-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BHUe6iU8LLisyzFabxrRcYsGZHsabeX5FRDX6I//qunchUumNI/JHBvc9MXDN1j4 wx3aW3WibjLGCNCZgq8+GA== 0001013762-01-500035.txt : 20010618 0001013762-01-500035.hdr.sgml : 20010618 ACCESSION NUMBER: 0001013762-01-500035 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010430 FILED AS OF DATE: 20010615 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IBIZ TECHNOLOGY CORP CENTRAL INDEX KEY: 0001079893 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER TERMINALS [3575] IRS NUMBER: 860933890 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-27619 FILM NUMBER: 1661991 BUSINESS ADDRESS: STREET 1: 1919 WEST LONE CACTUS CITY: PHOENIX STATE: AZ ZIP: 85201 BUSINESS PHONE: 6239200 MAIL ADDRESS: STREET 1: 1919 WEST LONE CACTUS CITY: PHOENIX STATE: AZ ZIP: 85201 10QSB 1 april2001q.txt 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, 2001 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 incorporation or organization) Identification No.)
1919 West Lone Cactus, Phoenix, Arizona 85027 (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code: (623) 492-9200 Check whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ Class Outstanding at June 13, 2001 ----- ---------------------------- Common stock, $0.001 par value 38,017,966
Table of Contents Part i. - financial Information.................................................................................2 ITEM 1. FINANCIAL STATEMENTS (UNAUDITED).........................................................................2 BALANCE SHEETS ..........................................................................................2 STATEMENTS OF OPERATIONS.................................................................................4 STATEMENT OF CASH FLOWS..................................................................................7 NOTES TO FINANCIAL STATEMENTS...........................................................................11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................38 PART II. - OTHER INFORMATION ITEM 1. LEGAL PROCEEDS..........................................................................................42 ITEM 2. CHANGES IN SECURITIES...................................................................................42 ITEM 3. DEFAULTS UPON SENIOR SECURITIES.........................................................................43 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................................................43 ITEM 5. OTHER INFORMATION.......................................................................................43 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................................................................43
PART I Item 1. Financial Information IBIZ TECHNOLOGY CORP. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS APRIL 30, 2001 AND OCTOBER 31, 2000 ASSETS
April 30, October 31, 2001 2000 (Unaudited) (Audited) CURRENT ASSETS Cash and cash equivalents ............................................................. $ 374,623 $ 631,375 Accounts receivable ................................................................... 197,242 432,113 Inventories ........................................................................... 479,937 439,582 Prepaid expenses ...................................................................... 129,973 104,874 ----------- ----------- TOTAL CURRENT ASSETS ........................................................... 1,181,775 1,607,944 ----------- ----------- PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION .................................................................. 1,927,024 1,948,715 ----------- ----------- OTHER ASSETS Notes receivable, officers ............................................................ 365,736 391,332 Customer list, net of accumulated amortization ........................................ 5,948 7,932 Deposits .............................................................................. 60,012 60,959 ----------- ----------- TOTAL OTHER ASSETS ............................................................. 431,696 460,223 ----------- ----------- TOTAL ASSETS ................................................................... $ 3,540,495 $ 4,016,882 =========== ===========
See Accompanying Notes 2
LIABILITIES AND STOCKHOLDERS' EQUITY April 30, October 31, 2001 2000 (Unaudited) (Audited) CURRENT LIABILITIES Accounts payable ...................................................................... $ 614,274 $ 973,894 Customer deposits ..................................................................... 77,180 0 Accrued liabilities Payroll .............................................................................. 60,332 96,283 Other ................................................................................ 249,475 101,736 Sales and payroll taxes payable ....................................................... 93,532 89,023 Corporation income taxes payable ...................................................... 19,028 19,028 Deferred income ....................................................................... 41,052 85,798 Notes payable, current portion ........................................................ 5,692 5,335 Convertible debentures payable ........................................................ 500,000 0 ----------- ----------- TOTAL CURRENT LIABILITIES ...................................................... 1,660,565 1,371,097 ----------- ----------- LONG - TERM LIABILITIES Convertible debentures payable ........................................................ 2,815,800 1,750,000 Notes payable, long-term portion ...................................................... 11,528 14,479 ----------- ----------- TOTAL LONG - TERM LIABILITIES .................................................. 2,827,328 1,764,479 ----------- ----------- STOCKHOLDERS' EQUITY Common stock Authorized - 100,000,000 shares, par value $.001 per shares Issued and outstanding April 30, 2001 - 38,017,966 shares ............................................... 38,018 0 October 31, 2000 - 37,812,424 shares ............................................ 0 37,813 Paid in capital in excess of par value of stock ....................................... 8,504,633 7,940,384 Retained earnings (deficit) ........................................................... (9,490,049) (7,096,891) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY ..................................................... (947,398) 881,306 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........................................................ $ 3,540,495 $ 4,016,882 =========== ===========
