10QSB 1 0001.txt 10QSB 1 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, 2000 COMMISSION FILE NO. 027619 IBIZ TECHNOLOGY CORP. (Exact name of registrant as specified in its charter) Florida 86-0933890 (State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.) organization) 1919 West Lone Cactus, Phoenix, Arizona 85021 (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code: (623) 492-9200
Class Outstanding at June 12, 2000 Common stock, $0.01 par value 30,293,027
2 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS APRIL 30, 2000 AND 1999 3 TABLE OF CONTENTS
PAGE NO. INDEPENDENT ACCOUNTANTS' REVIEW REPORT................................... 1 FINANCIAL STATEMENTS Consolidated Balance Sheets....................................... 2 Consolidated Statements of Operations............................. 3 Consolidated Statement of Changes in Stockholders' Equity ........ 4 Consolidated Statements of Cash Flows............................. 5 - 6 Notes to Consolidated Financial Statements........................ 7 - 21
4 [MOFFITT & COMPANY, P.C. LETTERHEAD] INDEPENDENT ACCOUNTANTS' REVIEW REPORT To The Board of Directors and Stockholders IBIZ Technology Corp. and Consolidated Subsidiary Phoenix, Arizona We have reviewed the accompanying balance sheets of IBIZ Technology Corp. and Consolidated Subsidiary as of April 30, 2000 and 1999, and the related statements of operations for the three and six months then ended, statement of stockholders' equity for the six months ended April 30, 2000 and statements of cash flows for the six months ended April 30, 2000 and 1999, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. All information included in these financial statements is the representation of the management of IBIZ Technology Corp. and Consolidated Subsidiary. A review consists principally of inquiries of company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles. As discussed in Note 22, certain conditions indicate that the company may be unable to continue as a going concern. The accompanying financial statements do not include any adjustments to the financial statements that might be necessary should the company be unable to continue as a going concern. MOFFITT & COMPANY, P.C. SCOTTSDALE, ARIZONA June 5, 2000 5 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED BALANCE SHEETS APRIL 30, 2000 AND 1999 (UNAUDITED) ASSETS
2000 1999 ---- ---- CURRENT ASSETS Cash and cash equivalents $1,303,453 $ 53,194 Accounts receivable, trade 635,948 154,094 Loan receivable, officer 38,404 0 Inventories 264,135 189,329 Prepaid expenses 29,658 14,522 ---------- ---------- TOTAL CURRENT ASSETS 2,271,598 411,139 ---------- ---------- PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION 340,996 53,186 ---------- ---------- OTHER ASSETS Note receivable, related party 419,582 717,829 Deposits 16,401 19,850 Customer list, net of accumulated amortization 9,916 0 ---------- ---------- TOTAL OTHER ASSETS 445,899 737,679 ---------- ---------- TOTAL ASSETS $3,058,493 $1,202,004 ========== ==========
6 LIABILITIES AND STOCKHOLDERS' EQUITY
2000 1999 ---- ---- CURRENT LIABILITIES Accounts payable, trade $ 510,135 $ 767,090 Customer deposits 0 212,458 Notes payable, current 5,265 351,703 Accrued liabilities 158,498 69,894 Sales and payroll taxes payable 132,301 79,276 Corporation income taxes payable 19,078 17,841 Deferred income 118,373 101,283 ----------- ----------- TOTAL CURRENT LIABILITIES 943,650 1,599,545 ----------- ----------- LONG - TERM LIABILITIES Convertible debentures payable 1,950,000 0 Notes payable 17,053 22,283 ----------- ----------- TOTAL LONG - TERM LIABILITIES 1,967,053 22,283 ----------- ----------- STOCKHOLDERS' EQUITY Common stock Authorized - 100,000,000 shares, par value $.001 per shares Issued and outstanding - 30,100,175 shares in 2000 30,100 0 24,540,000 shares in 1999 0 24,540 Paid in capital in excess of par value of stock 3,309,799 800,061 Advance on stock subscription 0 0 Retained earnings (deficit) (3,192,109) (1,244,425) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY 147,790 (419,824) ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,058,493 $ 1,202,004 =========== ===========
See Accompanying Notes and Independent Accountants' Review Report. 2 7 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 2000 AND 1999 (UNAUDITED)
2000 ---------------------------------- THREE MONTHS SIX MONTHS ENDED ENDED APRIL 30, 2000 APRIL 30, 2000 -------------- -------------- SALES $ 1,436,126 $ 2,064,979 COST OF SALES 1,224,326 1,775,121 ------------ ------------ GROSS PROFIT 211,800 289,858 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,028,002 1,828,556 ------------ ------------ (LOSS) BEFORE OTHER INCOME (EXPENSE) (816,202) (1,538,698) ------------ ------------ OTHER INCOME (EXPENSE) Interest income 11,575 16,973 Interest expense (36,199) (29,221) ------------ ------------ TOTAL OTHER INCOME (EXPENSE) (24,624) (12,248) ------------ ------------ (LOSS) BEFORE INCOME TAXES (840,826) (1,550,946) INCOME TAXES 0 0 ------------ ------------ NET (LOSS) $ (840,826) $ (1,550,946) ============ ============ NET (LOSS) PER COMMON SHARE Basic and Diluted $ (.03) $ (.06) ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Basic and diluted 27,799,927 27,799,927 ============ ============
8
1999 ----------------------------------- THREE MONTHS SIX MONTHS ENDED ENDED APRIL 30, 1999 APRIL 30, 1999 -------------- -------------- $ 588,050 $1,421,569 413,219 1,134,880 ---------- ---------- 174,831 286,689 661,814 792,821 ---------- ---------- ( 486,983) ( 506,132) ---------- ---------- 10,756 10,756 ( 8,735) ( 24,619) ---------- ----------- 2,021 ( 13,863) ---------- ---------- ( 484,962) ( 519,995) 0 0 ---------- ---------- $( 484,962) $( 519,995) ========== ========== $ ( .02) $ ( .02) ========== ========== 24,540,000 24,540,000 ========== ==========
See Accompanying Notes and Independent Accountants' Review Report. 3 9 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED APRIL 30, 2000 (UNAUDITED)
