10QSB 1 p63782e10qsb.txt 10QSB 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 1O-QSB Quarterly Report of Small Business Issuers under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended July 31, 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 (I.R.S. Employer Identification No.) incorporation or 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 The issuer has (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) been subject to such filing requirements for the past 90 days. -------------------------------------------------------------------------------- Number of shares outstanding of each of the issuer's classes of common equity:
Class Outstanding as of September 13, 2000 ----- ------------------------------------- Common stock, $0.01 par value 34,492,734
-------------------------------------------------------------------------------- The issuer is not using the Transitional Small Business Disclosure format. 2 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 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 ...... 4-5 Consolidated Statements of Cash Flows .......................... 6-7 Notes to Consolidated Financial Statements ..................... 8-22
4 MOFFITT & COMPANY, P.C. -------------------------------------------------------------------------------- CERTIFIED PUBLIC ACCOUNTANTS 5040 East Shea Blvd. Suite 270 Scottsdale, Arizona 85254 (480) 951-1416 Fax (480) 948-3510 moffittcpas@uswest.net 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 July 31, 2000 and 1999, and the related statements of operations for the three and nine months then ended, statement of stockholders' equity as of July 31, 2000 and statements of cash flows for the nine months ended July 31, 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 21, 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. /s/ MOFFITT & COMPANY, P. C. MOFFITT & COMPANY, P. C. SCOTTSDALE, ARIZONA August 25, 2000 5 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED BALANCE SHEETS JULY 31, 2000 AND 1999 (UNAUDITED) ASSETS
2000 1999 ---------- -------- CURRENT ASSETS Cash and cash equivalents $ 142,461 $ 23,884 Accounts receivable 656,847 187,987 Loan receivable, officer 38,980 0 Inventories 263,036 139,383 Prepaid expenses 492,978 24,122 ---------- -------- TOTAL CURRENT ASSETS 1,594,302 375,376 ---------- -------- PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION 1,626,205 85,920 ---------- -------- OTHER ASSETS Note receivable, related party 425,876 339,111 Deposits 60,401 17,762 Customer list, net of accumulated amortization 8,924 0 ---------- -------- TOTAL OTHER ASSETS 495,201 356,873 ---------- -------- TOTAL ASSETS 3,715,708 $818,169 ========== ========
6 LIABILITIES AND STOCKHOLDERS' EQUITY
2000 1999 ---------- ----------- CURRENT LIABILITIES Accounts payable, trade $1,382,594 583,492 Customer deposits 0 109,618 Notes payable, current 4,911 79,668 Accrued liabilities 94,829 29,155 Sales and payroll taxes payable 211,049 107,267 Corporation income taxes payable 19,078 18,666 Deferred income 118,984 91,914 ---------- ----------- TOTAL CURRENT LIABILITIES 1,831,445 1,019,780 ---------- ----------- LONG - TERM LIABILITIES Convertible debentures payable 1,750,000 200,000 Notes payable 16,159 21,256 ---------- ----------- TOTAL LONG - TERM LIABILITIES 1,766,159 221,256 ---------- ----------- STOCKHOLDERS' EQUITY Common stock Authorized - 100,000,000 shares, par value $.001 per shares Issued and outstanding - 31,092,828 shares in 2000 31,093 0 26,571,000 shares in 1999 0 26,571 Paid in capital in excess of par value of stock 4,050,714 952,372 Retained earnings (deficit) (3,963,703) (1,401,810) ---------- ----------- TOTAL STOCKHOLDERS' EQUITY 118,104 (422,867) ---------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,715,708 $ 818,169 ========== ===========
See Accompanying Notes and Independent Accountants' Review Report. 2 7 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2000 AND 1999 (UNAUDITED)
