-----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, S6OwaUUGbp4WVkEGV7b5Q9iqSVeU8f4QMIEiOq63kDoiZBD7Mi8YGN7Mn7ZOREd4 MDJMlOfjX4hsexpMwbQY6w== 0001013762-02-000039.txt : 20020415 0001013762-02-000039.hdr.sgml : 20020415 ACCESSION NUMBER: 0001013762-02-000039 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020131 FILED AS OF DATE: 20020322 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: 1934 Act SEC FILE NUMBER: 000-27619 FILM NUMBER: 02582615 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 jan0210qsb.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 January 31, 2002 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.) 2238 West Lone Cactus, Phoenix, Arizona 85027 ---------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code: (623) 492-9200 Check whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ Class Outstanding at March 21, 2002 Common stock, $0.001 par value 239,159,275 Table of Contents
Part i. - financial Information.................................................................................1 ITEM 1. FINANCIAL STATEMENTS (UNAUDITED).......................................................................... BALANCE SHEETS ........................................................................................... STATEMENTS OF OPERATIONS.................................................................................. STATEMENT OF CASH FLOWS................................................................................... NOTES TO FINANCIAL STATEMENTS............................................................................. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS PART II. - OTHER INFORMATION ITEM 1. LEGAL PROCEEDS............................................................................................ ITEM 2. CHANGES IN SECURITIES..................................................................................... ITEM 3. DEFAULTS UPON SENIOR SECURITIES........................................................................... ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................................................... ITEM 5. OTHER INFORMATION......................................................................................... ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..........................................................................
PART I Item 1. Financial Information IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2002 AND 2001 TABLE OF CONTENTS
PAGE NO. INDEPENDENT ACCOUNTANTS' REVIEW REPORT.......................................................... 1 FINANCIAL STATEMENTS Consolidated Balance Sheets.............................................................. 2 Consolidated Statements of Operations.................................................... 3 - 4 Consolidated Statement of Stockholders' (Deficit)........................................ 5 Consolidated Statements of Cash Flows.................................................... 6 - 7 Notes to Consolidated Financial Statements............................................... 8 - 29
INDEPENDENT ACCOUNTANTS' REVIEW REPORT To The Board of Directors and Stockholders IBIZ Technology Corp. and Subsidiaries Phoenix, Arizona We have reviewed the accompanying consolidated balance sheet of IBIZ Technology Corp. and Subsidiaries as of January 31, 2002 and the related consolidated statements of operations and cash flows for the three months ended January 31, 2002 and 2001 and the statement of stockholders' (deficit) for the three months ended January 31, 2002 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 Subsidiaries. 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 accounting principles generally accepted in the United States of America. We have audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of IBIZ Technology Corp. and Subsidiary as of October 31, 2001, and the related consolidated statements of operations, stockholders' (deficit) and cash flows for the year then ended (not presented herein); and in our report dated February 8, 2002 we expressed an unqualified opinion on those financial statements, with an additional comment that there were conditions which raised substantial doubt about the Company's ability to continue as a going concern. In our opinion, the information set forth in the accompanying consolidated balance sheet as of October 31, 2001, is fairly stated in all material respects in relation to the balance sheet from which it has been derived. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 25 to the financial statements, the Company has incurred significant operating losses, has negative working capital, lacks sufficient operating cash to purchase products to fill sales orders, is delinquent in payment of payroll taxes and is delinquent in payment of some wages. These conditions raise uncertainty about its ability to continue as a going concern. Management's plans regarding these matters also are described in Note 25. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. MOFFITT & COMPANY, P.C. SCOTTSDALE, ARIZONA March 18, 2002 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JANUARY 31, 2002 AND OCTOBER 31, 2001
ASSETS January 31, October 31, 2002 2001 ( Unaudited) (Audited) CURRENT ASSETS Cash and cash equivalents $ 137,888 $ 6,981 Accounts receivable, net 49,497 93,747 Inventories 163,909 166,742 Prepaid expenses 55,465 54,127 Net assets held for sale 249,918 438,871 ----------------- ------------------ TOTAL CURRENT ASSETS 656,677 760,468 ----------------- ------------------ PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION 138,997 147,378 ----------------- ------------------ OTHER ASSETS Notes receivable, officers 0 0 Customer list, net of accumulated amortization 0 0 Deposits 16,012 16,012 ----------------- ------------------ TOTAL OTHER ASSETS 16,012 16,012 ----------------- ------------------ TOTAL ASSETS $ 811,686 $ 923,858 ================= ==================
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