COMMON STOCK ------------ SHARES AMOUNT ------ ------ BALANCE, NOVEMBER 1, 1999 26,370,418 $ 26,370 NOVEMBER, 1999 - CONVERSION OF DEBENTURES FOR COMMON STOCK 300,962 301 NOVEMBER, 1999 - ISSUANCE OF COMMON STOCK FOR CASH 100,000 100 JANUARY, 2000 - ISSUANCE OF COMMON STOCK FOR CASH 250,000 250 NOVEMBER, 1999 TO JANUARY, 2000 - FEES AND COSTS FOR ISSUANCE OF STOCK 0 0 FEBRUARY, 2000 - ISSUANCE OF COMMON STOCK FOR ADVANCES ON STOCK SUBSCRIPTIONS 100,000 100 FEBRUARY, 2000 - CONVERSION OF DEBENTURES FOR COMMON STOCK 300,000 300 MARCH, 2000 - CONVERSION OF DEBENTURES FOR COMMON STOCK 1,292,482 1,293 APRIL, 2000 - CONVERSION OF DEBENTURES FOR COMMON STOCK 88,938 89 APRIL, 2000 - ISSUANCE OF COMMON STOCK FOR CASH FROM WARRANTS 420,000 420 APRIL, 2000 - ISSUANCE OF COMMON STOCK FOR CASH FROM STOCK OPTIONS 70,000 70 APRIL, 2000 - ISSUANCE OF COMMON STOCK FOR ACCOUNT PAYABLE 100,000 100 APRIL, 2000 - ISSUANCE OF COMMON STOCK FOR SERVICES 250,000 250 APRIL, 2000 - ISSUANCE OF COMMON STOCK FOR PAYROLL BONUSES 50,000 50 APRIL, 2000 - ISSUANCE OF COMMON STOCK FOR FEES AND COSTS FOR ISSUANCE OF STOCK 407,375 407 FEBRUARY, 2000 TO APRIL, 2000 - FEES AND COSTS FOR ISSUANCE OF STOCK 0 0 NET (LOSS) FOR THE SIX MONTHS ENDED APRIL 30, 2000 0 0 ---------- ---------- BALANCE, APRIL 30, 2000 30,100,175 $ 30,100 ========== ==========
10
PAID IN CAPITAL IN EXCESS OF ADVANCES RETAINED PAR VALUE ON STOCK EARNINGS OF STOCK SUBSCRIPTIONS (DEFICIT) -------- ------------- --------- $ 1,106,266 $ 75,000 $(1,641,163) 200,734 0 0 49,900 0 0 274,750 0 0 (188,000) 0 0 74,900 (75,000) 0 199,700 0 0 1,039,585 0 0 59,944 0 0 314,580 0 0 52,430 0 0 49,900 0 0 210,500 0 0 50,450 0 0 483,147 0 0 (668,987) 0 0 0 0 (1,550,946) ----------- ----------- ----------- $ 3,309,799 $ 0 $(3,192,109) =========== =========== ===========
See Accompanying Notes and Independent Accountants' Review Report. 4 11 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED APRIL 30, 2000 AND 1999 (UNAUDITED)
2000 1999 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) $(1,550,946) $ (519,995) Adjustments to reconcile net (loss) to net cash (used) by operating activities Depreciation and amortization 25,924 25,870 Issuance of common stock for interest, services and payroll bonuses 287,913 0 Changes in operating assets and liabilities Accounts receivable, trade (423,648) 942 Inventories 3,952 134,068 Prepaid expenses 9,326 12,478 Deposits 359 305 Accounts payable (252,830) (13,725) Customer deposits (115,408) (182,806) Accrued liabilities and taxes 53,826 (169,483) Deferred income 63,411 30,252 ----------- ----------- NET CASH FLOWS (USED) BY OPERATING ACTIVITIES (1,898,121) (682,094) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (240,189) (2,520) Loans to related parties (101,176) 188,791 Purchase of customer list (11,900) 0 ----------- ----------- NET CASH FLOWS (USED) PROVIDED BY INVESTING ACTIVITIES (353,265) 186,271 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Bank overdraft 0 (13,700) Net proceeds from issuance of common stock 394,349 582,234 Proceeds from issuance of convertible debentures 3,200,000 0 Changes in notes payable (64,853) (19,717) ----------- ----------- NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES 3,529,496 548,817 ----------- -----------
See Accompanying Notes and Independent Accountants' Review Report. 5 12 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE SIX MONTHS ENDED APRIL 30, 2000 AND 1999 (UNAUDITED)
2000 1999 ---- ---- NET INCREASE IN CASH AND CASH EQUIVALENTS $1,278,110 $ 52,994 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 25,343 200 ---------- ---------- CASH AND CASH EQUIVALENTS, END OF PERIOD $1,303,453 $ 53,194 ========== ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during year for: Interest $ 19,196 $ 22,384 ========== ========== Taxes $ 50 $ 50 ========== ========== NON CASH INVESTING AND FINANCING ACTIVITIES Issuance of common stock for convertible debentures $1,501,946 $ 0 ========== ========== Issuance of common stock for fees, services and payroll $ 744,804 $ 0 ========== ========== Issuance of common stock for advances on stock subscriptions $ 75,000 $ 0 ========== ========== Issuance of common stock for accounts payable $ 50,000 $ 0 ========== ==========
See Accompanying Notes and Independent Accountants' Review Report. 6 13 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS APRIL 30, 2000 (UNAUDITED) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS IBIZ Technology Corp. was organized on April 6, 1994, under the laws of the State of Florida. The company is a holding company and owns 100% of Invnsys Technology Corporation. Invnsys Technology Corporation is in the business of selling retail and wholesale, financial, computing and communication equipment and offering network integration services, digital subscriber line high speed internet connection services and business-to-business software sales. They also provide repair services and sell maintenance contracts. The corporation operates a service center in Phoenix, Arizona. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of IBIZ Technology Corp. and its wholly owned subsidiary, Invnsys Technology Corporation. All material inter-company accounts and transactions have been eliminated. ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS Uncollectible accounts receivable are written off at the time management specifically determines them to be uncollectible. In addition, the allowance for doubtful accounts is provided at an amount determined by management. INVENTORIES At April 30, 2000, inventories are stated at the lower of cost (determined principally by first-in, first-out method) or cost. At April 30, 1999, the inventories were computed by using the gross profit method for determining cost. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Major renewals and improvements are charged to the asset accounts while replacement, maintenance and repairs, which do not improve or extend the lives of the respective assets, are expensed. At the time property and equipment are retired or otherwise disposed of, the asset and related accumulated depreciation accounts are relieved of the applicable amounts. Gains or losses from retirements or sales are credited or charged to income. The company depreciates its property and equipment for financial reporting purposes using the straight-line method based upon the following useful lives of the assets: See Accompanying Notes and Independent Accountants' Review Report. 7 14 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2000 (UNAUDITED) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PROPERTY AND EQUIPMENT (CONTINUED) Tooling 3 Years Machinery and equipment 5-10 Years Office furniture and equipment 5-7 Years Vehicles 5 Years Leasehold improvements 5 Years Co-location equipment 5 Years Computer software 3 Years
