<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED APRIL 30, 2000
COMMISSION FILE NO. 027619
IBIZ TECHNOLOGY CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Florida 86-0933890
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
1919 West Lone Cactus, Phoenix, Arizona 85021
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (623) 492-9200
</TABLE>
<TABLE>
<CAPTION>
Class Outstanding at June 12, 2000
<S> <C>
Common stock, $0.01 par value 30,293,027
</TABLE>
<PAGE> 2
IBIZ TECHNOLOGY CORP. AND
CONSOLIDATED SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2000 AND 1999
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT................................... 1
FINANCIAL STATEMENTS
Consolidated Balance Sheets....................................... 2
Consolidated Statements of Operations............................. 3
Consolidated Statement of Changes in Stockholders' Equity ........ 4
Consolidated Statements of Cash Flows............................. 5 - 6
Notes to Consolidated Financial Statements........................ 7 - 21
</TABLE>
<PAGE> 4
[MOFFITT & COMPANY, P.C. LETTERHEAD]
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To The Board of Directors and Stockholders
IBIZ Technology Corp. and Consolidated Subsidiary
Phoenix, Arizona
We have reviewed the accompanying balance sheets of IBIZ Technology Corp. and
Consolidated Subsidiary as of April 30, 2000 and 1999, and the related
statements of operations for the three and six months then ended, statement of
stockholders' equity for the six months ended April 30, 2000 and statements of
cash flows for the six months ended April 30, 2000 and 1999, in accordance with
Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants. All information included in
these financial statements is the representation of the management of IBIZ
Technology Corp. and Consolidated Subsidiary.
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
As discussed in Note 22, certain conditions indicate that the company may be
unable to continue as a going concern. The accompanying financial statements do
not include any adjustments to the financial statements that might be necessary
should the company be unable to continue as a going concern.
MOFFITT & COMPANY, P.C.
SCOTTSDALE, ARIZONA
June 5, 2000
<PAGE> 5
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
APRIL 30, 2000 AND 1999
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $1,303,453 $ 53,194
Accounts receivable, trade 635,948 154,094
Loan receivable, officer 38,404 0
Inventories 264,135 189,329
Prepaid expenses 29,658 14,522
---------- ----------
TOTAL CURRENT ASSETS 2,271,598 411,139
---------- ----------
PROPERTY AND EQUIPMENT, NET OF
ACCUMULATED DEPRECIATION 340,996 53,186
---------- ----------
OTHER ASSETS
Note receivable, related party 419,582 717,829
Deposits 16,401 19,850
Customer list, net of accumulated amortization 9,916 0
---------- ----------
TOTAL OTHER ASSETS 445,899 737,679
---------- ----------
TOTAL ASSETS $3,058,493 $1,202,004
========== ==========
</TABLE>
<PAGE> 6
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable, trade $ 510,135 $ 767,090
Customer deposits 0 212,458
Notes payable, current 5,265 351,703
Accrued liabilities 158,498 69,894
Sales and payroll taxes payable 132,301 79,276
Corporation income taxes payable 19,078 17,841
Deferred income 118,373 101,283
----------- -----------
TOTAL CURRENT LIABILITIES 943,650 1,599,545
----------- -----------
LONG - TERM LIABILITIES
Convertible debentures payable 1,950,000 0
Notes payable 17,053 22,283
----------- -----------
TOTAL LONG - TERM LIABILITIES 1,967,053 22,283
----------- -----------
STOCKHOLDERS' EQUITY
Common stock
Authorized - 100,000,000 shares, par
value $.001 per shares
Issued and outstanding -
30,100,175 shares in 2000 30,100 0
24,540,000 shares in 1999 0 24,540
Paid in capital in excess of par value of stock 3,309,799 800,061
Advance on stock subscription 0 0
Retained earnings (deficit) (3,192,109) (1,244,425)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 147,790 (419,824)
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 3,058,493 $ 1,202,004
=========== ===========
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
2
<PAGE> 7
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000
----------------------------------
THREE MONTHS SIX MONTHS
ENDED ENDED
APRIL 30, 2000 APRIL 30, 2000
-------------- --------------
<S> <C> <C>
SALES $ 1,436,126 $ 2,064,979
COST OF SALES 1,224,326 1,775,121
------------ ------------
GROSS PROFIT 211,800 289,858
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 1,028,002 1,828,556
------------ ------------
(LOSS) BEFORE OTHER INCOME (EXPENSE) (816,202) (1,538,698)
------------ ------------
OTHER INCOME (EXPENSE)
Interest income 11,575 16,973
Interest expense (36,199) (29,221)
------------ ------------
TOTAL OTHER INCOME (EXPENSE) (24,624) (12,248)
------------ ------------
(LOSS) BEFORE INCOME TAXES (840,826) (1,550,946)
INCOME TAXES 0 0
------------ ------------
NET (LOSS) $ (840,826) $ (1,550,946)
============ ============
NET (LOSS) PER COMMON SHARE
Basic and Diluted $ (.03) $ (.06)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Basic and diluted 27,799,927 27,799,927
============ ============
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
1999
-----------------------------------
THREE MONTHS SIX MONTHS
ENDED ENDED
APRIL 30, 1999 APRIL 30, 1999
-------------- --------------
<S> <C> <C>
$ 588,050 $1,421,569
413,219 1,134,880
---------- ----------
174,831 286,689
661,814 792,821
---------- ----------