January 31, October 31, 2002 2001 ( Unaudited) (Audited) CURRENT LIABILITIES Accounts payable, trade $ 626,101 $ 797,585 Note payable, trade 45,000 57,500 Accrued liabilities 811,643 727,050 Sales and payroll taxes payable 160,018 121,483 Corporation income taxes payable 19,028 19,028 Deferred income 2,915 4,495 Convertible debentures payable, current portion 2,123,564 2,305,929 Note payable, factor 12,421 70,734 Notes payable, other, current portion 7,198 5,721 ----------------- ------------------ TOTAL CURRENT LIABILITIES 3,807,888 4,109,525 ----------------- ------------------ LONG - TERM LIABILITIES Convertible debentures payable 972,500 750,000 Notes payable, other 7,334 8,811 ----------------- ------------------ TOTAL LONG - TERM LIABILITIES 979,834 758,811 ----------------- ------------------ STOCKHOLDERS' EQUITY( DEFICIT) Preferred stock Authorized - 50,000,000 shares, par value $.001 per share Issued and outstanding - 0 shares 0 0 Common stock Authorized - 450,000,000 shares, par value $.001 per share Issued and outstanding January 31, 2002 - 175,038,406 shares 175,038 0 October 31, 2001 - 99,862,248 shares 0 99,862 Additional paid in capital 10,492,451 9,801,345 Accumulated deficit ( 14,643,525) ( 13,845,685) -------------------- --------------------- TOTAL STOCKHOLDERS' (DEFICIT) ( 3,976,036 ( 3,944,478) ------------------- -------------------- TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) $ 811,686 $ 923,858 ================= ==================
See Accompanying Notes and Independent Accountants' Review Report. 2 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JANUARY 31, 2002 AND 2001 (UNAUDITED)
2002 2001 ----------------- ------------------ SALES $ 135,737 $ 789,164 COST OF SALES 83,516 490,065 ----------------- ------------------ GROSS PROFIT 52,221 299,099 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 449,293 1,015,017 ----------------- ------------------ OPERATING (LOSS) ( 397,072) ( 715,918) ----------------- ------------------ OTHER INCOME (EXPENSE) Cancellation of debt 42,031 223,369 Interest income 15 9,616 Interest expense ( 85,753) ( 35,541) Interest expense - convertible debentures-beneficial conversion feature ( 116,214) ( 302,390) Other income 0 326 ----------------- ------------------ TOTAL OTHER INCOME (EXPENSE) ( 159,921) ( 104,620) ----------------- ------------------ (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES ( 556,993) ( 820,538) INCOME TAXES 0 0 ----------------- ------------------ (LOSS) FROM CONTINUING OPERATIONS ( 556,993) ( 820,538) DISCONTINUED OPERATIONS (Loss) from operations of discontinued business segments ( 240,847) ( 111,973) ----------------- ------------------ NET (LOSS) $ ( 797,840) $ ( 932,511) ================= ==================
See Accompanying Notes and Independent Accountants' Review Report. 3 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED) FOR THE THREE MONTHS ENDED JANUARY 31, 2002 AND 2001 (UNAUDITED)
2002 2001 ----------------- ------------------ NET (LOSS) PER COMMON SHARE Basic and Diluted: Continuing operations $ ( .01) $ ( 0.02) Discontinued operations $ .00 $ ( 0.00) ----------------- ------------------ NET (LOSS) $ ( .01) $ ( 0.02) ================= ================== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Basic and diluted 110,721,848 37,929,185 =================== ===================
See Accompanying Notes and Independent Accountants' Review Report. 4 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) FOR THE THREE MONTHS ENDED JANUARY 31, 2002 (UNAUDITED)
Preferred Stock Common Stock Shares Amount Shares Amount BALANCE, NOVEMBER 1, 2001 0 $ 0 99,862,248 $ 99,862 CONVERSION OF DEBENTURES FOR COMMON STOCK: PRINCIPAL 0 0 18,855,247 18,855 ACCRUED INTEREST 0 0 956,511 957 FEES AND COSTS FOR ISSUANCE OF COMMON STOCK 0 0 0 0 ISSUANCE OF COMMON STOCK FOR: PAYMENT OF ACCOUNTS PAYABLE 0 0 22,750,000 22,750 PAYMENT OF SALARIES AND RETENTION BONUSES 0 0 26,900,000 26,900 DONATION OF STOCK BACK TO THE COMPANY FOR TREASURY STOCK 0 0 ( 9,285,600) ( 9,286) ISSUANCE OF COMMON STOCK TO THE PRESIDENT TO REIMBURSE HIM FOR SHARES GIVEN TO DEBENTURE HOLDERS FROM: TREASURY STOCK 0 0 9,285,600 9,286 NEW SHARES 0 0 5,714,400 5,714 INTEREST EXPENSE - CONVERTIBLE DEBENTURES - BENEFICIAL CONVERSION FEATURE 0 0 0 0 NET (LOSS) FOR THE THREE MONTHS ENDED JANUARY 31, 2002 0 0 0 0 ---------------- --------------- --------------- ---------------- BALANCE, JANUARY 31, 2002 0 $ 0 175,038,406 $ 175,038 ================ =============== =============== ================
See Accompanying Notes and Independent Accountants' Review Report. 5
Additional Paid in Accumulated Capital Deficit Total $ 9,801,345 $ ( 13,845,685) $ ( 3,944,478) 164,826 0 183,681 7,993 0 8,950 ( 21,264) 0 ( 21,264) 251,875 0 274,625 91,460 0 118,360 ( 122,998) 0 ( 132,284) 122,998 0 132,284 80,002 0 85,716 116,214 0 116,214 0 ( 797,840) ( 797,840) ------------------ ---------------------- ------------------ $ 10,492,451 $ ( 14,643,525) $ ( 3,976,036) =================== ======================= ==================
See Accompanying Notes and Independent Accountants' Review Report. 5 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED JANUARY 31, 2002 AND 2001 (UNAUDITED)
2002 2001 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) ........................................... $(556,993) $(820,538) Adjustments to reconcile net (loss) to net cash (used) by operating activities of continuing operations: Loss from discontinued operations ................ (240,847) (111,973) Write-down of net assets held for sale ........... 137,534 0 Depreciation ..................................... 8,381 61,151 Interest expense - convertible debentures-beneficial conversion feature ............................. 116,214 302,390 Common stock issued for expenses ................. 89,816 374 Allowance for uncollectible accounts, net ........ (10,154) 0 Changes in operating assets and liabilities: Accounts receivable .............................. 54,404 45,769 Inventories ...................................... 2,833 (104,899) Prepaid expenses ................................. (1,338) 0 Deposits ......................................... 0 (330,768) Accounts and notes payable, trade ................ 90,641 (67,610) Accrued liabilities and taxes .................... 250,438 150,449 Customer deposits ................................ 0 (6,488) Deferred income .................................. (1,580) (31,629) ---------- ---------- NET CASH (USED) IN OPERATING ACTIVITIES ................................. (60,651) (913,772) ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment .................. 0 (89,527) Proceeds from sale of net assets held for sale ....... 48,635 0 ---------- ---------- NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES ........................ 48,635 (89,527) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of convertible debentures payable ................................ 201,236 944,180 Repayment of note payable, factor .................... (58,313) 0 Repayment of notes payable, other .................... 0 (1,306) Changes in notes receivable, officer ................. 0 6,621 ---------- ---------- NET CASH PROVIDED BY FINANCING ACTIVITIES .................................. 142,923 949,495 ---------- ----------