CUSTOMER LISTS The customer list is recorded at cost and is being amortized on a straight-line basis over three years. ACCOUNTING ESTIMATES Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were used. REVENUE RECOGNITION The company recognizes revenue from product sales when the goods are shipped and title passes to customers. SALES OF MAINTENANCE AGREEMENTS The revenue received for the maintenance agreements is being reported evenly over the life of the contracts. The unearned portion is recorded as deferred income. 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. See Accompanying Notes and Independent Accountants' Review Report. 8 15 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2000 (UNAUDITED) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) NET (LOSS) PER SHARE The company adopted Statement of Financial Accounting Standards No. 128 that requires the reporting of both basic and diluted earnings per share. Basic earnings per share is computed by dividing net income available to common shareowners by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. In accordance with FASB 128, any anti-dilutive effects on net loss per share are excluded. RISKS AND UNCERTAINTIES The company is in the computer and computer technology industry. The company's products are subject to rapid obsolescence and management must authorize funds for research and development costs in order to stay competitive. NOTE 2 CASH IN BANK The company has $1,181,479 deposited in one banking institution. Only $100,000 of the balance is insured by the Federal Deposit Insurance Corporation. NOTE 3 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, 2000 and 1999, as defined in FASB 107, does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying balance sheets. 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. NOTE 4 ACCOUNTS RECEIVABLE A summary of accounts receivable and allowance for doubtful accounts is as follows:
2000 1999 ---- ---- Accounts receivable $660,506 $156,594 Allowance for doubtful accounts 24,558 2,500 -------- -------- $635,948 $154,094 ======== ========
See Accompanying Notes and Independent Accountants' Review Report. 9 16 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2000 (UNAUDITED) NOTE 5 INVENTORIES The inventories at April 30, 2000 are comprised of the following: Finished products $199,574 Depot units 15,956 Office 48,286 Parts 319 -------- Total inventories $264,135 ========
The inventories at April 30, 1999 were computed, in total, by using the gross profit method for determining costs. NOTE 6 PROPERTY AND EQUIPMENT Property and equipment and accumulated depreciation consists of:
2000 1999 Tooling $ 68,100 $ 68,100 Machinery and equipment 58,705 30,656 Software 22,878 0 Office furniture and equipment 127,367 62,926 Vehicles 39,141 39,141 Co-location equipment 125,788 0 Leasehold improvements 27,145 18,044 Deposit on equipment 39,996 0 -------- -------- 509,120 218,867 Less accumulated depreciation 168,124 165,681 -------- -------- Total property and equipment $340,996 $ 53,186 ======== ========
The depreciation expense for the six months ended April 30, 2000 and 1999 was $23,940 and $25,870, respectively. NOTE 7 CUSTOMER LIST The customer list and accumulated amortization consists of:
2000 1999 Cost $11,900 $ 0 Less accumulated amortization 1,984 0 ------- ------- Total customer list $ 9,916 $ 0 ======= =======
The amortization expense for the six months ended April 30, 2000 and 1999 was $1,984 and $0, respectively. See Accompanying Notes and Independent Accountants' Review Report. 10 17 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2000 (UNAUDITED) NOTE 8 NOTE RECEIVABLE, RELATED PARTY
2000 1999 At April 30, 2000, the related note is secured by $419,582 $717,829 500,000 shares of common stock in the company, payable ======== ======== on demand and accrues interest at 6%. Management believed the notes would not be collected within the current operating cycle and classified the asset as a long-term asset At April 30, 1999, the note was not secured
NOTE 9 CUSTOMER DEPOSITS It is the company's policy to obtain a portion of the sales price when orders are received. These funds are recorded as customer deposits and are applied to the customer invoices when the merchandise is shipped. NOTE 10 INCOME TAXES
2000 1999 ---- ---- (Loss) from continuing operations before income taxes $(1,550,946) $ (519,995) ----------- ----------- The provision for income taxes is estimated as follows: Currently payable $ 0 $ 0 ----------- ----------- Deferred $ 0 $ 0 ----------- ----------- A reconciliation of the provision for income taxes compared with the amounts at the U.S. Federal Statutory rate was as follows: Tax at U.S. Federal Statutory income tax rates $ 0 $ 0 ----------- ----------- Deferred income tax assets and liabilities reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and the basis of such assets and liabilities as measured by tax laws. The net deferred liability is: $ 0 $ 0 ----------- ----------- The net deferred tax assets is: $ 0 $ 0 ----------- ----------- Temporary differences and carry forwards that gave rise to deferred tax assets and liabilities included the following:
See Accompanying Notes and Independent Accountants' Review Report. 11 18 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2000 (UNAUDITED) NOTE 10 INCOME TAXES (CONTINUED)
