<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1O-QSB
Quarterly Report of Small Business Issuers under Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period ended July 31, 2000
Commission File No. 027619
IBIZ TECHNOLOGY CORP.
---------------------
(Exact name of registrant as specified in its charter)
Florida 86-0933890
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or 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
The issuer has (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) been subject to such
filing requirements for the past 90 days.
--------------------------------------------------------------------------------
Number of shares outstanding of each of the issuer's classes of common equity:
<TABLE>
<CAPTION>
Class Outstanding as of September 13, 2000
----- -------------------------------------
<S> <C>
Common stock, $0.01 par value 34,492,734
</TABLE>
--------------------------------------------------------------------------------
The issuer is not using the Transitional Small Business Disclosure format.
<PAGE> 2
IBIZ TECHNOLOGY CORP. AND
CONSOLIDATED SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 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 ...... 4-5
Consolidated Statements of Cash Flows .......................... 6-7
Notes to Consolidated Financial Statements ..................... 8-22
</TABLE>
<PAGE> 4
MOFFITT & COMPANY, P.C.
--------------------------------------------------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS 5040 East Shea Blvd. Suite 270
Scottsdale, Arizona 85254
(480) 951-1416
Fax (480) 948-3510
[email protected]
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 July 31, 2000 and 1999, and the related statements
of operations for the three and nine months then ended, statement of
stockholders' equity as of July 31, 2000 and statements of cash flows for the
nine months ended July 31, 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 21, 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.
/s/ MOFFITT & COMPANY, P. C.
MOFFITT & COMPANY, P. C.
SCOTTSDALE, ARIZONA
August 25, 2000
<PAGE> 5
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JULY 31, 2000 AND 1999
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
2000 1999
---------- --------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 142,461 $ 23,884
Accounts receivable 656,847 187,987
Loan receivable, officer 38,980 0
Inventories 263,036 139,383
Prepaid expenses 492,978 24,122
---------- --------
TOTAL CURRENT ASSETS 1,594,302 375,376
---------- --------
PROPERTY AND EQUIPMENT, NET OF
ACCUMULATED DEPRECIATION 1,626,205 85,920
---------- --------
OTHER ASSETS
Note receivable, related party 425,876 339,111
Deposits 60,401 17,762
Customer list, net of accumulated amortization 8,924 0
---------- --------
TOTAL OTHER ASSETS 495,201 356,873
---------- --------
TOTAL ASSETS 3,715,708 $818,169
========== ========
</TABLE>
<PAGE> 6
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
2000 1999
---------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable, trade $1,382,594 583,492
Customer deposits 0 109,618
Notes payable, current 4,911 79,668
Accrued liabilities 94,829 29,155
Sales and payroll taxes payable 211,049 107,267
Corporation income taxes payable 19,078 18,666
Deferred income 118,984 91,914
---------- -----------
TOTAL CURRENT LIABILITIES 1,831,445 1,019,780
---------- -----------
LONG - TERM LIABILITIES
Convertible debentures payable 1,750,000 200,000
Notes payable 16,159 21,256
---------- -----------
TOTAL LONG - TERM LIABILITIES 1,766,159 221,256
---------- -----------
STOCKHOLDERS' EQUITY
Common stock
Authorized - 100,000,000 shares, par
value $.001 per shares
Issued and outstanding -
31,092,828 shares in 2000 31,093 0
26,571,000 shares in 1999 0 26,571
Paid in capital in excess of par value of stock 4,050,714 952,372
Retained earnings (deficit) (3,963,703) (1,401,810)
---------- -----------
TOTAL STOCKHOLDERS' EQUITY 118,104 (422,867)
---------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $3,715,708 $ 818,169
========== ===========
</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 NINE MONTHS ENDED JULY 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000
-------------------------------------
THREE MONTHS NINE MONTHS
ENDED ENDED
July 31, 2000 July 31, 2000
------------- -------------
<S> <C> <C>
SALES $ 1,142,040 $ 3,207,019
COST OF SALES 914,814 2,689,935
------------ ------------
GROSS PROFIT 277,226 517,084
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 955,483 2,784,039
------------ ------------
(LOSS) BEFORE OTHER INCOME (EXPENSE) (728,257) (2,266,955)
------------ ------------