See Accompanying Notes 3 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 2001 AND 2000 (UNAUDITED)
Three Months Ended Six Months Ended April 30, April 30, ---------------------------- ---------------------------- 2000 2000 2001 (Restated) 2001 (Restated) ------------ ------------ ------------ ------------ SALES ............................... $ 604,357 $ 1,436,126 $ 1,609,685 $ 2,064,979 COST OF SALES ....................... 472,601 1,224,326 1,096,868 1,775,121 ------------ ------------ ------------ ------------ GROSS PROFIT ................. 131,756 211,800 512,817 289,858 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES .......... (1,052,992) (1,028,002) (2,261,944) (1,828,556) SETTLEMENT OF LAWSUIT ............... 0 0 101,369 0 CANCELLATION OF DEBT ................ 0 0 122,000 0 OTHER INCOME ........................ 20,636 0 20,962 0 ------------ ------------ ------------ ------------ OPERATING (LOSS) ............ (900,600) (816,202) (1,504,796) (1,538,698) OTHER INCOME (EXPENSE) Interest income .............. 6,763 11,575 16,379 16,973 Interest expense ............. (57,783) (36,199) (93,324) (29,221) Interest expense - convertible debentures-beneficial conversion feature .................. (509,026) (669,504) (811,417) (1,242,439) ------------ ------------ ------------ ------------ NET (LOSS) .......................... $ (1,460,646) $ (1,501,330) $ (2,393,158) $( 2,793,385) ============ ============ ============ ============ NET (LOSS) PER COMMON SHARE Basic and diluted ............ $ (.04) $ (.05) $ (.06) $ (.10) ============ ============ ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Basic and diluted ............ 37,989,702 27,799,927 37,989,702 27,799,927 ============ ============ ============ ============
See Accompanying Notes 4 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED APRIL 30, 2001 (UNAUDITED)
Common Stock Shares Amount BALANCE, NOVEMBER 1, 2000 ........... 37,812,424 $ 37,813 CONVERSION OF DEBENTURES FOR COMMON STOCK ..................... 205,542 205 FEES AND COSTS FOR ISSUANCE OF COMMON STOCK AND CONVERTIBLE DEBENTURES ....................... 0 0 INTEREST EXPENSE - CONVERTIBLE DEBENTURES - BENEFICIAL CONVERSION FEATURE .......................... 0 0 NET (LOSS) FOR THE SIX MONTHS ENDED APRIL 30, 2001 ................... 0 0 ---------- ---------- BALANCE, APRIL 30, 2001 .... 38,017,966 $ 38,018 ========== ==========
See Accompanying Notes 5 Paid in Capital in Excess of Retained Par Value Earnings of Stock (Deficit) $ 7,940,384 $ (7,096,891) 34,371 0 (281,539) 0 811,417 0 0 (2,393,158) ---------- ----------- $ 8,504,633 $ (9,490,049) ========== =========== See Accompanying Notes 6 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED APRIL 30, 2001 AND 2000 (UNAUDITED)
2000 2001 (Restated) CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) .............................................$ (2,393,158) $ (2,793,385) Adjustments to reconcile net (loss) to net cash (used) by operating activities: Depreciation and amortization ...................... 122,507 25,924 Issuance of common stock for interest, services and payroll bonuses .............................. 374 287,913 Interest expense - convertible debentures-beneficial conversion feature ............................... 811,417 1,242,439 Changes in operating assets and liabilities: Accounts receivable ................................ 234,871 (423,648) Inventories ........................................ (40,355) 3,952 Prepaid expenses ................................... (25,099) 9,326 Deposits ........................................... 947 359 Accounts payable ................................... (359,620) (252,830) Accrued liabilities and taxes ...................... 116,297 53,826 Customer deposits .................................. 77,180 (115,408) Deferred income .................................... (44,746) 63,411 ----------- ----------- NET CASH (USED) BY OPERATING ACTIVITIES ................................... (1,499,385) (1,898,121) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment .................... (98,832) (240,189) Loans to related parties ............................... 596 (101,176) Purchase of customer list .............................. 0 (11,900) ----------- ----------- NET CASH (USED) BY INVESTING ACTIVITIES .................................... (98,236) (353,265) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common stock ............. 0 394,349 Proceeds from issuance of convertible debentures ....... 1,343,463 3,200,000 Repayments on notes payable ............................ (2,594) (64,853) ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES .................................... $ 1,340,869 $ 3,529,496 ----------- -----------
See Accompanying Notes 7 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE SIX MONTHS ENDED APRIL 30, 2001 AND 2000 (UNAUDITED)
2000 2001 (Restated) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ....................................... $ (256,752) $1,278,110 CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD .................................... 631,375 25,343 ---------- ---------- CASH AND CASH EQUIVALENTS, AT END OF PERIOD .......................................... $ 374,623 $1,303,453 ========== ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during period for: Interest ........................................ $ 2,354 $ 19,196 ========== ========== Taxes ........................................... $ 0 $ 50 ========== ========== NON CASH INVESTING AND FINANCING ACTIVITIES Issuance of common stock for convertible debentures $ 34,576 $1,501,946 ========== ========== Issuance of common stock for interest, services and payroll ......................................... $ 374 $ 744,804 ========== ========== Issuance of common stock on stock subscriptions ................................... $ 0 $ 75,000 ========== ========== Issuance of common stock for accounts payable ...... $ 0 $ 50,000 ========== ========== Fees paid for issuance of debentures by reduction of notes receivable, officer .................... $ 25,000 $ 0 ========== ========== Interest expense - convertible debentures-beneficial conversion feature .............................. $ 811,417 $1,242,439 ========== ==========