DEFERRED TAX ASSETS LIABILITIES Net operating loss $ 708,172 $ 0 Accrued expenses and miscellaneous 8,100 0 Tax credit carryforward 38,424 0 Depreciation 0 6,199 --------- --------- Subtotals 754,696 6,199 Valuation allowance 754,696 (6,199) --------- --------- Total deferred taxes $ 0 $ 0 ========= =========
As discussed in Note 22, there is substantial doubt about the company's ability to continue as a going concern. Consequently, the company must maintain a 100% valuation allowance for the deferred taxes as there is doubt that the company will generate profits which will be absorbed by the tax differences. A reconciliation of the valuation allowance is as follows:
2000 1999 ---- ---- Balance, beginning of period $ 356,638 $ 145,054 Addition to allowance for six months ended April 30, 2000 and 1999 398,058 47,946 ------- ------ Balance, end of period $ 754,696 $ 193,000 ========= =========
NOTE 11 TAX CARRYFORWARD The company has the following tax carryforwards at April 30, 2000:
EXPIRATION YEAR AMOUNT DATE ---- ------ ---- Net operating loss October 31, 1995 $ 2,500 October 31, 2010 October 31, 1996 24,028 October 31, 2011 October 31, 1997 192,370 October 31, 2012 October 31, 1998 71,681 October 31, 2013 October 31, 1999 991,162 October 31, 2019 Capital loss October 31, 1997 25,600 October 31, 2002
See Accompanying Notes and Independent Accountants' Review Report. 12 19 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2000 (UNAUDITED) NOTE 11 TAX CARRYFORWARD (CONTINUED)
EXPIRATION YEAR AMOUNT DATE Contribution October 31, 1997 545 October 31, 2002 October 31, 1999 2,081 October 31, 2004 Research tax credits 38,424
NOTE 12 NOTES PAYABLE
2000 1999 -------- ------- Note payable to Community First National Bank due in monthly payments of interest of approximately $3,100. Interest is computed at national prime as stated in the Wall Street Journal plus 3 percent. The principal amount is due July 31, 2000. This note is secured by accounts receivable, general intangibles and all equipment and leasehold improvements The shareholder has personally guaranteed the loan and the bank is the beneficiary of an insurance policy on the life of the shareholder. The company canceled this line in the year 2000. $ 0 $344,866 Note payable to Community First National Bank due in monthly installments of principal and interest of $3,754 until May 7, 1999. Interest is computed at national prime as stated in the Wall Street Journal plus 3 percent. The note is secured by accounts receivable, general intangibles and all equipment and leasehold improvements. A principal shareholder has personally guaranteed the loan and the bank is the beneficiary of an insurance policy on the life of the shareholder. The loan was paid off in 1999. 0 2,032 Note payable to Community First National Bank due in monthly payments of principal and interest of $545 with interest at 7 percent until March 7, 2004. The note is secured by an automobile which costs $31,141. 22,318 27,088 ------ ------- 22,318 373,986 ====== =======
See Accompanying Notes and Independent Accountants' Review Report. 13 20 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2000 (UNAUDITED) NOTE 12 NOTES PAYABLE (CONTINUED)
2000 1999 ---- ---- Less: current portion 5,265 351,703 ------- -------- Net long-term debt $17,053 $ 22,283 ======= ========
Maturities of long-term debt are as follows: Year ended April 30 2000 $ 0 $ 6,540 2001 6,540 6,540 2002 6,540 6,540 2003 6,540 6,540 2004 3,698 928 ------- ------- $22,318 $27,088 ======= =======
NOTE 13 COMMON STOCK PURCHASE WARRANTS The company has issued the following common stock purchase warrants at April 30, 2000:
NUMBER EXERCISE DATE OF SHARES TERM PRICE ---- --------- ---- ----- May 13, 1999 100,000 3 years $ 1.00 May 7, 1999 180,000 10 years $ 0.75 May 13, 1999 100,000 10 years $ 1.00 November 9, 1999 100,000 4 years $ .94 December 14, 1999 75,000 3 years $ 1.66 December 28, 1999 200,000 4 years $ .94 January 10, 2000 281,250 5 years $ .99 March 27, 2000 656,250 5 years $ 1.45 - 2.05 --------- 1,692,500 =========
NOTE 14 CONVERTIBLE DEBENTURES
CURRENT $600,000 DEBENTURE TOTAL PORTION ------------------ ----- ------- In November 1999, the company issued $600,000 of $350,000 $ 0 7% convertible debentures under the following amended terms and conditions:
See Accompanying Notes and Independent Accountants' Review Report. 14 21 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2000 (UNAUDITED) NOTE 14 CONVERTIBLE DEBENTURES
CURRENT $600,000 DEBENTURE TOTAL PORTION ------------------ ----- ------- 1. Due date - November 9, 2004. 2. Interest only on April 1 and November 1 of each year commencing January 1, 2000. 3. Warrants to purchase 100,000 shares of common stock at $ 0.94 per share. 4. Conversion terms - The debenture holder shall have the right to convert all or a portion of the outstanding principal amount of this debenture plus any accrued interest into such number of shares of common stock as shall equal the quotient obtained by dividing the principal amount of this debenture by the applicable conversion price. 5. Conversion price - Lesser of (i) $ 0.675 (fixed price) or (ii) the product obtained by multiplying the average closing price by .80. 6. Average closing price - The debenture holder shall have the election to choose any three trading days out of twenty trading days immediately preceding the date on which the holder gives the company a written notice of the holders' election to convert outstanding principal of this debenture. 7. Redemption by company - If there is a change in control of the company, the holder of the debenture can request that the debenture be redeemed at a price equal to 125% of the aggregate principal and accrued interest outstanding under this debenture. 8. The debentures are unsecured. 9. Any further issuance of common stock or debentures must be approved by debenture holders. 10. Debenture holders have a eighteen month right of first refusal on future disposition of stock by the company. 11. Restriction on payment of dividends, retirement of stock or issuance of new securities.