2000 ------------------------------------- THREE MONTHS NINE MONTHS ENDED ENDED July 31, 2000 July 31, 2000 ------------- ------------- SALES $ 1,142,040 $ 3,207,019 COST OF SALES 914,814 2,689,935 ------------ ------------ GROSS PROFIT 277,226 517,084 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 955,483 2,784,039 ------------ ------------ (LOSS) BEFORE OTHER INCOME (EXPENSE) (728,257) (2,266,955) ------------ ------------ OTHER INCOME (EXPENSE) Interest income 13,187 30,160 Interest expense (44,424) (73,645) Miscellaneous income 0 0 Cancellation of debt (12,100) (12,100) ------------ ------------ TOTAL OTHER INCOME (EXPENSE) (43,337) (55,585) ------------ ------------ (LOSS) BEFORE INCOME TAXES (771,594) (2,322,540) INCOME TAXES 0 0 ------------ ------------ NET (LOSS) $ (771,594) $ (2,322,540) ============ ============ NET (LOSS) PER COMMON SHARE Basic and Diluted $ (.03) $ (.08) ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Basic and diluted 28,741,267 28,741,267 ============ ============
8
1999 ------------------------------------- THREE MONTHS NINE MONTHS ENDED ENDED JULY 31, 1999 JULY 31, 1999 ------------- ------------- $ 382,495 $ 1,804,064 398,937 1,533,817 ------------ ----------- (16,442) 270,247 375,401 1,168,222 ------------ ----------- (391,843) (897,975) ------------ ----------- 5,012 15,768 (10,738) (35,357) 20,491 20,491 148,033 148,033 ------------ ----------- 162,798 148,935 ------------ ----------- (229,045) (749,040) 0 0 ------------ ----------- $ (229,045) $ (749,040) ============ =========== $ (.01) $ (.03) ============ =========== 26,571,000 26,571,000 ============ ===========
See Accompanying Notes and Independent Accountants' Review Report. 3 9 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY JULY 31, 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
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
See Accompanying Notes and Independent Accountants' Review Report. 4 - 11 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED) JULY 31, 2000 (UNAUDITED)
COMMON STOCK ---------------------- SHARES AMOUNT ---------- -------- JUNE, 2000 - ISSUANCE OF COMMON STOCK FOR SERVICES 150,000 $ 150 JUNE, 2000 - ISSUANCE OF COMMON STOCK FOR SERVICES 362,653 363 JULY, 2000 - ISSUANCE OF COMMON STOCK FOR SERVICES 480,000 480 NET (LOSS) FOR THE NINE MONTHS ENDED JULY 31, 2000 0 0 ---------- -------- BALANCE, JULY 31, 2000 31,092,828 $ 31,093 ========== ========
12
PAID IN CAPITAL IN EXCESS OF ADVANCES RETAINED PAR VALUE ON STOCK EARNINGS OF STOCK SUBSCRIPTIONS (DEFICIT) ------------ ------------- ------------ $ 131,100 $ 0 $ 0 226,295 0 0 383,520 0 0 0 0 (2,322,540) ------------ ------------- ------------ $ 4,050,714 $ 0 $ (3,963,703) ============ ============= ============
See Accompanying Notes and Independent Accountants' Review Report. 5 13 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED JULY 31,2000 AND 1999 (UNAUDITED)
2000 1999 ------------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) $ (2,322,540) $ (749,040) Adjustments to reconcile net (loss) to net cash (used) by operating activities Depreciation and amortization 38,643 30,956 Issuance of common stock for interest, services and payroll bonuses 349,532 0 Changes in operating assets and liabilities Accounts receivable (444,547) (32,951) Inventories 5,051 184,014 Prepaid expenses (3,545) 2,878 Deposits 358 2,393 Accounts payable 619,629 (197,323) Customer deposits (115,408) (285,646) Accrued liabilities and taxes 68,905 (44,576) Deferred income 64,022 20,883 ------------- ---------- NET CASH FLOWS (USED) BY OPERATING ACTIVITIES (1,739,900) (1,068,412) ------------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (1,507,284) (40,340) Loans to related parties (108,046) 567,509 Purchase of customer list (11,900) 0 Deposits on property and equipment (44,000) 0 ------------- ---------- NET CASH FLOWS (USED) PROVIDED BY INVESTING ACTIVITIES (1,671,230) 527,169 ------------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Bank overdraft 0 (13,700) Net proceeds from issuance of common stock 394,349 671,406 Proceeds from issuance of convertible debentures 3,200,000 200,000 Changes in notes payable (66,101) (292,779) ------------- ---------- NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES 3,528,248 564,927 ------------- ----------
See Accompanying Notes and Independent Accountants' Review Report. 6 14 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE NINE MONTHS ENDED JULY 31,2000 AND 1999 (UNAUDITED)