( 486,983) ( 506,132)
---------- ----------
10,756 10,756
( 8,735) ( 24,619)
---------- -----------
2,021 ( 13,863)
---------- ----------
( 484,962) ( 519,995)
0 0
---------- ----------
$( 484,962) $( 519,995)
========== ==========
$ ( .02) $ ( .02)
========== ==========
24,540,000 24,540,000
========== ==========
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
3
<PAGE> 9
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED APRIL 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
------------
SHARES AMOUNT
------ ------
<S> <C> <C>
BALANCE, NOVEMBER 1, 1999 26,370,418 $ 26,370
NOVEMBER, 1999 - CONVERSION OF DEBENTURES
FOR COMMON STOCK 300,962 301
NOVEMBER, 1999 - ISSUANCE OF COMMON STOCK
FOR CASH 100,000 100
JANUARY, 2000 - ISSUANCE OF COMMON STOCK
FOR CASH 250,000 250
NOVEMBER, 1999 TO JANUARY, 2000 - FEES AND
COSTS FOR ISSUANCE OF STOCK 0 0
FEBRUARY, 2000 - ISSUANCE OF COMMON STOCK
FOR ADVANCES ON STOCK SUBSCRIPTIONS 100,000 100
FEBRUARY, 2000 - CONVERSION OF DEBENTURES
FOR COMMON STOCK 300,000 300
MARCH, 2000 - CONVERSION OF DEBENTURES FOR
COMMON STOCK 1,292,482 1,293
APRIL, 2000 - CONVERSION OF DEBENTURES FOR
COMMON STOCK 88,938 89
APRIL, 2000 - ISSUANCE OF COMMON STOCK FOR
CASH FROM WARRANTS 420,000 420
APRIL, 2000 - ISSUANCE OF COMMON STOCK FOR
CASH FROM STOCK OPTIONS 70,000 70
APRIL, 2000 - ISSUANCE OF COMMON STOCK FOR
ACCOUNT PAYABLE 100,000 100
APRIL, 2000 - ISSUANCE OF COMMON STOCK FOR
SERVICES 250,000 250
APRIL, 2000 - ISSUANCE OF COMMON STOCK FOR
PAYROLL BONUSES 50,000 50
APRIL, 2000 - ISSUANCE OF COMMON STOCK FOR
FEES AND COSTS FOR ISSUANCE OF STOCK 407,375 407
FEBRUARY, 2000 TO APRIL, 2000 - FEES AND COSTS
FOR ISSUANCE OF STOCK 0 0
NET (LOSS) FOR THE SIX MONTHS
ENDED APRIL 30, 2000 0 0
---------- ----------
BALANCE, APRIL 30, 2000 30,100,175 $ 30,100
========== ==========
</TABLE>
<PAGE> 10
<TABLE>
<CAPTION>
PAID IN
CAPITAL IN
EXCESS OF ADVANCES RETAINED
PAR VALUE ON STOCK EARNINGS
OF STOCK SUBSCRIPTIONS (DEFICIT)
-------- ------------- ---------
<S> <C> <C> <C>
$ 1,106,266 $ 75,000 $(1,641,163)
200,734 0 0
49,900 0 0
274,750 0 0
(188,000) 0 0
74,900 (75,000) 0
199,700 0 0
1,039,585 0 0
59,944 0 0
314,580 0 0
52,430 0 0
49,900 0 0
210,500 0 0
50,450 0 0
483,147 0 0
(668,987) 0 0
0 0 (1,550,946)
----------- ----------- -----------
$ 3,309,799 $ 0 $(3,192,109)
=========== =========== ===========
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
4
<PAGE> 11
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(1,550,946) $ (519,995)
Adjustments to reconcile net (loss) to
net cash (used) by operating activities
Depreciation and amortization 25,924 25,870
Issuance of common stock for interest, services
and payroll bonuses 287,913 0
Changes in operating assets and liabilities
Accounts receivable, trade (423,648) 942
Inventories 3,952 134,068
Prepaid expenses 9,326 12,478
Deposits 359 305
Accounts payable (252,830) (13,725)
Customer deposits (115,408) (182,806)
Accrued liabilities and taxes 53,826 (169,483)
Deferred income 63,411 30,252
----------- -----------
NET CASH FLOWS (USED)
BY OPERATING ACTIVITIES (1,898,121) (682,094)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (240,189) (2,520)
Loans to related parties (101,176) 188,791
Purchase of customer list (11,900) 0
----------- -----------
NET CASH FLOWS (USED) PROVIDED
BY INVESTING ACTIVITIES (353,265) 186,271
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft 0 (13,700)
Net proceeds from issuance of common stock 394,349 582,234
Proceeds from issuance of convertible debentures 3,200,000 0
Changes in notes payable (64,853) (19,717)
----------- -----------
NET CASH FLOWS PROVIDED
BY FINANCING ACTIVITIES 3,529,496 548,817
----------- -----------
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
5
<PAGE> 12
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE SIX MONTHS ENDED APRIL 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
NET INCREASE IN CASH AND
CASH EQUIVALENTS $1,278,110 $ 52,994
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 25,343 200
---------- ----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $1,303,453 $ 53,194
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during year for:
Interest $ 19,196 $ 22,384
========== ==========
Taxes $ 50 $ 50
========== ==========
NON CASH INVESTING AND FINANCING
ACTIVITIES
Issuance of common stock for convertible debentures $1,501,946 $ 0
========== ==========
Issuance of common stock for fees, services and payroll $ 744,804 $ 0
========== ==========
Issuance of common stock for advances on stock
subscriptions $ 75,000 $ 0
========== ==========
Issuance of common stock for accounts payable $ 50,000 $ 0
========== ==========
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
6
<PAGE> 13
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2000
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
IBIZ Technology Corp. was organized on April 6, 1994, under the laws of
the State of Florida. The company is a holding company and owns 100% of
Invnsys Technology Corporation.
Invnsys Technology Corporation is in the business of selling retail and
wholesale, financial, computing and communication equipment and
offering network integration services, digital subscriber line high
speed internet connection services and business-to-business software
sales. They also provide repair services and sell maintenance
contracts. The corporation operates a service center in Phoenix,
Arizona.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of IBIZ
Technology Corp. and its wholly owned subsidiary, Invnsys Technology
Corporation.