The company converted $250,000 of debentures into common stock. See Accompanying Notes and Independent Accountants' Review Report. 15 22 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2000 (UNAUDITED) NOTE 14 CONVERTIBLE DEBENTURES (CONTINUED)
CURRENT $1,600,000 UNSECURED DEBENTURE TOTAL PORTION On March 27, 2000, the company issued $1,600,000 of $1,600,000 $ 0 7% convertible debentures under the following terms and conditions: 1. Due date - March 27, 2005. 2. Interest only on May 1 and December 1 of each year commencing May 1, 2000. 3. Default interest rate - 18%. 4. Warrants to purchase 375,000 shares of common stock at $1.45 per share. 5 Conversion terms - The debenture holder shall have the right to convert all or a portion of the outstanding principal amount of this debenture plus any accrued interest into such number of shares of common stock as shall equal the quotient obtained by dividing the principal amount of this debenture by the applicable conversion price. 6. Conversion price - Lesser of (i) $1.45 (fixed price) or (ii) the product obtained by multiplying the average closing price by .80. 7. Average closing price - The debenture holder shall have the election to choose any three trading days out of twenty trading days immediately preceding the date on which the holder gives the company a written notice of the holder's election to convert outstanding principal of this debenture. 8. Redemption by company - If there is a change in control of the company, the holder of the debenture can request that the debenture be redeemed at a price equal to 125% of the aggregate principal and accrued interest outstanding under this debenture. 9. The debentures are unsecured. 10. Any further issuance of common stock or debentures must be approved by debenture holders. 11. Debenture holders have a eighteen month right of first refusal on future disposition of stock by the company. 12. Restriction on payment of dividends, retirement of stock or issuance of new securities. ---------- ---------- Total $1,950,000 $ 0 ========== ==========
On May 31, 2000, the $1,600,000 debenture holder converted $100,000 of debentures into 192,853 common shares. See Accompanying Notes and Independent Accountants' Review Report. 16 23 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2000 (UNAUDITED) NOTE 15 REAL ESTATE LEASE On June 1, 1999, the company leased a new facility from a related entity. The lease commenced on July 1, 1999, requires initial annual rentals of $153,600 (with annual increases) plus taxes and operating costs and expires on December 31, 2024. The company has also guaranteed the mortgage on the premises. Future minimum lease payments, (based upon fiscal years ending October 31) excluding taxes and expenses, are as follows: October 31, 2000 $ 156,160 October 31, 2001 163,968 October 31, 2002 172,168 October 31, 2003 180,780 October 31, 2004 189,820 November 1, 2004 - December 31, 2024 6,676,000
Rent expense for the six months ended April 30, 2000 and 1999 is $76,931 and $25,745, respectively. NOTE 16 ADVERTISING The company expenses all advertising as incurred. For the six months ended April 30, 2000 and 1999, the company charged to operations $282,277 and $68,712 in advertising costs. NOTE 17 INTEREST The company incurred interest expenses for the six months ended April 30, 2000 and 1999 of $29,221 and $24,619, respectively. NOTE 18 WARRANTY RESERVE The company established a warranty reserve of $50,000 to cover any potential warranty costs on computer equipment that are not covered by the computer manufacturer's warranty. NOTE 19 RESEARCH AND DEVELOPMENT The company incurred research and development cost for 2000 and 1999 of $2,798 and $0, respectively. NOTE 20 OFFICERS' COMPENSATION At April 30, 2000, officers' compensation was as follows: President and Chief Executive officer $200,000 Vice President/Comptroller 88,000
See Accompanying Notes and Independent Accountants' Review Report. 17 24 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2000 (UNAUDITED) NOTE 20 OFFICERS' COMPENSATION (CONTINUED) Vice President/Operations $88,000 Chief Operating Officer 96,200 Vice President/Marketing 75,000 Vice President/Technology 80,000
NOTE 21 STOCK OPTIONS On January 31, 1999, the corporation adopted a stock option plan for the purpose of providing an incentive based form of compensation to the directors, key employees and service providers of the corporation. The stock subject to the plan and issuable upon exercise of options granted under the plan are shares of the corporation's common stock, $.001 par value, which may be either unissued or treasury shares. The aggregate number of shares of common stock covered by the plan and issuable upon exercise of all options granted shall be 5,000,000 shares, which shares shall be reserved for use upon the exercise of options to be granted from time to time. Vesting terms of the options range from immediately to five years and generally expire in ten years. A summary of the stock option activity for the six months ended April 30, 2000 and 1999, pursuant to the terms of the plan is set forth below:
WEIGHTED NUMBER AVERAGE OF EXERCISE OPTIONS PRICE ------- ----- Balance at beginning of period 2,350,000 $ .75 Granted 1,310,000 1.15 Exercised (70,000) .75 Canceled (180,000) .75 --------- Balance at end of period 3,410,000 =========
