10QSB 1 v04108_10qsb.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED APRIL 30, 2004 COMMISSION FILE NO. 000-50458 iBIZ, INC. --------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Nevada 72-1530833 --------------------------------------- -------------------------- (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 June 18, 2004 ------------------------------ ---------------------------- Common stock, $0.001 par value 1,000 iBIZ, INC. BALANCE SHEET APRIL 30, 2004 (UNAUDITED)
ASSETS CURRENT ASSETS: Cash and cash equivalents $ 79,701 Cash pledged for letter of credit 10,000 Accounts receivable, net 354,195 Inventories, net 127,250 Deposit on purchase of inventory 400,000 Prepaid expenses 9,374 ----------- TOTAL ASSETS $ 980,520 =========== LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 314,504 Accrued wages 8,453 Payroll taxes payable 39,829 Loan payable, Enterprise Capital AG 30,603 Deferred income 1,768 ----------- Total current liabilities 395,157 ----------- STOCKHOLDER'S EQUITY: Preferred stock - authorized - 10,000,000 shares, par value $.001 per share; issued and outstanding, -0- shares 0 Common stock - authorized - 100,000,000 shares, par value $.001 per share; issued and outstanding - 1,000 shares 1 Additional paid-in capital 2,494,036 Accumulated deficit (1,908,674) ----------- Total stockholder's equity 585,363 ----------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 980,520 ===========
See accompanying notes to financial statements. iBIZ, INC. STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 2004 AND 2003 (UNAUDITED) Three Months Ended Six Months Ended April 30 April 30 ----------------------- ----------------------- 2004 2003 2004 2003 --------- --------- --------- --------- REVENUES: Product sales $ 429,373 $ 52,633 $ 581,589 $ 118,358 Maintenance Agreements 8,434 8,004 18,167 17,589 --------- --------- --------- --------- Total revenues 437,807 60,637 599,756 135,947 --------- --------- --------- --------- COST OF REVENUES: Product sales 350,377 55,277 463,415 146,364 Maintenance Agreements 3,269 1,605 11,976 2,253 --------- --------- --------- --------- Total cost of revenues 353,646 56,882 475,391 148,617 --------- --------- --------- --------- GROSS INCOME (LOSS) 84,161 3,755 124,365 (12,670) SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 236,901 349,007 446,963 479,084 --------- --------- --------- --------- LOSS FROM OPERATIONS (152,740) (345,252) (322,598) (491,754) --------- --------- --------- --------- OTHER INCOME (EXPENSE): Interest expense 0 (900) 0 (900) Other income 24,721 3 24,721 3 --------- --------- --------- --------- Total other income (expense), net 24,721 (897) 24,721 (897) --------- --------- --------- --------- LOSS BEFORE INCOME TAXES (128,019) (346,149) (297,877) (492,651) INCOME TAXES 0 0 0 0 --------- --------- --------- --------- NET LOSS $(128,019) $(346,149) $(297,877) $(492,651) ========= ========= ========= ========= NET LOSS PER COMMON SHARE - Basic and diluted $ (128.02) $ (346.15) $ (297.88) $ (492.65) ========= ========= ========= ========= WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING --Basic and diluted 1,000 1,000 1,000 1,000 ========= ========= ========= ========= See accompanying notes to financial statements. iBIZ, INC. STATEMENTS OF STOCKHOLDER'S EQUITY FOR THE SIX MONTHS ENDED APRIL 30, 2004 (UNAUDITED)
Preferred Stock Common Stock Additional ----------------- ----------------- Paid-In Accumulated Shares Amount Shares Amount Capital Deficit Total ------- ------- ------- ------- ----------- ----------- ----------- BALANCE, NOVEMBER 1, 2003 0 $ 0 1,000 $ 1 $ 1,148,818 $(1,610,797) $ (461,978) NET LOSS 0 0 0 0 0 (297,877) (297,877) CONTRIBUTION OF CAPITAL FROM PARENT COMPANY 0 0 0 0 1,345,218 0 1,345,218 ------- ------- ------- ------- ----------- ----------- ----------- BALANCE, APRIL 30, 2004 0 $ 0 1,000 $ 1 $ 2,494,036 $(1,908,674) $ 585,363 ======= ======= ======= ======= =========== =========== ===========