All material inter-company accounts and transactions have been
eliminated.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Uncollectible accounts receivable are written off at the time
management specifically determines them to be uncollectible. In
addition, the allowance for doubtful accounts is provided at an amount
determined by management.
INVENTORIES
At April 30, 2000, inventories are stated at the lower of cost
(determined principally by first-in, first-out method) or cost. At
April 30, 1999, the inventories were computed by using the gross profit
method for determining cost.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Major renewals and
improvements are charged to the asset accounts while replacement,
maintenance and repairs, which do not improve or extend the lives of
the respective assets, are expensed. At the time property and equipment
are retired or otherwise disposed of, the asset and related accumulated
depreciation accounts are relieved of the applicable amounts. Gains or
losses from retirements or sales are credited or charged to income.
The company depreciates its property and equipment for financial
reporting purposes using the straight-line method based upon the
following useful lives of the assets:
See Accompanying Notes and Independent Accountants' Review Report.
7
<PAGE> 14
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2000
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT (CONTINUED)
<TABLE>
<S> <C>
Tooling 3 Years
Machinery and equipment 5-10 Years
Office furniture and equipment 5-7 Years
Vehicles 5 Years
Leasehold improvements 5 Years
Co-location equipment 5 Years
Computer software 3 Years
</TABLE>
CUSTOMER LISTS
The customer list is recorded at cost and is being amortized on a
straight-line basis over three years.
ACCOUNTING ESTIMATES
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting principles.
Those estimates and assumptions affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities,
and the reported revenues and expenses. Actual results could vary from
the estimates that were used.
REVENUE RECOGNITION
The company recognizes revenue from product sales when the goods are
shipped and title passes to customers.
SALES OF MAINTENANCE AGREEMENTS
The revenue received for the maintenance agreements is being reported
evenly over the life of the contracts. The unearned portion is recorded
as deferred income.
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.
See Accompanying Notes and Independent Accountants' Review Report.
8
<PAGE> 15
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2000
(UNAUDITED)
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 earnings per
share. Basic earnings per share is computed by dividing net income
available to common shareowners by the weighted average number of
common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common
stock. In accordance with FASB 128, any anti-dilutive effects on net
loss per share are excluded.
RISKS AND UNCERTAINTIES
The company is in the computer and computer technology industry. The
company's products are subject to rapid obsolescence and management
must authorize funds for research and development costs in order to
stay competitive.
NOTE 2 CASH IN BANK
The company has $1,181,479 deposited in one banking institution. Only
$100,000 of the balance is insured by the Federal Deposit Insurance
Corporation.
NOTE 3 DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The company has financial instruments, none of which are held for
trading purposes. The company estimates that the fair value of all
financial instruments at April 30, 2000 and 1999, as defined in FASB
107, does not differ materially from the aggregate carrying values of
its financial instruments recorded in the accompanying balance sheets.
The estimated fair value amounts have been determined by the company
using available market information and appropriate valuation
methodologies. Considerable judgement is required in interpreting
market data to develop the estimates of fair value, and accordingly,
the estimates are not necessarily indicative of the amounts that the
company could realize in a current market exchange.
NOTE 4 ACCOUNTS RECEIVABLE
A summary of accounts receivable and allowance for doubtful accounts is
as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Accounts receivable $660,506 $156,594
Allowance for doubtful accounts 24,558 2,500
-------- --------
$635,948 $154,094
======== ========
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
9
<PAGE> 16
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2000
(UNAUDITED)
NOTE 5 INVENTORIES
The inventories at April 30, 2000 are comprised of the following:
<TABLE>
<S> <C>
Finished products $199,574
Depot units 15,956
Office 48,286
Parts 319
--------
Total inventories $264,135
========
</TABLE>
The inventories at April 30, 1999 were computed, in total, by using the
gross profit method for determining costs.
NOTE 6 PROPERTY AND EQUIPMENT
Property and equipment and accumulated depreciation consists of:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Tooling $ 68,100 $ 68,100
Machinery and equipment 58,705 30,656
Software 22,878 0
Office furniture and equipment 127,367 62,926
Vehicles 39,141 39,141
Co-location equipment 125,788 0
Leasehold improvements 27,145 18,044
Deposit on equipment 39,996 0
-------- --------
509,120 218,867
Less accumulated depreciation 168,124 165,681
-------- --------
Total property and equipment $340,996 $ 53,186
======== ========
</TABLE>
The depreciation expense for the six months ended April 30, 2000 and
1999 was $23,940 and $25,870, respectively.
NOTE 7 CUSTOMER LIST
The customer list and accumulated amortization consists of:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Cost $11,900 $ 0
Less accumulated amortization 1,984 0
------- -------
Total customer list $ 9,916 $ 0
======= =======
</TABLE>
The amortization expense for the six months ended April 30, 2000 and
1999 was $1,984 and $0, respectively.
See Accompanying Notes and Independent Accountants' Review Report.
10
<PAGE> 17
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2000
(UNAUDITED)
NOTE 8 NOTE RECEIVABLE, RELATED PARTY
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
At April 30, 2000, the related note is secured by $419,582 $717,829
500,000 shares of common stock in the company, payable ======== ========
on demand and accrues interest at 6%. Management believed
the notes would not be collected within the current operating
cycle and classified the asset as a long-term asset
At April 30, 1999, the note was not secured
</TABLE>
NOTE 9 CUSTOMER DEPOSITS
It is the company's policy to obtain a portion of the sales price when
orders are received. These funds are recorded as customer deposits and
are applied to the customer invoices when the merchandise is shipped.
