10QSB 1 ibiz_10q-073102.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 JULY 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 September 19, 2002 ----- --------------------------------- Common stock, $0.001 par value 450,000,000 TABLE OF CONTENTS ----------------- PART I. - FINANCIAL INFORMATION................................................1 ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)......................................1 BALANCE SHEETS .......................................................1 STATEMENTS OF OPERATIONS..............................................3 STATEMENT OF STOCKHOLDERS' ...........................................5 STATEMENT OF CASH FLOWS...............................................6 NOTES TO FINANCIAL STATEMENTS.........................................8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................................................14 PART II. - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS....................................................19 ITEM 2. CHANGES IN SECURITIES................................................19 ITEM 3. DEFAULTS UPON SENIOR SECURITIES......................................20 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................20 ITEM 5. OTHER INFORMATION....................................................20 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.....................................20 PART I ------ Item 1. Financial Information IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JULY 31, 2002 (UNAUDITED) ASSETS CURRENT ASSETS Cash and cash equivalents $ 5,152 Account receivable, officer 1,861 Inventories 207,051 Prepaid expenses 8,208 ----------- TOTAL CURRENT ASSETS 222,272 ----------- PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION 117,837 ----------- OTHER ASSETS Deposits 11,040 Patent 200,000 ----------- TOTAL OTHER ASSETS 211,040 ----------- TOTAL ASSETS $ 551,149 =========== 1 LIABILITIES AND STOCKHOLDERS' (DEFICIT) CURRENT LIABILITIES Accounts payable, trade $ 577,062 Note payable, trade 30,000 Accrued liabilities 1,027,917 Taxes payable 123,226 Deferred income 18,633 Convertible debentures payable, current portion 1,972,469 Notes payable, other, current portion 7,037 Note payable, patent 200,000 ------------- TOTAL CURRENT LIABILITIES 3,956,344 ------------- LONG - TERM LIABILITIES Convertible debentures payable 1,072,500 Notes payable, other 4,274 ------------- TOTAL LONG -TERM LIABILITIES 1,076,774 ------------- STOCKHOLDERS' EQUITY (DEFICIT) Preferred stock Authorized - 50,000,000 shares, par value $.001 per share Issued and outstanding -0 shares Common stock Authorized - 450,000,000 shares, par value $.001 per share Issued and outstanding July 31, 2002 - 286,659,275 shares 286,659 Additional paid in capital 10,915,122 Accumulated deficit (15,683,750) ------------- TOTAL STOCKHOLDERS' (DEFICIT) (4,481,969) ------------- TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) $ 551,149 ============= 2 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2002 AND 2001 (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED JULY 31, JULY 31, --------------------------- --------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ SALES $ 52,401 $ 418,857 $ 303,462 $ 1,628,144 COST OF SALES 196,772 291,356 348,506 1,142,957 ------------ ------------ ------------ ------------ GROSS PROFIT (LOSS) (144,371) 127,501 (45,044) 485,187 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (149,002) (467,349) (1,024,409) (2,364,197) SETTLEMENT OF LAWSUIT 0 0 0 101,369 CANCELLATION OF DEBT 32,051 0 74,082 122,000 OTHER INCOME 0 5,253 0 26,215 ------------ ------------ ------------ ------------ OPERATING (LOSS) (261,322) (334,595) (995,371) (1,629,426) ------------ ------------ ------------ ------------ OTHER INCOME (EXPENSE) Interest income 0 6,259 37 22,638 Interest expense (97,519) (76,379) (220,804) (169,703) Interest expense - convertible debentures-beneficial conversion feature 0 (506,021) (182,880) (1,317,438) ------------ ------------ ------------ ------------ TOTAL OTHER INCOME (EXPENSE) (97,519) (576,141) (403,647) (1,464,503) ------------ ------------ ------------ ------------ (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (358,841) (910,736) (1,399,018) (3,093,929) INCOME TAXES 0 0 0 0 ------------ ------------ ------------ ------------ (LOSS) FROM CONTINUING OPERATIONS (358,841) (910,736) (1,399,018) (3,093,929) ------------ ------------ ------------ ------------ DISCONTINUED OPERATIONS (Loss) from operations of discontinued business segments (21,345) (446,334) (267,505) (656,299) Write-down of net assets held for sale 0 0 (171,542) 0 ------------ ------------ ------------ ------------ INCOME (LOSS) FROM DISCONTINUED OPERATIONS (21,345) (446,334) (439,047) (656,299) ------------ ------------ ------------ ------------ NET (LOSS) $ (380,186) $(1,357,070) $(1,838,065) $(3,750,228) ============ ============ ============ ============ 3