The weighted average fair value of options granted in 2000 and 1999 was estimated as of the date of grant using the Black-Scholes stock option pricing model, based on the following weighted average assumptions: annual expected return of 0%, annual volatility of 50%, risk-free interest rate ranging from 6.75% and expected option life of 10 years. The per share weighted-average fair value of stock options granted during 2000 and 1999 was $.71 and $0.00, respectively. The per share weighted average remaining life of the options outstanding at April 2000 and 1999 is 7.5 and 0 years, respectively. See Accompanying Notes and Independent Accountants' Review Report. 18 25 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2000 (UNAUDITED) NOTE 21 STOCK OPTIONS (CONTINUED) The company has elected to continue to account for stock-based compensation under APB Opinion No. 25, under which no compensation expense has been recognized for stock options granted to employees at fair market value. There is no additional compensation costs to report and required pro-forma net income and earnings per share are the same as the historical financial statement presentations. NOTE 22 GOING CONCERN These financial statements are presented on the basis that the company is a going concern. Going concern contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time. The accompanying financial statements show that the company incurred a net loss of $1,550,946 for the six months ended April 30, 2000. NOTE 23 INVESTOR COMMUNICATION AGREEMENT In December 1999, the company entered into an agreement with an investment company for the purpose of providing investor communications and enhancing shareholder values. The agreement is for one year and requires the following payments by the company: 1. Non-refundable retainer of $50,000. 2. $10,000 per month advisory fee commencing June 1, 2000. 3. Warrants to purchase 75,000 shares of the company's common stock at 120% of the last trade price as of the execution of the agreement and the warrants must be exercised within three years from date of issuance. NOTE 24 FINANCIAL PROJECT MANAGEMENT AGREEMENT In December 1999, the company entered into a six month agreement with Equinet, Inc., the project manager, to promote the growth of, or increase in the shareholder value of the company. The project manager will be compensated as follows: 1. A monthly fee of $3,500 for the first 6 months of the agreement payable in cash or stock. 2. A fee of 1% - 10% based upon the funding received from the project manager's recommendations. 3. In connection with the first $5,000,000 raised by the project manager, the company will issue to the project manager warrants to purchase three shares of common stock for each $20 raised, up to a maximum of 750,000 shares. In the event the first $1,875,000 is received by January 10, 2000, the company will provide Equinet, Inc. a discounted exercise price of $0.99 per share in connection with the warrants issued for these funds. See Accompanying Notes and Independent Accountants' Review Report. 19 26 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2000 (UNAUDITED) NOTE 25 LITIGATION Epson America, Inc. vs, Invnsys Technology Corporation. Civil Cause # CV 2000-008155 - Superior Court of Arizona. Epson America, Inc. is suing the corporation for $114,785 to collect past due accounts payable. The company is disputing the $114,785 as it believes that Epson has not offset the debt by commissions earned and due by Invnsys Technology Corporation. However, the company has accrued the $114,785 in the accounts payable and is attempting to negotiate a final settlement with Epson. NOTE 26 PLAN OF REORGANIZATION AND STOCK EXCHANGE AGREEMENT On January 1, 1999, the company issued 16,000,000 shares of newly issued restricted common stock for 100% of the issued and outstanding stock of Invnsys Technology Corporation. Invnsys Technology Corporation became a wholly-owned subsidiary of IBIZ Technology Corp. and the acquisition was accounted for as a reverse acquisition. The details of the results of operation (unaudited) for each separate company, prior to the date of combination, that are included in the current net income are:
INVNSYS IBIZ TECHNOLOGY TECHNOLOGY CORPORATION CORP. Sales $ 402,127 $ 0 Cost of sales 239,704 0 --------- --------- Gross profit 162,423 0 Selling, general and administrative expenses 243,094 27,742 --------- --------- (Loss) before income taxes (refund) (80,671) (27,742) Income taxes (refund) (20,150) 0 --------- --------- Net (loss) $ (60,521) $ ( 27,742) ========= =========
There were no adjustments in the net assets of the combining companies to adopt the same accounting policies. Each of the companies had an October 31 fiscal year so no accounting adjustments were necessary. An (unaudited) reconciliation of revenues and earnings reconciled with the amounts shown in the combined financial statements is as follows: Net (loss) of IBIZ Technology Corp. at December 31, 1998 $ (27,742) Add Invnsys Technology Corporation (loss) for November 1, 1998 to December 31, 1998 (60,521) Additional net (loss) from January 1, 1999 to April 30, 1999 (431,732) --------- Net (loss) for the six months ended April 30, 1999 $(519,995) =========
See Accompanying Notes and Independent Accountants' Review Report. 20 27 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2000 (UNAUDITED) NOTE 27 UNAUDITED FINANCIAL INFORMATION The accompanying financial information as of April 30, 2000 and 1999 is unaudited. In management's opinion, such information includes all normal recurring entries necessary to make the financial information not misleading. See Accompanying Notes and Independent Accountants' Review Report. 21 28 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS Through its operating subsidiary, INVNSYS, iBIZ designs, manufactures, and distributes small footprint desktop computers, transaction printers, general purpose financial application keyboards, numeric keypads, CRT's, LCD monitors and related products. INVNSYS also markets a line of OEM notebook computers and distributes transactional and color printers. iBIZ recently began offering network integration services, digital subscriber line high-speed Internet connection services, and business-to-business software sales. The Company is seeking to complete the construction of a server co-location facility, consisting of improvements and equipment to provide Internet content hosting services to subscribers. SELECTED FINANCIAL INFORMATION RESULTS OF OPERATIONS. THREE MONTH PERIOD ENDED APRIL 30, 2000, COMPARED TO THREE MONTH PERIOD ENDED APRIL 30, 1999.