2000 1999 ---------- ------- NET INCREASE IN CASH AND CASH EQUIVALENTS $ 117,118 $23,684 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 25,343 200 ---------- ------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 142,461 $23,884 ========== ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during year for: Interest $ 78,623 $25,109 ========== ======= 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 $1,486,712 $ 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. 7 15 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 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 July 31, 2000, inventories are stated at the lower of cost (determined principally by first-in, first-out method) or cost. At July 31, 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. 8 16 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 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 5-10 Years Vehicles 5 Years Leasehold improvements 5 Years Computer software 3 Years
The construction in progress equipment and co-location assets will be depreciated when they are completed and placed in service. 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 basis 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 See Accompanying Notes and Independent Accountants' Review Report. 9 17 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 2000 (UNAUDITED) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES (CONTINUED) expected to be realized or settled as prescribed in FASB Statement No., 109, Accounting for Income Taxes. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. NET (LOSS) PER SHARE The company adopted Statement of Financial Accounting Standards No. 128 that requires the reporting of both basic and diluted (loss) per share. Basic (loss) per share is computed by dividing net (loss) available to common shareowners by the weighted average number of common shares outstanding for the period. Diluted (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. In accordance with FASB 128, any anti-dilutive effects on net (loss) per share are excluded. 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 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 July 31, 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 3 ACCOUNTS RECEIVABLE A summary of accounts receivable and allowance for doubtful accounts is as follows:
2000 1999 --------- --------- Accounts receivable $ 756,847 $ 190,487 Allowance for doubtful accounts 100,000 2,500 --------- --------- $ 656,847 $ 187,987 ========= =========
See Accompanying Notes and Independent Accountants' Review Report. 10 18 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 2000 (UNAUDITED) NOTE 4 INVENTORIES The inventories at July 31, 2000 are comprised of the following: Finished products $ 183,266 Depot units 15,412 Office 50,855 Parts 319 Demo 11,241 Car stock 1,943 --------- Total inventories $ 263,036 =========
The inventories at July 31, 1999 were computed, in total, by using the gross profit method for determining costs. NOTE 5 PROPERTY AND EQUIPMENT Property and equipment and accumulated depreciation consists of:
2000 1999 ---------- --------- Tooling $ 68,100 $ 68,100 Machinery and equipment 52,266 54,473 Software 117,463 0 Office furniture and equipment 124,452 72,926 Vehicles 39,141 39,141 Construction in progress co-location equipment 469,276 0 Construction in progress co-location (improvements) 882,338 0 Leasehold improvements 23,179 22,047 ---------- --------- 1,776,215 256,687 Less accumulated depreciation (150,010) 170,767 ---------- --------- Total property and equipment $1,626,205 $ 85,920 ========== =========
The depreciation expense for the nine months ended July 31, 2000 and 1999 was $35,667 and $30,956, respectively. NOTE 6 CUSTOMER LIST The customer list and accumulated amortization consists of:
2000 1999 --------- ------- Cost $ 11,900 $ 0 Less accumulated amortization 2,976 0 --------- ------- Total customer list $ 8,924 $ 0 ========= =======
The amortization expense for the nine months ended July 31, 2000 and 1999 was $2,976 and $0, respectively. See Accompanying Notes and Independent Accountants' Review Report. 11 19 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 2000 (UNAUDITED) NOTE 7 NOTE RECEIVABLE, RELATED PARTY
2000 1999 --------- --------- At July 31, 2000, the related note is $ 425,876 $ 339,111 secured by 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 July 31, 1999, the note was not secured. NOTE 8 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 9 INCOME TAXES
2000 1999 ------------ ---------- (Loss) from continuing operations before income taxes $ (2,322,540) $(749,040) ------------ ---------- 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. 12 20 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 2000 (UNAUDITED) NOTE 9 INCOME TAXES (CONTINUED)
