10KSB 1 form10qsb.txt U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR FISCAL YEAR ENDED OCTOBER 31, 2003. 000-027619 Commission File Number IBIZ TECHNOLOGY CORP. -------------------------------------------------------------------------------- (Name of small business issuer in its charter) Florida 86-0933890 ------- ---------- State or other jurisdiction IRS Employer of incorporation Identification No. 2238 West Lone Cactus Drive, #200, Phoenix, Arizona 85021, (623) 492-9200 -------------------------------------------------------------------------------- (Address and telephone number of principal executive offices) Securities registered under Section 12(b) of the Exchange Act: None. Securities registered under Section 12(g) of the Exchange Act: Common Stock, par value $0.001 Check whether the issuer (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 [ ] Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X]. The registrant's revenues from continuing operations for the year ended October 31, 2003 were $485,382. As of February 11, 2004, the aggregate market value of the common stock held by non-affiliates computed by reference to the average bid and asked prices of such stock was $65,283,038.72 As of February 11, 2004, the registrant had 500,881,020 shares of common stock, par value $.001 per share, outstanding. PART I RECENT DEVELOPMENTS Spinoff On July 20, 2003, the Board of Directors of iBIZ Technology Corp. approved the spin-off of IBIZ, Inc., a wholly owned subsidiary, into a separate company. Management estimates that the transaction should be completed by the second quarter in 2004 iBIZ proposes to issue without consideration non-restricted shares of common stock in IBIZ, Inc. pro rata to all shareholders of iBIZ Technology as of September 25, 2003 at the ratio of one share of IBIZ, Inc. for each 500 shares of iBIZ Technology Corp. 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 of America 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 Enterprises Capital AG and its affiliates infrastructure in Europe and Israel. Acquisition of Synosphere On January 20, 2004, iBIZ Technology Corp. entered into an acquisition agreement with the interestholders of Synosphere, LLC, a Texas limited liability company. The shareholders are the owners of all the issued and outstanding membership interests of equity of Synosphere. Under the terms of this agreement, on the closing date, Synosphere sold to iBIZ all 5,000,000 Interests and iBIZ in turn sold to the shareholders 6 shares of its common stock for each Interest (an aggregate of 30,000,000 shares of common stock). Synosphere specializes in the development of handheld computer technologies. ITEM 1. DESCRIPTION OF BUSINESS. iBIZ Technology Corp., through it's wholly-owned operating subsidiary iBIZ Inc., designs, manufactures and distributes personal digital assistant (PDA) accessories and other handheld computing devices. Our expanding product line for the growing PDA market is distributed through large retail chains and distributors throughout the United States. In March 2000, we introduced the Keysync Keyboard and a line of products specific to the personal digital assistant market. Through October 31, 2002, we have expanded our product mix to more than eighty different individual PDA products manufactured to iBIZ's specifications by various overseas manufacturers. On July 11, 2002, iBIZ acquired the intellectual property and marketing rights for the Xela Case Keyboard, which is currently scheduled for mass production and shipping at the beginning of the second quarter of fiscal year 2003. iBIZ's principal offices are located at 2238 West Lone Cactus, #200, Phoenix, Arizona 85021. iBIZ maintains a website at www.ibizcorp.com. The information on the website is not part of this report. Statements regarding the various hardware products offered by the Company, joint ventures, marketing agreements and web-hosting services are forward-looking and you should not rely on them or assume that the products discussed will ever be shipped in quantities sufficient to generate material revenue or that marketing agreements and web-hosting services will generate any revenue. Many products discussed in this report may ultimately not be sold or may only be sold in limited quantities. Marketing agreements and web-hosting services may not result in anticipated revenue for the Company. Technology used in computer products is subject to rapid obsolescence, changing consumer preferences, software advancements, and competitors' products time to market. These factors, among others, may result in unforeseen changes in the types of products ultimately sold and services offered by the Company. See Risk Factors, below. PRODUCTS AND SERVICES iBIZ Inc. success is dependent upon the introduction of new products and the enhancement of existing products. iBIZ Inc. is actively engaged in the design and development of additional peripherals to augment its present product line. Currently, iBIZ designs many of its products in-house. Because of the rapid pace of technological advances in the personal computer industry, iBIZ must be prepared to design, develop, manufacture and market new and more powerful hardware products in a relatively short time span. iBIZ Inc. also provides third-Party Hardware, Software, and Related Supplies. in an effort to provide our customers a wider range of products. MARKETING, SALES AND DISTRIBUTION iBIZ markets and distributes products directly to end users through a direct sales force, regional resellers, value-added providers in the banking and point-of-sale ("POS") market and Internet commerce sites. In addition to direct sales, iBIZ also markets its full range of products directly to retail customers through its website at www.ibizcorp.com or www.ibizpda.com. To date, iBIZ has recognized only nominal revenues from Internet retail sales, however, we are continuing to see moderate revenue increases through this venue. Management believes that direct sales to end users should allow iBIZ to more efficiently and effectively meet customer needs by providing products which are tailored for the customer's individual requirements at a more economical price. 1 iBIZ also distributes its products to regional resellers and, to a lesser extent, national distributors and to retail stores such as CompUSA, Inc. and Fry's Electronics, Staples, Mobileplanet, Micro Center, RC Willeys, Baillios, Pdamart and Outpost.com. MANUFACTURING iBIZ products are engineered and manufactured by various entities in Taiwan and mainland China. Currently, these manufacturers build iBIZ products to iBIZ specifications with non-proprietary components. The vast majority of parts used in iBIZ products are available to iBIZ competitors. Although iBIZ has not experienced difficulties in the past relating to engineering and manufacturing, the failure of iBIZ' manufacturers to produce products of sufficient quantity and quality could adversely affect iBIZ's ability to sell the products its customers' demand. iBIZ engages in final assembly, functional testing and quality control of its products in its Phoenix, Arizona facility. Management believes IBIZ' completion of the final stages of manufacturing allows iBIZ to ensure quality control for its products manufactured overseas. iBIZ has entered into an agreement with Catronics, a Chinese manufacturer to build the Xela Case Keyboard. The engineering and manufacturing of the Xela Case Keyboard is done entirely by Catronics. Management believes this relationship allows iBIZ to offer a broader range of products to its customers without the cost of research and development and manufacturing. LICENSES Microsoft, Inc. In June 1999, IBIZ entered into an agreement with Microsoft, Inc. to become an OEM system builder. Participation in this program allows IBIZ to install genuine Microsoft operating systems in selected applications with full support from Microsoft. In addition, this agreement entitles IBIZ to pre-production versions of Microsoft products and enables IBIZ to provide input into development and design of new products. KeyLink Software License. iBIZ has an exclusive, perpetual license to use, distribute and offer for sale with associated hardware the software that facilitates the connection between the KeySync keyboard and PDAs. PATENTS AND TRADEMARKS IBIZ holds United States and foreign patents for its products. iBIZ filed a patent application for its Lapboard keyboard and was awarded patent 09/765169 on January 3, 2002. In general, IBIZ believes that its success will depend primarily upon the technical expertise, creative skills, and management abilities of its officers, directors, and key employees rather than on patent ownership. iBIZ has filed an application with the United States Patent and Trademark Office for the use of the names "iBIZ" and "KeySync" and received a trademark award for the iBIZ name on January 8, 2002. On July 11, 2002 iBIZ purchased intellectual property assets for the Xela Case Keyboard including the patent application S/N T001 P00547-US1, trademark application S/N: 78/139,898 and resale rights from ttools, LLC, a Rhode Island limited liability company. Currently Patent and Trademark applications are in due process with the United States Patent and Trademark Office. The trademark application for XELA was published by the Patent and Trademark office in the Official Gazette on January 7, 2003 for the purpose of opposition. 