See accompanying notes to financial statements. iBIZ, INC. STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED APRIL 30, 2004 AND 2003 (UNAUDITED) 2004 2003 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (297,877) $ (492,651) Adjustments to reconcile net loss to net cash used by operating activities: Provision for doubtful accounts and returned merchandise 24,125 4,217 Provision (adjustment) for obsolete inventories (23,100) 0 Changes in operating assets and liabilities: Accounts receivable (254,569) (29,387) Inventories (60,308) (29,279) Prepaid expenses 4,256 (1,156) Accounts payable and accrued expenses 25,003 193,187 Accrued wages and taxes (221,888) 18,781 Deferred income (3,802) (4,114) ----------- ----------- Net cash used by operating activities (1,208,160) (340,402) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Bank overdraft 0 14,820 Net proceeds received on loan payable (59,397) 0 Contribution of capital 1,345,218 324,905 ----------- ----------- Net cash provided by financing activities 1,285,821 339,725 ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 77,661 (677) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,040 677 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 79,701 $ 0 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 0 $ 900 =========== =========== Income taxes $ 0 $ 0 =========== =========== See accompanying notes to financial statements. iBIZ, INC. NOTES TO FINANCIAL STATEMENTS APRIL 30, 2004 (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS - iBIZ, Inc. was organized on October 30, 2001, under the laws of the State of Nevada. The Company designs, manufactures (through subcontractors), and distributes a line of accessories for the PDA and handheld computer market which is distributed through large retail chain stores and e-commerce sites throughout the United States of America. OWNERSHIP OF COMPANY - The Company is a wholly-owned subsidiary of iBIZ Technology Corp. 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. CASH PLEDGED FOR LETTER OF CREDIT - The Company has pledged $10,000 of its cash to secure a letter of credit for a customer to guarantee payment of rebates. The letter of credit expires in June 2004. ACCOUNTS RECEIVABLE - Accounts receivable are reported at the customers' outstanding balances less any allowance for doubtful accounts and possible returned merchandise. Interest is not accrued on overdue accounts receivable. ALLOWANCE FOR DOUBTFUL ACCOUNTS AND PROVISION FOR RETURNED MERCHANDISE - The allowance for doubtful accounts and provision for returned merchandise on accounts receivable is charged to income in amounts sufficient to maintain the allowance accounts at a level management believes is adequate to cover any probable losses. Management determines the adequacy of the allowance based on historical write-off percentages and information collected from individual customers. Accounts receivable are charged off against the allowance when collectibility is determined to be permanently impaired (i.e., bankruptcy, lack of contact, age of account balance, etc.). 2 INVENTORIES - Inventories are stated at the lower of cost (determined principally by average cost) or market. The inventories are comprised of finished products at April 30, 2004. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company has financial instruments, none of which are held for trading purposes. The Company estimates that the fair value of all financial instruments at April 30, 2004, as defined in FASB 107, does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying balance sheet. 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. REVENUE RECOGNITION - The Company recognizes revenue when persuasive evidence of an arrangement exists, title transfer has occurred, the price is fixed or readily determinable, and collectibility is probable. Sales are recorded net of sales discounts. The Company recognizes revenue in accordance with Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," (SAB 101). Revenues are recorded under two categories: Product Sales - Revenue is recognized when the goods are shipped and title passes to the customer. The Company provides a reserve for sales returns based on its history of returns as a percentage to sales. The Company will periodically provide a rebate on selected products for a limited sale period, normally 7 days. They contract with a company to process and track the rebates. The Company provides a reserve for outstanding rebates based on its history of rebates submitted as a percentage of applicable sales. Maintenance Agreements - Revenue from maintenance agreements is being recognized on a straight-line basis over the life of the service contracts, which range from 3 months to 1 year. The unearned portion received is recorded as deferred income. The Company is not actively pursuing this area of business and does not expect this to be significant in subsequent periods. 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. 3 ADVERTISING - All direct advertising costs are expensed as incurred. The Company charged to operations $50,991 and $5,222 in advertising costs for the six months ended April 30, 2004 and 2003, respectively. RESEARCH AND DEVELOPMENT - The Company expenses research and development costs as incurred. INCOME TAXES - Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between the amount of taxable income and pretax financial income and between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled as prescribed in FASB Statement No. 109, "Accounting for Income Taxes". As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. 