarily from our issuances of common
stock options, and, to a significantly lesser extent, the cash we received from
a note payable. The preceding cash inflows were slightly offset by the cash
outflows related to principal repayments made on outstanding notes payable. In
contrast, our fiscal 2003 three month period 2003 primarily reflects lower cash
inflows from our issuances of convertible debentures. Such were slightly offset
by the cash outflows related to principal repayments made on outstanding notes
payable.
Our Planned Capital Expenditures
We had no significant planned capital expenditures, budgeted or otherwise, as of
January 31, 2004.
OUR OTHER MATTERS
Quantitative and Qualitative Disclosures About Market Risk
We currently are not materially exposed to financial market risks from changes
in short or long-term interest rates as substantially all of our financial
instruments, and most notably our remaining outstanding debentures, have fixed
rates of interest. However, should we be successful in procuring the significant
additional funding we currently seek and if such funding were to be
substantially in the form of debt with variable rates of interest, then our
exposure to these market risks would increase, possibly significantly.
We currently are not materially exposed to currency market risks as
substantially all of our business dealings, and most notably our purchases of
inventory from overseas vendors, are denominated in U.S. dollars. However,
should we in the future enter into significant contracts denominated in non-U.S.
dollar currencies, then our exposure to these currency market risks would
increase, possibly significantly.
We have not used, and currently do not contemplate using, any derivative
financial instruments.
Our Legal Contingencies
We as a company, including our subsidiary, are periodically involved in
litigation and administrative proceedings primarily arising in the normal course
of our business. In our opinion, our gross liability, if any, and without any
consideration given to the availability of indemnification or insurance
coverage, under any pending or existing incidental litigation or administrative
proceedings would not materially affect our financial position, results of
operations or cash flows over and beyond any acknowledged liability.
18
We remain liable to the U.S. Internal Revenue Service ("IRS") for approximately
$65,000 in unpaid payroll taxes, and subsequently assessed interest, for certain
periods through the first quarter of 1999. We have continued to accrue for this
liability in our consolidated financial statements. It is our intention to seek
a reduced settlement of this liability with the IRS if and when we have surplus
working capital allowing us to timely honor any such settlement.
SEC Order of Formal Investigation
The SEC has commenced a formal investigation into certain specific matters that
may constitute potential violations by the Company, and/or its officers,
directors, employees, and others, of the federal securities laws. The Company
and its officials are fully cooperating with the SEC during its formal
investigation. The Company will publicly disclose the specific nature of any
resulting SEC allegation(s) if and when they become known, subject to any SEC
mandated confidentiality and as permitted by applicable federal securities laws.
Recently Issued Accounting Standards With Pending Adoptions
There currently are no recently issued accounting standards with pending
adoptions that have any applicability to us.
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 January 31, 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 January 31, 2004.
ITEM 2. CHANGES IN SECURITIES
(c) Recent Sales of Unregistered Securities
The securities described below represent securities of iBIZ sold by iBIZ during
the three month period ended January 31, 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
None.
SALES OF DEBT AND WARRANTS FOR CASH
None
OPTION GRANTS
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.
19
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.
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. No options have
been exercised under this agreement.
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:
10.1 Employment Agreement with Kenneth Schilling
10.2 Employment Agreement with Bryan A. Scott
10.3 Employment Agreement with Ramon Perales
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.
20
Pursuant to the requirements of Section 12 of the Securities Act of 1934, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned thereunto duly authorized.
DATED THIS 1ST DAY OF DECEMBER 2004
IBIZ TECHNOLOGY CORP.
By: /s/ KENNETH W. SCHILLING
---------------------------------------
Kenneth W. Schilling, President,
and acting principal accounting officer
21