See Accompanying Notes and Independent Accountants' Review Report. 6 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE THREE MONTHS ENDED JANUARY 31, 2002 AND 2001 (UNAUDITED)
2002 2001 ----------------- ------------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 130,907 $ ( 53,804) CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD 6,981 631,375 ----------------- ------------------ CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 137,888 $ 577,571 ================= ================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during period for: Interest $ 22,486 $ 67,275 ================= ================== Taxes $ 0 $ 0 ================= ================== NON-CASH INVESTING AND FINANCING ACTIVITIES Issuance of common stock for convertible debentures $ 183,681 $ 34,576 ================= ================== Issuance of common stock for fees, services and expenses $ 94,666 $ 0 ================= ================== Issuance of common stock for accounts payable and accrued liabilities $ 401,935 $ 0 ================= ================== Interest expense - convertible debentures-beneficial conversion feature $ 116,214 $ 302,390 ================= ==================
See Accompanying Notes and Independent Accountants' Review Report. 7 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2002 AND 2001 (UNAUDITED) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 a management company that pays the general and administrative expenses for the Company and all of the subsidiaries. IBIZ, Inc. designs, manufactures (through subcontractors), and distributes a line of accessories for the PDA and handheld computer market which are distributed through large retail chain stores and e-commerce sites. IBIZ Inc. also markets LCD monitors, OEM notebook computers, third party software, and general purpose financial application keyboards. Qhost. Inc. provides Web-enabling services which included Co-Location services, Web design and development, and data center technical management services. These segments of the Company's operations were discontinued on October 31, 2001. Principles of Consolidation The consolidated financial statements include the accounts of IBIZ Technology Corp. and its wholly owned subsidiaries - Invnsys Technology Corporation, IBIZ, Inc. and Qhost, Inc. 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. Accounts Receivable Accounts receivable are reported at the customers' outstanding balances less any allowance for doubtful accounts. Allowance for Doubtful Accounts The allowance for doubtful accounts on accounts receivables is charged to income in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover any possible losses. See Accompanying Notes and Independent Accountants' Review Report. 8 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2002 AND 2001 (UNAUDITED) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 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. 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 ...... 10 Years Office furniture and equipment 5-10 Years Vehicles ..................... 5 Years Computer software ............ 5 Years Accounting for Convertible Debt Securities The Company has issued convertible debt securities with non-detachable conversion features. The Company accounts for such securities in accordance with Emerging Issues Task Force Topic D-60. The Company has recorded the fair value of the beneficial conversion features as interest expense and an increase to Additional Paid in Capital. 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 Product 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. See Accompanying Notes and Independent Accountants' Review Report. 9 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2002 AND 2001 (UNAUDITED) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Prepaid Expenses The Company's prepaid expenses are being amortized over a one year period. Long-Lived Assets Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to be Disposed Of," requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may no longer be appropriate. The Company assesses the recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset's carrying value and fair value. 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. Shipping and Handling Costs The Company's policy is to classify shipping and handling costs as part of cost of goods sold in the statement of operations. 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. See Accompanying Notes and Independent Accountants' Review Report. 10 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2002 AND 2001 (UNAUDITED) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Risks and Uncertainties IBIZ, Inc. is in the computer and computer technology industry and its 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 at the stock closing price at the date the transaction is finalized. 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 January 31, 2002 and October 31, 2001, 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 AMENDMENT OF ARTICLES OF INCORPORATION The Articles of Incorporation were amended to increase the number of authorized shares of common stock from 100,000,000 to 450,000,000 and authorized the creation of 50,000,000 shares of blank check preferred stock. NOTE 4 ACCOUNTS RECEIVABLE A summary of accounts receivable and allowance for doubtful accounts is as follows:
January 31, October 31, 2002 2001 (Unaudited) (Audited) Accounts receivable $ 89,343 $ 143,747 Allowance for doubtful accounts 39,846 50,000 ----------------- ------------------ Net accounts receivable $ 49,497 $ 93,747 ================= ==================
See Accompanying Notes and Independent Accountants' Review Report. 11 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2002 AND 2001 (UNAUDITED) NOTE 4 ACCOUNTS RECEIVABLE (CONTINUED)
January 31, October 31, 2002 2001 (Unaudited) (Audited) Allowance for doubtful accounts Balance, at beginning of period $ 50,000 $ 25,000 Additions for the period 0 80,534 Recovery for the period 1,860 0 Write-off of uncollectible accounts for the period ( 12,014) ( 55,534) ----------------- ------------------ Balance, at end of period $ 39,846 $ 50,000 ================= ================== NOTE 5 INVENTORIES The inventories are comprised of the following: January 31, October 31, 2002 2002 (Unaudited) (Audited) Finished products $ 158,909 $ 161,742 Office 5,000 5,000 ----------------- ------------------ $ 163,909 $ 166,742 ================= ==================
NOTE 6 NET ASSETS HELD FOR SALE On December 21, 2001, Invnsys sold all of the properties, rights and assets used in connection with the internet service segment of Invnsys' operations. The services sold include the provision of dial up Internet access, dedicated internet access, Web hosting and Web page development services, Co- Location and bandwidth and managed server services to residential and commercial customers. The Co-Location operations are included in Discontinued Operations. In accordance with provisions of SFAS No. 121, the assets included in net assets held for sale will not be depreciated. See Accompanying Notes and Independent Accountants' Review Report. 12 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2002 AND 2001 (UNAUDITED) NOTE 7 PROPERTY AND EQUIPMENT Property and equipment and accumulated depreciation consists of:
January 31, October 31, 2002 2001 (Unaudited) (Audited) Tooling $ 68,100 $ 68,100 Machinery and equipment 41,821 41,821 Office furniture and equipment 81,027 81,027 Vehicles 39,141 39,141 Software 90,159 90,159 ----------------- ------------------ 320,248 320,248 Less accumulated depreciation 181,251 172,870 ----------------- ------------------ Total property and equipment $ 138,997 $ 147,378 ================= ================== NOTE 8 NOTES RECEIVABLE, OFFICERS January 31, October 31, 2002 2001 (Unaudited) (Audited) Invnsys Technology Corporation A note due from the president of the Company, which is payable on demand and accrues interest at 6%. Management believes the note is uncollectible since IBIZ no longer has collateral for the note. The Company elected to write-off the loan as uncollectible by establishing an allowance for doubtful collections for the total amount due on the note. Total amount of note $ 373,159 $ 373,159 Less allowance for doubtful collection ( 373,159) ( 373,159) ----------------- ------------------ Net note $ 0 $ 0 ================= ==================
See Accompanying Notes and Independent Accountants' Review Report. 13 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2002 AND 2001 (UNAUDITED) NOTE 9 TRADE NOTE PAYABLE TO GAMMAGE AND BURNHAM In July 2001, the Company issued a note to Gammage and Burnham, PLC for the payment of $80,000 of legal fees previously recorded in accounts payable. The note is secured by accounts receivable but the security is waived in favor of the note payable to Platinum Funding Corporation provided Gammage and Burnham PLC receives $2,500 each time that Invnsys draws against its factoring line. NOTE 10 ACCRUED LIABILITIES Accrued liabilities consist of the following:
January 31, October 31, 2002 2001 (Unaudited) (Audited) Interest $ 253,301 $ 201,987 Officers' bonuses 30,210 104,552 Bonuses, other 0 41,140 Wages 305,069 231,806 Severance wages 150,000 75,000 Vacation pay 41,238 41,238 Other 31,825 31,327 ----------------- ------------------ $ 811,643 $ 727,050 ================= ================== NOTE 11 INCOME TAXES January 31, January 31, 2002 2001 (Unaudited) (Unaudited) (Loss) from continuing operations before income taxes $ ( 556,993) $ ( 932,511) The provision for income taxes is estimated as follows: Currently payable $ 0 $ 0 ----------------- ------------------ Deferred $ 0 $ 0 ----------------- ------------------
See Accompanying Notes and Independent Accountants' Review Report. 14 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2002 AND 2001 (UNAUDITED) NOTE 11 INCOME TAXES (CONTINUED)
January 31, October 31, 2002 2001 (Unaudited) (Audited) Significant components of the Company's deferred tax assets and liabilities are as follows: Deferred tax assets: Net operating loss carryforwards $ 2,397,774 $ 2,241,000 Accrued expenses and miscellaneous 134,700 134,700 Tax credit carryforward 38,424 38,424 ----------------- ------------------ 2,570,898 2,414,124 Less valuation allowance 2,570,898 2,414,124 ----------------- ------------------ Net deferred tax asset $ 0 $ 0 ================= ================== A reconciliation of the valuation allowance is as follows: Balance, at beginning of period $ 2,414,124 $ 1,158,265 Addition for the period 156,775 1,255,859 ----------------- ------------------ Balance, at end of period $ 2,570,899 $ 2,414,124 ================= ==================
NOTE 12 TAX CARRYFORWARDS The Company has the following tax carryforwards at January 31, 2002. Expiration Year Amount Date 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 October 31, 2001 5,051,232 October 31, 2021 January 31, 2002 681,629 October 31, 2022 ---------------- $ 10,477,720 ============ Capital loss October 31, 1997 25,600 October 31, 2002 See Accompanying Notes and Independent Accountants' Review Report. 15 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2002 AND 2001 (UNAUDITED) NOTE 12 TAX CARRYFORWARDS (CONTINUED) Expiration Year Amount Date Contribution October 31, 1997 $ 545 October 31, 2002 October 31, 1999 2,081 October 31, 2004 October 31, 2000 3,008 October 31, 2005 October 31, 2001 1,000 October 31, 2006 Research tax credits 38,424 NOTE 13 CONVERTIBLE DEBENTURES
January 31, October 31, 2002 2001 (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 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.
