-----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, N+fkQjHCdQCy0Yn2AHl/T80LdY4b48yLQnkgDqqnLJHAQjHQEKqJd7fgAB6NlyJD u4eXLRAAFFrY96aWOMaSPw== 0001144204-03-005570.txt : 20030915 0001144204-03-005570.hdr.sgml : 20030915 20030915145131 ACCESSION NUMBER: 0001144204-03-005570 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030731 FILED AS OF DATE: 20030915 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: 03895528 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 form10qsb.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, 2003 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 11, 2003 ----- --------------------------------- Common stock, $0.001 par value 529,222,965 TABLE OF CONTENTS
PART I. - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) BALANCE SHEETS ...........................................................................................F-1 STATEMENTS OF OPERATIONS..................................................................................F-3 STATEMENT OF CASH FLOWS...................................................................................F-8 NOTES TO FINANCIAL STATEMENTS.............................................................................F-10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.....................2 ITEM 3. CONTROLS AND PROCEDURES...................................................................................10 PART II. - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS.........................................................................................10 ITEM 2. CHANGES IN SECURITIES.....................................................................................10 ITEM 3. DEFAULTS UPON SENIOR SECURITIES...........................................................................11 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................................................11 ITEM 5. OTHER INFORMATION.........................................................................................11 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..........................................................................11
IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET JULY 31, 2003 (UNAUDITED)
ASSETS CURRENT ASSETS Cash, pledged for letter of credit $ 10,000 Accounts receivable, net 34,436 Inventories 89,644 Prepaid expenses 39,650 ------------- TOTAL CURRENT ASSETS $ 173,730 PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION 93,798 OTHER ASSETS Intellectual Properties Rights, net 174,000 Note receivable, officer $ 373,159 Less allowance for doubtful accounts 373,159 0 ------------- Deposits 2,500 ------------- TOTAL OTHER ASSETS 176,500 ------------- TOTAL ASSETS $ 444,028 =============
F-1
LIABILITIES AND STOCKHOLDERS' (DEFICIT) CURRENT LIABILITIES Bank overdraft $ 298 Accounts payable and accrued expenses 641,451 Note payable, Gammage and Burnham 30,000 Accrued wages and bonuses 612,164 Accrued interest 676,732 Taxes payable 209,344 Deferred income 6,771 Convertible debentures, current portion 3,454,767 Note payable, factor 15,000 Note payable, other, current portion 4,920 ----------------- TOTAL CURRENT LIABILITIES $ 5,651,447 LONG -TERM LIABILITIES Convertible debentures payable, long-term portion 750,000 ----------------- TOTAL LONG -TERM LIABILITIES 750,000 STOCKHOLDERS' ( DEFICIT) Preferred stock Authorized - 50,000,000 shares, par value $.001 per share Issued and outstanding -0- shares 3,500,000 shares reserved 0 Common stock Authorized - 5,000,000,000 shares, par value $.001 per share Issued and outstanding - 460,674,002 shares 460,674 Additional paid in capital 17,338,115 Accumulated deficit ( 23,756,208) ----------------- TOTAL STOCKHOLDERS' (DEFICIT) ( 5,957,419) ------------------ TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) $ 444,028 ==================
F-2 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2003 AND 2002 (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED JULY 31, JULY 31, -------------------------- -------------------------- 2003 2002 2003 2002 ----------- ----------- ----------- ----------- SALES $ 146,445 $ 52,401 $ 282,392 $ 303,462 COST OF SALES 169,976 196,772 318,593 348,506 ----------- ----------- ----------- ----------- GROSS (LOSS) (23,531) (144,371) (36,201) (45,044) SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 853,164 149,002 1,756,617 1,024,409 ----------- ----------- ----------- ----------- OPERATING (LOSS) (876,695) (293,373) (1,792,818) (1,069,453) ----------- ----------- ----------- ----------- OTHER INCOME (EXPENSE) Miscellaneous income 487 0 490 37 Cancellation of debt 11,960 32,051 12,769 74,082 Interest expense (95,909) (97,519) (261,422) (220,804) Interest expense - convertible debentures-beneficial conversion feature (393,938) 0 (1,379,077) (182,880) ----------- ----------- ----------- ----------- TOTAL OTHER INCOME (EXPENSE) (477,400) (65,468) (1,627,240) (329,565) ----------- ----------- ----------- ----------- (LOSS) FROM CONTINUING OPERATIONS (1,354,095) (358,841) (3,420,058) (1,399,018) DISCONTINUED OPERATIONS (Loss) from operations of discontinued business segments 0 (21,345) 0 (267,505) Write-down of net assets held for sale 0 0 0 (171,542) ----------- ----------- ----------- ----------- (LOSS) FROM DISCONTINUED OPERATIONS 0 (21,345) 0 (439,047) ----------- ----------- ----------- ----------- NET (LOSS) $(1,354,095) $ (380,186) $(3,420,058) $(1,838,065) =========== =========== =========== ===========
F-3 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED) FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2003 AND 2002 (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED JULY 31, JULY 31, 2003 2002 2003 2002 -------------- ------------ ----------- -------------- NET (LOSS) PER COMMON SHARE Basic and Diluted: Continuing operations $ (0.00) $ 0.00 $ (0.02) $ 0.00 Discontinued operations N/A 0.00 N/A 0.00 -------------- ------------ ----------- -------------- NET (LOSS) $ (0.01) $ 0.00 $ (0.02) $ 0.00 ============== ============ =========== ============== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Basic and diluted 361,484,542 286,659,275 203,712,366 286,659,275 ============== ============ =========== ==============