OTHER INCOME (EXPENSE)
Interest income 13,187 30,160
Interest expense (44,424) (73,645)
Miscellaneous income 0 0
Cancellation of debt (12,100) (12,100)
------------ ------------
TOTAL OTHER INCOME (EXPENSE) (43,337) (55,585)
------------ ------------
(LOSS) BEFORE INCOME TAXES (771,594) (2,322,540)
INCOME TAXES 0 0
------------ ------------
NET (LOSS) $ (771,594) $ (2,322,540)
============ ============
NET (LOSS) PER COMMON SHARE
Basic and Diluted $ (.03) $ (.08)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Basic and diluted 28,741,267 28,741,267
============ ============
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
1999
-------------------------------------
THREE MONTHS NINE MONTHS
ENDED ENDED
JULY 31, 1999 JULY 31, 1999
------------- -------------
<S> <C> <C>
$ 382,495 $ 1,804,064
398,937 1,533,817
------------ -----------
(16,442) 270,247
375,401 1,168,222
------------ -----------
(391,843) (897,975)
------------ -----------
5,012 15,768
(10,738) (35,357)
20,491 20,491
148,033 148,033
------------ -----------
162,798 148,935
------------ -----------
(229,045) (749,040)
0 0
------------ -----------
$ (229,045) $ (749,040)
============ ===========
$ (.01) $ (.03)
============ ===========
26,571,000 26,571,000
============ ===========
</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
JULY 31, 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
</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>
$ 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
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
4
-
<PAGE> 11
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
JULY 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------
SHARES AMOUNT
---------- --------
<S> <C> <C>
JUNE, 2000 - ISSUANCE OF COMMON STOCK FOR SERVICES 150,000 $ 150
JUNE, 2000 - ISSUANCE OF COMMON STOCK FOR SERVICES 362,653 363
JULY, 2000 - ISSUANCE OF COMMON STOCK FOR SERVICES 480,000 480
NET (LOSS) FOR THE NINE MONTHS ENDED JULY 31, 2000 0 0
---------- --------
BALANCE, JULY 31, 2000 31,092,828 $ 31,093
========== ========
</TABLE>
<PAGE> 12
<TABLE>
<CAPTION>
PAID IN
CAPITAL IN
EXCESS OF ADVANCES RETAINED
PAR VALUE ON STOCK EARNINGS
OF STOCK SUBSCRIPTIONS (DEFICIT)
------------ ------------- ------------
<S> <C> <C>
$ 131,100 $ 0 $ 0
226,295 0 0
383,520 0 0
0 0 (2,322,540)
------------ ------------- ------------
$ 4,050,714 $ 0 $ (3,963,703)
============ ============= ============
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
5
<PAGE> 13
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31,2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
------------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (2,322,540) $ (749,040)
Adjustments to reconcile net (loss) to
net cash (used) by operating activities
Depreciation and amortization 38,643 30,956
Issuance of common stock for interest, services
and payroll bonuses 349,532 0
Changes in operating assets and liabilities
Accounts receivable (444,547) (32,951)
Inventories 5,051 184,014
Prepaid expenses (3,545) 2,878
Deposits 358 2,393
Accounts payable 619,629 (197,323)
Customer deposits (115,408) (285,646)
Accrued liabilities and taxes 68,905 (44,576)
Deferred income 64,022 20,883
------------- ----------
NET CASH FLOWS (USED)
BY OPERATING ACTIVITIES (1,739,900) (1,068,412)
------------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,507,284) (40,340)
Loans to related parties (108,046) 567,509
Purchase of customer list (11,900) 0
Deposits on property and equipment (44,000) 0
------------- ----------
NET CASH FLOWS (USED) PROVIDED
BY INVESTING ACTIVITIES (1,671,230) 527,169
------------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft 0 (13,700)
Net proceeds from issuance of common stock 394,349 671,406
Proceeds from issuance of convertible debentures 3,200,000 200,000
Changes in notes payable (66,101) (292,779)
------------- ----------
NET CASH FLOWS PROVIDED
BY FINANCING ACTIVITIES 3,528,248 564,927
------------- ----------
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
6
<PAGE> 14
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE NINE MONTHS ENDED JULY 31,2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---------- -------
<S> <C> <C>
NET INCREASE IN CASH AND
CASH EQUIVALENTS $ 117,118 $23,684
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 25,343 200
---------- -------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 142,461 $23,884
========== =======
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during year for:
Interest $ 78,623 $25,109
========== =======
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 $1,486,712 $ 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.