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED) FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2002 AND 2001 (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED JULY 31, JULY 31, --------------------------- --------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ NET (LOSS) PER COMMON SHARE Basic and Diluted: Continuing operations $ .00 $ (.02) $ .00 $ (.06) Discontinued operations .00 (.01) .00 (.01) ------------ ------------ ------------ ------------ NET (LOSS) $ .00 $ (.03) $ .00 $ (.07) ============ ============ ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Basic and diluted 286,659,275 55,660,810 286,659,275 55,660,810 ============ ============ ============ ============
Stock options and warrants to purchase 20,186,155 shares of common stock were not included in the computations of diluted loss per common share amounts. 4 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) FOR THE NINE MONTHS ENDED JULY 31, 2002 (UNAUDITED)
PREFERRED STOCK COMMON STOCK ADDITIONAL ------------------ ----------------------------- PAID IN ACCUMULATED SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL -------- -------- ------------- ------------- ------------- ------------- ------------- BALANCE, NOVEMBER 1, 2001 0 $ 0 99,862,248 $ 99,862 $ 9,801,345 $(13,845,685) $ (3,944,478) CONVERSION OF DEBENTURES FOR COMMON STOCK: PRINCIPAL 0 0 58,415,455 58,416 276,361 0 334,777 ACCRUED INTEREST 0 0 4,305,172 4,305 17,453 0 21,758 FEES AND COSTS FOR ISSUANCE OF COMMON STOCK 0 0 0 0 (28,777) 0 (28,777) ISSUANCE OF COMMON STOCK FOR: PAYMENT OF ACCOUNTS PAYABLE 0 0 31,212,000 31,212 286,648 0 317,860 PAYMENT OF SALARIES AND RETENTION BONUSES 0 0 26,900,000 26,900 91,460 0 118,360 CONSULTING FEES 0 0 17,000,000 17,000 31,000 0 48,000 LEGAL FEES 0 0 5,750,000 5,750 74,750 0 80,500 DONATION OF STOCK BACK TO THE COMPANY FOR TREASURY STOCK 0 0 (9,285,600) (9,286) (122,998) 0 (132,284) ISSUANCE OF COMMON STOCK TO THE PRESIDENT TO REIMBURSE HIM FOR SHARES GIVEN TO DEBENTURE HOLDERS FROM: TREASURY STOCK 0 0 9,285,600 9,286 122,998 0 132,284 NEW SHARES 0 0 5,714,400 5,714 80,002 0 85,716 INTEREST EXPENSE - CONVERTIBLE DEBENTURES - BENEFICIAL CONVERSION FEATURE 0 0 0 0 182,880 0 182,880 ISSUANCE OF COMMON STOCK FOR: Consulting fees 0 0 5,000,000 5,000 35,000 0 40,000 Legal fees 0 0 2,500,000 2,500 17,500 0 20,000 Cash 0 0 30,000,000 30,000 49,500 0 79,500 NET (LOSS) FOR THE NINE MONTHS ENDED JULY 31, 2002 0 0 0 0 0 (1,838,065) (1,838,065) -------- -------- ------------- ------------- ------------- ------------- ------------- BALANCE, JULY 31, 2002 0 $ 0 286,659,275 $ 286,659 $ 10,915,122 $(15,683,750) $ (4,481,969) ======= ======== ============= ============= ============= ============= =============
5 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED JULY 31, 2002 AND 2001 (UNAUDITED)
2002 2001 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) $(1,399,018) $(3,093,929) Adjustments to reconcile net (loss) to net cash (used) by operating activities of continuing operations: Loss from discontinued operations (439,047) (656,299) Write-down of net assets held for sale 171,542 0 Depreciation 116,596 204,922 Interest expense - convertible debentures-beneficial conversion feature 182,880 1,317,438 Common stock issued for expenses 188,500 33,174 Allowance for uncollectible accounts, net (10,154) 0 Changes in operating assets and liabilities: Accounts receivable, trade 93,747 168,757 Accounts receivable, factor 0 0 Inventories (40,309) 60,606 Prepaid expenses 45,919 (16,701) Deposits 4,972 (4,053) Accounts and notes payable, trade 607,141 (339,292) Accrued liabilities and taxes 165,222 265,941 Customer deposits 0 9,559 Deferred income 14,138 (39,104) ------------ ------------ NET CASH (USED) BY OPERATING ACTIVITIES (297,871) (2,088,981) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (50,000) (144,093) Proceeds from loans by related party 0 23,699 Proceeds from sale of net assets held for sale 48,635 0 ------------ ------------ NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (1,365) (120,394) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 79,500 0 Net proceeds from issuance of convertible debentures payable 293,723 1,754,997 Repayment of note payable, factor (70,734) 0 Repayment of notes payable, other (3,221) (3,924) Changes in notes and loan receivable, officer (1,861) 0 ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 297,407 1,751,073 ------------ ------------ 6