2 SERVICE AND SUPPORT IBIZ provides its customers with a comprehensive service and support program. Technical support is provided to customers via a toll-free telephone number as well as through the iBIZ website. The number is available Monday through Friday 8:00 a.m. to 5:00 p.m., Mountain Standard Time. Also available on iBIZ's website are links to files for software patches and drivers used for software updates. COMPETITION The handheld computer industry is highly competitive. IBIZ competes at the product level with various other handheld computer manufacturers and at the distribution level primarily with computer retailers, on-line marketers and the direct sales forces of large PDA manufacturers. At the product level, the PDA industry is characterized by rapid technological advances in both hardware and software development and by the frequent introduction of new and innovative products. There are approximately 14 manufacturers of personal computers, the majority of which have greater financial, marketing and technological resources than IBIZ. Competitors at this level include Palm, HP, Dell, Sony, and Handspring, however, most key PDA manufacturers outsource or private label PDA accessory products from companies similar to iBIZ. Competitive factors include product quality and reliability, price to performance characteristics, marketing capability, and corporate reputation. In addition, a segment of the industry competes primarily for customers on the basis of price. Although IBIZ' products are price competitive, IBIZ does not attempt to compete solely on the basis of price. The intense nature of competition in the computer industry subjects IBIZ to numerous competitive disadvantages and risks. For example, many major companies will exclude consideration of iBIZ' products due to limited size of the company. Moreover, iBIZ' current revenue levels cannot support a high level of national or international marketing and advertising efforts. This, in turn, makes it more difficult for iBIZ to develop its brand name and create customer awareness. Additionally, iBIZ products are manufactured by third parties in Taiwan or China. As such, iBIZ is subject to numerous risks and uncertainties of reliance on offshore manufacturers, including, taxes or tariffs, non-performance, quality control, and civil unrest. Also, as IBIZ holds few patents, the vast majority of parts used in its products are available to its competitors. Management believes that it can compete effectively by providing PDA accessories utilizing unique designs and space-saving qualities. Although Management believes it has been successful to date, there can be no assurance that IBIZ will be able to compete successfully in the future. CUSTOMERS FOR PRODUCTS Throughout its history, IBIZ's ability to deliver innovative product designs and quality customer service has enabled it to provide products to major retailers and distributors. For the year ended October 31, 2003, we had 2 customers that accounted for 35% and 13% of our total revenues. 3 USE OF TRADEMARKS AND TRADENAMES All trademarks and tradenames used in this report are the property of their respective owners. Employees As of February 11, 2004, IBIZ had approximately 5 full-time employees. No employee of IBIZ is represented by a labor union or is subject to a collective bargaining agreement. IBIZ has never experienced a work-stoppage due to labor difficulties and believes that its employee relations are good. ITEM 2. DESCRIPTION OF PROPERTY. On February 1, 2002, iBIZ began leasing approximately 4,343 square feet of custom built office space located at 2238 West Lone Cactus, #200, Phoenix, Arizona. The facility is used for administration, design, engineering and assembly of products. iBIZ's lease is for a term of 3 years, with monthly rental payments from $2,172 to $4,343 plus taxes and operating costs. ITEM 3. LEGAL PROCEEDINGS. iBIZ has been assessed approximately $62,000 in penalties and interest by the IRS in connection with payroll taxes due through the first quarter of 1999. The Company has paid the taxes, interest, and some portion of the penalty, but has requested an abatement of the remaining penalty imposed. The Company is awaiting a final disposition by the IRS. On August 5, 2003, Douglas A. Dragoo and Elizabeth W. Dragoo counterclaimed and named iBIZ Technology as a defendent in the superior court of the state of Arizona county of Maricopa. The defendents allege breach of contract, Fraud, Negligent misrepresentation, and seek compensatory and, punitive damages as well as legal fees. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On July 20, 2003, a majority of our stockholders took action by written consent in lieu of a special meeting and approved a spin-off of IBIZ, Inc., a wholly-owned subsidiary, to its shareholders. This action was approved by a majority of iBIZ Technology's shareholders. Management estimates that the transaction should be completed in the second quarter of 2004. 4 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. MARKET FOR COMMON EQUITY Our common stock is currently traded on the Over The Counter Bulletin Board. The common stock was initially listed under the symbol "EVCV" on June 3, 1998, and trading began on July 16, 1998. On October 26, 1998, we changed our trading symbol to "IBIZ" and then to "IBZT" on September 30, 2003 as a result of a 1 for 10 reverse stock split. The following charts indicate the high and low sales price for our common stock for each of our fiscal quarters for the past two years, and subsequent interim period, as quoted on the Over The Counter Bulletin Board. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions. Quarter Ended High LOW --------------------------- --------------- ---------------- January 31, 2002 0.015 0.004 April 30, 2002 0.014 0.005 July 31, 2002 0.007 0.0015 October 31, 2002 0.006 0.0001 January 31, 2003 0.035 0.00381 April 30, 2003 0.005 0.0119 July 31, 2003 0.065 0.00313 October 31, 2003 0.0058 0.003 January 31, 2004 0.0618 0.003 --------------------------- --------------- ---------------- * Table reflects a 1 for 10 reverse stock split of our common stock effectuated on September 30, 2002. As of February 10, 2004, management believes there to be approximately 7,142 holders of record of iBIZ's common stock. To date, iBIZ has not paid any dividends on its common stock. iBIZ does not currently intend to pay dividends in the future. iBIZ is prohibited from declaring or paying dividends while certain debentures or warrants are outstanding. RECENT SALES OF UNREGISTERED SECURITIES The shares described below represent certain equity securities of iBIZ sold by iBIZ during the period covered by this report that were not registered under the Securities Act, all of which were issued by iBIZ pursuant to exemptions under the Securities Act. Underwriters were involved in none of these transactions. In each case, the securities were sold to accredited investors, as determined by an investor questionnaire executed in conjunction with the respective subscription agreements. PRIVATE PLACEMENTS OF COMMON STOCK AND WARRANTS FOR CASH None. 5 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. This registration statement covers the resale of the common stock underlying these securities. The investors are obligated to provide us with the funds 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. This registration statement covers the resale of the common stock underlying these securities. The investors are obligated to provide us with the funds as follows: - $150,000 was disbursed on June 12, 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. OPTION GRANTS None. ISSUANCES OF STOCK FOR SERVICES OR IN SATISFACTION OF OBLIGATIONS During the three month period ending October 31, 2003, we issued an aggregate of 253,063,228 shares of our common stock to 6 employees in lieu of salaries equaling $695,188. On August 1, 2003, we issued 3,308,823 shares of common stock valued at $0.001 per share to a consultant for financial services On August 1, 2003, we issued 5,000,000 shares of common stock valued at $0.001 per share to special counsel for legal work to be performed. On August 14, 2003, we issued 3,000,000 shares of common stock valued at $0.0055 per share to Sichenzia Ross Friedman Ference for legal services rendered. On August 14, 2003, we issued 5,000,000 shares of common stock valued at $0.001 per share to Lavi Arasney for services rendered in connection with our virtual keyboard. 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 6. 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. 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. (6) 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, less an agreed upon discount, for the shares at the inception date of the agreement. SELECT FINANCIAL INFORMATION Years Ended 10/31/03 10/31/02 -------- -------- Statement of Operations Data Total revenue $ 485,382 $ 356,278 Operating income (loss) (2,818,163) (1,539,938) Net earnings (loss) after tax (4,462,182) (6,490,465) Net earnings (loss) per share (0.02) (0.25) Balance Sheet Data Total assets 330,619 439,120 Total liabilities 7,047,304 5,380,902 Stockholders' deficit (6,716,685) (4,941,782) RESULTS OF OPERATIONS The year ended October 31, 2003 compared to the year months ended October 31, 2002. Revenues Sales from continuing operations increased by approximately 36% to $485,382 in the year ended October 31, 2003 from $356,278 in the year ended October 31, 2002. The increase was mainly a result of the addition of new customers, the increase in volume sales to an existing national retailer and introduction of three new products. Cost of Sales and Gross Loss The cost of sales of $519,003 (107% of sales) in the year ended October 31, 2003 remained the same from $379,440 (107% of sales) for the year ended October 31, 2002. Cost of sales consists of 354,434 (73% of sales) of direct material, packaging and freight and $164,569 (34% of sales) of salaries and employee related costs for the year ended October 31, 2003. Cost of sales consists of $274,556 (77% of sales) of direct material, packaging and freight and $104,884 (30% of sales) of salaries and employee related costs for the year ended October 31, 2002. The gross loss of 33,621 ((7)> of sales) in the year ended October 31, 2003 decreased from $23,162 ((7)> of sales) for the year ended October 31, 2002. Selling, General and Administrative Expenses Selling, general and administrative expenses increased approximately 1% to $1,026,660 in the year ended October 31, 2003 from $1,516,776 in the year ended October 31, 2002. Officer Bonuses Officer bonuses increased 100% to $1,132,882 in the year ended October 31, 2003 from $0 in the year ended October 31, 2002. The increase is due to the issuance of stock based bonuses to the officers throughout the year ended October 31, 2003. Interest Expense Interest expense increased 41% to $353,516 in the year ended October 31, 2003 from $250,057 in the year ended October 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 $4,283,930 for the year ended October 31, 2003 and 2002, respectively. Net Loss From Continuing Operations Net loss from continuing operations decreased 26% % to 4,462,182 for the year ended October 