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 Statement No. 128, any anti-dilutive effects on net loss per share are excluded. CONCENTRATION OF RISK Industry - The Company's products are directed to the computer and technology-related industry. This industry experiences a high degree of obsolescence and changes in buying patterns. The Company must expend funds for research and development and identification of new products in order to stay competitive. Cash in Bank - The Company has its cash and cash equivalents deposited in one banking institution. Only $100,000 of the balance is insured by the Federal Deposit Insurance Corporation. Financial Instruments - Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of trade accounts receivable. 4 Concentrations of credit risk with respect to trade receivables are normally limited due to the large number of customers comprising the Company's customer base and their dispersion across different geographic areas. Recently, the Company has focused its sales efforts to large retailers which can increase the credit risk. The Company routinely assesses the financial strength of its customers. The Company normally does not require a deposit to support large customer orders. At April 30, 2004, two customers accounted for 67% and 27% of net receivables. Purchases - The Company relies primarily on three suppliers for its products (Enterprise Capital AG, Poto Technology and Prolink). The loss of any supplier could have a material impact on the Company's operations. Purchases from these suppliers for the six months ended April 30, 2004 totaled 58%, 29% and 10%, respectively. REVENUES - For the six months ended April 30, 2004, the Company had one customer whose sales were 90% of total revenues. PERVASIVENESS OF ESTIMATES - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. IMPACT OF NEW ACCOUNTING STANDARDS - In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". This Statement establishes standards for how an issuer of debt classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify certain financial instruments as a liability (or an asset in some circumstances) instead of equity. The Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company adopted this Statement on August 1, 2003. The Company does not believe that this recent accounting pronouncement will have a material impact on their financial position or results of operations. 5 GOING CONCERN - As shown in the accompanying financial statements, the Company has incurred significant losses, has a negative working capital and needs additional capital to finance its operations. These factors create uncertainty about the Company's ability to continue as 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 financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The Company intends to continue to increase sales through its new line of products - FM Radio for PDAs and the Virtual Keyboard. The Company's ability to obtain additional equity investments through private placements of its common stock will affect its success in becoming a going concern. 2. ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS AND PROVISION FOR RETURNED MERCHANDISE A summary of accounts receivable and allowance for doubtful accounts and provision for returned merchandise is as follows: Accounts receivable $429,058 Less allowance for doubtful accounts and provision for returned merchandise 74,863 -------- Accounts receivable, net $354,195 ======== Allowance for doubtful accounts and provision for returned merchandise Balance, at November 1, 2003 $ 50,738 Increase in estimate of provision for doubtful accounts and returned merchandise 20,625 Recovery of uncollectible accounts 3,500 -------- Balance at April 30, 2004 $ 74,863 ======== 3. DEPOSIT FOR PURCHASE OF INVENTORY During the second quarter of 2004, the Company paid Enterprise Capital AG $400,000 for the purchase of 4,000 Virtual Keyboards. As of June 15, 2004, these inventory items have not been received by the Company. The Company is confident this amount will be recovered in inventory in the near future. See Note 6 for further discussion of the Virtual Keyboards and Enterprise Capital AG. 6 4. INCOME TAXES Deferred Taxes The components of deferred tax assets are as follows: Net operating loss carryforwards $ 207,200 Allowance for doubtful accounts and provision for returned merchandise 16,300 --------- 223,500 Less valuation allowance 