U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

(MARK ONE)
            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                     For the fiscal year ended June 30, 2002

             [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
       For the transition period from _______________ to ________________

                         Commission File Number: 0-27721

                             EBIZ ENTERPRISES, INC.
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

                  NEVADA                                          84-1075269
    (STATE OR OTHER JURISDICTION OF                             (IRS EMPLOYER
     INCORPORATION OR ORGANIZATION)                          IDENTIFICATION NO.)

       13715 MURPHY ROAD, SUITE D
             STAFFORD, TEXAS                                        77477
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                          (ZIP CODE)

                                 (281) 403-8500
                           (ISSUER'S TELEPHONE NUMBER)

       Securities registered under Section 12(b) of the Exchange Act: NONE

         Securities registered under Section 12(g) of the Exchange Act:

                          COMMON STOCK, $.001 PAR VALUE
                                (TITLE OF CLASS)

     Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ].

     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

     Check whether the issuer (1) filed all reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court. Yes [X] No [ ].

     Registrant's revenues for its most recent fiscal year were $8,161,941.

     The aggregate market value of the common stock held by non-affiliates
computed based on the closing price of such stock on June 30, 2002 was
approximately $33,000.

     The number of shares outstanding of the registrant's classes of common
stock, as of September 30, 2002 was 3,235,676.

     Documents incorporated by reference: NONE

     Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
                                     PART I

RECENT DEVELOPMENTS

     BANKRUPTCY COURT CONFIRMATION OF OUR PLAN OF REORGANIZATION. On September
7, 2001 Ebiz and its wholly-owned subsidiary, Jones Business Systems, Inc., a
Texas corporation ("JBSI"). filed for Chapter 11 bankruptcy in Phoenix, Arizona.
On April 11, 2002 the United States Bankruptcy Court for the District of Arizona
in Phoenix, Arizona executed an order confirming the Amended Joint Plan of
Reorganization (the "PLAN") for both Ebiz and JBSI. The principal provisions of
the Plan are as follows (capitalized terms, not otherwise defined below, have
the meaning set forth in the Plan filed as Exhibit 2.2 to our Form 8-K on April
24, 2002):

     *    The effective date of the Plan was May 21, 2002 (the "EFFECTIVE
          DATE"). On the Effective Date, all of the assets and business
          operations of JBSI were transferred to Ebiz which became the
          reorganized, surviving entity ("REORGANIZED COMPANY"). JBSI is to be
          dissolved and cease to exist. We are in the process of implementing
          the dissolution of JBSI. All purchases, manufacturing, sales and other
          business operations are being performed by Reorganized Company.

     *    As of the Effective Date of May 21, 2002, all outstanding shares of
          preferred stock and common stock of Ebiz were cancelled. Warrants to
          purchase shares of common stock in Reorganized Company, par value
          $0.001 ("NEW COMMON STOCK") at $0.65 per share were issued to the
          former stockholders (each a "NEW WARRANT") at the approximate rate of
          one share of New Common Stock for every eleven (11) shares of Ebiz's
          common stock owned as of the Effective Date. Terms of the New Warrants
          provided for a sixty-day exercise period from the Effective Date. For
          purposes of calculating the exchange for the New Warrants set forth
          above, the 7,590 outstanding shares of preferred stock as of the
          Effective Date were converted into 3,220,000 shares of common stock.
          The total number of shares of New Common Stock for which the New
          Warrants may be exercised is 3,728,185. The total amount of New Common
          Stock issued to preferred and common shareholders of the Company from
          exercise of the New Warrants (assuming exercise of all New Warrants)
          equals approximately 40.09% of the New Common Stock that may be issued
          under the Plan. Prior to July 20, 2002, the expiration date, 15,589 of
          the New Warrants were exercised. The remainder of the New Warrants
          has expired.

     *    Obligations to all of our secured creditors are to be paid in full
          with interest. Long-term periodic payments will be made to our secured
          creditors until full payment has been made.

     *    At the Effective Date, the general unsecured creditors were issued on
          a pro rata basis based upon the amount of their claims, shares of
          common stock in Reorganized Company from a pool of securities
          consisting of (i) 660,000 shares of New Common Stock and (ii) warrants
          to purchase 220,000 shares of Reorganized Company (each an "UNSECURED
          CREDITORS WARRANT"). The terms of the Unsecured Creditors Warrants
          provide for a two-year exercise period from the Effective Date and an
          exercise price of $0.65 per share. The total amount of New Common
          Stock issued directly to the general unsecured creditors and from
          exercise of the Unsecured Creditors Warrants (assuming exercise of all
          Unsecured Creditors Warrants) equals approximately 9.46% of the New

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          Common Stock that may be issued under the Plan. In addition, each
          general unsecured creditor will receive equal quarterly payments over
          a two year period, beginning on the date that is three months after
          the Effective Date, which aggregate 7% of such general unsecured
          creditor's allowed claim. The first payments were made effective
          August 19, 2002.

     *    The Canopy Group, Inc. ("CANOPY' ) had the right, for the 30 day
          period following the Effective Date that ended June 20, 2002, to
          convert up to $1,500,000 of its secured debt for shares of New Common
          Stock. For each $500,000 of secured debt that Canopy elected to
          convert, it could appoint one designee to our Board of Directors. The
          total number of shares of New Common Stock for which Canopy may make
          such exchange is 2,538,462. Canopy made the election and converted
          $1,500,000 of its secured debt for 2,538,462 shares of New Common
          Stock and appointed three designees to our Board of Directors. In
          addition, Canopy received on the Effective Date, warrants to purchase
          253,846 shares of New Common Stock (each a "CANOPY/FFEC WARRANT"). The
          terms of the Canopy/FFEC Warrants provide for a three-year exercise
          period from the Effective Date and an exercise price of $0.65 per
          share. The total amount of New Common Stock issued to Canopy from the
          exchange of its secured debt and the exercise of the Canopy/FFEC
          Warrants (assuming Canopy exchanges the entire amount of its secured
          debt and exercises all of its Canopy/FFEC Warrants) equals
          approximately 30.02% of the New Common Stock that may be issued under
          the Plan.