NOTE 10 INCOME TAXES
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
(Loss) from continuing operations
before income taxes $(1,550,946) $ (519,995)
----------- -----------
The provision for income taxes is estimated as follows:
Currently payable $ 0 $ 0
----------- -----------
Deferred $ 0 $ 0
----------- -----------
A reconciliation of the provision for income taxes compared
with the amounts at the U.S. Federal Statutory rate was as follows:
Tax at U.S. Federal Statutory
income tax rates $ 0 $ 0
----------- -----------
Deferred income tax assets and liabilities reflect the impact
of temporary differences between amounts of assets and liabilities
for financial reporting purposes and the basis of such assets and
liabilities as measured by tax laws.
The net deferred liability is: $ 0 $ 0
----------- -----------
The net deferred tax assets is: $ 0 $ 0
----------- -----------
Temporary differences and carry forwards that gave rise to
deferred tax assets and liabilities included the following:
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
11
<PAGE> 18
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2000
(UNAUDITED)
NOTE 10 INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
DEFERRED TAX
ASSETS LIABILITIES
<S> <C> <C>
Net operating loss $ 708,172 $ 0
Accrued expenses and miscellaneous 8,100 0
Tax credit carryforward 38,424 0
Depreciation 0 6,199
--------- ---------
Subtotals 754,696 6,199
Valuation allowance 754,696 (6,199)
--------- ---------
Total deferred taxes $ 0 $ 0
========= =========
</TABLE>
As discussed in Note 22, there is substantial doubt about the company's ability
to continue as a going concern. Consequently, the company must maintain a 100%
valuation allowance for the deferred taxes as there is doubt that the company
will generate profits which will be absorbed by the tax differences.
A reconciliation of the valuation allowance is as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Balance, beginning of period $ 356,638 $ 145,054
Addition to allowance for six months
ended April 30, 2000 and 1999 398,058 47,946
------- ------
Balance, end of period $ 754,696 $ 193,000
========= =========
</TABLE>
NOTE 11 TAX CARRYFORWARD
The company has the following tax carryforwards at April 30, 2000:
<TABLE>
<CAPTION>
EXPIRATION
YEAR AMOUNT DATE
---- ------ ----
<S> <C> <C>
Net operating loss
October 31, 1995 $ 2,500 October 31, 2010
October 31, 1996 24,028 October 31, 2011
October 31, 1997 192,370 October 31, 2012
October 31, 1998 71,681 October 31, 2013
October 31, 1999 991,162 October 31, 2019
Capital loss
October 31, 1997 25,600 October 31, 2002
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
12
<PAGE> 19
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2000
(UNAUDITED)
NOTE 11 TAX CARRYFORWARD (CONTINUED)
<TABLE>
<CAPTION>
EXPIRATION
YEAR AMOUNT DATE
<S> <C> <C>
Contribution
October 31, 1997 545 October 31, 2002
October 31, 1999 2,081 October 31, 2004
Research tax credits 38,424
</TABLE>
NOTE 12 NOTES PAYABLE
<TABLE>
<CAPTION>
2000 1999
-------- -------
<S> <C> <C>
Note payable to Community First National Bank due in monthly payments of
interest of approximately $3,100. Interest is computed at national prime as
stated in the Wall Street Journal plus 3 percent. The principal amount is due
July 31, 2000. This note is secured by accounts receivable, general intangibles
and all equipment and leasehold improvements The shareholder has personally
guaranteed the loan and the bank is the beneficiary of an insurance policy on
the life of the shareholder. The company canceled this line in the year 2000. $ 0 $344,866
Note payable to Community First National Bank due in monthly installments of
principal and interest of $3,754 until May 7, 1999. Interest is computed at
national prime as stated in the Wall Street Journal plus 3 percent. The note is
secured by accounts receivable, general intangibles and all equipment and
leasehold improvements. A principal shareholder has personally guaranteed the
loan and the bank is the beneficiary of an insurance policy on the life of the
shareholder. The loan was paid off in 1999. 0 2,032
Note payable to Community First National Bank due in monthly payments of
principal and interest of $545 with interest at 7 percent until March 7, 2004.
The note is secured by an automobile which costs $31,141. 22,318 27,088
------ -------
22,318 373,986
====== =======
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
13
<PAGE> 20
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2000
(UNAUDITED)
NOTE 12 NOTES PAYABLE (CONTINUED)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Less: current portion 5,265 351,703
------- --------
Net long-term debt $17,053 $ 22,283
======= ========
</TABLE>
<TABLE>
<CAPTION>
Maturities of long-term debt are as follows:
Year ended April 30
<S> <C> <C>
2000 $ 0 $ 6,540
2001 6,540 6,540
2002 6,540 6,540
2003 6,540 6,540
2004 3,698 928
------- -------
$22,318 $27,088
======= =======
</TABLE>
NOTE 13 COMMON STOCK PURCHASE WARRANTS
The company has issued the following common stock purchase warrants at
April 30, 2000:
<TABLE>
<CAPTION>
NUMBER EXERCISE
DATE OF SHARES TERM PRICE
---- --------- ---- -----
<S> <C> <C> <C>
May 13, 1999 100,000 3 years $ 1.00
May 7, 1999 180,000 10 years $ 0.75
May 13, 1999 100,000 10 years $ 1.00
November 9, 1999 100,000 4 years $ .94
December 14, 1999 75,000 3 years $ 1.66
December 28, 1999 200,000 4 years $ .94
January 10, 2000 281,250 5 years $ .99
March 27, 2000 656,250 5 years $ 1.45 - 2.05
---------
1,692,500
=========
</TABLE>
NOTE 14 CONVERTIBLE DEBENTURES
<TABLE>
<CAPTION>
CURRENT
$600,000 DEBENTURE TOTAL PORTION
------------------ ----- -------
<S> <C> <C>
In November 1999, the company issued $600,000 of $350,000 $ 0
7% convertible debentures under the following
amended terms and conditions:
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
14
<PAGE> 21
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2000
(UNAUDITED)
NOTE 14 CONVERTIBLE DEBENTURES
<TABLE>
<CAPTION>
CURRENT
$600,000 DEBENTURE TOTAL PORTION
------------------ ----- -------
<S> <C> <C>
1. Due date - November 9, 2004.
2. Interest only on April 1 and November 1 of each year
commencing January 1, 2000.