223,500 --------- Net deferred tax asset $ 0 ========= A reconciliation of the valuation allowance is as follows: Balance, at November 1, 2003 $ 241,100 Addition for the period (17,600) --------- Balance, at April 30, 2004 $ 223,500 ========= The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Tax Carryforwards The Company has the following tax carryforwards at April 30, 2004: Expiration Year Amount Date ---- ------ ---------- Net operating loss: October 31, 2002 $ 303,000 October 31, 2022 October 31, 2003 712,000 October 31, 2023 April 30, 2004 293,545 October 31, 2024 ---------- $1,035,845 Future changes in ownership may limit the ability of the Company to utilize these net operating loss carryforwards prior to their expiration. 7 5. COMMITMENTS AND CONTINGENCIES Operating Lease The Company leases its office and warehouse facility in Phoenix, Arizona from a third party 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 25 - 36 $4,343 Future minimum lease payments excluding taxes and expenses, are as follows: October 31, 2004 $50,163 October 31, 2005 13,029 ------- $63,192 Rent expense for the six months ended April 30, 2004 and 2003 was $24,104 and $8,921, respectively. Workers' Compensation Insurance Through June 2004, the Company did not carry general liability or workers' compensation coverage, nor was it self-insured. The Company accrues liabilities when it is probable that future costs will be incurred and such costs can be reasonably estimated. As of June, there were no known liability claims. No amounts have been accrued for any penalties which may be assessed by the State of Arizona for non-compliance with the laws and regulations applicable to workers' compensation insurance. 8 Unsecured Convertible Debentures VARIOUS - CONVERTIBLE DEBENTURES-BALANCE OUTSTANDING - $1,150,817 On October 31, 2001, the Company issued 8% convertible debentures as follows: 1. Due date - January 31, 2004. 2. Interest payable quarterly from January 1, 2001. 3. On the first $ 1,000,000 of financing, the Company issued warrants to purchase 50,000 shares of stock at $ 4.80 per share. The Company reserved an additional 124,000 shares for future borrowing on this debenture line. 4. Conversion price for put notes. The initial 50% of the put notes shall be the lesser of: (i) 80% of the average of the three lowest closing bid prices for the stock for twenty two days or (ii) 80% of the average of the five lowest closing bid prices for the stock for sixty days. The conversion price of the balance of the put notes shall be 86% of the average of the three lowest closing bid prices for ten days. LAURUS MASTER FUND, LTD. - CONVERTIBLE DEBENTURES-BALANCE OUTSTANDING - $262,858 In April and July 2001, the Company issued $500,000 and $150,000, respectively, of 8% convertible debentures under the following terms and conditions: 1. Due date - October 31, 2003. 2. Interest on September 30, 2001 and quarterly thereafter. 3. On the first financing, the Company issued warrants to purchase 150,000 shares of common stock at the lesser of $1.23 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 $6.67 per share. On the second financing, the Company issued warrants to purchase 150,000 shares of common stock at the lesser of $0.48 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. 9 6. BACKLOG The Company has received orders for the Virtual Keyboards from national retailers. The Company paid Enterprise Capital AG $400,000 for the keyboards necessary to fulfill these orders. Since January 2004, there have been recurring production delays. Additional inventory which was to flow at a rate that would include fulfilling outstanding orders by the end of June, have not yet been delivered, nor do we have any indication from Enterprise Capital AG when the Virtual Keyboards will be shipped at this time. Enterprise Capital AG's inability to meet agreed upon delivery schedules, even after prepayment of goods, has forced the Company to pursue other venues in an effort to safeguard their existing orders as well as fulfill future orders for the Virtual Keyboard. 7. SUBSEQUENT EVENT The Company has filed a Form 10SB with the Securities and Exchange Commission. The Form is still under review as of the date of this filing. The Company is currently negotiating agreements with its parent company to license certain products for sale outside of North and South America. 