F-5 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) FOR THE NINE MONTHS ENDED JULY 31, 2003 (UNAUDITED)
PREFERRED STOCK COMMON STOCK SHARES AMOUNT SHARES AMOUNT --------------- ------------- --------------- -------------- BALANCE, NOVEMBER 1, 2002 0 $ 0 45,000,097 $ 45,000 CONVERSION OF DEBENTURES FOR COMMON STOCK: PRINCIPAL 0 0 124,773,483 124,773 INTEREST 0 0 9,984,253 9,984 FEES AND COSTS FOR ISSUANCE OF COMMON STOCK 0 0 0 0 ISSUANCE OF COMMON STOCK FOR: CONSULTING FEES 0 0 12,852,941 12,853 LEGAL FEES 0 0 4,000,000 4,000 EMPLOYEE RETENTION BONUSES 0 0 253,063,228 253,064 ACCRUED EXPENSES AND PAYABLES 0 0 11,000,000 11,000 INTEREST EXPENSE - CONVERTIBLE DEBENTURES - BENEFICIAL CONVERSION FEATURE 0 0 0 0 NET (LOSS) FOR THE NINE MONTHS ENDED JULY 31, 2003 0 0 0 0 --------------- ------------- --------------- -------------- BALANCE, JULY 31, 2003 0 $ 0 460,674,002 $ 460,674 =============== ============= =============== ==============
F-6
ADDITIONAL PAID IN ACCUMULATED CAPITAL DEFICIT TOTAL BALANCE, NOVEMBER 1, 2002 $ 15,349,368 $ ( 20,336,150) $ ( 4,941,782) CONVERSION OF DEBENTURES FOR COMMON STOCK: PRINCIPAL 38,067 0 162,840 INTEREST 2,076 0 12,060 FEES AND COSTS FOR ISSUANCE OF COMMON STOCK ( 63,187) 0 ( 63,187) ISSUANCE OF COMMON STOCK FOR: CONSULTING FEES 110,088 0 122,941 LEGAL FEES 31,000 0 35,000 EMPLOYEE RETENTION BONUSES 442,126 0 695,190 ACCRUED EXPENSES AND PAYABLES 49,500 0 60,500 INTEREST EXPENSE - CONVERTIBLE DEBENTURES - BENEFICIAL CONVERSION FEATURE 1,379,077 0 1,379,077 NET (LOSS) FOR THE NINE MONTHS ENDED JULY 31, 2003 0 ( 3,420,058) ( 3,420,058) ------------------ ---------------------- ----------------- BALANCE, JULY 31, 2003 $ 17,338,115 $ ( 23,756,208) $ ( 5,957,419) ================== ====================== =================
F-7 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED JULY 31, 2003 AND 2002 (UNAUDITED)
2003 2002 ----------------- ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) from continuing operations $ ( 3,420,058) $ ( 1,399,018) Adjustments to reconcile net (loss) to net cash (used) in operating activities of continuing operations: Loss from discontinued operations 0 ( 439,047) Write down of net assets held for sale 0 171,542 Depreciation 16,406 116,596 Amortization 26,000 0 Interest expense - convertible debentures - beneficial conversion feature 1,379,077 182,880 Common stock issued for expenses 854,757 188,500 Provision for uncollectible accounts 13,520 ( 10,154) Provision for obsolete inventory 10,000 0 Changes in operating assets and liabilities: Accounts receivable ( 36,089) 93,747 Inventories ( 4,043) ( 40,309) Prepaid expenses ( 21,650) 50,891 Cash, pledged for letter of credit ( 10,000) 0 Accounts and notes payable 65,408 607,141 Accrued liabilities and taxes 441,424 165,222 Deferred income 855 14,138 ----------------- ------------------ NET CASH (USED) IN OPERATING ACTIVITIES ( 684,393) ( 297,871) ----------------- ------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment 0 ( 50,000) Proceeds from sale of assets held for sale 0 48,635 ----------------- ------------------ NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 0 ( 1,365) ----------------- ------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Bank overdraft 298 0 Proceeds from issuance of common stock 0 79,500 Net proceeds from issuance of convertible debentures payable 686,813 293,723 Repayments on note payable, factor 0 ( 70,734) Repayment of note payable, other (3,666) ( 3,221) Changes in notes and loan receivable, officer 0 ( 1,861) ----------------- ------------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 683,445 297,407 ----------------- ------------------
F-8 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE NINE MONTHS ENDED JULY 31, 2003 AND 2002 (UNAUDITED)
2003 2002 ----------------- ------------------ NET (DECREASE) IN CASH AND CASH EQUIVALENTS $ ( 948) $ ( 1,829) CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD 948 6,981 ----------------- ------------------ CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 0 $ 5,152 ================= ================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during year for: Interest $ 6,759 $ 64,124 ================= ================== Taxes $ 0 $ 0 ================= ================== NON-CASH INVESTING AND FINANCING ACTIVITIES Issuance of common stock for convertible debentures $ 162,840 $ 334,777 ================= ================== Issuance of common stock for fees, services and expenses $ 854,759 $ 218,083 ================= ================== Issuance of common stock for accounts payable and accrued liabilities $ 70,932 $ 339,618 ================= ================== Interest expense - convertible debentures-beneficial conversion feature $ 1,379,077 $ 182,880 ================= ==================
F-9 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2003 (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. 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. Invnsys Technology Corporation (hereinafter referred to as Invnsys) is an inactive entity. Qhost, Inc. is an inactive entity. PRESENTATION The interim consolidated financial statements of the Company are condensed and do not include some of the information necessary to obtain a complete understanding of the financial data. Management believes that all adjustments necessary for a fair presentation of results have been included in the unaudited consolidated financial statements for the interim periods presented. Operating results for the nine month period ended July 31, 2003 are not necessarily indicative of the results that may be expected for the year ended October 31, 2003. Accordingly, your attention is directed to footnote disclosures found in the October 31, 2002 Annual Report and particularly to Note 1 which includes a summary of significant accounting policies. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of IBIZ Technology Corp. and its wholly owned subsidiaries - IBIZ, Inc., Invnsys Technology Corporation and Qhost, Inc. All material inter-company accounts and transactions have been eliminated. INVENTORIES Inventories are stated at the lower of cost (determined principally by average cost) or market. The inventories are comprised of finished products at July 31, 2003. F-10 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2003 (UNAUDITED) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Major renewals and improvements are charged to the asset accounts while replacements, maintenance and repairs, which do not improve or extend the lives of the respective assets, are expensed. At the time property and equipment are retired or otherwise disposed of, the asset and related accumulated depreciation accounts are relieved of the applicable amounts. Gains or losses from retirements or sales are credited or charged to income. The Companies depreciates their 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 has recorded the fair value of the beneficial conversion features as interest expense and an increase to Additional Paid in Capital. 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. 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. 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. F-11 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2003 (UNAUDITED) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ADVERTISING All direct advertising costs are expenses as incurred. The Company charged to operations $24,609 and $5,615 in advertising costs for the nine months ended July 31, 2003 and 2002, 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 128, any anti-dilutive effects on net (loss) per share are excluded. During 2002, the Company enacted a 10 for 1 reverse stock split. Weighted average shares outstanding and per share amounts have been retroactively adjusted to reflect the stock split. CONCENTRATION OF RISK INDUSTRY The Company's products are intended for 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. F-12 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2003 (UNAUDITED) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FINANCIAL INSTRUMENTS Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of trade accounts receivable. Concentrations of credit risk with respect to trade receivables are normally limited due to the number of customers comprising the Company's customer base and their dispersion across different geographic areas. The Company routinely assesses the financial strength of its customers. The Company normally does not require a deposit to support large customer orders. At July 31, 2003, two customers accounted for 54%, (42% and 11%), of net receivables. PURCHASES The Company relies primarily on three suppliers for its products. The loss of a supplier could have a material impact on the Company's operations. Purchases from these suppliers for nine months ended July 31, 2003 totaled 20%, 18% and 7%. REVENUES For the nine months ended July 31, 2003, the Company had three customers whose sales exceeded 54%, (22%, 21% and 11%), 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. RECENT ACCOUNTING PRONOUNCEMENTS The FASB recently issued the following statements: FASB 144 - Accounting for the impairment or disposal of long-lived assets FASB 145 - Rescission of FASB statements 4, 44 and 64 and amendment of FASB 13 FASB 146 - Accounting for costs associated with exit or disposal activities FASB 147 - Acquisitions of certain financial institutions FASB 148 - Accounting for stock based compensation F-13 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2003 (UNAUDITED) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED) FASB 149 - Amendment of statement 133 on derivative instruments and hedging activities FASB 150 - Accounting for certain financial instruments with characteristics of both liabilities and equity. These FASB statements did not have a material impact on the Company's financial position and results of operations. GOING CONCERN These consolidated 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 substantial doubt as to the Company's ability to continue as a going concern: A. Continued operating losses B. Negative working capital C. Lack of cash from continuing operations 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. Paid some, but not all, delinquent payables and unpaid wages through the issuance of common stock. B. Increase sales through new line of products acquired on July 11, 2002. C. Requested abatement of delinquent payroll tax penalties. Should the Company be unsuccessful in its plans, the operations of the company could be discontinued. F-14 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2003 (UNAUDITED) NOTE 2 PROPERTY AND EQUIPMENT Property and equipment and accumulated depreciation at July 31, 2003 consists of: Tooling $ 68,100 Machinery and equipment 37,641 Office furniture and equipment 81,027 Vehicle 39,141 Molds 50,000 ---------------- 275,909 Less accumulated depreciation 182,111 ---------------- Total property and equipment $ 93,798 ================ NOTE 3 INTELLECTUAL PROPERTY RIGHTS AND RELATED ROYALTY AGREEMENT On July 11, 2002, the Company purchased the Xela Case Keyboard and all related Intellectual Property and Resale Rights from ttools, LLC for $200,000. The Company is obligated to pay a royalty of $2.00 per unit sold on the first one million units. In accordance with FASB 142, the Company will amortize the Intellectual Property Rights over its estimated useful life of three years from the date the products are fully developed and ready for sale. Estimated Amortization Expense: For the year ended October 31, 2003 $ 39,000 For the year ended October 31, 2004 66,667 For the year ended October 31, 2005 66,667 For the year ended October 31, 2006 27,666 ------------------ Total Estimated Amortization Expense $ 200,000 ================== F-15 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2003 (UNAUDITED) NOTE 4 NOTES RECEIVABLE, OFFICERS 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 receivable $ 373,159 Less allowance for doubtful collection ( 373,159) ------------------ Note Receivable, Net $ 0 ==================
NOTE 5 NOTE PAYABLE, 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 providing Gammage and Burnham PLC receives $2,500 each time that Invnsys draws against its factoring line. As of July 31, 2003, the Company is in default of their loan agreement. NOTE 6 TAXES PAYABLE
Taxes payable consists of the following: Payroll taxes payable, current and deferred $ 190,316 California income tax payable 19,028 ------------------ $ 209,344 ==================