3. Warrants to purchase 100,000 shares of common stock at $
0.94 per share.
4. 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.
5. Conversion price - Lesser of (i) $ 0.675 (fixed price) or
(ii) the product obtained by multiplying the average
closing price by .80.
6. 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
holders' election to convert outstanding principal of this
debenture.
7. 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.
8. The debentures are unsecured.
9. Any further issuance of common stock or debentures must be
approved by debenture holders.
10. Debenture holders have a eighteen month right of first
refusal on future disposition of stock by the company.
11. Restriction on payment of dividends, retirement of stock
or issuance of new securities.
</TABLE>
The company converted $250,000 of debentures into common
stock.
See Accompanying Notes and Independent Accountants' Review Report.
15
<PAGE> 22
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2000
(UNAUDITED)
NOTE 14 CONVERTIBLE DEBENTURES (CONTINUED)
<TABLE>
<CAPTION>
CURRENT
$1,600,000 UNSECURED DEBENTURE TOTAL PORTION
<S> <C> <C>
On March 27, 2000, the company issued $1,600,000 of $1,600,000 $ 0
7% convertible debentures under the following terms and
conditions:
1. Due date - March 27, 2005.
2. Interest only on May 1 and December 1 of each year
commencing May 1, 2000.
3. Default interest rate - 18%.
4. Warrants to purchase 375,000 shares of common stock at
$1.45 per share.
5 Conversion terms - The debenture holder shall have the
right to convert all or a portion of the outstanding
principal amount of this debenture plus any accrued
interest into such number of shares of common stock as
shall equal the quotient obtained by dividing the
principal amount of this debenture by the applicable
conversion price.
6. Conversion price - Lesser of (i) $1.45 (fixed price) or
(ii) the product obtained by multiplying the average
closing price by .80.
7. Average closing price - The debenture holder shall have
the election to choose any three trading days out of
twenty trading days immediately preceding the date on
which the holder gives the company a written notice of the
holder's election to convert outstanding principal of this
debenture.
8. Redemption by company - If there is a change in control of
the company, the holder of the debenture can request that
the debenture be redeemed at a price equal to 125% of the
aggregate principal and accrued interest outstanding under
this debenture.
9. The debentures are unsecured.
10. Any further issuance of common stock or debentures must be
approved by debenture holders.
11. Debenture holders have a 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.
---------- ----------
Total $1,950,000 $ 0
========== ==========
</TABLE>
On May 31, 2000, the $1,600,000 debenture holder converted
$100,000 of debentures into 192,853 common shares.
See Accompanying Notes and Independent Accountants' Review Report.
16
<PAGE> 23
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2000
(UNAUDITED)
NOTE 15 REAL ESTATE LEASE
On June 1, 1999, the company leased a new facility from a related
entity. The lease commenced on July 1, 1999, requires initial annual
rentals of $153,600 (with annual increases) plus taxes and operating
costs and expires on December 31, 2024. The company has also guaranteed
the mortgage on the premises.
Future minimum lease payments, (based upon fiscal years ending October
31) excluding taxes and expenses, are as follows:
<TABLE>
<S> <C>
October 31, 2000 $ 156,160
October 31, 2001 163,968
October 31, 2002 172,168
October 31, 2003 180,780
October 31, 2004 189,820
November 1, 2004 - December 31, 2024 6,676,000
</TABLE>
Rent expense for the six months ended April 30, 2000 and 1999 is
$76,931 and $25,745, respectively.
NOTE 16 ADVERTISING
The company expenses all advertising as incurred. For the six months
ended April 30, 2000 and 1999, the company charged to operations
$282,277 and $68,712 in advertising costs.
NOTE 17 INTEREST
The company incurred interest expenses for the six months ended April
30, 2000 and 1999 of $29,221 and $24,619, respectively.
NOTE 18 WARRANTY RESERVE
The company established a warranty reserve of $50,000 to cover any
potential warranty costs on computer equipment that are not covered by
the computer manufacturer's warranty.
NOTE 19 RESEARCH AND DEVELOPMENT
The company incurred research and development cost for 2000 and 1999 of
$2,798 and $0, respectively.
NOTE 20 OFFICERS' COMPENSATION
At April 30, 2000, officers' compensation was as follows:
<TABLE>
<S> <C>
President and Chief Executive officer $200,000
Vice President/Comptroller 88,000
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
17
<PAGE> 24
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2000
(UNAUDITED)
NOTE 20 OFFICERS' COMPENSATION (CONTINUED)
<TABLE>
<S> <C>
Vice President/Operations $88,000
Chief Operating Officer 96,200
Vice President/Marketing 75,000
Vice President/Technology 80,000
</TABLE>
NOTE 21 STOCK OPTIONS
On January 31, 1999, the corporation adopted a stock option plan for
the purpose of providing an incentive based form of compensation to the
directors, key employees and service providers of the corporation.
The stock subject to the plan and issuable upon exercise of options
granted under the plan are shares of the corporation's common stock,
$.001 par value, which may be either unissued or treasury shares. The
aggregate number of shares of common stock covered by the plan and
issuable upon exercise of all options granted shall be 5,000,000
shares, which shares shall be reserved for use upon the exercise of
options to be granted from time to time.
Vesting terms of the options range from immediately to five years and
generally expire in ten years.