See Accompanying Notes and Independent Accountants' Review Report. 16 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2002 AND 2001 (UNAUDITED) NOTE 13 CONVERTIBLE DEBENTURES (CONTINUED)
January 31, October 31, 2002 2001 (Unaudited) (Audited) 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 an 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. $5,000,000 Convertible Debenture $ 1,856,482 $ 1,891,456 --------------------------------
On October 31, 2001, the Company issued 8% convertible debentures as follows: 1. Due date - October 30, 2002 and January 15, 2003. 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 $ 0.48 per share. The Company reserved an additional 1,240,000 shares for future borrowing on this debenture line. 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 but 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: See Accompanying Notes and Independent Accountants' Review Report. 17 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2002 AND 2001 (UNAUDITED) NOTE 13 CONVERTIBLE DEBENTURES (CONTINUED)
January 31, October 31, 2002 2001 (Unaudited) (Audited) (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. Laurus Master Fund, Ltd. $ 327,082 $ 414,473 ------------------------
In April and July 2001, the Company issued $500,000 and $150,000 of 8% convertible debentures under the following terms and conditions: 1. Due dates - April 2002 and July 2002. 2. Interest on September 30, 2001 and quarterly thereafter. 3. Default interest rate - 20%. 4. On the first financing, the Company issued 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 prices for a ten day trading period. The Company may redeem the warrants for $.666 per share. On the second financing, the Company issued warrants to purchase See Accompanying Notes and Independent Accountants' Review Report. 18 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2002 AND 2001 (UNAUDITED) NOTE 13 CONVERTIBLE DEBENTURES (CONTINUED)
January 31, October 31, 2002 2001 (Unaudited) (Audited) 1,500,000 shares of common stock at the lesser of $.048 or an amount equal to 105% of the average of the three lowest closing bid prices for the common stock for the ten trading days prior to but not including the date the warrants are exercised. 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. Alpha Capital $ 162,500 $ 0 -------------
In January 2002, the Company issued an 8% convertible debenture as follows: 1. Due date - January 30, 2004. 2. Interest payable quarterly from March 31, 2002. 3. Default interest rate - 20%. 4. Fees and costs - 7% - 10% of cash received for debentures and warrants plus legal fees. 5. Conversion price - (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 three lowest closing bid prices for the stock for sixty days. 6. The debentures are unsecured. ------------------ ------------------ Total debentures $ 3,096,064 $ 3,055,929 Less current portion 2,123,564 2,305,929 ------------------ ------------------ Long-term portion $ 972,500 $ 750,000 ================== ==================
See Accompanying Notes and Independent Accountants' Review Report. 19 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2002 AND 2001 (UNAUDITED) NOTE 14 NOTE PAYABLE, FACTOR On October 9, 2001, the Company entered into a two year factoring agreement with Platinum Funding Corporation. The terms of the agreement provide that Platinum Funding Corporation may purchase Invnsys' accounts receivable, without recourse, by advancing 70% of the sales invoice to Invnsys. The interest charged on the loan is based upon the period of time an invoice is unpaid and ranges from 3% to 15%. NOTE 15 NOTE PAYABLE, OTHER
January 31, October 31, 2002 2001 (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 $1,800. $ 14,532 $ 14,532 Less: current portion 7,198 5,721 ------------------ ------------------ Net long-term debt $ 7,334 $ 8,811 ================== ================== Maturities of long-term debt are as follows: January 31, 2002 $ 0 $ 1,859 January 31, 2003 7,198 5,339 January 31, 2004 6,229 6,229 January 31, 2005 1,105 1,105 ------------------ ------------------ $ 14,532 $ 14,532 ================== ==================
NOTE 16 DISCONTINUED OPERATIONS APB 30 requires that an entity restate prior year financial statements to disclose the results of subsequent discontinued operations. The network integration services, digital subscriber line high speed internet connection services, and Co-Location computer data and server facility were discontinued on October 31, 2001. The January 31, 2001 statements of operations and cash flows were restated to segregate the (loss) from discontinued operations from continued operations. The following information is presented for the discontinued operations: See Accompanying Notes and Independent Accountants' Review Report. 20 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2002 AND 2001 (UNAUDITED) NOTE 16 DISCONTINUED OPERATIONS (CONTINUED) A. Segments discontinued - as indicated above B. Discontinued date - October 31, 2001 C. Manner of disposal - write-down of assets to fair market value and sale of segments D. Remaining assets - asset held for sale of $249,918 after write-down of assets E. Income or loss on October 31, 2001 - none F. Partial proceeds from disposal of assets - $188,953. NOTE 17 COMPUTATION OF EARNINGS PER SHARE
January 31, Restated 2002 2001 ------------------ ------------------ From continuing operations Net (loss) from continuing operations $ ( 556,993) $ ( 820,538) ------------------------------------- ------------------ ------------------ Weighted average number of common shares outstanding 110,721,848 37,929,185 (Loss) per share $ ( 0.01) $ ( 0.02) From discontinued operations Net (loss) from continuing operations $ ( 240,847) $ ( 111,973) ------------------------------------- ------------------ ------------------ Weighted average number of common shares outstanding 110,721,848 37,929,185 (Loss) per share $ ( 0.00) $ ( 0.00)
NOTE 18 CANCELLATION OF DEBT
2002 2001 ------------------ ------------------ Settlement of lawsuit $ 0 $ 101,369 Invnsys settled its lawsuit with Epson America, Inc. for $2,500 which generated $101,369 of income. Account payable The Company negotiated a cancellation of $122,000 account payable with a supplier. This cancellation resulted in $122,000 of income. 0 122,000 Settlement of prior year liabilities 42,031 0 ------------------ ------------------ $ 42,031 $ 223,369 ================== ==================