F-16 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2003 (UNAUDITED) NOTE 7 TAX CARRYFORWARDS The Company has the following tax carryforwards at July 31, 2003:
EXPIRATION YEAR AMOUNT DATE ---------------------- --------------------- ------------------- Net operating loss October 31, 1995 $ 2,500 October 31, 2010 October 31, 1997 253,686 October 31, 2012 October 31, 1998 71,681 October 31, 2013 October 31, 1999 842,906 October 31, 2019 October 31, 2000 3,574,086 October 31, 2020 October 31, 2001 5,051,232 October 31, 2021 October 31, 2002 1,838,129 October 31, 2022 July 31, 2003 2,040,982 July 31, 2023 --------------------- $ 13,675,202 =====================
NOTE 8 CONVERTIBLE DEBENTURES See detail of terms and conditions in Form 10-KSB for the year ended October 31, 2002. CONVERTIBLE DEBENTURES
CURRENT TOTAL PORTION ------------------- ------------------ UNSECURED DEBENTURES Lites Trading Company - $1,600,000 debenture $ 750,000 $ 0 $5,000,000 convertible debenture 1,679,577 1,679,577 Laurus Master Fund, Ltd. 328,190 328,190 Alpha Capital 240,000 240,000 ------------------- ------------------ Total Unsecured Debentures $ 2,997,767 $ 2,247,767 =================== ==================
F-17 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2003 (UNAUDITED) NOTE 8 CONVERTIBLE DEBENTURES (CONTINUED)
CURRENT TOTAL PORTION SECURED DEBENTURES AJW Entities $ 1,207,000 $ 1,207,000 ------------------ ------------------ Total Secured Debentures $ 1,207,000 $ 1,207,000 ================== ================== Total Debentures $ 4,204,767 $ 3,454,767 ================== ================== Maturities of convertible debentures are as follows: FISCAL 2003 $ 2,464,767 2004 990,000 2005 750,000 ----------------- Total $ 4,204,767 =================
NOTE 9 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%. At October 31, 2002, the Company discontinued use of the services of Platinum Funding Corporation and plans to settle the account balances for an estimated $15,000. NOTE 10 CANCELLATION OF DEBT
2003 2002 ------------------ ------------------ Settlement of prior year liabilities $ 12,769 $ 42,031 ================== ==================
F-18 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2003 (UNAUDITED) NOTE 11 COMMITMENTS AND CONTINGENCIES OPERATING LEASE The Company leases 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 25 - 36 4,343 Future minimum lease payments excluding taxes and expenses are as follows: October 31, 2003 $ 39,744 October 31, 2004 50,163 October 31, 2005 13,029 ---------- $ 102,936 Rent expense for the nine months ended July 31, 2003 and 2002 was $26,746 and $9,545, respectively. PAYROLL TAXES The Company is negotiating a settlement regarding delinquent payroll taxes of approximately $65,000. Interest is being accrued on the outstanding balance. No amounts have been accrued for any penalties. WORKERS' COMPENSATION INSURANCE Through August 2003, 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 August 31, 2003, 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. F-19 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2003 (UNAUDITED) NOTE 11 COMMITMENTS AND CONTINGENCIES (CONTINUED) LEGAL The Company is the defendant in one lawsuit for unpaid wages. Management has recorded a liability in the amount of $20,000. OFFICERS' COMPENSATION As of July 31, 2003, the Company has employment agreements with two 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. 2. Bonuses of 1% of total sales for each officer. 3. Options for 120,000 shares of common stock which will vest and be exercisable for a period of ten years. 4. Option price of $0.20 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. 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 filing, the debentures have not been issued. NOTE 12 COMMON STOCK STOCK ISSUANCES 1. On November 26, 2002, the Company filed an S-B Registration Statement with the SEC and subsequently issued 9,000,000 shares of common stock to individuals for services rendered. 2. On December 6, 2002, the Company issued 1,500,000 shares of restricted common stock in consideration of services rendered. 3. On February 7, 2003, the Company issued 105,775,711 shares of restricted common stock to its current officers and employees as a retention bonus. 4. On June 12, 2003, the Company issued 100,000,000 shares of restricted common stock to its current offices and employees as a retention bonus. 5. On June 9, 2003, the Company filed an S-8 registration Statement with the SEC and subsequently issued 64,640,458 shares of common stock to officers and employees for retention bonuses and individuals for services rendered. F-20 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2003 (UNAUDITED) NOTE 12 COMMON STOCK (CONTINUED) STOCK PURCHASE WARRANTS As of July 31, 2003, the Company has issued the following common stock purchase warrants:
NUMBER EXERCISE DATE OF SHARES TERM PRICE ---------------------- -------------- ----------- -------------------- December 28, 1999 20,000 5 years $ 9.40 January 10, 2000 28,125 5 years $ 9.90 March 27, 2000 61,500 5 years $ 14.50 - 20.50 May 17, 2000 12,500 3 years $ 10.20 - 50.00 August 30, 2000 3,413 5 years $ 9.37 August 30, 2000 25,000 3 years $ 5.00 August 30, 2000 25,000 3 years $ 7.50 August 30, 2000 3,636 3 years $ 10.00 September 3, 2000 10,900 3 years $ 10.00 September 27, 2000 27,875 3 years $ 9.00 October 31, 2000 50,000 2 years $ 4.76 December 20, 2000 40,000 5 years $ 2.28 December 20, 2000 15,000 5 years $ 2.28 April 26, 2001 150,000 5 years $ 1.23 June 22, 2001 150,000 5 years $ 0.42 June 27, 2001 150,000 5 years $ 0.21 August 21, 2001 52,500 5 years $ 0.39 October 9, 2001 35,000 5 years $ 0.26 January 15, 2002 16,667 5 years $ 105% of Closing January 15, 2002 50,000 5 years $ 105% of Closing January 30, 2002 500,000 5 years $ 0.06 April 23, 2002 300,000 5 years $ 0.06 August 15, 2002 105,000 5 years $ 0.05 October 9, 2002 75,000 5 years $ 0.05 November 5, 2002 30,000 5 years $ 0.05 January 31, 2003 1,500,000 5 years $ 0.01 March 20, 2003 500,000 7 years $ 0.01 May 9, 2003 500,000 7 years $ 0.01 June 12, 2003 750,000 7 years $ 0.01 --------------- 5,187,116 =============== 5,187,116 shares are exercisable at July 31, 2003.