31, 2003 from a net loss of $6,010,861 for the year ended October 31, 2002. The decrease in net loss was primarily the result of the decrease in beneficial conversion interest of $2,904,853 offset by the increase of officer bonuses in the amount of $1,132,882. Discontinued Operations Loss from discontinued operations was $479,554 for year ended October 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 year ended October 31, 2003 was $793,646 compared to $671,211 (used) by operating activities for the year ended October 31, 2002. The $122,435 change, net of non-cash transactions was primarily due to: a. Accounts receivable increased $147,832 in the year ending October 31, 2003 as compared to a decrease of $73,771 in the year ending October 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 decreased 41,758 in the year ending October 31, 2003 as compared to an decrease of $71,141 in the year ending October 31, 2002. The net operating cash provided 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 $6,057 in the year ending October 31, 2003 as compared to a decrease of $36,127 in the year ending October 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 year ending October 31, 2003. d. Cash, pledged for letter of credit increased $10,000 in the year ending October 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 91,401 in the year ending October 31, 2003 as compared to a increase of $509,519 in the year ending October 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 year ending October 31, 2003. f. Accrued liabilities and taxes increased $1,199,630 in the year ending October 31, 2003 as compared to an increase of $540,671 in the year ending October 31, 2002. The net increase in cash provided in 2003 is the result of the Company's increase of $735.000 of accrued wages and bonuses and the increase of $313,00 in interest due on convertible debentures in the year ending October 31, 2003. The Company plans to remedy the deficiency of operating cash flows by increasing income from its new product line and obtaining additional equity investment. As of February 11, 2004, the Company has obtained additional equity investment of $1.1 million. Our investing activities for the year ended October 31, 2003 used no cash, as compared to $201,365, which was used in the year ended October 31, 2002. The primary change was that the Company received cash from the sale of assets in the amount of $48,635, purchased a mold in the amount of $50,000 for a new product line and purchased Intellectual Property Rights in the amount of $200,000 during the year ended October 31, 2002 and had no investing activities in the year ended October 31, 2003. Our financing activities for the year ended October 31, 2003 provided cash of $794,838 compared to $866,543 for the year ended October 31, 2002. The primary change was that the Company obtained $686,813 of new debenture financing for the year ended October 31, 2003 compared to $848,723 for the year ended October 31, 2002. Net proceeds from the issuance of common stock was $36,691 for the year ended October 31, 2003 as compared to $79,500 for the year ended October 31, 202. The Company also repaid $55,734 on its note payable factor during the year ended October 31, 2002 and $15,000 during the year ended October 31, 2003. Capital Resources Working capital is summarized and compared as follows: October 31, October 31, 2003 2002 ----------- ----------- Current assets $ 203,790 $ 126,416 Current liabilities 6,297,304 4,373,436 ----------- ----------- Working capital (deficit) $(6,093,514) $(4,247,020) =========== =========== This increase in the deficit in working capital was primarily due to the increase in the convertible debentures, current portion, the increase of accrued interest and the increase of accrued wages and bonuses. At October 31, 2003, stockholders' deficit was 6,716,685 as compared to a stockholders' deficit of $4,941,782 at October 31, 2002. The $1,726,086 change in stockholders' deficit was accounted for as follows: Increase in Stockholders' Equity Issuance of common stock $ 980,129 Conversion of convertible debentures, net of costs 328,073 Interest expense - convertible debentures - beneficial conversion feature 1,379,077 Decreases in stockholders'equity net loss (4,462,182) ----------- Net Change $(1,774,903) =========== The Company currently has no material commitments for capital expenditures. The Company has $3,265,837 and $750,000 of debt payments related to convertible debentures due within the next year and next two to five years, respectively. Subsequent to October 31, 2003, $2,023,150 of these debt payments were converted in full to common stock and the remaining balance of $1,992,687 was renegotiated to more favorable terms. Spin-off On October 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. Acquisition On February 3, 2004, the Company acquired 5,000,000 Interests, representing all of the Interests, of Synosphere, LLC, ("Synosphere"), in exchange for 30,000,000 shares of common stock. Synosphere is a Plano, Texas based corporation specializing in the development of innovative handheld computer technologies. The Company entered into employment agreements with two of the current directors/officers of Synosphere. The term of these employee agreements shall be two years following the closing and transferable in the event of a sale of Synosphere to another entity or if Synosphere is spun-off. The employees shall receive annual base salaries of $112,000 and $102,000 per year with healthcare benefits. In addition, each employee shall receive a sign on bonus of 2,500,000 shares of common stock. Furthermore, the employees shall each receive an Earn Out bonus of common stock in eight payments, each made quarterly, in the amount of $62,500. A "golden parachute" clause shall be put in place such that if either of the employee agreements are terminated by the Company or any successor they are payable in full at the date of their termination. Finally, one of the employees shall be appointed to the Company's Board of Directors. Increase in Cash Subsequent to October 31, 2003 On November 1, 2003, the Company granted an individual the option to purchase 200,000,000 shares of common stock at the exercise price of the average closing price for the three days prior to exercise less a 40% discount. The option is exercisable commencing November 1, 2004 and expires after January 15, 2004. During December 2003, the Company granted an individual the option to purchase 50,000,000 shares of common stock at the exercise price of market value at the date of exercise less a 40% discount. On January 28, 2004, the Company granted Pangea Investments GmbH the option to purchase 100,000,000 shares of common stock at the exercise price of market value at the date of exercise less a 50% discount. The option is exercisable commencing January 28, 2004 and expires after January 28, 2014. As of February 4, 2004, the Company has received approximately $1,098,000 cash as a result of the Company's Option holders exercising their options to purchase shares of common stock. 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 FASB 150 - Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity These FASB statements did not, or are not expected to, have a material impact on the Company's financial position and results of operations. 9 ITEM 7. FINANCIAL STATEMENTS. IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2003 AND 2002 10 TABLE OF CONTENTS PAGE NO. -------- INDEPENDENT AUDITORS' REPORTS..................................... 12 - 13 FINANCIAL STATEMENTS Consolidated Balance Sheet................................. 14 - 15 Consolidated Statements of Operations...................... 16 - 17 Consolidated Statement of Stockholders' (Deficit).......... 18 - 21 Consolidated Statements of Cash Flows...................... 22 - 23 Notes to Consolidated Financial Statements................. 24 - 47 11 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET OCTOBER 31, 2003 ASSETS CURRENT ASSETS Cash $ 2,140 Cash, pledged for letter of credit 10,000 Accounts receivable, net 123,751 Inventories 43,842 Prepaid expenses 24,057 -------- TOTAL CURRENT ASSETS $203,790 PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION 63,329 OTHER ASSETS Intellectual Properties Rights, net 61,000 Note receivable, officer $373,159 Less allowance for doubtful collection 373,159 0 -------- Deposits 2,500 -------- TOTAL OTHER ASSETS 63,500 -------- TOTAL ASSETS $330,619 ========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) CURRENT LIABILITIES Accounts payable and accrued expenses $ 694,562 Note payable, Gammage and Burnham 30,000 Loan payable, Enterprise Capital AG 90,000 Accrued wages 670,077 Accrued bonuses 578,000 Accrued interest 741,398 Taxes payable 216,940 Deferred income 5,570 Convertible debentures, current portion 3,265,837 Note payable, other, current portion 4,920 ----------------- TOTAL CURRENT LIABILITIES $ 6,297,304 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 - 649,893,721 shares 649,894 Additional paid in capital 17,431,753 Accumulated deficit (24,798,332) ----------------- TOTAL STOCKHOLDERS' (DEFICIT) (6,716,685) ----------------- TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) $ 330,619 =================
See Accompanying Notes. 2 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED OCTOBER 31, 2003 AND 2002
2003 2002 ----------- ----------- SALES $ 485,382 $ 356,278 COST OF SALES 519,003 379,440 ----------- ----------- GROSS (LOSS) (33,621) (23,162) ----------- ----------- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses (1,526,660) 1,516,776 Officer bonuses 1,132,882 0 Write-off of intangible assets 125,000 0 ----------- ----------- TOTAL OPERATING EXPENSE (2,784,542) 1,516,776 ----------- OPERATING (LOSS) (2,818,163) (1,539,938) ----------- ----------- OTHER INCOME (EXPENSE) Cancellation of debt 85,733 44,754 Interest income 0 18,310 Interest expense (353,516) (250,057) Interest expense - convertible debentures-beneficial conversion feature (1,379,077) (4,283,930) Other income 2,891 0 ----------- ----------- TOTAL OTHER INCOME (EXPENSE) (1,643,969) (4,470,923) ----------- ----------- (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (4,462,132) (6,010,861) INCOME TAXES 50 50 ----------- ----------- (LOSS) FROM CONTINUING OPERATIONS (4,462,182) (6,010,911) ----------- DISCONTINUED OPERATIONS (Loss) from operations of discontinued business segments 0 (383,168) (Loss) from abandoned equipment 0 (96,386) ----------- ----------- (LOSS) FROM DISCONTINUED OPERATIONS 0 (479,554) ----------- ----------- NET (LOSS) $(4,462,182) $(6,490,465) =========== ===========