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE NINE MONTHS ENDED JULY 31, 2002 AND 2001 (UNAUDITED)
2002 2001 ------------ ------------ NET (DECREASE) IN CASH AND CASH EQUIVALENTS $ (1,829) $ (458,302) CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD 6,981 631,375 ------------ ------------ CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 5,152 $ 173,073 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during period for: Interest $ 64,124 $ 44,795 ============ ============ Taxes $ 0 $ 0 ============ ============ NON-CASH INVESTING AND FINANCING ACTIVITIES Issuance of common stock for convertible debentures $ 334,777 $ 0 ============ ============ Issuance of common stock for fees, services and expenses $ 218,083 $ 33,174 ============ ============ Issuance of common stock for accounts payable and accrued liabilities $ 339,618 $ 0 ============ ============ Interest expense - convertible debentures-beneficial conversion feature $ 182,880 $ 1,317,438 ============ ============ Fees paid for issuance of debentures by reduction of notes receivable, officer $ 0 $ 25,000 ============ ============ 7
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 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 administers subsidiary companies. 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. 8 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2002 AND 2001 (UNAUDITED) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. 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 Molds 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. 9 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2002 AND 2001 (UNAUDITED) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. 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. 10 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2002 AND 2001 (UNAUDITED) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. 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 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES THREE MONTHS ENDED NINE MONTHS ENDED JULY 31, JULY 31, -------------------------- -------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ Payroll $ 62,569 $ 280,213 $ 439,050 $ 1,214,817 Consulting, net 22,907 27,270 127,206 69,911 Legal 21,416 (11,324) 115,940 98,182 Other 42,110 171,190 34,213 981,287 ------------ ------------ ------------ ------------ $ 149,002 $ 467,349 $ 1,024,409 $ 2,364,197 ============ ============ ============ ============ 11 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2002 AND 2001 (UNAUDITED) NOTE 3 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 July 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: 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 NOTE 4 COMPUTATION OF EARNINGS PER SHARE
JULY 31, JULY 31, 2001 2002 RESTATED -------------- -------------- From continuing operations Net (loss) from continuing operations $ (1,399,018) $ (3,093,929) -------------- -------------- Weighted average number of common shares outstanding 286,659,275 55,660,810 (Loss) per share $ (.00) $ (.06) From discontinued operations Net (loss) from discontinued operations $ (439,047) (656,299) -------------- -------------- Weighted average number of common shares outstanding 286,659,275 55,660,810 (Loss) per share $ (.00) $ (.01)
NOTE 5 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: 12 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2002 AND 2001 (UNAUDITED) NOTE 5 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. 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 6 LEGAL PROCEEDINGS The Company is the defendant in three lawsuits for unpaid accounts payable and wages. Management has recorded a liability in the amount of $45,000 for these debts and is negotiating with the creditors to reduce the amounts of the final settlements. NOTE 7 UNAUDITED FINANCIAL INFORMATION The accompanying financial information as of July 31, 2002 is unaudited. In management's opinion, such information includes all normal recurring entries necessary to make the financial information not misleading. 13 ITEM 2. 