F-21 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2003 (UNAUDITED) NOTE 13 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. The Company has not designated any other rights or dividend policy in regard to the Preferred Stock. NOTE 14 RELATED PARTY TRANSACTION On February 1, 2002, the Company transferred $249,918 of net assets held for sale in full payment of delinquent rent and property taxes in the amount of $78,376 on property previously rented by the Company. Ken Schilling, the President of the Company has an ownership interest in this property. NOTE 15 CHANGE IN AUTHORIZED SHARES On February 24, 2003, the Articles of Incorporation were amended to increase the number of authorized shares of common stock from 450,000,000 shares to 5,000,000,000 shares. NOTE 16 SUBSEQUENT EVENTS STOCK ISSUANCES On August 18, 2003, the Company issued approximately 38 million shares of common stock to individuals for services rendered. LITIGATION On August 5, 2003, the Company was named as a counter defendant in a lawsuit with a former associate. Although there is a possibility that the Company may be held liable, an estimated range of potential loss cannot be determined at this time, but it is not believed to have a material impact on the financial condition of the Company. SPIN-OFF On July 20, 3003, the Board of Directors approved the spin-off of IBIZ, Inc., a wholly owned subsidiary of the Company, into a separate public company. The Company proposes to issue without consideration non-restricted shares of common stock in IBIZ, Inc. pro rata to all shareholders of the Company as of September 25, 2003 at the ratio of one share of IBIZ, Inc. for each 500 shares of the Company common stock. F-22 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2003 (UNAUDITED) NOTE 16 SUBSEQUENT EVENTS (CONTINUED) SPIN-OFF (CONTINUED) The purpose of the spin-off of IBIZ, Inc. is that it will allow management of each business to focus solely on that business. In addition, it should enhance access to financing by allowing the financial community to focus separately on each business. IBIZ Technology Corp. will continue to distribute its product line in the United States providing sub-licenses for all products to IBIZ, for worldwide distribution. IBIZ, Inc. will sign distribution agreements with IBIZ Technology Corp. for distribution of its products in the United States. IBIZ will support IBIZ Technology Corp. in engineering, production, and business development, through synergetic agreements using Endeavour Capital and its affiliates infrastructure in Europe and Israel. Current funds available to IBIZ will not be adequate for it to be competitive in the areas in which it intends to operate. IBIZ's continued operations, as well as the implementation of its business plan, therefore will depend upon its ability to raise additional funds through bank borrowings, equity or debt financing. IBIZ estimates that it will need to raise up to approximately $1,000,000 over the next 12 months for these purposes. There is no guarantee that these funding sources, or any others, will be available in the future, or that they will be available on favorable terms. In addition, this funding amount may not be adequate for IBIZ to fully implement its business plan. Thus, the ability of IBIZ to continue as a going concern is dependent on additional sources of capital and the success of IBIZ's business plan. Regardless of whether IBIZ's cash assets prove to be inadequate to meet IBIZ's operational needs, IBIZ might seek to compensate providers of services by issuance of stock in lieu of cash. If funding is insufficient at any time in the future, IBIZ may not be able to take advantage of business opportunities or respond to competitive pressures, any of which could have a negative impact on the business, operating results and financial condition. In addition, if additional shares were issued to obtain financing, current shareholders may suffer a dilutive effect on their percentage of stock ownership in IBIZ. F-23 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 judgments that affect the reported amounts of assets, liabilities, revenues and expenses. In consultation with our Board of Directors, we have identified eight 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. (1) ACCOUNTS RECEIVABLE Accounts receivable are reported at the customer's outstanding balances less any allowance for doubtful accounts. The Company does not normally require collateral to support receivables and interest is not accrued thereon. (2) 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 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 (bankruptcy, lack of contact, account balance over one year old, etc.). (3) INVENTORIES Inventories are stated at the lower of cost (determined principally by average cost) or market. (4) ACCOUNTING FOR CONVERTIBLE DEBT SECURITIES The Company has issued convertible debt securities with non-detachable conversion features. The Company has recorded the fair value of the beneficial conversion features as interest expense and an increase to Additional Paid in Capital. (5) 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. 2 (6) GOING CONCERN As shown in the accompanying financial statements, the Company has incurred significant losses, has 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. 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 also intends to finance its operations through sales of its securities as well as entering into loans and other types of financing arrangements such as convertible debenture. (7) CONSULTING AGREEMENTS The Company issued common stock for payment of consulting services. The cost of the consulting services was determined by multiplying the common shares issued by the market price of the shares at the inception date of the agreement. 3