See Accompanying Notes 8 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS APRIL 30, 2001 (UNAUDITED) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Nature of Business IBIZ Technology Corp. (hereinafter referred to as the Company) was organized on April 6, 1994, under the laws of the State of Florida. The Company operates as a holding company for subsidiary acquisitions. Invnsys Technology Corporation (hereinafter referred to as Invnsys) is in the business of designing, manufacturing and distributing desktop computers, monitors, transactional printers, financial application keyboards, numeric keypads and related products. Invnsys also provides network integration services, digital subscriber line high speed internet connection services, business-to-business sale of software and a co-location computer data and server facility. Invnsys also provides repair services and sells 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. Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Inventories Inventories are stated at the lower of cost (determined principally by average cost) or market. Property and Equipment Property and equipment are stated at cost. Major renewals and improvements are charged to the asset accounts while replacements, maintenance and repairs, which do not improve or extend the lives of the respective assets, are expensed. At the time property and equipment are retired or otherwise disposed of, the asset See Accompanying Notes 9 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2001 (UNAUDITED) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) and related accumulated depreciation accounts are relieved of the applicable amounts. Gains or losses from retirements or sales are credited or charged to income. Property and Equipment (Continued) Invnsys depreciates its property and equipment for financial reporting purposes using the straight-line method based upon the following useful lives of the assets:
Tooling 3 Years Machinery and equipment 5-10 Years Office furniture and equipment 5-10 Years Vehicles 5 Years Leasehold improvements 5 Years Computer software 3-5 Years Co-location Computer equipment 5 Years Rack systems 10 Years Cabling and leasehold improvements 25 Years
Accounting for Convertible Debt Securities The Company has issued convertible debt securities with a non-detachable conversion feature that were "in the money" at the date of issue. The Company accounts for such securities in accordance with Emerging Issues Task Force Topic 98-5. The Company has recorded the fair value of the beneficial conversion feature as interest expense and an increase to Paid in Capital in Excess of Par Value of Stock. The beneficial interest is computed by subtracting the stock conversion price from the market price of the stock times the number of shares and warrants eligible for conversion. Customer Lists The customer list is recorded at cost and is being amortized on a straight-line basis over three years. See Accompanying Notes 10 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2001 (UNAUDITED) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 Invnsys recognizes its revenue as follows: Products sales - When the goods are shipped and title passes to the customer. Maintenance agreements - Income from maintenance agreements is being recognized on a straight-line basis over the life of the service contracts. The unearned portion is recorded as deferred income. Service income - When services are performed. Internet sales (DSL and Co-location) - When services are performed and completed. 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 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 11 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2001 (UNAUDITED) Net (Loss) Per Share The Company adopted Statement of Financial Accounting Standards No. 128 that requires the reporting of both basic and diluted (loss) per share. Basic (loss) per share is computed by dividing net (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. In accordance with FASB 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. Common Stock Issued for Non-Cash Transactions It is the Company's policy to value stock issued for non-cash transactions such as accounts payable, payroll or services at the stock closing price at the date the transaction is completed. NOTE 2 DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The Company estimates that the fair value of all financial instruments as of April 30, 2001 and October 31, 2000, 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. See Accompanying Notes 12 NOTE 3 ACCOUNTS RECEIVABLE A summary of accounts receivable and allowance for doubtful accounts is as follows:
April 30, October 31, 2001 2000 (Unaudited) (Audited) Accounts receivable $ 222,242 $ 457,113 Allowance for doubtful accounts 25,000 25,000 ----------------- ----------------- Net accounts receivable $ 197,242 $ 432,113 ================= ================= Allowance for doubtful accounts Balance, beginning of period $ 25,000 $ 2,500 Additions for the period 13,616 97,500 Write-off of uncollectible accounts for the period ( 13,616) (75,000) ----------------- ----------------- Balance, end of period $ 25,000 $ 25,000 ================= =================
NOTE 4 INVENTORIES The inventories are comprised of the following:
April 30, October 31, 2001 2000 (Unaudited) (Audited) Finished products $ 426,926 $ 391,479 Demonstration and loaner units 1,447 4,070 Office 51,564 44,033 --------------- ------------------ $ 479,937 $ 439,582 =============== ===================
See Accompanying Notes 13 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2001 (UNAUDITED) NOTE 5 PROPERTY AND EQUIPMENT Property and equipment and accumulated depreciation consists of:
April 30, October 31, 2001 2000 (Unaudited) (Audited) Co-location Computer equipment $ 632,489 $ 566,761 Rack Systems 297,317 297,317 Cabling and leasehold improvements 885,693 855,401 Tooling 68,100 68,100 Machinery and equipment 49,855 49,404 Office furniture and equipment 125,669 123,308 Vehicles 39,141 39,141 Leasehold improvements 23,179 23,179 Software 96,858 96,858 ---------------- ------------- 2,218,301 2,119,469 Less accumulated depreciation 291,277 170,754 ---------------- ------------- Total property and equipment $ 1,927,024 $ 1,948,715 ================ =============
Depreciation expense for the six months ended April 30, 2001 and 2000 was $120,523 and $23,940, respectively. NOTE 6 NOTES RECEIVABLE, OFFICERS
April 30, October 31, 2001 2000 (Unaudited) (Audited) IBIZ Technology Corp. Notes to two corporation officers. The notes are unsecured, bear interest at 6% and are due on January 7, 2002. $ 0 $ 12,079 Invnsys Technology Corporation A note to an officer of the Company, payable on demand and accruing interest at 6%. The note is collateralized by 2,000,000 shares See Accompanying Notes 14 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2001 (UNAUDITED) of common stock in the Company. However, in April 2001, the officer pledge the same stock as collateral for a $500,000 debenture from Laurus Master Fund, Ltd. (See Note 10). The Company now has a second position in the 2,000,000 share collateral. 365,736 379,253 ----------------- ------------------ Total notes receivable $ 365,736 $ 391,332 ================= ================== NOTE 7 CUSTOMER LIST The customer list and accumulated amortization consists of: April 30, October 31, 2001 2000 (Unaudited) (Audited) Cost $ 11,900 $ 11,900 Less accumulated amortization 5,952 3,968 ----------------- ------------------ Net customer list $ 5,948 $ 7,932 ================= ================== The amortization expense for the six months ended April 30, 2001 and 2000 was $1,984 for each period. NOTE 8 INCOME TAXES April 30, April 30, 2000 2001 (Unaudited) (Unaudited) (Restated) (Loss) from continuing operations before income taxes $ ( 2,393,158) $ ( 2,793,385) ----------------- ------------------ The provision for income taxes is estimated as follows: Currently payable $ 0 $ 0 ----------------- ------------------ Deferred $ 0 $ 0 ----------------- ------------------
Significant components of the Company's deferred tax assets and are as follows: See Accompanying Notes 15 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2001 (UNAUDITED) NOTE 8 INCOME TAXES (CONTINUED)
April 30, October 31, 2001 2000 (Unaudited) (Audited) Deferred tax assets: Net operating loss carryforwards $ 949,000 $ 1,096,190 Accrued expenses and miscellaneous 8,100 23,651 Tax credit carryforward 38,424 38,424 ----------------- ---------------- 995,524 1,158,265 Less valuation allowance 995,524 1,158,265 ----------------- ---------------- Net deferred tax asset $ 0 $ 0 ================= ================ April 30, October 31, 2001 2000 (Unaudited) (Audited) A reconciliation of the valuation allowance is as follows: Balance, beginning of period $ 497,524 $ 356,638 Addition to allowance 498,000 801,627 ---------------- -------------------- Balance, end of period $ 995,524 $ 1,158,265 ================ ====================
NOTE 9 TAX CARRYFORWARDS The Company has the following tax carryforwards at April 30, 2001:
See Accompanying Notes 16 Expiration Year Amount Date Net operating loss October 31, 1995 $ 2,500 October 31, 2010 October 31, 1997 253,686 October 31, 2012 October 31, 1998 71,681 October 31, 2013 October 31, 1999 842,906 October 31, 2019 October 31, 2000 3,574,086 October 31, 2020 April 30, 2001 1,581,741 October 31, 2021 ------------------ $ 6,326,600 ================== Capital loss October 31, 1997 25,600 October 31, 2002 Contribution October 31, 1997 545 October 31, 2002 October 31, 1999 2,081 October 31, 2004 October 31, 2000 3,008 October 31, 2005 Research tax credits 38,424
NOTE 10 CONVERTIBLE DEBENTURES
April 30, October 31, 2001 2000 (Unaudited) (Audited) Lites Trading Company - $1,600,000 Debenture $ 750,000 $750,000 --------------------------------------------- On March 27, 2000, the Company issued $1,600,000 of 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
See Accompanying Notes 17 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2001 (UNAUDITED) 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. NOTE 10 CONVERTIBLE DEBENTURES (CONTINUED)
April 30, October 31, 2001 2000 (Unaudited) (Audited) $5,000,000 Convertible Debenture $ 2,065,800 $ 1,000,000 -------------------------------- On October 31, 2000, the Company issued the following 8% convertible debentures: 1. Due date - October 30, 2002. 2. Interest payable quarterly from January 1, 2001. 3. Default interest rate - 20%. 4. On the first $ 1,000,000 of financing, the Company issued warrants to purchase 500,000 shares of stock at $ 0.4755 per share. On the second investment of $1,100,00, the Company issued warrants to purchase 550,000 shares of stock at $0.2275 per share. 5. Put note purchase price - $4,000,000. 6. Fees and costs - 7% - 10% of cash received for debentures and warrants plus legal fees. 7. The Company must reserve a number of common shares equal to not less then 200% of the amount of common shares necessary to allow the debenture and warrant holder to be able to convert all such outstanding notes and put notes to common stock. 8. Conversion price for put notes. The initial 50% of the put notes shall be the lesser of: (i) 80% of the average of the three lowest closing bid prices for the stock for twenty two days or (ii) 80% of the average of the five lowest closing bid prices for the stock for sixty days. The conver- sion price of the balance of the put notes shall be 86% of the average of the three lowest closing bid prices for ten days. 9. The debentures have penalty clauses if the common stock is not issued when required by the debenture holder. 10. The debentures are unsecured. 11. The Company's right to exercise the put commences on the actual effective date of the SEC Registration Statement and expires three years after the effective date. 12. Right of first refusal - The debenture holders have the right to purchase a proportionate amount of new issued shares in order to maintain their ownership interest percentage.