See Accompanying Notes and Independent Accountants' Review Report. 21 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2002 AND 2001 (UNAUDITED) NOTE 19 REAL ESTATE LEASE On January 8, 2002, IBIZ, Inc. leased its office and warehouse facilities under the following terms and conditions: 1. Term - Three years from February 1, 2002 to January 31, 2005 2. Size of facility - 4,343 square feet 3. Base rent - Monthly rentals plus taxes and common area operating expenses 4. Base rental schedule - Months Rent 1 - 12 $2,172 13 - 24 3,692 26 - 36 4,343 Future minimum lease payments excluding taxes and expenses, are as follows: January 31, 2003 $ 26,064 January 31, 2004 44,304 January 31, 2005 52,116 -------- $122,484 ======== Rent expense for the three months ended January 31, 2002 and 2001 was $27,829 and $38,648, respectively. NOTE 20 ADVERTISING All direct advertising costs are expensed as incurred. Invnsys charged to operations $12,621 and $(27,592) in advertising costs for the three months ended January 31, 2002 and 2001, respectively. NOTE 21 RESEARCH AND DEVELOPMENT Invnsys incurred research and development cost for the three months ended January 31, 2002 and 2001 of $0 and $4,035, respectively. NOTE 22 WORKERS' COMPENSATION INSURANCE As of the date of this report, the Company does not have workers' compensation insurance for its employees. See Accompanying Notes and Independent Accountants' Review Report. 22 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2002 AND 2001 (UNAUDITED) NOTE 23 OFFICERS' COMPENSATION The Company entered into employment agreements with four of its corporate officers. The contracts are for three years beginning July 2001 and provide for the following: 1. Salaries from $150,000 to $250,000 for each officer. On November 1, 2001, the officers voluntarily reduced their salaries to $100,000 and $125,000. 2. Bonuses of 1% of total sales for each of its officers 3. Options for 1,200,000 shares of common stock which will vest and be exercisable for a period of ten years 4. Option price of $.02 a share 5. Termination - Termination by the Company without cause - the employee shall receive six months salary Change of control - in the event of change of control, the Company shall pay the employee a lump sum payment of three years annual salary NOTE 24 BUSINESS SEGMENT INFORMATION The Company organizes its business based principally upon products and services. The Company operated in three reportable segments until October 2001, when it discontinued its Co- Location services, Web design and development and data center technical management services. A summary of business segments for the three months ended January 31, 2002 is as follows:
Services General Product and and Sales Other Administrative Consolidated Sales $ 127,700 $ 8,037 $ 0 $ 135,737 Operating income (loss) 24,259 ( 21,292) ( 559,960) ( 556,993) Identifiable assets 561,768 0 249,918 811,686 Expenditures for Long-term assets 0 0 0 0
NOTE 25 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 following factors raise uncertainty as to the Company's ability to continue as a going concern: See Accompanying Notes and Independent Accountants' Review Report. 23 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2002 AND 2001 (UNAUDITED) NOTE 25 GOING CONCERN (CONTINUED) A. Continued operating losses B. Negative working capital C. Lack of cash to purchase products to complete sales orders D. Delinquent payroll taxes E. Unpaid wages F. Decline in national economy Management's plans to eliminate the going concern situation include but are not limited to: A. Reduction in operating overhead. The Company reduced its payroll from approximately 50 employees to 7. B. Moved its office and warehouse facility. The Company anticipates that rent, utilities and property taxes will be reduced by $200,000 per year. C. Discontinued segments that were not profitable. D. Partial sale of assets held for sale. E. Arranged for new financing through convertible debentures. F. Paid, some but not all, delinquent payables and unpaid wages through the issuance of common stock. G. Requested abatement of delinquent payroll tax penalties. H. Purchased products to complete sales orders from funds received from the new debenture financing. NOTE 26 EMPLOYEE STOCK OPTIONS On January 31, 1999, the corporation adopted the 1999 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 10,000,000 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 five years. See Accompanying Notes and Independent Accountants' Review Report. 24 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2002 AND 2001 (UNAUDITED) NOTE 26 EMPLOYEE STOCK OPTIONS (CONTINUED) The Company has elected to continue to account for stock-based compensation under APB Opinion No. 25, under which no compensation expense has been recognized for stock options granted to employees at fair market value. A summary of the option activity for the three months ended January 31, 2002 and 2001, pursuant to the terms of the plan is as follows:
Shares Weighted Under Average Option Exercise Price Options outstanding at October 31, 2001 3,145,000 $ 0.92 Granted 0 .00 Exercised 0 .00 Cancelled and expired 0 .00 ------------ Options outstanding at January 31, 2002 3,145,000 0.92 ============
1,885,000 shares are exercisable at January 31, 2002 Information regarding stock options outstanding as of January 31, 2002 and 2001 is as follows:
2002 2001 ----------------- ---------------------- Price range $0.02 - $2.00 $0.53 - $2.00 Weighted average exercise price $0.56 $0.92 Weighted average remaining contractual life 8 years, 1 months 8 years, 5 months Options exercised Price range 0 $0.00 Shares 0 0 Weighted average exercise price 0 $0.00
The weighted average fair value of options granted in the three months ended January 31, 2002 and 2001 were estimated as of the date of grant using the Black-Scholes stock option pricing model, based on the following weighted average assumptions:
2002 2001 ---------------------- ---------------------- Dividend yield - 0 Expected volatility - 50 % Risk free interest rate - 5.13% - 6.65 % Expected life - 10 years
See Accompanying Notes and Independent Accountants' Review Report. 25 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2002 AND 2001 (UNAUDITED) NOTE 26 EMPLOYEE STOCK OPTIONS (CONTINUED) 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:
January 31, January 31, 2002 2001 ---------------------- ---------------------- Net (loss) from continuing operations As reported $ ( 556,993) $ ( 820,538) Pro forma $ ( 588,218) $ ( 891,273) (Loss) per share attributable to common stock As reported $ ( .01) $ ( .02) Pro forma $ ( .01) $ ( .02)
On November 21, 2001, the stockholder approved the IBIZ Technology Corp. 2001 stock option plan. The plan provides for the grant of stock options to purchase common stock to eligible directors, officers, key employees and service providers to IBIZ. The 2001 stock option plan covers an aggregate maximum of 10,000,000 shares of common stock and provides for the granting of both incentive stock options and non-qualified stock options. The exercise price may not be less than the fair market value of the common stock on the date of the grant of the option. NOTE 27 COMMON STOCK PURCHASE WARRANTS As of January 31, 2002 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 August 30, 2000 34,125 5 years $ .937