A summary of the stock option activity for the six months ended April
30, 2000 and 1999, pursuant to the terms of the plan is set forth
below:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
OPTIONS PRICE
------- -----
<S> <C> <C>
Balance at beginning of period 2,350,000 $ .75
Granted 1,310,000 1.15
Exercised (70,000) .75
Canceled (180,000) .75
---------
Balance at end of period 3,410,000
=========
</TABLE>
The weighted average fair value of options granted in 2000 and 1999 was
estimated as of the date of grant using the Black-Scholes stock option
pricing model, based on the following weighted average assumptions:
annual expected return of 0%, annual volatility of 50%, risk-free
interest rate ranging from 6.75% and expected option life of 10 years.
The per share weighted-average fair value of stock options granted
during 2000 and 1999 was $.71 and $0.00, respectively. The per share
weighted average remaining life of the options outstanding at April
2000 and 1999 is 7.5 and 0 years, respectively.
See Accompanying Notes and Independent Accountants' Review Report.
18
<PAGE> 25
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2000
(UNAUDITED)
NOTE 21 STOCK OPTIONS (CONTINUED)
The company has elected to continue to account for stock-based
compensation under APB Opinion No. 25, under which no compensation
expense has been recognized for stock options granted to employees at
fair market value. There is no additional compensation costs to report
and required pro-forma net income and earnings per share are the same
as the historical financial statement presentations.
NOTE 22 GOING CONCERN
These financial statements are presented on the basis that the company
is a going concern. Going concern contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business over a reasonable length of time. The accompanying financial
statements show that the company incurred a net loss of $1,550,946 for
the six months ended April 30, 2000.
NOTE 23 INVESTOR COMMUNICATION AGREEMENT
In December 1999, the company entered into an agreement with an
investment company for the purpose of providing investor communications
and enhancing shareholder values.
The agreement is for one year and requires the following payments by
the company:
1. Non-refundable retainer of $50,000.
2. $10,000 per month advisory fee commencing June 1, 2000.
3. Warrants to purchase 75,000 shares of the company's common
stock at 120% of the last trade price as of the execution
of the agreement and the warrants must be exercised within
three years from date of issuance.
NOTE 24 FINANCIAL PROJECT MANAGEMENT AGREEMENT
In December 1999, the company entered into a six month agreement with
Equinet, Inc., the project manager, to promote the growth of, or
increase in the shareholder value of the company.
The project manager will be compensated as follows:
1. A monthly fee of $3,500 for the first 6 months of the
agreement payable in cash or stock.
2. A fee of 1% - 10% based upon the funding received from the
project manager's recommendations.
3. In connection with the first $5,000,000 raised by the
project manager, the company will issue to the project
manager warrants to purchase three shares of common stock
for each $20 raised, up to a maximum of 750,000 shares. In
the event the first $1,875,000 is received by January 10,
2000, the company will provide Equinet, Inc. a discounted
exercise price of $0.99 per share in connection with the
warrants issued for these funds.
See Accompanying Notes and Independent Accountants' Review Report.
19
<PAGE> 26
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2000
(UNAUDITED)
NOTE 25 LITIGATION
Epson America, Inc. vs, Invnsys Technology Corporation. Civil Cause
# CV 2000-008155 - Superior Court of Arizona.
Epson America, Inc. is suing the corporation for $114,785 to collect
past due accounts payable. The company is disputing the $114,785 as it
believes that Epson has not offset the debt by commissions earned and
due by Invnsys Technology Corporation. However, the company has accrued
the $114,785 in the accounts payable and is attempting to negotiate a
final settlement with Epson.
NOTE 26 PLAN OF REORGANIZATION AND STOCK EXCHANGE AGREEMENT
On January 1, 1999, the company issued 16,000,000 shares of newly
issued restricted common stock for 100% of the issued and outstanding
stock of Invnsys Technology Corporation. Invnsys Technology Corporation
became a wholly-owned subsidiary of IBIZ Technology Corp. and the
acquisition was accounted for as a reverse acquisition.
The details of the results of operation (unaudited) for each separate
company, prior to the date of combination, that are included in the
current net income are:
<TABLE>
<CAPTION>
INVNSYS IBIZ
TECHNOLOGY TECHNOLOGY
CORPORATION CORP.
<S> <C> <C>
Sales $ 402,127 $ 0
Cost of sales 239,704 0
--------- ---------
Gross profit 162,423 0
Selling, general and administrative
expenses 243,094 27,742
--------- ---------
(Loss) before income taxes (refund) (80,671) (27,742)
Income taxes (refund) (20,150) 0
--------- ---------
Net (loss) $ (60,521) $ ( 27,742)
========= =========
</TABLE>
There were no adjustments in the net assets of the combining companies
to adopt the same accounting policies.
Each of the companies had an October 31 fiscal year so no accounting
adjustments were necessary.
An (unaudited) reconciliation of revenues and earnings reconciled with
the amounts shown in the combined financial statements is as follows:
<TABLE>
<S> <C>
Net (loss) of IBIZ Technology Corp. at December 31, 1998 $ (27,742)
Add Invnsys Technology Corporation (loss)
for November 1, 1998 to December 31, 1998 (60,521)
Additional net (loss) from January 1, 1999 to April 30, 1999 (431,732)
---------
Net (loss) for the six months ended April 30, 1999 $(519,995)
=========
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
20
<PAGE> 27
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2000
(UNAUDITED)
NOTE 27 UNAUDITED FINANCIAL INFORMATION
The accompanying financial information as of April 30, 2000 and 1999 is
unaudited. In management's opinion, such information includes all
normal recurring entries necessary to make the financial information
not misleading.
See Accompanying Notes and Independent Accountants' Review Report.
21
<PAGE> 28
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
Through its operating subsidiary, INVNSYS, iBIZ designs, manufactures,
and distributes small footprint desktop computers, transaction printers, general
purpose financial application keyboards, numeric keypads, CRT's, LCD monitors
and related products. INVNSYS also markets a line of OEM notebook computers and
distributes transactional and color printers. iBIZ recently began offering
network integration services, digital subscriber line high-speed Internet
connection services, and business-to-business software sales. The Company is
seeking to complete the construction of a server co-location facility,
consisting of improvements and equipment to provide Internet content hosting
services to subscribers.