See Accompanying Notes 18 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2001 (UNAUDITED) NOTE 10 CONVERTIBLE DEBENTURES (CONTINUED)
April 30, October 31, 2001 2000 (Unaudited) (Audited) Laurus Master Fund, Ltd. $ 500,000 $ 0 ------------------------ In April 2001, the Company issued $500,000 of 8% convertible debentures under the following terms and conditions: 1. Due date - April 2002. 2. Interest on September 30, 2001 and quarterly thereafter. 3. Default interest rate - 20%. 4. Five year warrants to purchase 1,500,000 shares of common stock at the lesser of $.1225 per share or an amount equal to the average of the three lowest closing bid prices for a ten day trading period. The Company may redeem the warrants for $.6666 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 - Lower of eighty percent of the average of the three lowest closing bid prices for a specified three day or twenty-two day period. 7. Prepayment - The debenture may not be paid prior to the maturity date without the consent of the holder. 8. The debenture is secured by 9,285,600 shares of common stock owned by an officer of the Company and the Company paid the officer $50,000 for pledging these shares. Total debentures 3,315,800 1,750,000 Less current portion 500,000 0 ----------------- -------------- Long-term portion $ 2,815,800 $ 1,750,000 ================= ==============
See Accompanying Notes 19 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2001 (UNAUDITED) NOTE 11 NOTE PAYABLE
April 30, October 31, 2001 2000 (Unaudited) (Audited) 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 $ 36,000 and has a book value of $7,800. $ 17,220 $ 19,814 Less: current portion 5,692 5,335 ----------------- ----------------- Net long-term debt $ 11,528 $ 14,479 ================= ================= Maturities of long-term debt are as follows: 2001 $ 4,142 $ 5,476 2002 5,822 5,721 2003 6,243 6,135 2004 1,013 2,482 ----------------- ----------------- $ 17,220 $ 19,814 ================= =================
NOTE 12 REAL ESTATE LEASE On June 1, 1999, Invnsys 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. Invnsys has also guaranteed the mortgage on the premises in the amount of $935,052 and given a security interest in all of its assets, (excluding $479,937 of inventory) in the amount of $3,060,558. Future minimum lease payments, excluding taxes and expenses, are as follows:
April 30, 2002 $ 168,000 April 30, 2003 176,404 April 30, 2004 185,226 April 30, 2005 194,488 November 1, 2005 - December 31, 2024 6,536,243 ----------------- Total $ 7,260,361 =================
See Accompanying Notes 20 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2001 (UNAUDITED) Rent expense for the six months ended April 30, 2001 and 2000 was $80,433 and $76,931 respectively. NOTE 13 ADVERTISING All direct advertising costs are expensed as incurred. For the six months ended April 30, 2001, the Company charged $58,159 in advertising expenses less a $37,058 refund for a net advertising cost of $21,101. For the six months ended April 30, 2000, advertising costs were $282,277. NOTE 14 INTEREST The Company incurred interest expenses for the six months ended April 30, 2001 and 2000 as follows:
April 30, April 30, 2000 2001 (Unaudited) (Unaudited) (Restated) For operations $ 93,324 $ 29,221 For convertible debentures-beneficial conversion feature 811,417 1,242,439 ----------------- ---------------- Total $ 904,741 $ 1,271,660 ================= ================
NOTE 15 PRODUCT WARRANTY PROVISION Invnsys established a provision for product warranty to cover any potential warranty costs on computer equipment that are not covered by the computer manufacturer's warranty. Warranty summary
April 30, April 30, 2001 2000 (Unaudited) (Unaudited) Balance, beginning of period $ 20,000 $ 50,000 Reduction for the period 1,654 0 ----------------- ----------------- Balance, end of period $ 18,346 $ 50,000 ================= =================
See Accompanying Notes 21 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2001 (UNAUDITED) NOTE 16 RESEARCH AND DEVELOPMENT Invnsys incurred research and development cost for the six months ended April 30, 2001 and 2000 of $5,871 and $2,798, respectively. NOTE 17 OFFICERS' COMPENSATION At April 30, 2001, officers' compensation was as follows:
President and Chief Executive Officer $ 250,000 Vice President 150,000 Chief Financial Officer 150,000 Chief Operating Officer 150,000
NOTE 18 ECONOMIC DEPENDENCY For the six months ended April 30, 2001, Invnsys had $487,865 of sales to one customer. Invnsys purchased approximately 24% of its PDA's from one supplier. NOTE 19 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 officers, directors, key employees and service providers of the Company. 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. The exercise price is the fair market value of the shares (average of bid and ask price) at the date of the grant of the options. Vesting terms of the options range from immediately to ten years. See Accompanying Notes 22 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2001 (UNAUDITED) 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. A summary of the option activity for the six months ended April 30, 2001 and 2000 pursuant to the terms of the plan is as follows: NOTE 19 EMPLOYEE STOCK OPTIONS (CONTINUED)
Shares Weighted Under Average Option Exercise Price Options outstanding at November 1, 1999 2,350,000 $ 0.75 Granted 1,310,000 1.15 Exercised (70,000) .75 Canceled (180,000) .75 ----------------- -------------------- Options outstanding at April 30, 2000 3,410,000 $ 0.95 ================= ==================== Options outstanding at November 1, 2000 3,385,000 $ 0.92 Granted 0 .00 Exercised 0 .00 Canceled ( 282,500) 1.60 ----------------- --------------------- Outstanding at April 30, 2001 3,102,500 $ 0.90 ================= =====================
2,932,500 shares are exercisable at April 30, 2001. Information regarding stock options outstanding as of April 30, 2001 and 2000 is as follows:
2001 2000 ------------------- --------------------- Price range $0.75 - $2.00 $0.75 - $2.00 Weighted average exercise and grant date prices $0.90 $0.95
See Accompanying Notes 23 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2001 (UNAUDITED)
Weighted average remaining contractual life 8 years, 3 months 9 years, 3 months Options exercised Price range 0 0 Shares 0 0 Weighted average exercise price 0 0 The weighted average fair value of options granted were estimated as of the date of grant using the Black-Scholes stock option pricing model, based on the following weighted average assumptions: Dividend yield 0 0 Expected volatility 50 % 30 % Risk free interest rate .13% - 6.65% 6.40 % Expected life 5 - 10 years 5 - 10 years
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows: NOTE 19 EMPLOYEE STOCK OPTIONS (CONTINUED)