DEFERRED TAX ---------------------- ASSETS LIABILITIES ------ ----------- Net operating loss $830,000 $ 0 Accrued expenses and miscellaneous 8,100 0 Tax credit carryforward 38,424 0 Depreciation 0 6,199 -------- -------- Subtotals 876,524 6,199 Valuation allowance 876,524 (6,199) -------- -------- Total deferred taxes $ 0 $ 0 ======== ========
As discussed in Note 21, 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 nine months ended July 31, 2000 and 1999 519,886 176,946 -------- -------- Balance, end of period $876,524 $322,000 ======== ========
NOTE 10 TAX CARRYFORWARD The company has the following tax carryforwards at July 31, 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. 13 21 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 2000 (UNAUDITED) NOTE 10 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 11 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 $ 75,000 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. 21,070 25,924 -------- -------- 21,070 100,924 Less: current portion 4,911 79,668 -------- -------- Net long-term debt $ 16,159 $ 21,256 ======== ======== Maturities of long-term debt are as follows: Year ended July 31 2000 $ 0 6,540 2001 6,540 6,540 2002 6,540 6,540 2003 6,540 6,304 2004 1,450 0 -------- -------- $ 21,070 $ 25,924 ======== ========
See Accompanying Notes and Independent Accountants' Review Report. 14 22 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 2000 (UNAUDITED) NOTE 12 COMMON STOCK PURCHASE WARRANTS AND OPTIONS The company has issued the following common stock purchase warrants at July 31, 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 May 17, 2000 125,000 5 years $ 1.04-5.00 June 16, 2000 150,000 1 year $ 1.50-2.00 --------- 1,967,500 =========
NOTE 13 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: 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.
See Accompanying Notes and Independent Accountants' Review Report. 15 23 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 2000 (UNAUDITED) NOTE 13 CONVERTIBLE DEBENTURES (CONTINUED)
CURRENT $600,000 DEBENTURE TOTAL PORTION ------------------ ----- ------- 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. $250,000 of debentures were converted into 389,900 shares of common stock. $1,600,000 UNSECURED DEBENTURE On March 27, 2000, the company issued $1,600,000 of $ 1,400,000 $ 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.
See Accompanying Notes and Independent Accountants' Review Report. 16 24 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 2000 (UNAUDITED) NOTE 13 CONVERTIBLE DEBENTURES (CONTINUED)
CURRENT $600,000 DEBENTURE TOTAL PORTION ------------------ ----- ------- 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 $1,750,000 $ 0 ========== =======
$200,000 of debentures were converted in to 362,653 shares of common stock. NOTE 14 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 in the amount of $943,475 and given a security interest in all of the assets of the company. Future minimum lease payments excluding taxes and expenses, are as follows: July 31, 2000 $ 156,160 July 31, 2001 163,968 July 31, 2002 172,168 July 31, 2003 180,780 July 31, 2004 189,820 November 1, 2004 - December 31, 2024 6,638,500
Rent expense for the nine months ended July 31, 2000 and 1999 is $116,037 and $38,612, respectively. See Accompanying Notes and Independent Accountants' Review Report. 17 25 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 2000 (UNAUDITED) NOTE 15 ADVERTISING The company expenses all advertising as incurred. For the nine months ended July 31, 2000 and 1999, the company charged to operations $393,747 and $74,555 in advertising costs. NOTE 16 INTEREST The company incurred interest expenses for the nine months ended July 31, 2000 and 1999 of $73,645 and $35,357, respectively. NOTE 17 WARRANTY RESERVE The company established a warranty reserve of $47,921 to cover any potential warranty costs on computer equipment that are not covered by the computer manufacturer's warranty. NOTE 18 RESEARCH AND DEVELOPMENT The company incurred research and development cost for the nine months ended July 31, 2000 and 1999 of $5,224 and $4,693, respectively. NOTE 19 OFFICERS' COMPENSATION At July 31, 2000, officers' compensation was as follows: President and Chief Executive officer $200,000 Vice President/Comptroller 88,000 Vice President/Operations 88,000 Chief Operating Officer 96,200 Vice President/Marketing 75,000 Vice President/Technology 80,000