7
<PAGE> 15
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 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 July 31, 2000, inventories are stated at the lower of cost
(determined principally by first-in, first-out method) or cost. At July
31, 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.
8
<PAGE> 16
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 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 5-10 Years
Vehicles 5 Years
Leasehold improvements 5 Years
Computer software 3 Years
</TABLE>
The construction in progress equipment and co-location assets will be
depreciated when they are completed and placed in service.
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 basis of assets and liabilities and their reported
amounts in the financial statements. Deferred tax assets and
liabilities are included in the financial statements at currently
enacted income tax rates applicable to the period in which the deferred
tax assets and liabilities are
See Accompanying Notes and Independent Accountants' Review Report.
9
<PAGE> 17
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES (CONTINUED)
expected to be realized or settled as prescribed in FASB Statement No.,
109, Accounting for Income Taxes. As changes in tax laws or rates are
enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes.
NET (LOSS) PER SHARE
The company adopted Statement of Financial Accounting Standards No. 128
that requires the reporting of both basic and diluted (loss) per share.
Basic (loss) per share is computed by dividing net (loss) available to
common shareowners by the weighted average number of common shares
outstanding for the period. Diluted (loss) per share reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock. In
accordance with FASB 128, any anti-dilutive effects on net (loss) per
share are excluded.
RISKS AND UNCERTAINTIES
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 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 July 31, 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 3 ACCOUNTS RECEIVABLE
A summary of accounts receivable and allowance for doubtful accounts is
as follows:
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Accounts receivable $ 756,847 $ 190,487
Allowance for doubtful accounts 100,000 2,500
--------- ---------
$ 656,847 $ 187,987
========= =========
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
10
<PAGE> 18
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
(UNAUDITED)
NOTE 4 INVENTORIES
The inventories at July 31, 2000 are comprised of the following:
<TABLE>
<S> <C>
Finished products $ 183,266
Depot units 15,412
Office 50,855
Parts 319
Demo 11,241
Car stock 1,943
---------
Total inventories $ 263,036
=========
</TABLE>
The inventories at July 31, 1999 were computed, in total, by using the
gross profit method for determining costs.
NOTE 5 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 52,266 54,473
Software 117,463 0
Office furniture and equipment 124,452 72,926
Vehicles 39,141 39,141
Construction in progress co-location equipment 469,276 0
Construction in progress co-location
(improvements) 882,338 0
Leasehold improvements 23,179 22,047
---------- ---------
1,776,215 256,687
Less accumulated depreciation (150,010) 170,767
---------- ---------
Total property and equipment $1,626,205 $ 85,920
========== =========
</TABLE>
The depreciation expense for the nine months ended July 31, 2000 and
1999 was $35,667 and $30,956, respectively.
NOTE 6 CUSTOMER LIST
The customer list and accumulated amortization consists of:
<TABLE>
<CAPTION>
2000 1999
--------- -------
<S> <C> <C>
Cost $ 11,900 $ 0
Less accumulated amortization 2,976 0
--------- -------
Total customer list $ 8,924 $ 0
========= =======
</TABLE>
The amortization expense for the nine months ended July 31, 2000 and
1999 was $2,976 and $0, respectively.
See Accompanying Notes and Independent Accountants' Review Report.
11
<PAGE> 19
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
(UNAUDITED)
NOTE 7 NOTE RECEIVABLE, RELATED PARTY
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
At July 31, 2000, the related note is $ 425,876 $ 339,111
secured by 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.
</TABLE>
At July 31, 1999, the note was not secured.
NOTE 8 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 9 INCOME TAXES
<TABLE>
<CAPTION>
2000 1999
------------ ----------
<S> <C> <C>
(Loss) from continuing operations
before income taxes $ (2,322,540) $(749,040)
------------ ----------
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.