April 30, April 30, 2000 2001 (Unaudited) (Unaudited) (Restated) Net (loss) As reported $ (2,393,158) $ (2,793,385) Pro forma $ (2,563,752) $ (2,972,784) (Loss) per share attributable to common stock As reported $ (.06) $ (.10) Pro forma $ (.07) $ (.11)
See Accompanying Notes 24 NOTE 20 COMMON STOCK PURCHASE WARRANTS As of April 30, 2001 the Company has issued the following common stock purchase warrants:
Number Exercise Date of Shares Term Price May 13, 1999 100,000 3 years $ 1.00 May 7, 1999 80,000 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 615,000 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 August 30, 2000 34,125 5 years $ .937 August 30, 2000 250,000 3 years $ .50 August 30, 2000 250,000 3 years $ .75 August 30, 2000 36,364 3 years $ 1.00 September 3, 2000 109,000 3 years $ 1.00 September 27, 2000 278,750 3 years $ .90 October 31, 2000 500,000 2 years $ .4755
NOTE 20 COMMON STOCK PURCHASE WARRANTS (CONTINUED)
Number Exercise Date of Shares Term Price December 20, 2000 400,000 5 years .2275 December 20, 2000 150,000 5 years .2275 April 26, 2001 1,500,000 5 years $ .1225 ------------------- 5,334,489 ===================
3,614,489 shares are exercisable at April 30, 2001. See Accompanying Notes 25 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2001 (UNAUDITED)
NOTE 21 COMMON STOCK AVAILABLE FOR ISSUANCE Total share authorized 100,000,000 Less shares issued and outstanding (38,017,966) ----------------- 61,982,034 Less Reserved for employee stock options (3,102,500) Reserved for purchase warrants (5,334,489) Convertible debentures (2,700,000) ------------------ Common stock available for issuance 50,845,045 ==================
NOTE 22 FINANCIAL PROJECT MANAGEMENT AGREEMENTS 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. 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. See Accompanying Notes 26 NOTE 23 CASH IN BANK The Company has $456,533 deposited in one banking institution. Only $200,000 of the balance is insured by the Federal Deposit Insurance Corporation. NOTE 24 SETTLEMENT OF LAWSUIT Invnsys settled its lawsuit with Epson America, Inc. for $2,500 which generated $101,369 of income on the settlement. NOTE 25 CANCELLATION OF DEBT The Company negotiated a cancellation of a $122,000 account payable with a supplier. This cancellation resulted in $122,000 of cancellation of debt income. NOTE 26 RESTATEMENT OF APRIL 30, 2000 NET (LOSS), PAID IN CAPITAL, RETAINED EARNINGS AND NET (LOSS) PER SHARE The April 30, 2000 financial statements did not record the interest expense - convertible debentures - beneficial conversion feature in the amount of $1,242,439. The statements are restated as follows:
Net (loss) As previously reported $ (1,550,946) Adjustment Interest expense -convertible debentures- beneficial conversion feature (1,242,439) ------------------- As restated $ (2,793,385) =================== Paid-in capital As previously reported $ 3,309,799 Adjustment Interest expense -convertible debentures- beneficial conversion feature 1,242,439 ------------------ As restated $ 4,552,238 ===================
See Accompanying Notes 27 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2001 (UNAUDITED) NOTE 26 RESTATEMENT OF APRIL 30, 2000 NET (LOSS), PAID IN CAPITAL, RETAINED EARNINGS AND NET (LOSS) PER SHARE (CONTINUED)
Retained earnings As previously reported $ (3,192,109) Adjustment Interest expense -convertible debentures- beneficial conversion feature (1,242,439) ------------------ As restated $ (4,434,548) =================== Net (loss) per share As previously reported $ (.06) Adjustment Interest expense -convertible debentures- beneficial conversion feature (.04) ------------------ As restated $ (.10) ===================
NOTE 27 SECURITIES AND EXCHANGE PROCEEDING On February 28, 2001, the Securities and Exchange Commission commenced an administrative proceeding against the Company. The Company has negotiated and submitted a settlement offer, which has been formally approved by the Commission. Pursuant to this settlement agreement, an administrative order has been issued which orders the Company to cease and desist from committing or causing any future violations of Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 thereunder. No other relief against the Company is being sought. NOTE 28 BUSINESS SEGMENT INFORMATION The Company has elected to organize its business based principally upon products and services. The Company operates in three reportable business segments: internet sales, product sales and services and other. The internet sales segment has responsibility for providing co-location and DSL income. The product sales segment has responsibility for sales of co-location equipment, software and licenses, computer equipment and PDA's. The service segment provides See Accompanying Notes 28 IBIZ TECHNOLOGY CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) APRIL 30, 2001 (UNAUDITED) NOTE 28 BUSINESS SEGMENT INFORMATION (CONTINUED) miscellaneous services to Invnsys' customers and absorbs all general and administrative expenses that are not allocated to internet sales and product sales. Summary of business segment for the six months ended April 30, 2001 is as follows:
Internet Product Services General and Sales Sales and Other Administrative Consolidated Sales ................. $ 338,449 $ 1,086,315 $ 184,921 $ 0 $ 1,609,685 Operating profit (loss) (366,332) 71,809 (2,098,635) 0 (2,393,158) Identifiable assets ... 1,815,499 0 402,803 1,322,193 3,540,495 Depreciation .......... 94,875 0 25,648 0 120,523 Expenditures for long- 96,020 0 2,812 0 98,832 lived assets
NOTE 29 UNAUDITED FINANCIAL INFORMATION The accompanying financial information as of April 30, 2001 is unaudited. In managements opinion, such information includes all normal recurring entries necessary to make the financial information not misleading. See Accompanying Notes 29 Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations Through its operating subsidiary, INVNSYS, iBIZ designs, manufacturers, and distributes an expanding line of accessories for the fast-growing PDA and handheld computer market which are distributed through large retail chains such as CompUSA and Fry's Electronics as well as numerous e-commerce sites such as Walmart.com, Mobile Planet and others. iBIZ also provides Web-enabling services which include Co-location services, Web design and development, and data center technical management services. IBIZ infrastructure cabling services include design and installation of corporate voice and data networks, inside/outside plant, computer and phone room build-outs, and wireless and fiber optic telecommunications systems. Additionally, iBIZ markets LCD monitors, OEM notebook computers, digital subscriber line services, third party software, and general purpose financial application keyboards. Selected Financial Information.