SELECTED FINANCIAL INFORMATION
RESULTS OF OPERATIONS.
THREE MONTH PERIOD ENDED APRIL 30, 2000, COMPARED TO THREE MONTH PERIOD ENDED
APRIL 30, 1999.
<TABLE>
<CAPTION>
Three Month Period Ended
-----------------------------
4/30/2000 4/30/1999
----------- -----------
<S> <C> <C>
Statement of Operations Data
Net sales $ 1,436,126 $ 588,050
Gross profit $ 211,800 $ 174,831
Operating Income (loss) $ (816,202) $ (486,983)
Net earnings (loss) after tax $ (840,826) $ (484,962)
Net earnings (loss) per share (.03) (.02)
</TABLE>
<TABLE>
<CAPTION>
Three Month Period Ended
-----------------------------
4/30/2000 4/30/1999
----------- -----------
<S> <C> <C>
Balance Sheet Data
Total assets $ 3,058,493 $ 1,202,004
Total liabilities $ 2,910,703 $ 1,621,828
Retained earnings (deficit) $(3,192,109) $(1,244,425)
</TABLE>
Revenues. Sales increased to $1,436,126 for the three month period
ended April 30, 2000, which is approximately 244% of the $588,050 for the three
month period ended April 30, 1999, The increase was mainly as a result of the
contribution to revenue from the Company's business-to-business software sales,
network services, and enhanced hardware sales resulting from the
business-to-business software sales.
22
<PAGE> 29
Cost of Sales. The cost of sales increased by approximately 196% from
$413,219 in the three-month period ended April 30, 1999 to $1,224,326 for the
three month period ended April 30, 2000. The increase in cost of sales is
attributable to a similar percentage increase in sales and also reflects higher
marketing expenses necessary to sell the services of and to support the
co-location facility currently under construction, Internet connection services
and software.
Gross Profit. Gross profit increased from approximately $174,831 for
the three month period ended April 30, 1999 to $211,800 for the three month
period ended April 30, 2000. The increase failed to match the significant
increase in revenues because of the higher costs associated with the
introduction of the new lines of business.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately 55% from $661,814 for the three
month period ended April 30, 1999, to $1,028,002 for the three month period
ended April 30, 2000. The increase was primarily due to business expansion into
the Internet, software, broadband and business-to-business sectors, increased
staffing costs and salaries for technical personnel in anticipation of the
opening of a server co-location facility, costs of fees paid for capital raising
and investor relations, and legal and accounting fees related to registration of
the Company's common stock.
Interest Expense. Interest expense of $36,199 for the three month
period ended April 30, 2000 and of $8,735 for the three month period ended April
30, 1999 was accrued primarily on notes payable to Community First National Bank
(primarily extended for working capital purposes). A nominal amount of interest
was paid in the quarter ended April 30, 2000 to debenture holders.
Net Earnings. Net losses increased from $484,962 for the three month
period ended April 30, 1999 to $840,826 for the three month period ended April
30, 2000. The increase in losses resulted primarily from a significant increase
in selling, general, and administrative expenses and higher operating costs
associated with the Company's new lines of business.
23
<PAGE> 30
SIX MONTH PERIOD ENDED APRIL 30, 2000, COMPARED TO SIX MONTH PERIOD ENDED APRIL
30, 1999.
<TABLE>
<CAPTION>
Six Month Period Ended
-----------------------------
4/30/2000 4/30/1999
----------- -----------
<S> <C> <C>
Statement of Operations Data
Net sales $ 2,064,979 $ 1,421,569
Gross profit $ 289,858 $ 286,689
Operating Income (loss) $(1,538,698) $ (506,132)
Net earnings (loss) after tax $(1,550,946) $ (519,995)
Net earnings (loss) per share $ (.06) $ (.02)
</TABLE>
<TABLE>
<CAPTION>
Six Month Period Ended
------------------------------
4/30/2000 4/30/1999
----------- -----------
<S> <C> <C>
Balance Sheet Data
Total assets $ 3,058,493 $ 1,202,004
Total liabilities $ 2,910,703 $ 1,621,828
Retained earnings (deficit) $(3,192,109) $(1,244,425)
</TABLE>
Revenues. Sales increased to $2,064,979 for the six month period ended
April 30, 2000, which is approximately 146% of the $1,421,569 for the six month
period ended April 30, 1999. The increase was mainly as a result of the
contribution to revenue from the Company's business-to-business software sales,
network services, and enhanced hardware sales resulting from the
business-to-business software sales.
Cost of Sales. The cost of sales increased by approximately 56% from
$1,134,880 in the six-month period ended April 30, 1999 to $1,775,121 for the
six month period ended April 30, 2000. The increase in cost of sales is
attributable to a similar percentage increase in sales and also reflects higher
marketing expenses necessary to sell the services of and to support the
co-location facility currently under construction, Internet connection services
and software.
Gross Profit. Gross profit increased from approximately $286,684 for
the six month period ended April 30, 1999 to $289,858 for the six month period
ended April 30, 2000. The increase was insignificant and failed to match the
significant increase in revenues because of the higher costs associated with the
introduction of the new lines of business.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately 130% from $792,821 for the six
month period ended April 30, 1999, to $1,828,556 for the six month period ended
April 30, 2000. The increase was primarily due to business expansion into the
24
<PAGE> 31
Internet, software, broadband and business-to-business sectors, increased
staffing costs and salaries for technical personnel in anticipation of the
opening of a server co-location facility, costs of fees paid for capital raising
and investor relations, and legal and accounting fees related to registration of
the Company's common stock.