Three Month Period Ended ----------------------------- 4/30/2000 4/30/1999 ----------- ----------- Statement of Operations Data Net sales $ 1,436,126 $ 588,050 Gross profit $ 211,800 $ 174,831 Operating Income (loss) $ (816,202) $ (486,983) Net earnings (loss) after tax $ (840,826) $ (484,962) Net earnings (loss) per share (.03) (.02)
Three Month Period Ended ----------------------------- 4/30/2000 4/30/1999 ----------- ----------- Balance Sheet Data Total assets $ 3,058,493 $ 1,202,004 Total liabilities $ 2,910,703 $ 1,621,828 Retained earnings (deficit) $(3,192,109) $(1,244,425)
Revenues. Sales increased to $1,436,126 for the three month period ended April 30, 2000, which is approximately 244% of the $588,050 for the three month period ended April 30, 1999, The increase was mainly as a result of the contribution to revenue from the Company's business-to-business software sales, network services, and enhanced hardware sales resulting from the business-to-business software sales. 22 29 Cost of Sales. The cost of sales increased by approximately 196% from $413,219 in the three-month period ended April 30, 1999 to $1,224,326 for the three month period ended April 30, 2000. The increase in cost of sales is attributable to a similar percentage increase in sales and also reflects higher marketing expenses necessary to sell the services of and to support the co-location facility currently under construction, Internet connection services and software. Gross Profit. Gross profit increased from approximately $174,831 for the three month period ended April 30, 1999 to $211,800 for the three month period ended April 30, 2000. The increase failed to match the significant increase in revenues because of the higher costs associated with the introduction of the new lines of business. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased approximately 55% from $661,814 for the three month period ended April 30, 1999, to $1,028,002 for the three month period ended April 30, 2000. The increase was primarily due to business expansion into the Internet, software, broadband and business-to-business sectors, increased staffing costs and salaries for technical personnel in anticipation of the opening of a server co-location facility, costs of fees paid for capital raising and investor relations, and legal and accounting fees related to registration of the Company's common stock. Interest Expense. Interest expense of $36,199 for the three month period ended April 30, 2000 and of $8,735 for the three month period ended April 30, 1999 was accrued primarily on notes payable to Community First National Bank (primarily extended for working capital purposes). A nominal amount of interest was paid in the quarter ended April 30, 2000 to debenture holders. Net Earnings. Net losses increased from $484,962 for the three month period ended April 30, 1999 to $840,826 for the three month period ended April 30, 2000. The increase in losses resulted primarily from a significant increase in selling, general, and administrative expenses and higher operating costs associated with the Company's new lines of business. 23 30 SIX MONTH PERIOD ENDED APRIL 30, 2000, COMPARED TO SIX MONTH PERIOD ENDED APRIL 30, 1999.
Six Month Period Ended ----------------------------- 4/30/2000 4/30/1999 ----------- ----------- Statement of Operations Data Net sales $ 2,064,979 $ 1,421,569 Gross profit $ 289,858 $ 286,689 Operating Income (loss) $(1,538,698) $ (506,132) Net earnings (loss) after tax $(1,550,946) $ (519,995) Net earnings (loss) per share $ (.06) $ (.02)
Six Month Period Ended ------------------------------ 4/30/2000 4/30/1999 ----------- ----------- Balance Sheet Data Total assets $ 3,058,493 $ 1,202,004 Total liabilities $ 2,910,703 $ 1,621,828 Retained earnings (deficit) $(3,192,109) $(1,244,425)
Revenues. Sales increased to $2,064,979 for the six month period ended April 30, 2000, which is approximately 146% of the $1,421,569 for the six month period ended April 30, 1999. The increase was mainly as a result of the contribution to revenue from the Company's business-to-business software sales, network services, and enhanced hardware sales resulting from the business-to-business software sales. Cost of Sales. The cost of sales increased by approximately 56% from $1,134,880 in the six-month period ended April 30, 1999 to $1,775,121 for the six month period ended April 30, 2000. The increase in cost of sales is attributable to a similar percentage increase in sales and also reflects higher marketing expenses necessary to sell the services of and to support the co-location facility currently under construction, Internet connection services and software. Gross Profit. Gross profit increased from approximately $286,684 for the six month period ended April 30, 1999 to $289,858 for the six month period ended April 30, 2000. The increase was insignificant and failed to match the significant increase in revenues because of the higher costs associated with the introduction of the new lines of business. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased approximately 130% from $792,821 for the six month period ended April 30, 1999, to $1,828,556 for the six month period ended April 30, 2000. The increase was primarily due to business expansion into the 24 31 Internet, software, broadband and business-to-business sectors, increased staffing costs and salaries for technical personnel in anticipation of the opening of a server co-location facility, costs of fees paid for capital raising and investor relations, and legal and accounting fees related to registration of the Company's common stock. Interest Expense. Interest expense of $29,221 for the six month period ended April 30, 2000 and of $24,619 for the six month period ended April 30, 1999 was accrued primarily on notes payable to Community First National Bank (primarily extended for working capital purposes). Net Earnings. Net losses increased from $519,995 for the six month period ended April 30, 1999 to $1,550,946 for the six month period