Three Month Period Ended 4/30/2000 04/30/2001 (Restated) ---------- Statement of Operations Data Net sales $ 604,357 $ 1,436,126 Gross profit $ 131,756 $ 211,800 Operating income (loss) $ (900,600) $ (816,202) Net earnings (loss) after tax $(1,460,646) $ (1,501,330) Net earnings (loss) per share $ ( 0.04) $ (0.05) 4/30/2001 10/31/2000 --------- ---------- Balance Sheet Data Total assets $3,540,495 $ 4,016,882 Total liabilities $4,487,893 $ 3,135,576 Stockholders' equity (deficit) $ (947,398) $ 881,306
Results of Operations. Three month period ended April 30, 2001, compared to three month period ended April 30, 2000. Revenues. Sales decreased by approximately 58% to $604,357 for the three month period ended April 30, 2001 from $1,436,126 for the three month period ended April 30, 2000. The decrease was mainly as a result of an industry wide delay in technology capital spending coupled with the cessation of the Northpoint Communications DSL Service offering. See Accompanying Notes 30 Cost of Sales. The cost of sales decreased by approximately 61.40% to $472,601 in the three month period ended April 30, 2001 from $1,224,326 in three month period ended April 30, 2000. The decrease in cost of sales is attributable primarily to the decrease in sales over the period and a shift to higher margin products and services Gross Profit. Gross profit decreased to approximately $131,756 for the three month period ended April 30, 2001 from approximately $211,800 for the three month period ended April 30, 2000. The decrease of approximately 37.79% resulted primarily from the decrease in period revenues as compared to the same prior year period. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased approximately 2.43% to $1,052,992 from $1,028,002 for the three month period ended April 30, 2001. The increase was primarily due to costs associated with expanding the PDA and co-location product offerings, as well as fees paid in connection with financing activities. Interest Expense. Interest expenses increased to $57,783 for the three month period ended April 30, 2001 from $36,199 for the three month period ended April 30, 2000. Interest accrued is primarily related to the convertible debentures. Interest Expense. Convertible Debenture-Beneficial Conversion Feature. The Company has issued convertible debt securities with a non-detachable conversion feature that was "in the money" at the date of issue. The Company accounts for such securities in accordance with Emerging Issues Task Force Topic D-98-5. The Company has recorded the fair value of the beneficial conversion feature as interest expense and an increase to Paid-in Capital in Excess of Par Value of Stock. Interest expense of $509,026 for the three month period ended April 30, 2001, a decrease of 23.9% from the interest expense of $669,504 for the three month period ended April 30, 2000 was incurred under the Company's convertible debenture-conversion feature. The decrease resulted from the reduction in new convertible debentures issued as compared to the corresponding period from the prior year. Net Earnings. Net losses decreased to $1,460,646 for the three month period ended April 30, 2001 from $1,510,330 for the three month period ended April 30, 2000. The decrease in losses resulted primarily from the decrease in the interest expenses for the Company's convertible debenture-beneficial conversion feature coupled with a decrease in Cost of Sales. Six month period ended April 30, 2001, compared to six month period ended April 30, 2000. Revenues. Sales decreased by approximately 22% to $1,609,685 for the the six month period ended April 30, 2001 from $2,064,979 for the six month period ended April 30, 2000. The decrease was mainly as a result of an industry wide delay in technology capital spending coupled with the cessation of the Northpoint Communications DSL Service offering. Cost of Sales. The cost of sales decreased by approximately 38.21% to $1,096,868 in the six month period ended April 30, 2001 from $1,775,121 in six month period ended April 30, 2000. The decrease in cost of sales is attributable primarily to an overall reduction in revenues coupled with the sale of products which have greater relative margins than past products. See Accompanying Notes 31 Gross Profit. Gross profit increased to approximately $512,817 for the six month period ended April 30, 2001 from approximately $289,858 for the six month period ended April 30, 2000. The increase of approximately 76.92% resulted primarily from the sale of products which have greater relative margins than past products. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased approximately 23.70% to $2,261,944 from $1,828,556 for the six month period ended April 30, 2001. The increase was primarily due to costs associated with expanding the PDA and co-location product offerings, as well as fees paid in connection with financing activities. Interest Expense. Interest expense increased to $93,324 for the six month period ended April 30, 2001 compared to $29,221 for the six month period ended April 30, 2000. Interest accrued primarily related to the convertible debentures. Interest Expense. Convertible Debenture-Beneficial Conversion Feature. The Company has issued convertible debt securities with a non-detachable conversion feature that was "in the money" at the date of issue. The Company accounts for such securities in accordance with Emerging Issues Task Force Topic D-98-5. The Company has recorded the fair value of the beneficial conversion feature as interest expense and an increase to Paid-in Capital in Excess of Par Value of Stock. Interest expense of $811,417 for the six month period ended April 30, 2001, a decrease of 34.69% from the interest expense of $1,242,439 for the six month period ended April 30, 2000 was incurred under the Company's convertible debenture-conversion feature. The decrease resulted from the reduction in new convertible debentures issued as compared to the corresponding period