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. IBIZ also offered, digital subscriber line high-speed Internet connection services, a co-location server facility and business-to-business software sales. These products were discontinued in 2001. SELECTED FINANCIAL INFORMATION NINE MONTHS ENDED ----------------------------- JULY 31, JULY 31, 2002 2001 ------------ ------------ Statement of Operations Data Net sales $ 303,462 $ 1,628,144 Gross profit (loss) (45,044) 485,187 Loss from continuing operations (1,399,018) (3,093,929) Net (loss) after tax (1,838,065) (3,750,228) Net (loss) per share .00 (.06) Continuing operations Discontinued operations .00 (.01) THREE MONTHS ENDED ----------------------------- JULY 31, JULY 31, 2002 2001 ------------ ------------ Statement of Operations Data Net sales $ 52,401 $ 418,857 Gross profit (loss) (144,371) 127,501 Loss from continuing operations (358,841) (910,736) Net (loss) after tax (380,186) (1,357,070) Net (loss) per share .00 (.02) Continuing operations Discontinued operations .00 (.01) JULY 31, OCTOBER 31, 2002 2001 ------------ ------------ Balance Sheet Data Total assets $ 551,149 $ 923,858 Total liabilities 5,033,118 4,868,336 Stockholders' (deficit) (4,481,969) (3,944,478) 14 CRITICAL ACCOUNTING POLICIES Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgements that affect the reported amounts of assets, liabilities, revenues and expenses. In consultation with our Board of Directors and Audit Committee, we have identified five accounting principles that we believe are key to an understanding of our financial statements. These important accounting policies require management's most difficult, subjective judgements. ACCOUNTS RECEIVABLE Accounts receivable are reported at the customer' 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 beleves is adequate to cover any possible losses. INVENTORIES Inventories are stated at the lower of cost (determined principally by average cost) or market. 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. 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. 15 STOCK-BASED COMPENSATION The company has elected to follow Accounting Principles Board Opinion No. 25 Accounting for Stock Issued to Employees (APB 25) and the related interpretations in accounting for its employee stock options. Under APB 25, because the exercise price of employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recorded. The Company has adopted the disclosure -only provisions of Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" (Statement No. 123). RESULTS OF OPERATIONS SALES REVENUE The current economic downturn has seriously impacted the Company's sales revenues. A number of the Company's major retail customers retroactively cancelled many of their open purchase orders for our PDA products. The Company did not have sufficient working capital to begin a marketing program to acquire more customers and sales. The Company reported sales revenues of $52,401 for the three month period ended July 31, 2002 as compared to $418,857 for the quarter ended July 31, 2001 resulting in a decrease of $366,456 or 87%. This decrease lead to an overall 81% decrease in sales revenue for the nine month period ended July 31, 2002 as sales declined to $303,462 for the nine months ended July 31, 2002 from $1,628,144 for the nine months ended July 31, 2001. GROSS MARGINS The Company's gross margin (loss) for the nine months ended July 31, 2002 and 2001 were (15%) and 30% and for the three months ended July 31, 2002 and 2001 were (275%) and 30%. The change in the gross margin is due to the fact that the Company discontinued selling many less profitable products and liquidating inventories to increase cash flow. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses decreased 68% to $149,002 in the three months ended July 31, 2002 from $467,349 in the three months ended July 31, 2001 and decreased 57% to $1,024,409 in the nine months ended July 31, 2002 from $2,364,197 in the nine months ended July 31, 2001. The decreases were primarily due to staff reductions and reductions in rent, utilities and voluntary salary reductions from officers. 16 RESULTS OF OPERATIONS (CONTINUED) INTEREST EXPENSE Interest expense increased 28% to $97,519 in the three months ended July 31, 2002 from $76,379 in the three months ended July 31, 2001 and increased 30% to $220,804 for the nine months ended July 31, 2002 from $169,703 for the nine months ended July 31, 2001. The changes in interest expenses is due to changes in the amounts of convertible debentures redeemed for common stock and minimum factor charges. 