NOTE 20 EMPLOYEE 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. See Accompanying Notes and Independent Accountants' Review Report. 18 26 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 2000 (UNAUDITED) NOTE 20 EMPLOYEE STOCK OPTIONS (CONTINUED) A summary of the stock option activity for the nine months ended July 31, 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 (275,000) .75 --------- Balance at end of period 3,315,000 =========
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 $.58 and $0.00, respectively. The per share weighted average remaining life of the options outstanding at July 31, 2000 and 1999 is 7.2 and 0 years, respectively. 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 proforma net income and earnings per share are the same as the historical financial statement presentations. NOTE 21 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 net losses of $2,322,540 for the nine months ended July 31, 2000. NOTE 22 FINANCIAL PROJECT MANAGEMENT AGREEMENTS 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. See Accompanying Notes and Independent Accountants' Review Report. 19 27 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 2000 (UNAUDITED) NOTE 22 FINANCIAL PROJECT MANAGEMENT AGREEMENTS (CONTINUED) 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. In May 2000, the company entered into a fourteen month agreement with Silverman Heller Associates, to promote financial and corporate communication activities. The project manager will be compensated as follows: 1. A monthly fee of $5,500 beginning on May 17, 2000. 2. In connection with the services the project manager will provide, warrants to purchase 75,000 shares of common stock at the closing price on May 17, 2000 and an additional 50,000 shares at $5.00 per share. These warrants and the shares to be issued upon the exercise of the warrants will vest and be exercisable as of May 17, 2000 and expire five years from the issue date. The warrants will be granted registration rights on the next stock registration within the five-year term. In June 2000, the company entered into a one year agreement with Travis Morgan Securities, to provide financial consulting to facilitate long-range strategic planning and to advise the company on business and or financial matters. The project manager will be compensated as follows: 1. Certificates representing an aggregate of 150,000 shares of common stock. 2. An option for free trading stock with respect to the following quantities and strike prices. The term of the option shall be one year from the contract date. The option is executable after reaching the execution price for 10 days. 50,000 shares $1.50 exercise price $3.00 execution price 50,000 shares $2.00 exercise price $4.00 execution price 50,000 shares $2.50 exercise price $5.00 execution price
3. The project manager will be granted the first right of refusal to participate in any subsequent mergers or acquisitions, registrations, IPOS or secondary offerings. In July 2000, the company entered into an agreement with two individuals, to provide computerized CD-Rom presentations, website services and construction, brochures, trade shows and webcasts on bNet-TV. See Accompanying Notes and Independent Accountants' Review Report. 20 28 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 2000 (UNAUDITED) NOTE 22 FINANCIAL PROJECT MANAGEMENT AGREEMENTS (CONTINUED) The individuals will be compensated as follows: 1. 80,000 shares of common stock valued at $.80 per share on or before June 15, 2000. 2. 400,000 shares of common stock valued at $.80 per share on or before June 15, 2000. NOTE 23 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 $102,619 in the accounts payable. NOTE 24 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. See Accompanying Notes and Independent Accountants' Review Report. 21 29 IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JULY 31, 2000 (UNAUDITED) NOTE 24 PLAN OF REORGANIZATION AND STOCK EXCHANGE AGREEMENT (CONTINUED) 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 July 31, 1999 (431,732) --------- Net (loss) for the nine months ended July 31, 1999 $(519,995) =========
NOTE 25 UNAUDITED FINANCIAL INFORMATION The accompanying financial information as of July 31, 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. 22 30 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 has completed the construction of a server co-location facility, consisting of improvements and equipment to provide Internet content hosting services to subscribers. THREE-MONTH PERIOD ENDED JULY 31, 2000, COMPARED TO THREE-MONTH PERIOD ENDED JULY 31, 1999.