SELECT FINANCIAL INFORMATION THREE MONTH PERIOD ENDED 07/31/03 07/31/02 NINEMONTH PERIOD ENDED (UNAUDITED) (UNAUDITED) 07/31/03 07/31/02 -------------- -------------- -------------- ---------------- Statement of Operations Data Total revenue $ 146,445 $ 52,401 $ 282,392 $ 303,462 Operating income (loss) ( 876,695) ( 293,373) ( 1,792,818) ( 1,069,453) Net earnings (loss) after tax ( 1,354,095) ( 380,186) ( 3,420,058) ( 1,838,065) Net earnings (loss) per share (0.01) (0.00) (0.02) ( 0.00) Balance Sheet Data Total assets 444,028 551,149 444,028 551,149 Total liabilities 6,401,447 5,033,118 6,401,447 5,033,118 Stockholders' deficit ( 5,957,419) ( 4,481,969) ( 5,957,419) ( 4,481,969)
RESULTS OF OPERATIONS The three months ended July 31, 2003 compared to the three months ended July 31, 2002. REVENUES Sales from continuing operations increased by approximately 179% to $146,445 in the three months ended July 31, 2003 from $52,401 in the three months ended July 31, 2002. The increase was mainly a result of a sale in the amount of $61,250 to one customer in the three months ended July 31, 2003. COST OF SALES AND GROSS LOSS The cost of sales of $169,976 (116% of sales) in the three months ended July 31, 2003 decreased from $196,772 (376% of sales) for the three months ended July 31, 2002. The gross loss of $23,531 (<16%> of sales) in the three months ended July 31, 2003 decreased from $144,371 (<276%> of sales) for the three months ended July 31, 2002. This decrease is due to fixed costs, (primarily wages) being absorbed by the increase in sales and decrease in variable costs. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses increased approximately 473% to $853,164 in the three months ended July 31, 2003 from $149,002 in the three months ended July 31, 2002. The main increase in expenses resulted from the issuance of stock to employees in this quarter as retention bonuses, in the amount of $510,000. INTEREST EXPENSE Interest expense decreased 2% to $95,909 in the three months ended July 31, 2003 from $97,519 in the three months ended July 31, 2002. 4 INTEREST EXPENSE - CONVERTIBLE DEBENTURES-BENEFICIAL CONVERSION FEATURE The Company has issued convertible debt securities with a non-detachable convertible feature that were "in-the-money" at the date of issuance. The Company has recorded the fair value of the beneficial conversion feature as interest expense and an increase in paid-in-capital. Interest expense on the convertible debentures was $393,938 and $-0- or three months ended July 31, 2003 and 2002, respectively. NET LOSS FROM CONTINUING OPERATIONS Net loss from continuing operations increased 271% to $1,354,095 for the three months ended July 31, 2003 from a net loss of $358,841 for the three months ended July 31, 2002. The increase in net loss was primarily the result of the payment of retention bonuses by issuing restricted common stock in the amount of $510,000, and the increase in beneficial conversion interest of $394,000. DISCONTINUED OPERATIONS Loss from discontinued operations was $21,345 for three months ended July 31, 2002 as a result of management's election to discontinue non-profitable segments of the Company's operations and to focus on profitable business units as of October 31, 2001. The Company completed the discontinuance at October 31, 2002 and incurred no further expenses from that date. The nine months ended July 31, 2003 compared to the nine months ended July 31, 2002. REVENUES Sales from continuing operations decreased by approximately 7% to $282,392 in the nine months ended July 31, 2003 from $303,462 in the nine months ended July 31, 2002. The decrease was mainly a result of the focus by management on raising financing for IBIZ, Inc. earlier in the year, a transition to a new line of industry unique products and the overall slow down in the national economic conditions. COST OF SALES AND GROSS LOSS The cost of sales of $318,593 (113% of sales) in the nine months ended July 31, 2003 decreased from $348,506 (115% of sales) for the nine months ended July 31, 2002. The gross loss of $36,201 (<13%> of sales) in the nine months ended July 31, 2003 decreased from $45,044 (<15%> of sales) for the nine months ended July 31, 2002. The decrease is a result of fixed costs being absorbed as variable costs decrease. 5 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses increased approximately 71% to $1,756,617 in the nine months ended July 31, 2003 from $1,024,409 in the nine months ended July 31, 2002. The main increase in expenses resulted from the issuance of stock to employees in the 2nd and 3rd quarters as retention bonuses in the amount of $695,000. INTEREST EXPENSE Interest expense increased 18% to $261,422 in the nine months ended July 31, 2003 from $220,804 in the nine months ended July 31, 2002. The increase in interest is a result of approximately $1,850,000 new convertible debentures issued at 12% from August 2002 to June 2003. INTEREST EXPENSE - CONVERTIBLE DEBENTURES-BENEFICIAL CONVERSION FEATURE The Company has issued convertible debt securities with a non-detachable convertible feature that were "in-the-money" at the date of issuance. . The Company has recorded the fair value of the beneficial conversion feature as interest expense and an increase in paid-in-capital. Interest expense on the convertible debentures was $1,379,077 and $182,880 for the nine months ended July 31, 2003 and 2002, respectively. NET LOSS FROM CONTINUING OPERATIONS Net loss from continuing operations increased 144% to $3,420,058 for the nine months ended July 31, 2003 from a net loss of $1,399,018 for the nine months ended July 31, 2002. The increase in net loss was primarily the result of the reduction in sales, higher unit costs, the payment of retention bonuses by issuing restricted common stock in the amount of $695,000, and the increase in beneficial conversion interest of $1,196,197. DISCONTINUED OPERATIONS Loss from discontinued operations was $439,047 for nine months ended July 31, 2002 as a result of management's election to discontinue