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 was $0 for the three months ended July 31, 2002 compared to $506,021 for the three months ended July 31, 2001 and $182,880 for the nine months ended July 31, 2002 compared to $1,317,438 for the nine months ended July 31, 2001. NET LOSS Net loss from continuing operations decreased to $358,841 for the three months ended July 31, 2002 from a loss of $910,736 for the three months ended July 31, 2001 and $1,399,018 for the nine months ended July 31, 2002 compared to $3,093,929 for the nine months ended July 31, 2001. The loss resulted primarily from the decrease in sales. DISCONTINUED OPERATIONS For the period ended July 31, 2002, the Company completed the process of discontinuing certain segments of its operations. The losses from the discontinued operations were $21,345 for the three months ended July 31, 2002 and $446,334 for the nine months ended July 31, 2001. 17 LIQUIDITY AND CAPITAL RESOURCES WORKING CAPITAL Working capital deficit at July 31, 2002 was $3,734,072 compared to a deficit of $3,349,057 at October 30, 2001. The decrease was a result of payments of Company debt through the issuance of common stock. LONG-TERM DEBT As of July 31, 2002, long-term debt was $1,076,774 compared to $758,811 at October 31, 2001. CASH FLOWS FROM OPERATING ACTIVITIES Net cash used by operating activities for the nine months ended July 31, 2002 was $297,871 and $2,088,981 for the nine months ended July 31, 2001. Reduced sales volumes and increased losses were the main causes for the cash used by operating activities. CASH FLOWS FROM INVESTING ACTIVITIES For the nine months ended July 31, 2002 and 2001, the cash flows used and provided were from purchases and sales of property and equipment. CASH FLOW FROM FINANCING ACTIVITIES Cash flows provided by financing activities for the nine months ended July 31, 2002 and 2001 were $297,407 and $1,751,073. The increases in cash flow were predominately from receipt of the proceeds from issuance of convertible debentures. GOING CONCERN The Company has continued to incur operating losses. Management is seeking new national retail customers for its products and is negotiating with various investors to receive new financing to provide working capital. 18 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We are a defendant in three lawsuits for unpaid accounts payable and wages. We have recorded a liability in the amount of $45,000 for these debts and are negotiating with the creditors to reduce the amounts of the final settlements. ITEM 2. CHANGES IN SECURITIES (c) RECENT SALES OF UNREGISTERED SECURITIES The securities described below represent securities of iBIZ sold by iBIZ during the nine month period ended July 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 not involved 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 investors 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 506 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. A convertible debenture was issued to one accredited investor during our second quarter of 2002. The debenture was in the principal amount of $100,000. The debenture is 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, this same investor received 3,000,000 warrants to purchase common stock. The offering of convertible debentures and warrants was exempt from registration under Rule 506 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 ----------------------------------------------------------------- None. The above offerings and sales were deemed to be exempt under Regulation D and Section 4(2) of the Securities Act. No advertising or general solicitation was employed in offering the securities. The offerings and sales were made to a limited number of persons, all of whom were business associates of iBiz or executive officers and/or directors of iBiz, and transfer was restricted by iBiz in accordance with the requirements of the Securities Act. 19 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. Exhibit Number Description -------------- ----------- 99.1 Certification of the Chief Executive Officer and Chief Financial Officer of iBiz Technologies Corp. Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K None. 20 Pursuant to the requirements of Section 12 of the Securities Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned thereunto duly authorized. Dated this 20th day of September 2002 IBIZ TECHNOLOGY CORP. By: /s/ KENNETH W. SCHILLING ----------------------------------------- Kenneth W. Schilling, President By: /s/ MARK H. PERKINS ----------------------------------------- Mark H. Perkins, Executive Vice President 21