See Accompanying Notes and Independent Accountants' Review Report. 26 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2002 AND 2001 (UNAUDITED) NOTE 27 COMMON STOCK PURCHASE WARRANTS (CONTINUED)
Number Exercise Date of Shares Term Price -------------------- ------------------ ------------------ ------------------ 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 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 June 22, 2001 1,500,000 5 years $ .042 June 27, 2001 1,500,000 5 years $ .048 August 21, 2001 525,000 5 years $ .039 October 9, 2001 350,000 5 years $ .0256 January 15, 2002 166,666 5 years $ .0097 January 15, 2002 500,000 5 years $ .0097 January 30, 2002 5,000,000 5 years $ FMV ---------------- 14,726,155 ================
14,726,155 shares are exercisable at January 31, 2002. NOTE 28 LEGAL PROCEEDINGS Invnsys had six lawsuits filed against it for unpaid accounts payable and wages. Three of the lawsuits totaling $73,000 were settled with an agreement to issue stock to the debtor or to make payments on the debt. One of the lawsuits for unpaid wages was settled. Two lawsuits for unpaid wages and breach of contract totaling $12,250 are being negotiated for final settlements. The $12,250 on the lawsuits is included in accounts payable and accrued liabilities. NOTE 29 ECONOMIC DEPENDENCY For the three months ended January 31, 2002, IBIZ, Inc. had sales of approximately 24% of its PDA's to one customer. See Accompanying Notes and Independent Accountants' Review Report. 27 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2002 AND 2001 (UNAUDITED) NOTE 30 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 31 UNPAID OFFICERS' SALARIES On December 20, 2001, the Board of Directors authorized the issuance of convertible debentures to the officers of the Company as consideration for their unpaid wages. As of the date of this report, the debentures have not been issued. NOTE 32 PREFERRED STOCK On December 20, 2001, the Board of Directors authorized the issuance of 3,500,000 shares of preferred stock to three officers and one director in lieu of their annual bonus and retention incentives. The preferred stock will have a 10:1 conversion rate from common stock to preferred stock and will have a "super" voting right of 100:1. As of the date of this report the preferred stock had not been issued. NOTE 33 CONVERTIBLE LOCK AGREEMENT In January 2002, the debenture holders agreed that they would not convert any debentures for 60 days and further that they would not convert any debentures for six months unless the market price of the stock exceeds $0.02. NOTE 34 OFF-BALANCE SHEET RISK The Company has $149,975 deposited in one banking institution. Only $100,000 of the balance is insured by the Federal Deposit Insurance Corporation. NOTE 35 UNAUDITED FINANCIAL INFORMATION The accompanying financial information as of January 31, 2002 is unaudited. In managements opinion, such information includes all normal recurring entries necessary to make the financial information not misleading. See Accompanying Notes and Independent Accountants' Review Report. 28 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2002 AND 2001 (UNAUDITED) NOTE 36 CONTINGENCIES Real Estate at 1919 W. Lone Cactus Drive, Phoenix, Arizona The Company has pledged all of its assets, except inventory, to guarantee the mortgage of $925,448 on the premises it previously occupied at 1919 W. Lone Cactus Drive, Phoenix, Arizona. Contract Termination Fees on Co-Location Operations The connectivity providers for the discontinued Co-Location operations charged a $130,000 termination fee. The Company does not believe this fee is payable as the Co-Location operations were transferred to Arizona Internet L.L.C. without any termination activity by the provider. See Accompanying Notes and Independent Accountants' Review Report. 29 MANAGEMENT'S DISCUSSION AND ANALYSIS Through its operating subsidiary, iBIZ Inc. designs, manufactures, and distributes personal digital assistant accessories (PDA accessories), small footprint desktop computers, transaction printers, general purpose financial application keyboards, numeric keypads, TFT-LCD monitors and related products. iBIZ also markets a line of OEM notebook computers and distributes a line of transactional and color printers. To provide a greater range of products, iBIZ resells third-party hardware, software and related supplies. Selected Financial Information. YEAR ENDED January 31, 2002 January 31, 2001 Statement of Operations Data $ $ Net sales .................... 135,737 789,164 Gross profit ................. 52,221 299,099 Operating income from continuing operations(loss) .. ( 556,993) ( 820,538) Net earnings (loss) after tax ( 797,840) ( 932,511) Net earnings (loss) per share (0.01) (0.02) Balance Sheet Data .................January 31, 2002 October 31, 2001 Total assets ................. 811,882 923,858 Total liabilities ............ 4,787,722 4,868,336 Stockholders' equity (deficit) (3,976,036) (3,944,478) RESULTS OF OPERATIONS. Three months ended January 31, 2002 compared to the three months ended January 31,2001. Revenues. Sales from continuing operations decreased by approximately 83% to $135,737 in the three months ended January 31, 2002 from $ 789,164 in the three months ended January 31, 2001. The decrease was mainly a result of the drain on working capital from costs associated with the data center which resulted in delayed shipments for our PDA products to our high volume retail accounts. A continued impact from the drop of consumer spending for PDA products also had a negative first quarter impact. Shipments for goods have improved since January 31, 2002 and with the drain on working capital minimized by discontinued operations shipments should continue to improve throughout the remainder of this fiscal. Cost of Sales. The cost of sales of $83,516 in the three months ended January 31, 2002 decreased from $490,065 in the three months ended January 31, 2001, or approximately an 83% decrease. This reduction reflects a drop in purchases from our overseas suppliers as well as the decrease in costs related to providing data center services. Gross Profit. Gross profit decreased by approximately 83% to $52,221 in the three months ended January 31, 2002 from $299,099 in the three months ended January 31, 2001. The decrease was due to a reduction of sales. The gross profit on sales was 38% for each period and is expected to increase as orders for goods continue to improve. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased approximately 56% to $449,293 in the three months ended January 31, 2002 from $1,015,017 for the three months ended January 31, 2001. The decrease was primarily due to staff reductions and related costs, rent, utilities and voluntary salary reductions from officers. Interest Expense. Interest expense of $85,753 for the three months ended January 31, 2002 and of $35,541 for the three months ended January 31, 2001 was incurred on factoring lines and on convertible debentures issued to various investors. Interest Expense -- Convertible Debenture - Beneficial Conversion Feature. The Company has issued convertible debt securities with a non-detachable conversion feature at the date of issue. The Company accounts for such securities in accordance with Emerging Issues Task Force Topic D-60. The Company has recorded the fair value of the beneficial conversion feature as interest expense and an increase to Paid-in Capital. Interest expense of $116,214 for the three months ended January 31, 2002 was incurred under the Company's convertible debenture-beneficial conversion feature. Net Loss. Net loss from continuing operations decreased to $556,993 for the three months ended January 31, 2002 from a net loss of $820,538 for the three months ended January 31, 2001. The loss resulted from the increase in the selling, general and administrative expenses and the imposition of interest expenses for the Company's convertible debenture-beneficial conversion feature. Discontinued Operations. Net Loss from discontinued operations increased from $111,973 the three months ended January 31, 2002 to $240,847 in the three months ended January 31, 2001. The reason for the increase was the company had costs to "Wind Down" the operations and loss on liquidation of certain assets. LIQUIDITY AND CAPITAL RESOURCES The Company has spent substantial funds on construction and installation of its co-location facility and expansion of its sales and marketing efforts. As a result, the Company has needed capital to maintain the business as a going concern. Since December 1, 1999, the Company has raised approximately $5,900,000 through the sale of convertible debentures, convertible notes, common stock and warrants to various individuals. 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. The Company currently has commitments for an additional $2,900,000, subject to meeting certain representations, warranties, covenants, and conditions. Working Capital deficit decreased from $3,349,057 from as of year end October 31, 2001, to $3,151,211 as of January 31, 2002. The decrease was a result of payment of company debt through the issuance of Common Stock. The company anticipates that the liquidity will increase in the next fiscal year due to the following measures it has instituted: 1. Reduction in selling, general and administrative expenses especially from: a. Reduction in payroll from approximately 50 employees to 7. b. Reduction in rent by $200,000 per year due to moving to new facilities. 2. Discontinued non profitable business segments. 3. Sale of assets held for sale. 4. Payments of some, but not all payables and wages through the issuance of common stock. 5. Obtained new debenture financing which enables the company to purchase new products to fulfill sales orders. The Company believes that the amounts committed (assuming the Company meets the representations, warranties, covenants, and conditions to receive those amounts) should be sufficient to finance the Company's revised business plans through the Company's fiscal year ended October 31, 2002. PART II - Other Information Item 1. Legal Proceedings From time to time we are subject to litigation incidental to our business. We are not currently a party to any legal proceedings that we consider to be material. 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 January 31, 2002 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. Private Placements of Common Stock and Warrants for Cash None. Sales of Debt and Warrants for Cash Convertible debentures were issued to three accredited purchasers during our first quarter of 2002. The debentures were in the aggregate principal amount of $222,500. The debentures were convertible into common stock at a conversion price of the lower of 80% of the average of the three lowest closing bid prices for the common stock twenty two days prior to the closing date or 80% of the average of the three lowest closing bid prices for the common stock sixty days prior to conversion. In addition, these same purchasers received an aggregate amount of 5,666,666 warrants to purchase common stock. The offering of convertible debentures and warrants was exempt from registration under Rule 504 of Regulation D and under Section 4(2) of the Securities Act. No advertising or general solicitation was employed in offering the securities. All persons were accredited investors, represented that they were capable of analyzing the merits and risks of their investment. Option Grants None. Issuances of Stock for Services or in Satisfaction of Obligations In November 2001, we issued 15,000,000 million shares of our common stock valued at $1,5000 to our president, Ken Schilling, as compensation for his contribution of 9,285,600 shares of common stock to iBiz prior to iBiz receiving shareholder approval to increase its authorized capital. In December 2001, we issued 21,750,000 shares of common stock valued at $217,500 to four consultants as payment for consulting services. The above offerings and sales were deemed to be exempt under Regulation D and Section 4(2) of the Securities Act. No advertising or general solicitation was employed in offering the securities. The offerings and sales were made to a limited number of persons, all of whom were business associates of iBiz or executive officers and/or directors of iBiz, and transfer was restricted by iBiz in accordance with the requirements of the Securities Act. All unregistered shares of common stock outstanding, except those issued in November 2001, were registered through our Registration Statement on Form S-8, which was declared effective in January 2002. Item 3. Defaults Upon Senior Securities Not Applicable Item 4. Submission of Matters to a Vote of Security Holders (a) The annual meeting of our shareholders was held on November 21, 2001. (b) Our shareholders voted for: 1. The reelection of Kenneth W. Schilling, Terry S. Ratliff, and Mark H. Perkins, as directors of iBiz for a 1 year term: For Against Abstained 82,479,573 173,325 1,575,043 2. The increase to approve authorized shares and creation of 50,000,000 shares of blank check preferred stock. For Against Abstained 27,812,977 6,724,198 233,890 3. Approval of the 1999 Stock Option Plan. For Against Abstained 29,450,749 4,445,531 874,785 4. Approval of the 2001 Stock Option Plan. For Against Abstained 29,219,395 4,922,551 629,119 5. Ratification of the appointment of the firm Moffitt & Co. PC as independent accountants for the fiscal year ended October 31, 2001. For Against Abstained 81,844,931 1,924,475 458,535 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 21st day of March 2002 IBIZ TECHNOLOGY CORP. By:/s/ KENNETH W. SCHILLING Kenneth W. Schilling, President By:/s/ MARK H. PERKINS Mark H. Perkins, Executive Vice President -----END PRIVACY-ENHANCED MESSAGE-----