ended April 30, 2000. The increase in losses resulted primarily from a significant increase in selling, general, and administrative expenses and higher operating costs associated with the Company's new lines of business. LIQUIDITY AND CAPITAL RESOURCES. During the quarter ended April 30, 2000, the Company raised $1,600,000 through issuance of convertible debentures to Lites Trading Co. ("Lites"). On May 31, 2000, Lites converted $100,000 of the convertible debentures. Pursuant to the applicable conversion formula, iBIZ issued 192,853 shares of common stock to Lites. From February, 2000 through April, 2000 the Company issued 1,681,420 shares of Common Stock to debenture holders for conversion of debentures with principal amounts of approximately $1,500,000. The Company also issued 807,375 shares of Common Stock in lieu of cash for services rendered. Although the Company had in excess of $1,000,000 in cash reserves as of April 30, 2000, management anticipates that most of these reserves will be used for the construction and development of the server co-location facilities scheduled to be completed sometime in July or August. Historically, iBIZ has had problems with liquidity. The Company has been unable to generate sufficient internal cash flow to fund all of its obligations. Should the server co-location facility open in early July and the anticipated consumer demand for this service materialize, the Company may generate sufficient internal cash flow to support operations. If the co-location facility is not completed on or before August 1, 2000 or the consumer demand anticipated by the Company fails to materialize, the Company will need additional funding. There is no assurance that iBIZ will raise the necessary capital to remain in business beyond January 31, 2001. If at any time iBIZ is unable to raise financing through additional sales of common stock or alternate financing sources, it may be required to delay or modify planned growth initiatives. Management believes that its recent diversification into broadband connectivity services, third-party software sales, and its server co-location facility should improve its liquidity and cash flow. iBIZ recently expanded its distribution of certain hardware into certain retail stores. Third-party software sales currently generate approximately $200,000 per month in sales revenues. There is no assurance, however, that its favorable relationship with its third-party suppliers will continue or 25 32 that its customers will continue to purchase the broadband connectivity services, hardware and the software packages and upgrades necessary to generate the revenue experienced since January 2000. There is no assurance that the high margins currently anticipated from the co-location facility will materialize. Entry of additional competitors with substantially greater resources than those of the Company could put additional downward pressure on the anticipated digital subscriber line high-speed Internet connection service margins. 26 33 Part II - Other Information ITEM 1. LEGAL PROCEEDINGS Invnsys Technology Corporation, dba iBIZ Technology Corporation ("iBIZ"), is the defendant in a civil matter filed by Epson America, Inc. ("Epson"), in the Superior Court of the State of Arizona. The complaint alleges that over the past three (3) years, iBIZ became indebted to Epson in the amount of $151,665.96. Since February 2, 2000, no payment has been made to Epson, leaving an unpaid balance of $102,636.05 plus interest. Epson seeks to recover $102,636.05 plus interest accruing at a rate of ten percent (10%) from February 2, 1999, attorney's fees, incurred costs and expenses, together with accruing costs. iBIZ is seeking to recover additional commissions that it believes Epson owes it. iBIZ intends to settle the matter with representatives of Epson. For accounting purposes, the full amount that Epson is seeking to recover has already been accrued as a liability in iBIZ's financial records. ITEM 2. CHANGES IN SECURITIES (c) Recent Sales of Unregistered Securities On March 27, 2000, iBIZ issued One Million Six Hundred Thousand Dollars ($1,600,000.00) of 7% Debentures (the "$1600k 7% Debentures") to Lites Trading, Co. On May 31, 2000, $100,000 of the principal amount of the Debentures were converted into 192,853 shares of common stock. The Debentures are due and payable on March 27, 2005. In connection with the issuance of the $1600k 7% Debentures, iBIZ issued a warrant to purchase 375,000 shares of common stock at a purchase price of $1.45 per share. The warrant is immediately exercisable and expires March 27, 2004. 27 34 (d) Use of Proceeds from Registration Statement 1. iBIZ has filed a Registration Statement on Form SB-2, File No. 333-34936 to register 3,917,866 shares of common stock, $0.001 par value (the "SB-2"). The SB-2 was declared effective by the SEC on May 1, 2000. The shares registered in the SB-2 are for resale by iBIZ's securityholders upon exercise of options or warrants. iBIZ will not receive any of the proceeds from the sale of the common stock by the securityholders, but may receive up to $927,437.50 upon the exercise of the options or warrants. In connection with the SB-2, iBIZ incurred fees and expenses of approximately $22,000 related to professional services and filing fees. As of June 12, 2000, the Company had received $367,500 upon the exercise of options or warrants to purchase 480,000 shares of common stock. These funds have been allocated to general working capital. 28 35 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 23.03 Consent of Moffitt and Company 27.03 Financial Data Schedule B. Reports on Form 8-K Not Applicable Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated this 14th day of June, 2000. iBIZ TECHNOLOGY CORP., a Florida corporation By: /s/ Kenneth W. Schilling Kenneth W. Schilling, President, Director By: /s/ Terry S. Ratliff Terry S. Ratliff, Vice President, Comptroller, Secretary, Director By: /s/ Mark H. Perkins Mark H. Perkins, Vice President of Operations, Director 29