from the prior year. Net Earnings. Net losses decreased to $2,393,158 for the six month period ended April 30, 2001 from $2,793,385 for the six month period ended April 30, 2000. The decrease in losses resulted primarily from the decrease in the interest expenses for the Company's convertible debenture-beneficial conversion feature, as well as a decrease in Cost of Sales coupled with an increase in Gross Profit. Liquidity and Capital Resources. Historically, IBIZ has had difficulty obtaining sufficient capital to fund its operations. The Company has been unable to generate sufficient internal cash flow to fund all of its obligations. The Company has spent substantial funds on construction and installation of its co-location facility and expansion of its sales and marketing efforts. In April 2001, the Company issued $500,000 of 8% convertible notes. The notes are due and payable on April 26, 2002, unless converted into common stock of the Company prior to that time. Certain investors have orally agreed to fund approximately $750,000 through additional convertible debentures. We believe this should satisfy our funding requirements for approximately the next 12 months, although there can be no assurance such funds will be adequate. In the event we do not receive additional funds within the next three months, we may be required to curtail certain operations until funds become available. 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 it's PDA accessory line and certain hardware into several major retail and E-Commerce stores. A continuing increase in orders from various PDA retail outlets may require greater capital than is presently available to the Company. The Company has entered into a purchase order and receivables financing agreement established to insure available funding for anticipated growth in PDA sales volumes. The Company's server co-location facility was opened in September, 2000. If the consumer demand that the Company anticipates for the server co-location facility fails to continue to increase, the Company may need additional funding. There is no assurance that the sales revenue currently received and high margins experienced, as well as currently anticipated sales growth from both the PDA accessory and the co-location facility will continue. Entry of additional competitors with substantially greater resources than those of the Company could put downward pressure on the anticipated margins. See Accompanying Notes 32 PART II - Other Information Item 1. Legal Proceedings iBIZ has been assessed approximately $62,000 in penalties and interest by the IRS in connection with payroll taxes due through the first quarter of 1999. The Company has paid the taxes, interest, and some portion of the penalty, but has requested an abatement of the remaining penalty imposed. The Company is awaiting a final disposition by the IRS. On February 28, 2001, the Securities and Exchange Commission (the "Commission") commenced an administrative proceeding against the Company. The Company has negotiated and submitted a settlement offer, which has been formally approved by the Commission itself. Pursuant to this settlement agreement, an administrative order has been issued which orders the Company to cease and desist from committing or causing any future violations of Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 thereunder. No other relief against the Company is sought. The Company neither admits nor denies the allegations as part of the settlement agreement. Item 2. Changes in Securities (c) Recent Sales of Unregistered Securities The securities described below represent equity securities of iBIZ sold by iBIZ during the three month period ended April 30, 2001 that were not registered under the Securities Act of 1933, as amended (the "Securities Act"), all of which were issued by the Company pursuant to exemptions under the Securities Act. Underwriters were involved in none of these transactions. In each case, the securities were sold to accredited investors, as determined by an investor questionnaire executed in conjunction with the respective subscription agreements. In April 2001, the Company issued an aggregate of $500,000 of 8% Convertible Notes (the "Notes"). The conversion price for the Notes is the lesser of (i) 80% of the average of the three lowest closing bid prices of the Common Stock on the Principal Market for the twenty-two (22) trading days prior to the closing Date, or (ii) 80% of the average of the five lowest closing bid prices of the Common Stock for the 60 trading days prior to the Conversion Date, as defined in the Note. The maximum share of the Company that any Subscriber may own after conversion at any given time is 4.99%, unless the Subscriber gives 75 days prior notice. The Notes mature on April 26, 2002, with interest only payments due quarterly commencing September 30, 2001, and the principal is due in one lump sum on April 26, 2002. The Company also issued warrants to purchase 1,500,000 shares of Common Stock. The warrants give the holder the right to purchase common stock for the lower of $0.1225 per share or the average of the lowest three closing prices for the Common Stock for the ten trading days prior to conversion, subject to certain equitable anti-dilution provisions. The warrants are immediately exercisable. See Accompanying Notes 33 iBIZ relied on either Regulation D, Rule 506 or Section 4(2) under the Securities Act with respect to these transactions. 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 None. B. Reports on Form 8-K None. Pursuant to the requirements of Section 12 of the Securities Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned thereunto duly authorized. Dated this 14th day of June, 2001 IBIZ TECHNOLOGY CORP. By:/s/ KENNETH W. SCHILLING -------------------- Kenneth W. Schilling, President By:/s/ TERRY S. RATLIFF -------------------- Terry S. Ratliff, Vice President, Chief Financial Officer and Secretary -----END PRIVACY-ENHANCED MESSAGE-----