Three-month Period Ended ------------------------ 7/31/2000 7/31/1999 --------- --------- Statement of Operations Data Net sales $ 1,142,040 $ 382,495 Gross profit $ 277,226 $ (16,422) Operating Income (loss) $ (728,257) $ (391,843) Net earnings (loss) after tax $ (771,594) $ (229,045) Net earnings (loss) per share (.03) (.01)
Three-month Period Ended ------------------------ 7/31/2000 7/31/1999 --------- --------- Balance Sheet Data Total assets $ 3,715,708 $ 818,169 Total liabilities $ 3,597,604 $ 1,241,036 Retained earnings (deficit) $(3,963,703) $(1,401,810)
Revenues. Sales increased to $1,142,040 for the three-month period ended July 31, 2000, which is approximately 299% of the $382,495 for the three-month period ended July 31, 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 229% from $398,937 in the three month period ended July 31, 1999, to $914,814 for the three-month period ended July 31, 2000. The increase in cost of sales is attributable to a similar percentage increase in sales and also reflects higher labor and marketing expenses associated with the increase in work force necessary to sell and support the co-location facility recently completed, Internet connection services and software. Gross Profit. Gross profit increased from a gross loss of approximately $16,422 for the three-month period ended July 31, 1999, to a gross profit of $277,226 for the three-month period ended July 31, 2000. 31 Selling, General and Administrative Expenses. Selling, general and administrative expenses increased approximately 255% from $375,401 for the three-month period ended July 31, 1999, to $955,483 for the three-month period ended July 31, 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 support of the 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 Expenses. Interest expense of $44,424 for the three-month period ended July 31, 2000, and of $10,738 for the three-month period ended July 31, 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 July 31, 2000, to debenture holders. Net Earnings. Net losses increased from $229,045 for the three-month period ended July 31, 1999, to $771,594 for the three-month period ended July 31, 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. NINE-MONTH PERIOD ENDED JULY 31, 2000, COMPARED TO NINE-MONTH PERIOD ENDED JULY 31, 1999.
Nine-month Period Ended ----------------------- 7/31/2000 7/31/1999 --------- --------- Statement of Operations Data Net sales $ 3,207,019 $ 1,804,064 Gross profit $ 517,084 $ 270,247 Operating Income (loss) $(2,266,955) $ (897,975) Net earnings (loss) after tax $(2,322,540) $ (749,040) Net earnings (loss) per share $ (.08) $ (.03)
Nine-month Period Ended ----------------------- 7/31/2000 7/31/1999 --------- --------- Balance Sheet Data Total assets $ 3,715,708 $ 818,169 Total liabilities $ 3,597,604 $ 1,241,036 Retained earnings (deficit) $(3,963,703) $(1,401,810)
Revenues. Sales increased to $3,207,019 for the nine-month period ended July 31, 2000, which is approximately 178% of the $1,804,064 for the nine-month period ended July 31, 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 175% from $1,533,817 in the nine-month period ended July 31, 1999, to $2,689,935 for the nine-month period ended July 31, 2000. The increase in cost of sales is attributable to a 32 similar percentage increase in sales and also reflects higher labor and marketing expenses associated with the increase in work force necessary to sell and support the co-location facility recently completed, Internet connection services and software. Gross Profit. Gross profit increased from approximately $270,247 for the nine-month period ended July 31, 1999, to $517,084 for the nine-month period ended July 31, 2000. Although the increase was insignificant, it 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 238% from $1,168,222 for the nine-month period ended July 31, 1999, to $2,784,039 for the nine-month period ended July 31, 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 support of the new 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 $73,645 for the nine-month period ended July 31, 2000, and of $35,357 for the nine-month period ended July 31, 1999, was accrued primarily on notes payable to Community First National Bank (primarily extended for working capital purposes). Net Earnings. Net losses increased from $749,040 for the nine-month period ended July 