12
<PAGE> 20
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
(UNAUDITED)
NOTE 9 INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
DEFERRED TAX
----------------------
ASSETS LIABILITIES
------ -----------
<S> <C> <C>
Net operating loss $830,000 $ 0
Accrued expenses and miscellaneous 8,100 0
Tax credit carryforward 38,424 0
Depreciation 0 6,199
-------- --------
Subtotals 876,524 6,199
Valuation allowance 876,524 (6,199)
-------- --------
Total deferred taxes $ 0 $ 0
======== ========
</TABLE>
As discussed in Note 21, 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 nine months
ended July 31, 2000 and 1999 519,886 176,946
-------- --------
Balance, end of period $876,524 $322,000
======== ========
</TABLE>
NOTE 10 TAX CARRYFORWARD
The company has the following tax carryforwards at July 31, 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.
13
<PAGE> 21
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
(UNAUDITED)
NOTE 10 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 11 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 $ 75,000
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. 21,070 25,924
-------- --------
21,070 100,924
Less: current portion 4,911 79,668
-------- --------
Net long-term debt $ 16,159 $ 21,256
======== ========
Maturities of long-term debt are as follows:
Year ended July 31
2000 $ 0 6,540
2001 6,540 6,540
2002 6,540 6,540
2003 6,540 6,304
2004 1,450 0
-------- --------
$ 21,070 $ 25,924
======== ========
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
14
<PAGE> 22
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
(UNAUDITED)
NOTE 12 COMMON STOCK PURCHASE WARRANTS AND OPTIONS
The company has issued the following common stock purchase
warrants at July 31, 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
May 17, 2000 125,000 5 years $ 1.04-5.00
June 16, 2000 150,000 1 year $ 1.50-2.00
---------
1,967,500
=========
</TABLE>
NOTE 13 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:
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.
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
15
<PAGE> 23
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
(UNAUDITED)
NOTE 13 CONVERTIBLE DEBENTURES (CONTINUED)
<TABLE>
<CAPTION>
CURRENT
$600,000 DEBENTURE TOTAL PORTION
------------------ ----- -------
<S> <C> <C>
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.
$250,000 of debentures were converted into 389,900 shares of common
stock.
$1,600,000 UNSECURED DEBENTURE
On March 27, 2000, the company issued $1,600,000 of $ 1,400,000 $ 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.
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
16
<PAGE> 24
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
(UNAUDITED)
NOTE 13 CONVERTIBLE DEBENTURES (CONTINUED)
<TABLE>
<CAPTION>
CURRENT
$600,000 DEBENTURE TOTAL PORTION
------------------ ----- -------
<S> <C> <C>
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 $1,750,000 $ 0
========== =======
</TABLE>
$200,000 of debentures were converted in to 362,653 shares of
common stock.
NOTE 14 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 in the amount of
$943,475 and given a security interest in all of the assets of the
company.
Future minimum lease payments excluding taxes and expenses, are as
follows:
<TABLE>
<S> <C>
July 31, 2000 $ 156,160
July 31, 2001 163,968
July 31, 2002 172,168
July 31, 2003 180,780
July 31, 2004 189,820
November 1, 2004 - December 31, 2024 6,638,500
</TABLE>
Rent expense for the nine months ended July 31, 2000 and 1999 is
$116,037 and $38,612, respectively.
See Accompanying Notes and Independent Accountants' Review Report.
17
<PAGE> 25
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
(UNAUDITED)
NOTE 15 ADVERTISING
The company expenses all advertising as incurred. For the nine
months ended July 31, 2000 and 1999, the company charged to
operations $393,747 and $74,555 in advertising costs.
NOTE 16 INTEREST
The company incurred interest expenses for the nine months ended July
31, 2000 and 1999 of $73,645 and $35,357, respectively.
NOTE 17 WARRANTY RESERVE
The company established a warranty reserve of $47,921 to cover any
potential warranty costs on computer equipment that are not covered by
the computer manufacturer's warranty.