See Accompanying Notes. 3 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED) FOR THE YEARS ENDED OCTOBER 31, 2003 AND 2002 2003 2002 --------------- --------------- NET (LOSS) PER COMMON SHARE Basic and Diluted: Continuing operations $ (0.02) $ (0.23) Discontinued operations N/A (0.02) --------------- --------------- NET (LOSS) $ (0.02) $ (0.25) =============== =============== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Basic and diluted 231,553,359 26,404,820 =============== =============== See Accompanying Notes. 4 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) FOR THE YEARS ENDED OCTOBER 31, 2003 AND 2002
Preferred Stock Common Stock --------------- ------------ Shares Amount Shares Amount ------ ------ ------ ------ BALANCE, OCTOBER 31, 2001 0 $ 0 9,986,320 $ 9,986 CONVERSION OF DEBENTURES FOR COMMON STOCK: PRINCIPAL 0 0 6,077,099 6,077 ACCRUED INTEREST 0 0 440,934 441 FEES AND COSTS FOR ISSUANCE OF COMMON STOCK 0 0 0 0 ISSUANCE OF COMMON STOCK FOR: PAYMENT OF ACCOUNTS PAYABLE 0 0 3,121,200 3,122 PAYMENT OF SALARIES AND RETENTION BONUSES 0 0 18,778,104 18,778 CONSULTING FEES 0 0 2,200,000 2,200 LEGAL FEES 0 0 825,000 825 CASH 0 0 3,000,000 3,000 DONATION OF STOCK BACK TO THE COMPANY FOR TREASURY STOCK 0 0 (928,560) (929)
Additional Paid in Accumulated Capital Deficit Total ------- ------- ----- $ 9,891,221 $(13,845,685) $ (3,944,478) 336,199 0 342,276 21,648 0 22,089 (73,777) 0 (73,777) 314,740 0 317,862 228,287 0 247,065 85,800 0 88,000 99,675 0 100,500 76,500 0 79,500 (131,355) 0 (132,284) See Accompanying Notes. 5 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) (CONTINUED) FOR THE YEARS ENDED OCTOBER 31, 2003 AND 2002
Preferred Stock Common Stock ------------------------- ------------------------- Shares Amount Shares Amount ----------- ----------- ----------- ----------- ISSUANCE OF COMMON STOCK TO THE PRESIDENT TO REIMBURSE HIM FOR SHARES GIVEN TO DEBENTURE HOLDERS FROM: TREASURY STOCK 0 $ 0 928,560 $ 929 NEW SHARES 0 0 571,440 571 INTEREST EXPENSE - CONVERTIBLE DEBENTURES - BENEFICIAL CONVERSION FEATURE 0 0 0 0 NET (LOSS) FOR THE YEAR ENDED OCTOBER 31, 2002 0 0 0 0 ----------- ----------- ----------- ----------- BALANCE, OCTOBER 31, 2002 0 $ 0 45,000,097 $ 45,000 CONVERSION OF DEBENTURES FOR COMMON STOCK: PRINCIPAL 0 0 243,234,850 243,235 INTEREST 0 0 27,742,606 27,743 FEES AND COSTS FOR ISSUANCE OF COMMON STOCK 0 0 0 0 ISSUANCE OF COMMON STOCK FOR: CONSULTING FEES 0 0 21,161,764 21,162 LEGAL FEES 0 0 12,000,000 12,000 EMPLOYEE RETENTION BONUSES 0 0 253,063,228 253,063 ACCRUED EXPENSES AND PAYABLES 0 0 11,000,000 11,000 CASH 0 0 36,691,176 36,691 INTEREST EXPENSE - CONVERTIBLE DEBENTURES - BENEFICIAL CONVERSION FEATURE 0 0 0 0 NET (LOSS) FOR THE YEAR ENDED OCTOBER 31, 2003 0 0 0 0 ----------- ----------- ----------- ----------- BALANCE, OCTOBER 31, 2003 0 $ 0 649,893,721 $ 649,894 =========== =========== =========== ===========
Additional Paid in Accumulated Capital Deficit Total ------------ ------------ ------------ $ 131,355 $ 0 $ 132,284 85,145 0 85,716 4,283,930 0 4,283,930 0 (6,490,465) (6,490,465) ------------ ------------ ------------ 15,349,368 (20,336,150) (4,941,782) 108,536 0 351,771 11,746 0 39,489 (63,187) 0 (63,187) 110,088 0 131,250 44,500 0 56,500 442,125 0 695,188 49,500 0 60,500 0 0 36,691 1,379,077 0 1,379,077 (4,462,182) (4,462,182) 0 $ 17,431,753 $(24,798,332) $ (6,716,685) ============ ============ ============ See Accompanying Notes. 6 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED OCTOBER 31, 2003 AND 2002
2003 2002 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) from continuing operations $(4,462,182) $(6,010,911) Adjustments to reconcile net (loss) to net cash (used) by operating activities of continuing operations: Loss from discontinued operations 0 (479,554) Write-off of intangible assets 125,000 0 Depreciation 21,875 24,504 Amortization 39,000 3,333 Interest expense - convertible debentures-beneficial conversion feature 1,379,077 4,283,930 Common stock issued for expenses 889,082 253,216 Provision for uncollectible accounts 35,948 8,109 Provision for obsolete inventory 10,000 0 Changes in operating assets and liabilities: Accounts receivable (147,832) 73,771 Inventories 41,758 71,141 Prepaid expenses (6,057) 36,127 Cash, pledged for letter of credit (10,000) 0 Deposits 0 13,512 Accounts and notes payable 91,401 509,519 Accrued liabilities and taxes 1,199,630 540,671 Deferred income (346) 1,421 ----------- ----------- NET CASH (USED) IN OPERATING ACTIVITIES (793,646) (671,211) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment 0 (50,000) Purchase of Intellectual Property Rights 0 (200,000) Proceeds from assets held for sale 0 48,635 ----------- ----------- NET CASH (USED) IN INVESTING ACTIVITIES 0 (201,365) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common stock 36,691 79,500 Net proceeds from issuance of convertible debentures payable 686,813 848,723 Net proceeds from loan payable 90,000 0 Repayments on note payable, factor (15,000) (55,734) Repayment of not payable, other (3,666) (5,946) ----------- -----------
See Accompanying Notes. 7 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE YEARS ENDED OCTOBER 31, 2003 AND 2002
2003 2002 ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES $ 794,838 $ 866,543 ----------- ----------- NET (DECREASE) IN CASH 1,192 (6,033) CASH, AT BEGINNING OF YEAR 948 6,981 ----------- ----------- CASH, AT END OF YEAR $ 2,140 $ 948 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during year for: Interest $ 8,566 $ 33,209 =========== =========== Taxes $ 50 $ 50 =========== =========== NON-CASH INVESTING AND FINANCING ACTIVITIES Issuance of common stock for convertible debentures $ 351,771 $ 364,365 =========== =========== Issuance of common stock for fees, services and expenses $ 889,082 $ 274,216 =========== =========== Issuance of common stock for accounts payable and accrued liabilities $ 93,846 $ 564,927 =========== =========== Interest expense - convertible debentures-beneficial conversion feature $ 1,379,077 $ 4,283,930 =========== ===========
See Accompanying Notes. 8 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2003 AND 2002 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. 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. Reverse Stock Split and Restatement of Common Stock On September 6, 2002, the Company effected a one-for-ten reverse stock split of the Company's common stock. The stock split has been retroactively recorded in the financial statements as if it occurred at the date of inception. 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. 9 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2003 AND 2002 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Accounts Receivable Accounts receivable are reported at the customers' outstanding balances less any allowance for doubtful accounts. Interest is not accrued on overdue accounts receivable. 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, age of account balance, etc.). Inventories Inventories are stated at the lower of cost (determined principally by average cost) or market. The inventories are comprised of finished products at October 31, 2003. Prepaid Expense The Company's prepaid expenses are being amortized over a one year period 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 depreciate 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 10 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2003 AND 2002 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Long-Lived Assets Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Asset to be Disposed of," requires that long-lived assets by reviewed for impairment whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may no longer be appropriate. The Company assesses the recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset's carrying value and fair value. Accounting for Convertible Debt Securities The Company has issued convertible debt securities with non-detachable conversion features. The Company accounts for such securities in accordance with Emerging Issues Task Force Topic D-60. The Company has recorded the fair value of the beneficial conversion features as interest expense and an increase to Additional Paid in Capital. 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 October 31, 2003, 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 judgment 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. 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. Amendment of Articles of Incorporation The Articles of Incorporation were amended in November 2002 to increase the number of authorized shares of common stock from 100,000,000 to 450,000,000 and authorized the creation of 50,000,000 shares of blank check preferred stock. 11 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2003 AND 2002 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Revenue Recognition Product sales - When the goods are shipped and title passes to the customer. Maintenance agreements - Income from maintenance agreements is being recognized on a straight-line basis over the life of the service contracts. The unearned portion is recorded as deferred income. Service income - When services are performed. 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. Advertising All direct advertising costs are expensed as incurred. The Company charged to operations $45,028 and $23,167 in advertising costs for the years ended October 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. 12 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2003 AND 2002 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. 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. 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 the year ended October 31, 2003 totaled 24%, 20% and 8%. 