non-profitable segments of the Company's operations and to focus on profitable business units as of October 31, 2001. The Company completed the discontinuance at October 31, 2002 and incurred no further expenses from that date. LIQUIDITY Net cash (used) by operating activities for the nine months ended July 31, 2003 was $684,393 compared to $297,871 (used) by operating activities for the nine months ended July 31, 2002. The $386,522 change, net of non-cash transactions was primarily due to: 6 a. Accounts receivable increased $36,089 in the nine months ending July 31, 2003 as compared to a decrease of $93,747 in the nine months ending July 31, 2002. The net use of operating cash in 2003 is a result of the Company's major customers paying on extended terms instead of the original agreed upon terms. b. Inventories increased $4,043 in the nine months ending July 31, 2003 as compared to an increase of $40,309 in the nine months ending July 31, 2002. The net operating cash used in 2003 is a result of the Company's fulfillment of sales orders and the decision to purchase inventory on an as needed basis due to cash flow restrictions. c. Prepaid expenses increased $21,650 in the nine months ending July 31, 2003 as compared to a decrease of $50,891 in the nine months ending July 31, 2002. The net use of operating cash in 2003 is a result of prepaying for services in order to secure their use in the nine months ending July 31, 2003. d. Cash, pledged for letter of credit increased $10,000 in the nine months ending July 31, 2003. The result of this use of operating cash is due to the Company's major customer requiring the establishment of a letter of credit in order to service rebates. e. Accounts and notes payable increased $65,408 in the nine months ending July 31, 2003 as compared to a increase of $607,141 in the nine months ending July 31, 2002. The increase in cash provided in 2003 is a result of the Company's need to purchase items on a cash basis and therefore being unable to reduce accounts and notes payable by any significant amount in the nine months ending July 31, 2003. f. Accrued liabilities and taxes increased $441,424 in the nine months ending July 31, 2003 as compared to an increase of $165,222 in the nine months ending July 31, 2002. The net increase in cash provided in 2003 is the result of the Company's increase of $99,500 of accrued payroll and the increase of $248,000 in interest due on convertible debentures in the nine months ending July 31, 2003. The Company plans to remedy the deficiency of operating cash flows by increasing income from its new product line. Our investing activities for the nine months ended July 31, 2003 provided no cash, as compared to $1,365 which was used in the nine months ended July 31, 2002. The primary change was that the Company received cash from the sale of assets in the amount of $48,635 and purchased a mold in the amount of $50,000 for a new product line during the nine months ended July 31, 2002 and had no investing activities in the nine months ended July 31, 2003. 7 Our financing activities for the nine months ended July 31, 2003 provided cash of $683,445 compared to $297,407 for the nine months ended July 31, 2002. The primary change was that the Company obtained $686,813 of new debenture financing for the nine months ended July 31, 2003 compared to $293,723 for the nine months ended July 31, 2002. The Company also repaid $70,734 on its note payable factor during the nine months ended July 31, 2002 and $-0- during the nine months ended July 31, 2003. CAPITAL RESOURCES Working capital is summarized and compared as follows:
JULY 31, 2003 JULY 31, 2002 ----------------- ---------------- Current assets $ 173,730 $ 222,272 Current liabilities 5,651,447 3,956,344 ----------------- ----------------- Working capital (deficit) $ ( 5,477,717) $ ( 3,734,072) ================= ================= This increase in the deficit in working capital was primarily due to the net loss sustained from operations and the increase in the convertible debentures, current portion. At July 31, 2003, stockholders' deficit was $5,957,419 as compared to a stockholders' deficit of $4,941,782 at October 31, 2002. The $1,015,637 change in stockholders' deficit was accounted for as follows: Increase in Stockholders' Equity Issuance of common stock $ 913,631 Conversion of convertible debentures, net of costs 111,713 Interest expense - convertible debentures - beneficial conversion feature 1,379,077 Decreases in stockholders'equity net loss ( 3,420,058) ------------------ Net Change $ ( 1,015,637) ==================
The Company currently has no material commitments for capital expenditures. The Company has $3,454,767 and $750,000 of debt payments related to convertible debentures due within the next year and next two to five years, respectively. 8 On July 20, 3003, the Board of Directors approved the spin-off of IBIZ, Inc., a wholly owned subsidiary of the Company, into a separate public company. The Company proposes to issue without consideration non-restricted shares of common stock in IBIZ, Inc. pro rata to all shareholders of the Company as of September 25, 2003 at the ratio of one share of IBIZ, Inc. for each 500 shares of the Company common stock. The purpose of the spin-off of IBIZ, Inc. is that it will allow management of each business to focus solely on that business. In addition, it should enhance access to financing by allowing the financial community to focus separately on each business. IBIZ Technology Corp. will continue to distribute its product line in the United States providing sub-licenses for all products to IBIZ, for worldwide distribution. IBIZ, Inc. will sign distribution agreements with IBIZ Technology Corp. for distribution of its products in the United States. IBIZ will support IBIZ Technology Corp. in engineering, production, and business development, through synergetic agreements using Endeavour Capital and its