10 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 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 of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. In consultation with our Board of Directors, we have identified four accounting principles that we believe are key to an understanding of our financial statements. These important accounting policies require management's most difficult, subjective judgments. ACCOUNTS RECEIVABLE Accounts receivable are reported at the customer's outstanding balances less any allowance for doubtful accounts and provision for returned merchandise. Our terms for repayment range from 30 days to 60 days. We do not normally require collateral to support receivables and interest is not accrued thereon. ALLOWANCE FOR DOUBTFUL ACCOUNTS AND PROVISION FOR RETURNED MERCHANDISE The allowance for doubtful accounts on accounts receivables and provision for returned merchandise is charged to income in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover any probable losses. We determine the adequacy of the allowance based on historical write-off percentages and information collected from individual customers. Accounts receivable are charged off against the allowance when collectibility is determined to be permanently impaired (bankruptcy, lack of contact, age of account balance, etc.). We also provide a provision for returned merchandise based on our history of returns as a percentage of sales. INVENTORIES Inventories are stated at the lower of cost (determined principally by average cost) or market. 11 REVENUE RECOGNITION We recognize revenue when persuasive evidence of an arrangement exists, title transfer has occurred, the price is fixed or readily determinable, and collectibility is probable. Sales are recorded net of sales discounts. We recognize revenue in accordance with Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements", (SAB 101). Our revenues are recorded under two categories: Product Sales - Product Sales represent primarily sales of PDA accessories to retailers. Revenue is recorded when the goods are shipped and title passes to the customer. We provide a reserve for sales returns based on our history of returns as a percentage to sales. We will periodically provide rebates on selected products for a limited sale period, normally 7 days. We contract with a company to process and track the rebates. We provide a reserve for outstanding rebates based on our history of rebates submitted as a percentage of applicable sales. Maintenance Agreements - We continue to sell service agreements to maintain and service computers and printers that were a part of our product line several years ago. We no longer sell such products but continue to offer renewals of maintenance agreements. Income from maintenance agreements is being recognized on a straight-line basis over the life of the service contracts, which range from 3 months to 1 year. The unearned portion is recorded as deferred income. 12 SELECT FINANCIAL INFORMATION
For the Three Months For the Six Months Ended Ended ----------------------- ----------------------- 04/30/2004 04/30/2003 04/30/2004 04/30/2003 (Unaudited) (Unaudited) (Unaudited) (Unaudited) --------- --------- --------- --------- Statement of Operations Data: Total revenue $ 437,807 $ 60,637 $ 599,756 $ 135,947 Operating loss $(152,740) $(345,251) $(322,598) $(491,754) Net loss after tax $(128,019) $(346,149) $(297,877) $(492,651) Net loss per share $ (128.02) $ (346.15) $ (297.88) $ (492.65) Balance Sheet Data: Total assets $ 980,520 $ 171,073 $ 980,520 $ 171,073 Total liabilities $ 395,157 $ 396,697 $ 395,157 $ 396,697 Total stockholders' deficit (equity) $ 585,363 $(225,624) $ 585,363 $(225,624)
RESULTS OF OPERATIONS The three months ended April 30, 2004 compared to the three months ended April 30, 2003. For the Three Months Increase (Decrease) Ended 04/30/2004 04/30/2003 AMOUNT PERCENTAGE (Unaudited) (Unaudited) -------- -------- -------- ---------- Revenues: Product sales $429,373 $ 52,633 $376,740 716% Maintenance agreements 8,434 8,004 430 5% Total revenues $437,807 $ 60,637 $377,170 622% Revenues - Revenues increased by approximately 622% to $437,807 in the three months ended April 30, 2004 from $60,637 in the three months ended April 30, 2003. The increase was in product sales resulting from the addition of new customers, the increase in volume sales to an existing national retailer and introduction and sales of our new products. The majority of our increased sales came from our FM Radio accessories and travel kits which increased from approximately $26,000 in 2003 to over $380,000 in 2004. 13 $10,685 and $356,940 of revenues for the three months ended April 30, 2004 were from Comp USA and Circuit City, respectively. Our maintenance revenues remained relatively comparable at $8,434 in 2004 and $8,004 in 2003. We are not actively pursuing this area of business and do not expect this to be significant in subsequent periods.