13 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2003 AND 2002 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Revenues For the year ended October 31, 2003, the Company had two customers whose sales exceeded 48%, (35% and 13%), 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 In April 2003, the FASB issued 145 "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." This Statement rescinds SFAS 4, Reporting Gains and Losses from Extinguishment of Debt and an amendment of that statement, SFAS 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. The rescission of these Statements alters the financial reporting requirements from gains and losses resulting from the extinguishments of debt. These gains or losses should now be reported before extraordinary items, unless the two requirements for extraordinary items are met. This statement also rescinds SFAS 44, Accounting for Intangible Assets of Motor Carriers and amends SFAS 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The provisions of this statement related to the rescission of Statement 4 shall be applied in fiscal years beginning after May 15, 2002. Any gain or loss on extinguishments of debt that was classified as an extraordinary item in prior periods presented that does not meet the criteria in Opinion 30 for classification as an extraordinary shall be reclassified. The provision of this Statement related to Statement 13 shall be effective for transactions occurring after May 15, 2002. In June of 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities," which nullifies EITF Issue 94-3. SFAS 146 is effective for exit and disposal activities that are initiated after December 31, 2002 and requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, in contrast to the date of an entity's commitment to an exit plan, as required by EITF Issue 94-3. The Company will adopt the provisions of SFAS 146 effective January 1, 2003. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure". This Statement amends SFAS No. 123, "Stock-Based Compensation", to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The alternative methods of transition of SFAS 148 are effective for fiscal year ending after December 15, 2002. The Company follows APB 25 in accounting for its employee stock options. The disclosure provision of SFAS 148 is effective for years ending after December 15, 2002 and has been incorporated into these consolidated financial statements and accompanying footnotes. 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 will adopt this Statement on July 1, 2003. The Company does not believe that any of these recent accounting pronouncements will have a material impact on their financial position or results of operations. 14 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2003 AND 2002 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Recent Accounting Pronouncements (Continued) NOTE 2 ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS A summary of accounts receivable and allowance for doubtful accounts is as follows: Accounts receivable $ 165,251 Allowance for doubtful accounts 41,500 ------------------ Net accounts receivable $ 123,751 ================== 15 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2003 AND 2002 NOTE 2 ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS (CONTINUED)
Allowance for doubtful accounts Balance, at November 1, 2002 $ 58,109 Additions for the year 35,948 Write-off of uncollectible accounts for the year ( 52,557) ------------------ Balance, at October 31, 2003 $ 41,500 ================== NOTE 3 PROPERTY AND EQUIPMENT Property and equipment and accumulated depreciation at October 31, 2003 consists of: Tooling $ 68,100 Machinery and equipment 37,641 Office furniture and equipment 81,027 Vehicle 39,141 Molds 25,000 ------------------ 250,909 Less accumulated depreciation 187,580 ------------------ Total property and equipment $ 63,329 ================== NOTE 4 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. As of October 31, 2003, the Company has written off 50% of the intellectual property rights due to impairment. Estimated Amortization Expense: For the year ended October 31, 2004 $ 22,182 For the year ended October 31, 2005 22,182 For the year ended October 31, 2006 16,636 ------------------ Total Estimated Amortization Expense $ 61,000 ==================
16 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2003 AND 2002 NOTE 5 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 $ 373,159 Less allowance for doubtful collection (373,159) ------------------ Note Receivable, Net $ 0 ================== NOTE 6 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 October 31, 2003, the Company is in default of their loan agreement. The note was paid in full November 4, 2003, in exchange for 8,108,108 shares of common stock. NOTE 7 LOAN PAYABLE, ENTERPRISE CAPITAL AG In September and October 2003, the Company received an advance of funds from Enterprise Capital AG totaling $90,000. The loan is unsecured, bears no interest and has no due date. NOTE 8 TAXES PAYABLE Taxes payable consists of the following: Payroll taxes payable, current and deferred $ 197,912 California income tax payable 19,028 ------------------ $ 216,940 ==================
17 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2003 AND 2002 NOTE 9 INCOME TAXES Deferred Taxes The components of deferred tax assets are as follows: Net operating loss carryforwards $2,900,500 Accrued expenses and miscellaneous 8,800 ---------- 2,909,300 Less valuation allowance 2,909,300 ---------- Net deferred tax asset $ 0 ========== A reconciliation of the valuation allowance is as follows: Balance, at November, 2002 $1,158,265 Addition for the period 1,751,035 ---------- Balance, at October 31, 2003 $2,909,300 ========== Tax Carryforwards The Company has the following tax carryforwards at October 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 October 31, 2003 2,890,718 October 31, 2023 --------------------- $ 14,524,938 ===================== 18 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2003 AND 2002 NOTE 10 CONVERTIBLE DEBENTURES
Unsecured Convertible Debentures Current Total Portion ----- ------- Lites Trading Company - $1,600,000 Debenture $ 750,000 $ 0 --------------------------------------------- On March 27, 2000, the Company issued $1,600,000 of 7% convertible debentures under the following terms and conditions: 1. Due date - March 27, 2005. 2. Interest only on May 1 and December 1 of each year commencing May 1, 2000. 3. Default interest rate - 18%. 4. Warrants to purchase 37,500 shares of common stock at $14.50 per share. 5. Conversion terms - The debenture holder shall have the right to convert all or a portion of the outstanding principal amount of this debenture plus any accrued interest into such number of shares of common stock as shall equal the quotient obtained by dividing the principal amount of this debenture by the applicable conversion price. 6. Conversion price - Lesser of (i) $14.50 (fixed price) or (ii) the product obtained by multiplying the average closing price by .80. 7. Average closing price - The debenture holder shall have the election to choose any three trading days out of twenty trading days immediately preceding the date on which the holder gives the Company a written notice of the holder's election to convert outstanding principal of this debenture. 8. Redemption by Company - If there is a change in control of the Company, the holder of the debenture can request that the debenture be redeemed at a price equal to 125% of the aggregate principal and accrued interest outstanding under this debenture. 9. The debentures are unsecured. 10. Any further issuance of common stock or debentures must be approved by the debenture holders.
19 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2003 AND 2002 NOTE 9 CONVERTIBLE DEBENTURES (CONTINUED)
Current Total Portion ----- ------- 11. Debenture holders have an eighteen month right of first refusal on future disposition of stock by the Company. 12. Restriction on payment of dividends, retirement of stock or issuance of new securities. 13. On January 29, 2001, the debenture was converted into common stock and paid-in-full. $5,000,000 Convertible Debenture $ 1,668,702 $ 1,668,702 --------------------------------
On October 31, 2001, the Company issued 8% convertible debentures as follows: 1. Due date - October 31, 2003. 2. Interest payable quarterly from January 1, 2001. 3. Default interest rate - 20%. 4. On the first $ 1,000,000 of financing, the Company issued warrants to purchase 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. 5. Put note purchase price - $4,000,000. 6. Fees and costs - 7% - 10% of cash received for debentures and warrants plus legal fees. 7. The Company must reserve a number of common shares equal to, but not less then, 200% of the amount of common shares necessary to allow the debenture and warrant holder to be able to convert all such outstanding notes and put notes to common stock. 8. Conversion price for put notes. The initial 50% of the put notes shall be the lesser of: (i) 80% of the average of the three lowest closing bid prices for the stock for twenty two days or (ii) 80% of the average of the five lowest closing bid prices for the stock for sixty days. The conver- sion price of the balance of the put notes shall be 86% of the average of the three lowest closing bid prices for ten days. 20 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2003 AND 2002 NOTE 10 CONVERTIBLE DEBENTURES (CONTINUED)
Current Total Portion ----- ------- 9. The debentures have penalty clauses if the common stock is not issued when required by the debenture holder. 10. The debentures are unsecured. 11. The Company's right to exercise the put commences on the actual effective date of the SEC Registration Statement and expires three years after the effective date. 12. Right of first refusal - The debenture holders have the right to purchase a proportionate amount of new issued shares in order to maintain their ownership interest percentage. 13. On January 12, 2004, the debenture was acquired by Enterprise Capital AG. Laurus Master Fund, Ltd. $ 323,985 $ 323,985 ------------------------ In April and July 2001, the Company issued $500,000 and $150,000 of 8% convertible debentures under the following terms and conditions: 1. Due date - October 31, 2003. 2. Interest on September 30, 2001 and quarterly thereafter. 3. Default interest rate - 20%. 4. On the first financing, the Company issued warrants to purchase 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.