NOTE 18 RESEARCH AND DEVELOPMENT
The company incurred research and development cost for the nine months
ended July 31, 2000 and 1999 of $5,224 and $4,693, respectively.
NOTE 19 OFFICERS' COMPENSATION
At July 31, 2000, officers' compensation was as follows:
<TABLE>
<S> <C>
President and Chief Executive officer $200,000
Vice President/Comptroller 88,000
Vice President/Operations 88,000
Chief Operating Officer 96,200
Vice President/Marketing 75,000
Vice President/Technology 80,000
</TABLE>
NOTE 20 EMPLOYEE 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.
See Accompanying Notes and Independent Accountants' Review Report.
18
<PAGE> 26
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
(UNAUDITED)
NOTE 20 EMPLOYEE STOCK OPTIONS (CONTINUED)
A summary of the stock option activity for the nine months ended
July 31, 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 (275,000) .75
---------
Balance at end of period 3,315,000
=========
</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 $.58 and $0.00, respectively. The per
share weighted average remaining life of the options outstanding
at July 31, 2000 and 1999 is 7.2 and 0 years, respectively.
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 proforma net income and earnings per share are
the same as the historical financial statement presentations.
NOTE 21 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
net losses of $2,322,540 for the nine months ended July 31, 2000.
NOTE 22 FINANCIAL PROJECT MANAGEMENT AGREEMENTS
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.
See Accompanying Notes and Independent Accountants' Review Report.
19
<PAGE> 27
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
(UNAUDITED)
NOTE 22 FINANCIAL PROJECT MANAGEMENT AGREEMENTS (CONTINUED)
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.
In May 2000, the company entered into a fourteen month agreement
with Silverman Heller Associates, to promote financial and
corporate communication activities.
The project manager will be compensated as follows:
1. A monthly fee of $5,500 beginning on May 17, 2000.
2. In connection with the services the project
manager will provide, warrants to purchase 75,000
shares of common stock at the closing price on May
17, 2000 and an additional 50,000 shares at $5.00
per share. These warrants and the shares to be
issued upon the exercise of the warrants will vest
and be exercisable as of May 17, 2000 and expire
five years from the issue date. The warrants will
be granted registration rights on the next stock
registration within the five-year term.
In June 2000, the company entered into a one year agreement with
Travis Morgan Securities, to provide financial consulting to
facilitate long-range strategic planning and to advise the company
on business and or financial matters.
The project manager will be compensated as follows:
1. Certificates representing an aggregate of 150,000
shares of common stock.
2. An option for free trading stock with respect to
the following quantities and strike prices. The
term of the option shall be one year from the
contract date. The option is executable after
reaching the execution price for 10 days.
<TABLE>
<S> <C> <C>
50,000 shares $1.50 exercise price $3.00 execution price
50,000 shares $2.00 exercise price $4.00 execution price
50,000 shares $2.50 exercise price $5.00 execution price
</TABLE>
3. The project manager will be granted the first
right of refusal to participate in any subsequent
mergers or acquisitions, registrations, IPOS or
secondary offerings.
In July 2000, the company entered into an agreement with two
individuals, to provide computerized CD-Rom presentations, website
services and construction, brochures, trade shows and webcasts on
bNet-TV.
See Accompanying Notes and Independent Accountants' Review Report.
20
<PAGE> 28
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
(UNAUDITED)
NOTE 22 FINANCIAL PROJECT MANAGEMENT AGREEMENTS (CONTINUED)
The individuals will be compensated as follows:
1. 80,000 shares of common stock valued at $.80 per
share on or before June 15, 2000.
2. 400,000 shares of common stock valued at $.80 per
share on or before June 15, 2000.
NOTE 23 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 $102,619 in the accounts payable.
NOTE 24 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.
See Accompanying Notes and Independent Accountants' Review Report.
21
<PAGE> 29
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
(UNAUDITED)
NOTE 24 PLAN OF REORGANIZATION AND STOCK EXCHANGE AGREEMENT (CONTINUED)
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 July 31, 1999 (431,732)
---------
Net (loss) for the nine months ended July 31, 1999 $(519,995)
=========
</TABLE>
NOTE 25 UNAUDITED FINANCIAL INFORMATION
The accompanying financial information as of July 31, 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.