For the Three Months Increase (Decrease) Ended 04/30/2004 04/30/2003 AMOUNT PERCENTAGE (Unaudited) (Unaudited) --------- --------- --------- --------- Cost of revenues: Product sales $ 344,651 $ 54,353 $ 290,298 534% Maintenance agreements 8,995 2,529 6,466 256% Total cost of revenues $ 353,646 $ 56,882 $ 296,764 522% Gross profit: Product sales - amount $ 84,722 $ (1,720) Product sales - percentage 20% (3%) Maintenance agreements - amount (561) 5,475 Maintenance agreements - percentage (7%) 68% Total gross profit $ 84,161 $ 3,755 19% 6%
Cost of Revenues - The cost of revenues of $353,646 (81% of sales) in the three months ended April 30, 2004 increased from $56,882 (94% of revenues) for the three months ended April 30, 2003. Cost of Revenues - Product Sales in 2004 consists of $295,377 (69% of sales) of direct material, packaging and freight and $49,276 (11% of sales) of salaries and employee related costs. Cost of Revenues- Product Sales in 2003 consists of $39,649 (75% of sales) of direct material, packaging and freight and $14,704 (28% of sales) of salaries and employee related costs. The increased sales volume over 2003 provided a positive margin for 2004. Cost of Revenues - Maintenance Agreements in 2004 consists of $8,021 of parts and accessories (95% of revenues) and $974 of wages and benefits (16% of revenues). Cost of Revenues - Maintenance Agreements in 2003 consists of $1,605 of parts and accessories (20% of revenues) and $924 of wages and benefits (11% of revenues). Based on the nature of the equipment being serviced and the applicable age thereof, parts and accessories can fluctuate significantly each period. Our products experience a high degree of technological obsolescence based on the rapidly changing market for PDA-related products and the introduction of new PDAs. We evaluate our inventories based on sales over a rolling six-month period and industry publications of PDA-related product changes in order to determine the write-off of slow-moving and obsolete inventories. During the six months ended April 30, 2004, we did not write off additional inventories and sold approximately $3,000 of inventory previously written off. 14
For the Three Months Increase (Decrease) Ended 04/30/2004 04/30/2003 AMOUNT PERCENTAGE (Unaudited) (Unaudited) --------- --------- --------- --------- Selling, general and administrative expenses: Salaries and wages $ 21,852 $ 38,339 $ (16,487) (43%) Bonuses 0 207,519 (207,519) (100%) Accounting, legal and professional fees 64,948 61,711 3,237 5% Advertising 15,453 2,382 13,071 549% Commissions to outside sales representatives 79,592 1,509 78,083 5174% Travel 22,756 7,941 14,815 187% Other selling, general and administrative expenses 32,300 29,606 2,694 9% Total selling, general and administrative expenses $ 236,901 $ 349,007 $(112,106) (32%)
15 Selling, General and Administrative Expenses - Selling, general and administrative expenses decreased approximately 32% to $236,901 in the three months ended April 30, 2004 from $349,007 in the three months ended April 30, 2003. A description of the major decreases follows: (1) Salaries and wages decreased $16,487 or 43% in the three months ended April 30, 2004 due to the reduction of two sales personnel from the comparative period. We expect to fill these positions during the 4th quarter. (2) Bonuses decreased $207,519 or 100% in the three months ended April 30, 2004 as the Company issued bonuses in the form of stock during the 2nd quarter of 2003 and did not repeat those bonuses in 2004. (3) Accounting, legal and professional fees increased in the three months ended April 30, 2004 ($64,948) as compared to the three months ended April 30, 2003 ($61,711) due to increased activity with our SEC filings. We do not anticipate this trend to continue. (4) Advertising, travel and commissions increased as we actively marketed our new products and continue to look for new sales channels and representatives. The six months ended April 30, 2004 compared to the six months ended April 30, 2003. For the Six Months Increase (Decrease) Ended 04/30/2004 04/30/2003 AMOUNT PERCENTAGE (Unaudited) (Unaudited) -------- -------- -------- -------- Revenues: Product sales $581,589 $118,358 $463,231 391% Maintenance agreements 18,167 17,589 578 3% Total revenues $599,756 $135,947 $463,809 341% Revenues - Revenues increased by approximately 341% to $599,756 in the six months ended April 30, 2004 from $135,947 in the six months ended April 30, 2003. The increase was in product sales resulting from the addition of new customers, the increase in volume sales to an existing national retailer and introduction and sales of our new products. The majority of our increased sales came from our FM Radio accessories and travel kits which increased from approximately $63,000 in 2003 to over $480,000 in 2004. 16 $107,030 and $356,940 of revenues for the six months ended April 30, 2004 were from Comp USA and Circuit City, respectively. Our maintenance revenues remained relatively comparable at $18,167 in 2004 and $17,589 in 2003. We are not actively pursuing this area of business and do not expect this to be significant in subsequent periods.