21 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2003 AND 2002 NOTE 10 CONVERTIBLE DEBENTURES (CONTINUED)
Current Total Portion ----- ------- 5. Conversion terms - The debenture holder shall have the right to convert all or a portion of the outstanding principal amount of this debenture plus any accrued interest into such number of shares of common stock as shall equal the quotient obtained by dividing the principal amount of this debenture by the applicable conversion price. 6. Conversion price - Lower of eighty percent of the average of the three lowest closing bid prices for a specified three day or twenty-two day period. 7. Prepayment - The debenture may not be paid prior to the maturity date without the consent of the holder. 8. On January 12, 2004, the debenture was acquired by Enterprise Capital AG. Alpha Capital $ 240,000 $ 240,000 ------------- In January and April 2002, the Company issued an 8% convertible debenture as follows: 1. Due dates- January 30, 2004 and April 25, 2004. 2. Interest payable quarterly from March 31, 2002. 3. Default interest rate - 20%. 4. Warrants to purchase 800,000 shares of common stock at $.60 per share. 5. Fees and costs - 7% - 10% of cash received for debentures and warrants plus legal fees. 6. Conversion price - (i) 80% of the average of the three lowest closing bid prices for the stock for twenty two days or (ii) 80% of the average of the three lowest closing bid prices for the stock for sixty days. 7. The debentures are unsecured. 8. In February 2004, the debenture was converted into common stock and paid-in-full. ----------- ---------- Total unsecured convertible debenture $ 2,982,687 $2,232,687 ----------- ----------
22 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2003 AND 2002 NOTE 10 CONVERTIBLE DEBENTURES (CONTINUED)
Current Total Portion ----- ------- Secured convertible debentures 1,033,150 1,033,150 ------------------------------ AJW Entities In August and October 2002, the Company issued 12% secured convertible debentures as follows: 1. Due dates - August 15, 2003 and October 9, 2003. 2. Interest payable quarterly. 3. Default interest rate - 15%. 4. Warrants to purchase 180,000 shares of common Stock at $0.05 per share. 5. Conversion Price (i) 50% of the average of the three lowest closing bid prices for the stock for twenty days or (ii) Fixed conversion price of $0.05. 6. The convertible debentures are secured by all the assets of the Company. 7. On January 28, 2004, the agreement was renegotiated and subsequently converted into common stock and paid-in-full. Total Secured Convertible Debentures $ 1,033,150 $ 1,033,150 =========== =========== Total Debentures $ 4,015,837 $ 3,265,837 =========== =========== Maturities of convertible debentures are as follows: 2004 $ 3,265,837 2005 750,000 ----------- Total $ 4,015,837 ===========
See Note 22 for conversion of debentures subsequent to October 31, 2003. 23 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2003 AND 2002 NOTE 11 NOTE PAYABLE, OTHER Note payable to Community First National Bank is due in monthly payments of principal and interest of $545 with interest at 7% until March 7, 2004. The note is secured by an automobile which costs $36,000 and has a book value of $0. $ 4,920 ================= Maturities of long-term debt are as follows: 2004 $ 4,920 ==================
NOTE 12 DISCONTINUED OPERATIONS The network integration services, digital subscriber line high speed internet connection services, and Co-Location computer data and server facility were discontinued on October 31, 2001. The following information is presented for the discontinued operations: A. Segments discontinued - as indicated above B. Discontinued date - October 31, 2001 C. Manner of disposal - write-down of assets to fair market value and sale of segments NOTE 13 COMPUTATION OF EARNINGS PER SHARE 2003 2002 ------------- ------------ From continuing operations Net (loss) from continuing operations $ (4,462,182) $ (6,010,911) ------------- ------------ Weighted average number of common shares outstanding 231,553,359 26,404,820 (Loss) per share $ (.02) $ (0.23) 24 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2003 AND 2002 NOTE 13 COMPUTATION OF EARNINGS PER SHARE (CONTINUED)
2003 2002 --------------- -------------- From discontinued operations Net (loss) from discontinued operations $ 0 $ ( 479,554) --------------- -------------- Weighted average number of common shares outstanding 231,553,359 26,404,820 (Loss) per share $ N/A $ ( .02)
The Company has outstanding warrants to purchase 5,187,116 shares of its common stock which have not been included in the above computation, as they are anti-dilutive. NOTE 14 CANCELLATION OF DEBT 2003 2002 -------------- -------------- Settlement of prior year liabilities $ 85,733 $ 44,754 ============== ============== NOTE 15 COMMITMENTS AND CONTINGENCIES Operating Lease The Company leases its office and warehouse facilities in Phoenix, Arizona 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 25 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2003 AND 2002 NOTE 15 COMMITMENTS AND CONTINGENCIES (CONTINUED) 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 nine months ended October 31, 2003 and 2002 was $41,513 and $44,644, 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 November 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 November 30, 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. Legal The Company is the defendant in one lawsuit for unpaid wages. Management has recorded a liability in the amount of $20,000. The Company is also 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. Officers' Compensation As of October 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. 26 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2003 AND 2002 NOTE 15 COMMITMENTS AND CONTINGENCIES (CONTINUED) 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 report, the debentures have not been issued. NOTE 16 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. 6. On August 14, 2003, the Company issued 16,308,823 shares of restricted common stock in consideration of services rendered. 27 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2003 AND 2002 NOTE 16 COMMON STOCK (CONTINUED) Stock Purchase Warrants As of October 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 October 31, 2003. See Accompanying Notes and Independent Auditors' Report. 28 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2003 AND 2002 NOTE 17 EMPLOYEE STOCK OPTIONS On October 31, 2002, the Company cancelled its employee stock option plan. NOTE 18 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 19 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 20 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 21 4TH QUARTER INTERIM RESULTS OF OPERATIONS (UNAUDITED) Revenues $ 202,990 Costs and expenses 1,179,518 ----------- Loss from operations $ (976,528) =========== NOTE 22 SUBSEQUENT EVENTS (UNAUDITED) 29 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2003 AND 2002 NOTE 22 SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED) Spin-Off On July 20, 2003, the Board of Directors approved the spin-off of IBIZ, Inc., a wholly owned subsidiary of the Company, into a separate company. Management estimates that the transaction should be completed in the second quarter of fiscal, 2004. 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 of America 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 Enterprises Capital AG and its affiliates infrastructure in Europe and Israel. Options On November 1, 2003, the Company granted an individual the option to purchase 200,000,000 shares of common stock at the exercise price of the average closing price for the three days prior to exercise less a 40% discount.The option is exercisable commencing November 1, 2003 and expires after January 15, 2004. During December 2003, the Company granted an individual the option to purchase 50,000,000 shares of common stock at the exercise price of market value at the date of exercise less a 40% discount. On January 28, 2004, the Company granted Pangea Investments GmbH the option to purchase 100,000,000 shares of common stock at the exercise price of market value at the date of exercise less a 50% discount. The option is exercisable commencing January 28, 2004 and expires after January 29, 2014. As of February 4, 2004, the Company has received approximately $1,098,000 cash as a result of the Company's Optionholders exercising their options to purchase chares of common stock. 30 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2003 AND 2002 NOTE 22 SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED) Convertible Debentures During the period from November 1, 2003 through January 15, 2004, the convertible debenture holders converted $1,033,404 of principal and $80,104 of accrued interest for 819,302,914 shares. During January 2004, the Company's remaining principal balances of its convertible debentures were acquired by Enterprise Capital AG. Stock Issuances On October 31, 2003, the Company filed an S-8 Registration Statement with the SEC and subsequently issued 21,108,108 shares of common stock to individuals for services rendered, payment of accounts payable and payment of a note payable. On December 5, 2003, the Company filed an Amendment to the S-8 Registration Statement previously filed on October 31, 2003, and subsequently issued 81,000,000 shares of common stock to individuals for services rendered, 110,000,000 shares of common stock to individuals for options exercised and 204,482,761 shares of common stock to its current officers and employees as bonuses for the fiscal year-end. Stock Issuances (Continued) On January 7, 2004, the Company issued 194,137,931 shares of restricted common stock to its current officers and employees as a retention bonus. On January 29, 2004, the Company filed an Amendment to the S-8 Registration Statement previously filed on October 31, 2003, to increase the number of shares available for issuance by 450,000,000. Acquisition of Synosphere, LLC On February 3, 2004, the Company acquired 5,000,000 Interests, representing all of the Interest, of Synosphere, LLC, ("Synosphere"), in exchange for 30,000,000 shares of common stock. Synosphere is a Plano, Texas based corporation specializing in the development of innovative handheld computer technologies. 31 IBIZ TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2003 AND 2002 NOTE 22 SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED) Acquisition of Synosphere, LLC (Continued) The Company entered into employment agreements with two of the current directors/officers of Synosphere. The term of these employee agreements shall be two years following the closing and transferable in the event of a sale of Synosphere to another entity or if Synosphere is spun-off. The employees shall receive annual base salaries of $112,000 and $102,000 per year with healthcare benefits. In addition, each employee shall receive a sign-on bonus of 2,500,000 chares of common stock. Furthermore, the employees shall receive an Earn Out bonus of common stock in eight payments, each made quarterly, in the amount of $62,500. A "golden parachute" clause shall be put in place, such that if either of the employee agreements are terminated by the Company or any successor they are payable in full at the date of their termination. Finally, one of the employees shall be appointed to the Company's Board of Directors. 