22
<PAGE> 30
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 has completed the
construction of a server co-location facility, consisting of improvements
and equipment to provide Internet content hosting services to subscribers.
THREE-MONTH PERIOD ENDED JULY 31, 2000, COMPARED TO THREE-MONTH PERIOD
ENDED JULY 31, 1999.
<TABLE>
<CAPTION>
Three-month Period Ended
------------------------
7/31/2000 7/31/1999
--------- ---------
<S> <C> <C>
Statement of Operations Data
Net sales $ 1,142,040 $ 382,495
Gross profit $ 277,226 $ (16,422)
Operating Income (loss) $ (728,257) $ (391,843)
Net earnings (loss) after tax $ (771,594) $ (229,045)
Net earnings (loss) per share (.03) (.01)
</TABLE>
<TABLE>
<CAPTION>
Three-month Period Ended
------------------------
7/31/2000 7/31/1999
--------- ---------
<S> <C> <C>
Balance Sheet Data
Total assets $ 3,715,708 $ 818,169
Total liabilities $ 3,597,604 $ 1,241,036
Retained earnings (deficit) $(3,963,703) $(1,401,810)
</TABLE>
Revenues. Sales increased to $1,142,040 for the three-month period
ended July 31, 2000, which is approximately 299% of the $382,495 for the
three-month period ended July 31, 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 229%
from $398,937 in the three month period ended July 31, 1999, to $914,814 for
the three-month period ended July 31, 2000. The increase in cost of sales is
attributable to a similar percentage increase in sales and also reflects
higher labor and marketing expenses associated with the increase in work
force necessary to sell and support the co-location facility recently
completed, Internet connection services and software.
Gross Profit. Gross profit increased from a gross loss of
approximately $16,422 for the three-month period ended July 31, 1999, to a
gross profit of $277,226 for the three-month period ended July 31, 2000.
<PAGE> 31
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately 255% from $375,401 for the
three-month period ended July 31, 1999, to $955,483 for the three-month
period ended July 31, 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
support of the 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 Expenses. Interest expense of $44,424 for the three-month
period ended July 31, 2000, and of $10,738 for the three-month period ended
July 31, 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 July 31, 2000, to
debenture holders.
Net Earnings. Net losses increased from $229,045 for the
three-month period ended July 31, 1999, to $771,594 for the three-month
period ended July 31, 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.
NINE-MONTH PERIOD ENDED JULY 31, 2000, COMPARED TO NINE-MONTH PERIOD ENDED
JULY 31, 1999.
<TABLE>
<CAPTION>
Nine-month Period Ended
-----------------------
7/31/2000 7/31/1999
--------- ---------
<S> <C> <C>
Statement of Operations Data
Net sales $ 3,207,019 $ 1,804,064
Gross profit $ 517,084 $ 270,247
Operating Income (loss) $(2,266,955) $ (897,975)
Net earnings (loss) after tax $(2,322,540) $ (749,040)
Net earnings (loss) per share $ (.08) $ (.03)
</TABLE>
<TABLE>
<CAPTION>
Nine-month Period Ended
-----------------------
7/31/2000 7/31/1999
--------- ---------
<S> <C> <C>
Balance Sheet Data
Total assets $ 3,715,708 $ 818,169
Total liabilities $ 3,597,604 $ 1,241,036
Retained earnings (deficit) $(3,963,703) $(1,401,810)
</TABLE>
Revenues. Sales increased to $3,207,019 for the nine-month period
ended July 31, 2000, which is approximately 178% of the $1,804,064 for the
nine-month period ended July 31, 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 175%
from $1,533,817 in the nine-month period ended July 31, 1999, to $2,689,935
for the nine-month period ended July 31, 2000. The increase in cost of sales
is attributable to a
<PAGE> 32
similar percentage increase in sales and also reflects higher labor and
marketing expenses associated with the increase in work force necessary to
sell and support the co-location facility recently completed, Internet
connection services and software.