For the Six Months Increase (Decrease) Ended 04/30/2004 04/30/2003 AMOUNT PERCENTAGE (Unaudited) (Unaudited) --------- --------- --------- --------- Cost of revenues: Product sales $ 460,733 $ 144,826 $ 315,907 218% Maintenance agreements 14,658 3,791 10,867 287% Total cost of revenues $ 475,391 $ 148,617 326,774 220% Gross profit: Product sales - amount $ 120,856 $ (26,468) Product sales - percentage 21% (22%) Maintenance agreements - amount 3,509 13,798 Maintenance agreements - percentage 19% 78% Total gross profit $ 124,365 $ (12,670) 21% (9%)
Cost of Revenues - The cost of revenues of $475,391 (79% of sales) in the six months ended April 30, 2004 increased from $148,617 (109% of revenues) for the six months ended April 30, 2003. Cost of Revenues - Product Sales in 2004 consists of $376,437 (63% of sales) of direct material, packaging and freight and $84,296 (14% of sales) of salaries and employee related costs. Cost of Revenues - Product Sales in 2003 consists of $86,060 (63% of sales) of direct material, packaging and freight and $58,766 (43% of sales) of salaries and employee related costs. Cost of Revenues - Maintenance Agreements in 2004 consists of $11,976 of parts and accessories (2% of revenues) and $2,682 of wages and benefits (0% of revenues). Cost of Revenues - Maintenance Agreements in 2003 consists of $2,253 of parts and accessories (2% of revenues) and $1,538 of wages and benefits (1% of revenues). Based on the nature of the equipment being serviced and the applicable age thereof, parts and accessories can fluctuate significantly each period. Our products experience a high degree of technological obsolescence based on the rapidly changing market for PDA-related products and the introduction of new PDAs. We evaluate our inventories based on sales over a rolling six-month period and industry publications of PDA-related product changes in order to determine the write-off of slow-moving and obsolete inventories. During the six months ended April 30, 2004, we did not write off additional inventories and sold approximately $12,000 of inventory previously written off. 17
For the Six Months Increase (Decrease) Ended 04/30/2004 04/30/2003 AMOUNT PERCENTAGE (Unaudited) (Unaudited) --------- --------- --------- --------- Selling, general and administrative expenses: Salaries and wages $ 57,930 $ 108,639 $ (50,709) (47%) Bonuses 0 209,025 (209,025) (100%) Accounting, legal and professional fees 144,188 61,711 82,477 134% Advertising 50,991 5,222 45,769 876% Commissions to outside sales representatives 101,083 2,764 98,319 3557% Travel 56,701 9,037 47,664 527% Other selling, general and administrative expenses 36,070 82,686 (46,616) (56%) Total selling, general and administrative expenses $ 446,963 $ 479,084 $ (32,121) (7%)
Selling, General and Administrative Expenses - Selling, general and administrative expenses decreased approximately 7% to $446,963 in the six months ended April 30, 2004 from $479,084 in the six months ended April 30, 2003. A description of the major decreases follows: (1) Salaries and wages decreased $50,709 or 47% in the six months ended April 30, 2004 as a result of the reduction of two sales personnel in the 1st and 2nd quarters. We expect to fill these positions by the 4th quarter to manage the increased sales activity expected. (2) Bonuses decreased $209,025 or 100% in the six months ended April 30, 2004 as the Company issued bonuses in the form of stock during the first six months of 2003 and did not repeat those bonuses in 2004. (3) Accounting, legal and professional fees increased in the six months ended April 30, 2004 ($144,188) as compared to the six months ended April 30, 2003 ($61,711) due to increased activity with our SEC filings. We do not anticipate this trend to continue. (4) Advertising, travel and commissions increased as we actively marketing our new products and continue to look for new