32 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. On October 11, 2002, iBIZ Technology Corp., (the "Company") was notified by Moffitt & Company, P.C., ("Moffitt") that it resigned as the Company's independent auditors effective October 11, 2002. On October 17, 2002, the Company engaged Farber and Hass, CPA as independent auditors of the Company for the fiscal year ending October 30, 2002. The action to engage Farber and Hass, CPA) was taken upon the unanimous approval of the Audit Committee of the Board of Directors of the Company. During the last two fiscal years ended October 30, 2000 and October 31, 2001 and through October 11, 2002, there were no disagreements between the Company and Moffitt on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure which, if not resolved to the satisfaction of Moffitt would have caused Moffitt to make reference to the matter in its reports on the Company's financial statements. During the last two most recent fiscal years ended October 31, 2000 and October 30, 2001 and through October 11, 2002, there were no reportable events as the term described in Item 304(a)(1)(iv) of Regulation S-B. Moffitt's opinion in its report on the Company's financial statements for the year ended October 31, 2000 and 2001, expressed substantial doubt with respect to the Company's ability to continue as a going concern. During the two most recent fiscal years and through October 11, 2002, the Company has not consulted with Farber and Hass, CPA regarding either: 1. the application of accounting principles to any specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company's financial statements, and neither a written report was provided to the Company nor oral advice was provided that Farber and Hass, CPA concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or 2. any matter that was either subject of disagreement or event, as defined in Item 304(a)(1)(iv)(A) of Regulation S-B and the related instruction to Item 304 of Regulation S-B, or a reportable event, as that term is explained in Item 304(a)(1)(iv)(A) of Regulation S-B. The Company requested that Moffitt furnish it with a letter addressed to the Securities and Exchange Commission stating whether it agrees with the above statements. A copy of such letter, dated October 17, 2002, was filed as Exhibit 16.1 to a Form 8-K filed with the Securities and Exchange Commission on October 18, 2002. 48 PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. NAME AGE POSITION ---- --- -------- Kenneth W. Schilling 51 President, Chief Executive Officer, Acting Principal Accounting Officer and Director Mark Perkins 39 Executive Vice President and Director Directors serve until the next annual meeting and until their successors are elected and qualified. Officers are appointed to serve for one year until the meeting of the board of directors following the annual meeting of stockholders and until their successors have been elected and qualified. There are no family relationships between any of our directors or officers. Kenneth W. Schilling founded IBIZ' predecessor, SouthWest Financial Systems, in 1979, and has been Chief Executive Officer, President and a Director since IBIZ' founding. Mr. Schilling studied for a B.S. in electrical engineering at the University of Pittsburgh from 1970 to 1972 but left for military service prior to receiving his degree. Mark H. Perkins joined IBIZ in 1994 and currently serves as Executive Vice President. Mr. Perkins was appointed to iBIZ's Board on March 5, 1999. Prior to his joining IBIZ, Mr. Perkins was employed at American Express as a project manager for major systems implementation, a position he held for eight years. Mr. Perkins earned a degree in business management from California State University-Sonoma. COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT Except as noted below, based solely upon a review of Forms 3, 4 and 5, and amendments thereto, furnished to the Company during fiscal year 2003, the Company is not aware of any director, officer or beneficial owner of more than ten percent of the Company's Common Stock that, during fiscal year 2003, failed to file on a timely basis reports required by Section 16(a) of the Securities Exchange Act of 1934. 49 ITEM 10. EXECUTIVE COMPENSATION. The following table sets forth certain compensation paid or accrued by us to certain of our executive officers during fiscal years ended 2003, 2002 and 2001. Summary Compensation Table
Other Annual Restricted Options LTIP Name & Principal Salary Bonus Compen- Stock SARs Payouts All Other Position Year ($) ($) sation ($) Awards ($) (#)(1) ($) Compen-sation --------------------- --------- ------------ ----------- ------------ -------------- ----------- ------------ -------------- Kenneth W. Schilling, 2003 175,000.00 0 0 523,652.39(1) 0 0 0 President, CEO, 2002 68,750.00 0 0 57,691.82(1) 0 0 0 Acting Principal 2001 200,000.00 26,138 0 0 300,000 0 0 Accounting Officer, and Director --------------------- --------- ------------ ----------- ------------ -------------- ----------- ------------ -------------- Mark H. Perkins, 2003 150,000.00 0 0 521,634.65 0 0 0 Executive Vice 2002 69,791.69 0 0 57,021.48 0 0 0 President, Director 2001 150,000.00 26,138 0 0 300,000 0 0 --------------------- --------- ------------ ----------- ------------ -------------- ----------- ------------ --------------
(1) Represents 57,691,823 restricted shares issued at the market price of $0.001 on August 22, 2002. (2) Represents 57,021,476 restricted shares issued at the market price of $0.001 on August 22, 2002. OPTIONS No options were exercised or granted during the last fiscal year. There were no long-term incentive plans or rewards made in fiscal 2003. 50 Employment Agreements Employment Agreement For Kenneth W. Schilling. Effective July 12, 2001, Kenneth W. Schilling and iBIZ entered into an Employment Agreement (the "Agreement"). Under the Agreement, Mr. Schilling has been retained to act as President and Chief Executive Officer of iBIZ. The Agreement is for a term of three years ending July 12, 2004. Under the Agreement, Mr. Schilling shall receive an annual base salary of $250,000. Mr. Schilling will also receive three hundred thousand (300,000) options to purchase three hundred thousand (300,000) shares of common stock of iBIZ at an exercise price to be determined by the Board based upon the closing price of the Company's common stock. In addition, Mr. Schilling will also receive a bonus equal to one percent 1% of the total sales of the Company recorded in the preceding fiscal quarter. Employment Agreement For Mark Perkins. Effective July 12, 2001, Mark Perkins and iBIZ entered into an Employment Agreement (the "Agreement"). Under the Agreement, Mr. Perkins has been retained to act as Executive Vice-President of iBIZ. The Agreement is for a term of three years ending July 12, 2004. Under the Agreement, Mr. Perkins shall receive an annual base salary of $150,000. Mr. Perkins will also receive three hundred thousand (300,000) options to purchase three hundred thousand (300,000) shares of common stock of iBIZ at an exercise price to be determined by the Board based upon the closing price of the Company's common stock. In addition, Mr. Perkins will also receive a bonus equal to one percent 1% of the total sales of the Company recorded in the preceding fiscal quarter. In addition to the foregoing, each Agreement contains the following termination provisions: "(a) Termination By The Company For Cause: The Company shall have the right to terminate this Agreement and to discharge Employee for cause (hereinafter "Cause"), and all compensation to Employee shall cease to accrue upon discharge of Employee for Cause. For the purposes of this Agreement, the term "Cause" shall mean (i) Employee's conviction of a felony; (ii) the alcoholism or drug addiction of Employee; (iii) gross negligence or willful misconduct of Employee in connection with his duties hereunder; (iv) the determination by any regulatory or judicial authority (including any securities self-regulatory organization) that Employee directly violated, before or after the date hereof, any federal or state securities law, any rule or regulation adopted thereunder; or (v) the continued and willful failure by Employee to substantially and materially perform his material duties hereunder. (b) Termination By The Company Without Cause: In the event Employee's employment hereunder shall be terminated by the Company for other than Cause: (1) the Employee shall thereupon receive as severance in a lump sum payment from the Company the amount of one (1) year of Salary in effect at the time of such termination. (c) Resignation: In the event Employee resigns without Reason, he shall receive any unpaid fixed salary through such resignation date and such benefits to which he is entitled by law, and shall also receive a lump sum payment from the Company in the amount of six (6) months Salary in effect at the time of such resignation. (d) Change of Control: In the event of a Change in Control, as hereinafter defined, the Company shall pay the Employee in a lump sum the amount of three (3) years of annual Salary in effect at the time of such Change in Control. Such payment and grant shall be made regardless of the continuation or termination of Employee's employment with the Company after a Change of Control, and shall be in addition to, and not in lieu of, any other payments or issuances due pursuant to the terms of this agreement. For purposes hereof, a Change in Control shall be deemed to have occurred (i) if there has occurred a "change in control" as such term is used in Item 1 (a) of Form 8-K promulgated under the Securities Exchange Act of 1934, as amended, at the date hereof ("Exchange Act") or (ii) if there has occurred a change in control as the term "control" is defined in Rule 12b-2 promulgated under the Exchange Act." 51 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT. As of February 11, 2004, there were 2,132,956,988 shares of common stock, par value $0.001 outstanding. The following table sets forth certain information regarding the beneficial ownership of our common stock as of February 11, 2004: - all directors - each person who is known by us to be the beneficial owner of more than five percent (5%) of the outstanding common stock - each executive officer named in the Summary Compensation Table - all directors and executive officers as a group The number of shares beneficially owned by each director or executive officer is determined under rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under the SEC