Gross Profit. Gross profit increased from approximately $270,247
for the nine-month period ended July 31, 1999, to $517,084 for the
nine-month period ended July 31, 2000. Although the increase was
insignificant, it 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 238% from $1,168,222 for
the nine-month period ended July 31, 1999, to $2,784,039 for the nine-month
period ended July 31, 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
support of the new 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 $73,645 for the nine-month
period ended July 31, 2000, and of $35,357 for the nine-month period ended
July 31, 1999, was accrued primarily on notes payable to Community First
National Bank (primarily extended for working capital purposes).
Net Earnings. Net losses increased from $749,040 for the
nine-month period ended July 31, 1999, to $2,322,540 for the nine-month
period ended July 31, 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 July 31, 2000, the Company had not engaged in
capital-raising activities. However, in August, 2000 the Company raised
approximately $441,000 through sales of unregistered shares of common stock at
prices ranging from $.35 per share to $.55 per share. In September, Globe United
Holdings, Inc. converted debentures totalling $350,000 and received 1,163,432
shares of common stock. The company still needs to raise additional capital to
remain in business beyond January 31, 2001. If the Company cannot raise
financing, downsizing and modification to planned growth initiatives may be
necessary. Historically, iBIZ has had problems with liquidity. The Company has
been unable to generate sufficient internal cash flow to fund all of its
obligations.
The server co-location facility, which was completed in August, is
scheduled to open on September 13, 2000. If the consumer demand that the
Company anticipates for the server co-location facility 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.
<PAGE> 33
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. Beginning in June
and continuing through August, 2000, the Company received orders from Comp USA
totaling $400,000 and from another retailer totaling $600,000 for PDA
accessories. To fill additional orders in the future, the Company must pay
required manufacturing costs to its Taiwanese suppliers prior to shipment. A
continuing increase in orders from various PDA retail outlets will require
greater capital than is presently available to the Company. As the Company gave
a security interest in all of its assets to Sonoma Bank in conjunction with its
move to a new facility in July, 1999, it does not have any unencumbered assets
necessary to obtain receivables or other debt financing. The Company is
presently seeking a receivables financing source but must remove the existing
lien on its receivables to obtain this financing. There is no assurance that it
will obtain the necessary receivables financing or that it will raise the
capital through the sale of additional equity necessary to meet the increase in
demand for its PDA accessories.
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
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.
PART 11 - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material developments in this area.
ITEM 2. CHANGES IN SECURITIES
(c) Recent Sales of Unregistered Securities
On March 27, 2000, the Company 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 was converted into 192,853 shares of
common stock. On June 21, 2000, $100,000 of the principal amount of the
Debentures was converted into 169,800 shares of common stock. On September
6, 2000, $300,000 of the principal amount of the Debentures was converted
into 967,742 shares of common stock. The Debentures are due and payable on
March 27, 2005.
<PAGE> 34
0n August 8, 2000, the Company issued 330,000 shares of common
stock at a price of $0.45 per share for a total of One Hundred Forty-Eight
Thousand Five Hundred Dollars ($148,500.00). On August 31, 2000, the
Company issued 100,000 shares of common stock at a price of $0.45 per share
for a total of Forty-Five Thousand Dollars ($45,000.00). On August 31,
2000, the Company issued 650,000 shares of common stock at a price of $0.35
per share for a total of Two Hundred Twenty-Seven Thousand Five Hundred
Dollars ($227,500.00). On August 31, 2000, the Company issued 36,363.63
shares of common stock at a price of $0.55 per share for a total of Twenty
Thousand Dollars ($20,000.00). The Company relied upon either Section 4(2)
or Regulation D, Rule 506 promulgated under the Securities Act of 1933 with
respect to these sales of common stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
<TABLE>
<S> <C>
23.04 Consent of Moffitt and Company
27.04 Financial Data Schedule
</TABLE>
B. REPORTS ON FORM 8-K
Not applicable.
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated this 14th day of September, 2000.
iBIZ TECHNOLOGY CORP., a Florida
corporation
By: /s/ Kenneth W. Schilling
------------------------
Kenneth W. Schilling, President,
Director
<PAGE> 35
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
<PAGE> 36
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------ ----------------------
<S> <C>
23.04 Consent of Moffitt and Company
27.04 Financial Data Schedule
</TABLE>