sales channels and representatives. LIQUIDITY AND CAPITAL RESOURCES As of April 30, 2004, we had an accumulated deficit of $1,908,674 and a working capital surplus of $185,361 as compared to a working capital deficit of $225,625 at April 30, 2003. The change from a working capital deficit to a working capital surplus is the result of increased sales of products to major retail chains in the three months ended April 30, 2004 and our ability to reduce accruals in the six months ended April 30, 2004 with our increased cash flows. Cash Flows from Operations - Our cash flow from operations used $1,208,160 in 2004. Our increase of accounts receivable in 2004 is due to increased sales in the 2nd quarter of fiscal 2004. Cash used was primarily due to our ability to purchase inventory, pay overdue accounts payable and accrued wages. Based on the initial reception of our new product, the "Virtual Keyboard" (set to be delivered to retailers in third quarter 2004) and the continued success of our Pocket Radio product, we are confident that our cash flows will be positive in 2004. We currently have a backlog of orders totaling $650,000. As with other technology-related products, our success depends on acceptance of our products in the market and introduction of new products. If our products do not continue to receive acceptance in the market, our cash flows can quickly turn negative. Cash Flows from Investing Activities - Cash used in investing activities was $-0- in 2004 and 2003. 18 Cash Flows from Financing Activities - Cash provided by financing activities consisted of payments on the loan with Enterprise Capital AG of $59,397 offset by $1,345,218 of capital contributed by the Company's parent company. Backlog - The Company has received orders for the Virtual Keyboards from national retailers. The Company paid Enterprise Capital AG $400,000 for the keyboards necessary to fulfill these orders. Since January 2004, there have been recurring production delays. Additional inventory which was to flow as a rate that would include fulfilling outstanding orders by the end of June, have not yet been delivered, nor do we have any indication from Enterprise Capital AG when the Virtual Keyboards will be shipped at this time. Enterprise Capital AG's inability to meet agreed upon delivery schedules, even after prepayment of goods, has forced the Company to pursue other venues in an effort to safeguard their existing orders as well as fulfill future orders for the Virtual Keyboard. The Company has made tremendous advances providing product awareness to the Virtual Keyboard technology. As a result of the overwhelming success the Company has experienced in this regard, it is the Company's intent to build a redundant supply chain that will support their ongoing efforts. ITEM 3. CONTROLS AND PROCEDURES An evaluation was performed under the supervision and with the participation of our management, including the chief executive officer, or CEO, and chief financial officer, or CFO, of the effectiveness of the design and operation of our disclosure procedures. Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective as of April 30, 2004. There have been no significant changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None for the period ending April 30, 2004. ITEM 2. CHANGES IN SECURITIES None for the period ending April 30, 2004. 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 19 (a) Exhibits: 31.1 Certification by Chief Executive Officer and Chief Financial Officer pursuant to Sarbanes-Oxley Section 302, provided herewith. 32.1 Certification by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S. C. Section 1350, provided herewith. (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 21st day of June, 2004 iBIZ, INC. By: /s/ KENNETH W. SCHILLING ------------------------ Kenneth W. Schilling, President, and acting principal accounting officer 21