Interest Expense. Interest expense of $29,221 for the six month period
ended April 30, 2000 and of $24,619 for the six month period ended April 30,
1999 was accrued primarily on notes payable to Community First National Bank
(primarily extended for working capital purposes).
Net Earnings. Net losses increased from $519,995 for the six month
period ended April 30, 1999 to $1,550,946 for the six month period ended April
30, 2000. The increase in losses resulted primarily from a significant increase
in selling, general, and administrative expenses and higher operating costs
associated with the Company's new lines of business.
LIQUIDITY AND CAPITAL RESOURCES.
During the quarter ended April 30, 2000, the Company raised $1,600,000
through issuance of convertible debentures to Lites Trading Co. ("Lites"). On
May 31, 2000, Lites converted $100,000 of the convertible debentures. Pursuant
to the applicable conversion formula, iBIZ issued 192,853 shares of common stock
to Lites. From February, 2000 through April, 2000 the Company issued 1,681,420
shares of Common Stock to debenture holders for conversion of debentures with
principal amounts of approximately $1,500,000. The Company also issued 807,375
shares of Common Stock in lieu of cash for services rendered. Although the
Company had in excess of $1,000,000 in cash reserves as of April 30, 2000,
management anticipates that most of these reserves will be used for the
construction and development of the server co-location facilities scheduled to
be completed sometime in July or August.
Historically, iBIZ has had problems with liquidity. The Company
has been unable to generate sufficient internal cash flow to fund all of its
obligations. Should the server co-location facility open in early July and the
anticipated consumer demand for this service materialize, the Company may
generate sufficient internal cash flow to support operations.
If the co-location facility is not completed on or before August
1, 2000 or the consumer demand anticipated by the Company fails to materialize,
the Company will need additional funding. There is no assurance that iBIZ will
raise the necessary capital to remain in business beyond January 31, 2001. If at
any time iBIZ is unable to raise financing through additional sales of common
stock or alternate financing sources, it may be required to delay or modify
planned growth initiatives.
Management believes that its recent diversification into broadband
connectivity services, third-party software sales, and its server co-location
facility should improve its liquidity and cash flow. iBIZ recently expanded its
distribution of certain hardware into certain retail stores. Third-party
software sales currently generate approximately $200,000 per month in sales
revenues. There is no assurance, however, that its favorable relationship with
its third-party suppliers will continue or
25
<PAGE> 32
that its customers will continue to purchase the broadband connectivity
services, hardware and the software packages and upgrades necessary to generate
the revenue experienced since January 2000. There is no assurance that the high
margins currently anticipated from the co-location facility will materialize.
Entry of additional competitors with substantially greater resources than those
of the Company could put additional downward pressure on the anticipated digital
subscriber line high-speed Internet connection service margins.
26
<PAGE> 33
Part II - Other Information
ITEM 1. LEGAL PROCEEDINGS
Invnsys Technology Corporation, dba iBIZ Technology Corporation
("iBIZ"), is the defendant in a civil matter filed by Epson America, Inc.
("Epson"), in the Superior Court of the State of Arizona. The complaint alleges
that over the past three (3) years, iBIZ became indebted to Epson in the amount
of $151,665.96. Since February 2, 2000, no payment has been made to Epson,
leaving an unpaid balance of $102,636.05 plus interest. Epson seeks to recover
$102,636.05 plus interest accruing at a rate of ten percent (10%) from February
2, 1999, attorney's fees, incurred costs and expenses, together with accruing
costs. iBIZ is seeking to recover additional commissions that it believes Epson
owes it. iBIZ intends to settle the matter with representatives of Epson. For
accounting purposes, the full amount that Epson is seeking to recover has
already been accrued as a liability in iBIZ's financial records.
ITEM 2. CHANGES IN SECURITIES
(c) Recent Sales of Unregistered Securities
On March 27, 2000, iBIZ issued One Million Six Hundred Thousand
Dollars ($1,600,000.00) of 7% Debentures (the "$1600k 7% Debentures") to Lites
Trading, Co. On May 31, 2000, $100,000 of the principal amount of the Debentures
were converted into 192,853 shares of common stock. The Debentures are due and
payable on March 27, 2005.
In connection with the issuance of the $1600k 7% Debentures, iBIZ
issued a warrant to purchase 375,000 shares of common stock at a purchase price
of $1.45 per share. The warrant is immediately exercisable and expires March 27,
2004.
27
<PAGE> 34
(d) Use of Proceeds from Registration Statement
1. iBIZ has filed a Registration Statement on Form SB-2, File
No. 333-34936 to register 3,917,866 shares of common stock,
$0.001 par value (the "SB-2"). The SB-2 was declared
effective by the SEC on May 1, 2000. The shares registered in
the SB-2 are for resale by iBIZ's securityholders upon
exercise of options or warrants. iBIZ will not receive any of
the proceeds from the sale of the common stock by the
securityholders, but may receive up to $927,437.50 upon the
exercise of the options or warrants.
In connection with the SB-2, iBIZ incurred fees and expenses
of approximately $22,000 related to professional services and
filing fees. As of June 12, 2000, the Company had received
$367,500 upon the exercise of options or warrants to purchase
480,000 shares of common stock. These funds have been
allocated to general working capital.
28
<PAGE> 35
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
23.03 Consent of Moffitt and Company
27.03 Financial Data Schedule
B. Reports on Form 8-K
Not Applicable
Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Dated this 14th day of June, 2000.
iBIZ TECHNOLOGY CORP., a Florida
corporation
By: /s/ Kenneth W. Schilling
Kenneth W. Schilling, President,
Director
By: /s/ Terry S. Ratliff
Terry S. Ratliff, Vice President,
Comptroller, Secretary, Director
By: /s/ Mark H. Perkins
Mark H. Perkins, Vice President of
Operations, Director
29