affiliates infrastructure in Europe and Israel. Current funds available to IBIZ will not be adequate for it to be competitive in the areas in which it intends to operate. IBIZ's continued operations, as well as the implementation of its business plan, therefore will depend upon its ability to raise additional funds through bank borrowings, equity or debt financing. IBIZ estimates that it will need to raise up to approximately $1,000,000 over the next 12 months for these purposes. There is no guarantee that these funding sources, or any others, will be available in the future, or that they will be available on favorable terms. In addition, this funding amount may not be adequate for IBIZ to fully implement its business plan. Thus, the ability of IBIZ to continue as a going concern is dependent on additional sources of capital and the success of IBIZ's business plan. Regardless of whether IBIZ's cash assets prove to be inadequate to meet IBIZ's operational needs, IBIZ might seek to compensate providers of services by issuance of stock in lieu of cash. If funding is insufficient at any time in the future, IBIZ may not be able to take advantage of business opportunities or respond to competitive pressures, any of which could have a negative impact on the business, operating results and financial condition. In addition, if additional shares were issued to obtain financing, current shareholders may suffer a dilutive effect on their percentage of stock ownership in IBIZ. 9 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 July 31, 2003. There have been no significant changes in our internal control over financial reporting in the third quarter of 2003 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 July 31, 2003. 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, 2003, 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 in these transactions. Private Placements of Common Stock and Warrants for Cash None. Sales of Debt and Warrants for Cash To obtain funding for our ongoing operations, we entered into a Securities Purchase Agreement with three accredited investors on January 31, 2003 for the sale of (i) $500,000 in convertible debentures and (ii) warrants to buy 2,500,000 shares of our common stock. The funds were provided to us as follows: - $300,000 was disbursed on January 31, 2003. - $100,000 was disbursed on March 20, 2003. - $100,000 was disbursed on May 9, 2003. The debentures bear interest at 12%, mature one year from the date of issuance, and are convertible into our common stock, at the investors' option, at the lower of (i) $0.01 or (ii) 50% of the average of the three lowest intraday trading prices for the common stock on a principal market for the 20 trading days before but not including the conversion date. The full principal amount of the convertible debentures are due upon default under the terms of the convertible debentures. The warrants are exercisable until seven years from the date of issuance at an exercise price of $0.01 per share. To obtain funding for our ongoing operations, we entered into a Securities Purchase Agreement with three accredited investors on June 12, 2003 for the sale of (i) $150,000 in convertible debentures and (ii) warrants to buy 750,000 shares of our common stock. 10 The debentures bear interest at 12%, mature one year from the date of issuance, and are convertible into our common stock, at the investors' option, at the lower of (i) $0.01 or (ii) 50% of the average of the three lowest intraday trading prices for the common stock on a principal market for the 20 trading days before but not including the conversion date. The full principal amount of the convertible debentures are due upon default under the terms of the convertible debentures. The warrants are exercisable until seven years from the date of issuance at an exercise price of $0.01 per share. Option Grants None. Issuances of Stock for Services or in Satisfaction of Obligations On June 12, 2003, we issued the following shares to the following employees in lieu of salaries: 1. 40,000,000 shares of common stock to Kenneth W. Schilling 2. 40,000,000 shares of common stock to Mark Perkins 3. 8,000,000 shares of common stock to Mr. Matthews 4. 8,000,000 shares of common stock to Mr. Ligammari 5. 4,000,000 shares of common stock to Mr. Russo 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. 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: 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. 11 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 15th day of September 2003 IBIZ TECHNOLOGY CORP. By:/s/ KENNETH W. SCHILLING -------------------------------------- Kenneth W. Schilling, President, and acting principal accounting officer 12 EX-31.1 3 ex-31_1.txt EXHIBIT 31.1 IBIZ TECHNOLOGY CORP. OFFICER'S CERTIFICATE PURSUANT TO SECTION 302 I, Kenneth W. Schilling, the Chief Executive Officer and Chief Financial Officer of IBiz Technology Corp., certify that: 1. I have reviewed this Form 10-QSB of IBiz Technology Corp.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: September 15, 2003 /s/ Kenneth W. Schilling - ------------------------- Kenneth W. Schilling Chief Executive Officer and Chief Financial Officer EX-32.1 4 ex-32_1.txt EXHIBIT 32.1 IBIZ TECHNOLOGY CORP. CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of IBiz Technology Corp. (the Company) on Form 10-QSB for the period ended July 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Kenneth W. Schilling, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. A signed original of this written statement required by Section 906 has been provided to IBiz Technology Corp. and will be retained by IBiz Technology Corp. and furnished to the Securities and Exchange Commission or its staff upon request. Date: September 15, 2003 /s/ Kenneth W. Schilling - ------------------------ Kenneth W. Schilling Chief Executive Officer and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----