rules, beneficial ownership includes any shares as to which the individual has the sole or shared voting power or investment power. In addition, beneficial ownership includes any shares that the individual has the right to acquire within 60 days. Unless otherwise indicated, each person listed below has sole investment and voting power (or shares such powers with his or her spouse). In certain instances, the number of shares listed includes (in addition to shares owned directly), shares held by the spouse or children of the person, or by a trust or estate of which the person is a trustee or an executor or in which the person may have a beneficial interest. Amount of Name and Address Beneficial Percent of Title of Class of Beneficial Owner Ownership (1) Class -------------- ---------------------------- --------------- ----------- Common Stock Kenneth W. Schilling 257,737,722 12.08% 2238 West Lone Cactus Drive Suite 200 Phoenix, Arizona 85021 Common Stock Mark H. Perkins 243,143,298 11.40% 2238 West Lone Cactus Drive Suite 200 Phoenix, Arizona 85021 Common Stock Shares of all directors and 500,881,020 23.48% executive officers as a group (2 persons) IBIZ TECHNOLOGY CORP. STOCK OPTION PLAN The iBIZ Technology Corp. Stock Option Plan provides for the grant of stock options to purchase common stock to eligible directors, officers, key employees, and service providers of iBIZ. The stock option plan covers an aggregate maximum of ten million (10,000,000) shares of common stock and provides for the granting of both incentive stock options (as defined in Section 422 of the Internal Revenue Code of 1986, as amended) and non-qualified stock options (options which do not meet the requirements of Section 422). Under the stock option plan, the exercise price may not be less than the fair market value of the common stock on the date of the grant of the option. As of October 31, 2001, 3,145,000 options had been granted to 37 *persons (net of cancelled and exercised) under the plan at exercise prices of between $0.53 and $5.00. As of February 11, 2003, the market price of the stock was $0.04. The options have been granted for periods ranging from one (1) to ten (10) years, subject to earlier cancellation upon termination of employment, resignation, disability and death. The options vest pursuant to the terms of each individual option, which to date have ranged from immediate to a five (5) year period. The stock option plan benefits currently have no value, as all of the outstanding options were issued at exercise prices greater than the current price of our common stock. 52 The Board of Directors administers and interprets the stock option plan and is authorized to grant options thereunder to all eligible persons. In the event the Board has at least two (2) members who are not either employees or officers of iBIZ or of any parent or subsidiary of iBIZ, the stock option plan will be administered by a committee of not less than two (2) persons who are such independent directors. The Board designates the optionees, the number of shares subject to the options and the terms and conditions of each option. Certain changes in control of iBIZ, as defined in the stock option plan, will cause the options to vest immediately. Each option granted under the stock option plan must be exercised, if at all, during a period established in the grant that may not exceed ten (10) years from the date of grant. An optionee may not transfer or assign any option granted and may not exercise any options after a specified period subsequent to the termination of the optionee's employment with iBIZ. The Board may make amendments to the stock option plan from time to time it deems proper and in the best interests of iBIZ provided it may not take any action which disqualifies any option granted under the stock option plan as an incentive stock option or which adversely effects or impairs the rights of the holder of any option under the stock option plan. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. While a private company, IBIZ (now iBIZ) made loans totaling $992,037 to Kenneth Schilling. These loans are payable on demand and accrued interest at eight percent (8%) during 1997 and six percent (6%) during 1998 and 1999. As of January 31, 2001, the balance of the loans payable by Mr. Schilling to IBIZ totaled approximately Three Hundred Eighty-Four Thousand Nine Hundred Eighty-Eight Dollars and Ninety-Four Cents ($384,988.94). Mr. Schilling, as trustee of the Moorea Trust, pledged 2,000,000 shares of iBIZ common stock to secure this debt. As of October 31, 2001, this loan was considered uncollectible because there is no longer collateral guaranteeing the loan. In November 2001, the Board of Directors approved a resolution authorizing us to accept 9,285,600 shares of our common stock from Mr. Ken Shilling, and that we apply such shares to our authorized and un-issued capital stock so that it may be used for future offerings. To compensate Mr. Schilling for his contribution of the 9,285,600 shares, the Board of Directors agreed to issue 15,000,000 shares of our common stock to Mr. Schilling upon the increase of our authorized common stock from 100,000,000 to 450,000,000. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. IBIZ did not file a Form 8-K for during the last quarter ending on December 31, 2003. Exhibit No. DESCRIPTION -------------------------------------------------------------------------------- 2.01(1) Plan of Reorganization and Stock Exchange Agreement dated January 1, 1999 3.01(1) Articles of Incorporation, as amended 3.02(1) Bylaws 10.03(1) IBIZ Technology Corp. Stock Option Plan dated January 31, 1999 Exhibit No. DESCRIPTION -------------------------------------------------------------------------------- 10.26(6) Modification and Waiver by and among iBIZ Technology and Subscribers to 8% Convertible debentures Agreement, dated as of April 17, 2001 10.27(6) Subscription Agreement for Debentures Convertible into Common Stock of iBIZ Technology Corp., dated as of April 26, 2001 10.28(6) Form of 8% Convertible debentures Due April 26, 2003 10.29(6) Form of Warrant dated April 26, 2001, 2000 10.30(6) Form of Subscription Agreement for Debentures Convertible into Common Stock of iBIZ Technology Corp., dated as of October 9, 2001 10.31(8) Form of 8% Convertible debentures Due October 9, 2002 10.32(8) Form of Warrant dated October 9, 2001 Form of Subscription Agreement for Debentures Convertible into Common Stock of iBIZ 10.33(10) Technology Corp., dated as of August 21, 2001 between iBiz Technology and Laurus Master Fund, Ltd. and Keshet, L.P. 10.34(10) Form of 8% Convertible Debenture Due October August 21, 2002 between iBiz Technology and Laurus Master Fund, Ltd. 10.35(10) Form of Warrant dated August 21, 2001 issued to Laurus Master Fund, Ltd. 10.36(10) Form of 8% Convertible Debenture Due October August 21, 2002 between iBiz Technology and Keshet, L.P. Form of Subscription Agreement for Debentures Convertible into Common Stock of iBIZ 10.37(12) Technology Corp., dated as of July 30, 2001 between iBiz Technology and Laurus Master Fund, Ltd., Esquire Trading & Finance, Inc. and Celeste Trust Reg. 10.38(12) Form of 8% Convertible Debenture Due October July 30, 2002 between iBiz Technology and Laurus Master Fund, Ltd. 10.39(12) Form of Warrant dated July 30, 2001 issued to Laurus Master Fund, Ltd. 10.40(12) Form of 8% Convertible Debenture Due October July 30, 2002 between iBiz Technology and Esquire Trading & Finance, Inc.. 10.41(12) Form of Warrant dated July 30, 2001 issued to Esquire Trading & Finance, Inc. 10.42(12) Form of 8% Convertible Debenture Due October July 30, 2002 between iBiz Technology and Celeste Trust Reg. 10.43(12) Form of Warrant dated July 30, 2001 issued to Celeste Trust Reg. Form of Subscription Agreement for Debentures Convertible into Common Stock of iBIZ 10.44(12) Technology Corp., dated as of June 22, 2001 between iBiz Technology and The Keshet Fund, L.P. Exhibit No. DESCRIPTION -------------------------------------------------------------------------------- 10.45(12) Form of 8% Convertible Debenture Due October June 22, 2002 between iBiz Technology and The Keshet Fund, L.P. 10.46(12) Form of Warrant dated July 30, 2001 issued to The Keshet Fund, L.P. 31.1 Certification by Chief Executive Officer and Chief Financial Officer pursuant to Sarbanes -Oxley Section 302. 32.1 Certification by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S. C. Section 1350 (1) Incorporated by reference from iBIZ's Form 10-SB, File No. 000-27619, filed with the SEC on October 13, 1999 (2) Incorporated by reference from iBIZ's Form 10-SB/A, File No. 000-27619, filed with the SEC on November 30, 1999. (3) Incorporated by reference from iBIZ's Form SB-2, File No. 333-94409, filed with the SEC on January 11, 2000. (4) Incorporated by reference from iBIZ's Form 10-KSB, File No. 000-027619, filed with the SEC on January 7, 2000. (5) Incorporated by reference from iBIZ's Form 10-QSB, File No. 000-027619, filed with the SEC on March 16, 2000. (6) Incorporated by reference from iBIZ's Form SB-2, File No. 333-34936, filed with the SEC on April 17, 2000. (7) Incorporated by reference from iBIZ's Form SB-2, File No. 333-42414, filed with the SEC on July 28, 2000. (8) Incorporated by reference from iBIZ's Form SB-2, File No. 333-50564, filed with the SEC on November 22, 2000. (9) Incorporated by reference from iBIZ's Form 8-K, File No. 000-027619, filed with the SEC on January 19, 2001. (10) Incorporated by reference from iBIZ's Form 10-KSB, File No. 000-027619, filed with the SEC on January 29, 2001. (11) Incorporated by reference from iBiz's Form SB-2, File No. 333-63808, filed with the SEC on June 25, 2001. (12) Incorporated by reference from iBiz's Form SB-2, File No. 333-74496, filed with the SEC on December 4, 2001. (13) Incorporated by reference from iBiz's Form SB-2, File No. 333-88274, filed with the SEC on May 15, 2002. (14) Incorporated by reference from iBiz's Form SB-2, File No. 333-100450, filed with the SEC on October 9, 2002. ITEM 14. CONTROLS AND PROCEDURES As of October 31, 2002, an evaluation was performed by our Chief Executive Officer and Acting Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, Our Chief Executive Officer and Acting Chief Accounting Officer, concluded that our disclosure controls and procedures were effective as of October 31, 2002. There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to October 31, 2002. 55 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. iBIZ Technology Corp., a Florida Corporation By: /s/ Kenneth W. Schilling ------------------------------------- Kenneth W. Schilling, President, Director In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Kenneth W. Schilling -------------------------------------------- Kenneth W. Schilling, President, Chief Executive Officer, Acting Principal Accounting Officer, and Director By:/s/ Mark H. Perkins -------------------------------------------- Mark H. Perkins, Vice President of Operations, Director