31, 1999, to $2,322,540 for the nine-month period ended July 31, 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 July 31, 2000, the Company had not engaged in capital-raising activities. However, in August, 2000 the Company raised approximately $441,000 through sales of unregistered shares of common stock at prices ranging from $.35 per share to $.55 per share. In September, Globe United Holdings, Inc. converted debentures totalling $350,000 and received 1,163,432 shares of common stock. The company still needs to raise additional capital to remain in business beyond January 31, 2001. If the Company cannot raise financing, downsizing and modification to planned growth initiatives may be necessary. Historically, iBIZ has had problems with liquidity. The Company has been unable to generate sufficient internal cash flow to fund all of its obligations. The server co-location facility, which was completed in August, is scheduled to open on September 13, 2000. If the consumer demand that the Company anticipates for the server co-location facility 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. 33 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. Beginning in June and continuing through August, 2000, the Company received orders from Comp USA totaling $400,000 and from another retailer totaling $600,000 for PDA accessories. To fill additional orders in the future, the Company must pay required manufacturing costs to its Taiwanese suppliers prior to shipment. A continuing increase in orders from various PDA retail outlets will require greater capital than is presently available to the Company. As the Company gave a security interest in all of its assets to Sonoma Bank in conjunction with its move to a new facility in July, 1999, it does not have any unencumbered assets necessary to obtain receivables or other debt financing. The Company is presently seeking a receivables financing source but must remove the existing lien on its receivables to obtain this financing. There is no assurance that it will obtain the necessary receivables financing or that it will raise the capital through the sale of additional equity necessary to meet the increase in demand for its PDA accessories. 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 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. PART 11 - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS There have been no material developments in this area. ITEM 2. CHANGES IN SECURITIES (c) Recent Sales of Unregistered Securities On March 27, 2000, the Company 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 was converted into 192,853 shares of common stock. On June 21, 2000, $100,000 of the principal amount of the Debentures was converted into 169,800 shares of common stock. On September 6, 2000, $300,000 of the principal amount of the Debentures was converted into 967,742 shares of common stock. The Debentures are due and payable on March 27, 2005. 34 0n August 8, 2000, the Company issued 330,000 shares of common stock at a price of $0.45 per share for a total of One Hundred Forty-Eight Thousand Five Hundred Dollars ($148,500.00). On August 31, 2000, the Company issued 100,000 shares of common stock at a price of $0.45 per share for a total of Forty-Five Thousand Dollars ($45,000.00). On August 31, 2000, the Company issued 650,000 shares of common stock at a price of $0.35 per share for a total of Two Hundred Twenty-Seven Thousand Five Hundred Dollars ($227,500.00). On August 31, 2000, the Company issued 36,363.63 shares of common stock at a price of $0.55 per share for a total of Twenty Thousand Dollars ($20,000.00). The Company relied upon either Section 4(2) or Regulation D, Rule 506 promulgated under the Securities Act of 1933 with respect to these sales of common stock. 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 23.04 Consent of Moffitt and Company 27.04 Financial Data Schedule
B. REPORTS ON FORM 8-K Not applicable. In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated this 14th day of September, 2000. iBIZ TECHNOLOGY CORP., a Florida corporation By: /s/ Kenneth W. Schilling ------------------------ Kenneth W. Schilling, President, Director 35 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 36 EXHIBIT INDEX
Exhibit Number Description of Exhibit ------ ---------------------- 23.04 Consent of Moffitt and Company 27.04 Financial Data Schedule