     *    During the 30 day period following the Effective Date ending June 20,
          2002, holders of the secured promissory notes totaling $591,000 (each
          a "DIP NOTE"), issued as debtor-in-possession financing during the
          Chapter 11 cases, were permitted to exchange all or part of the debt
          represented by a DIP Note for (i) shares of New Common Stock at the
          price of $0.50 per share or (ii) a convertible secured promissory note
          (each a "NEW NOTE" ) which provides for interest to accrue at various
          rates until the maturity date which is seven years after the Effective
          Date. At maturity, all principal and accrued interest will be due. For
          the period ending on the date that is twenty-four months after the
          Effective Date, each holder of a New Note may convert the amount of
          such New Note to shares of New Common Stock at the conversion price of
          $0.50 per share. The total number of shares of New Common Stock for
          which the DIP Notes may be exchanged directly for shares or converted
          through the New Notes for shares is 1,182,000 shares which equals
          approximately 12.71% of the New Common Stock that may be issued under
          the Plan. A total of $ 578,500 of the DIP Notes were actually
          exchanged for New Notes which may be converted into 1,157,000 shares
          of New Common Stock. In addition, the agent for the holders of the DIP
          Notes, First Financial Equity Corporation, which also served as our
          financial advisor in the debtor-in-possession financing transaction,
          will receive 118,200 Canopy/FFEC Warrants which if exercised equals
          approximately 1.27% of the New Common Stock that may be issued under
          the Plan.

     *    The Transition Management Team collectively has received 300,000
          shares of New Common Stock and warrants to purchase 300,000 shares of
          New Common Stock (each a "TRANSITION WARRANT"). The terms of the
          Transition Warrants provide for a one-year exercise period from the
          Effective Date and an exercise price of $0.65 per share. Fifty percent
          of the total number of shares of New Common Stock and Transition
          Warrants were distributed to members of the Transition Management Team
          on May 21, 2002 with the balance distributed on August 19, 2002. The

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<PAGE>
          total amount of New Common Stock issued directly to the Transition
          Management Team and from exercise of the New Warrants equals
          approximately 6.45% of the New Common Stock that may be issued under
          the Plan.

     *    Our Board of Directors consists of Bruce Parsons, three designees of
          Canopy, Dan Baker, Darcy Mott and Allan Smart (as a result of the
          exchange of Canopy's secured debt for New Common Stock), and up to one
          designee of FFEC (depending upon the amount of the DIP Notes that are
          exchanged for New Common Stock ).

     The Plan requires that certain administrative claims be paid on the
Effective Date. The amount of administrative claims paid was $42,542.

     The total number of outstanding shares as of the confirmation date of the
Plan was 7,590 preferred shares and 34,062,328 common shares. At the Effective
Date all outstanding shares of preferred stock and common stock were cancelled,
and New Common Stock and warrants were issued pursuant to provisions of the
Plan. The number of shares of New Common Stock issued upon the Effective Date
was 697,214, and the total number of shares of New Common Stock that may be
issued upon the exercise of all warrants, the conversion of all convertible debt
issued under the Plan, and the issuance to the Transition Management Team of the
balance of its New Common Stock is 8,490,693. As of the Effective Date, the
combined total number of shares of New Common Stock that may be issued under the
Plan by all methods was 9,300,693. However, only 15,589 of the New Warrants were
exercised before their expiration on July 20, 2002, and therefore the total
number of shares of New Common Stock that now may be issued under the Plan is
5,588,097.

     As of April 11, 2002, the assets and liabilities of the Company on a
historical cost basis were approximately $4,531,737 and $21,910,899,
respectively. On or near the Effective Date, we adopted provisions of "fresh
start accounting," which required us to restate all assets and liabilities to
their fair values based upon the provisions of the Plan and certain valuation
plans currently underway. No determination of the impact of fresh start
accounting on the historical consolidated financial statements has been made.

     The long-term implementation of our business plan and our company
strategies, as well as the achievement of the objectives of those strategies, is
dependent upon, among other factors, our ability to successfully execute and
fulfill the obligations of our confirmed Plan .

     Following our bankruptcy filing on September 7, 2001 and prior to the
confirmation of our Plan on April 11, 2002, we completed various transactions
related to the financing of working capital for our ongoing operations.

     On September 13, 2001 we entered into a Stipulation for Use of Cash
Collateral ("STIPULATION") with Canopy which allowed us to use 95% of the
collections received from pre-petition accounts receivable on which Canopy held
a security interest. In exchange for this agreement, we granted to Canopy a
first lien security interest in all of our post petition receivables, inventory
and the proceeds thereof. In addition, we may use 95% of the proceeds from all
post petition accounts receivable and inventory to operate our business. The
remaining 5% is to be applied to the outstanding balance of the debt owed to

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Canopy which approximates $4,100,000. The Stipulation has provided some
temporary relief for the cash flow challenges we continue to experience.

     On September 24, 2001 we entered into an Agreement for Secured Line of
Credit (the "SECURED LINE") with Caldera Systems, Inc. ("CALDERA"). Under terms
of the Secured Line, Caldera provided a $250,000 line of credit to facilitate
the purchase of product from Caldera. In exchange for the granting of the line
of credit, we executed a promissory note for $542,125.61 representing the
pre-petition debt owed to Caldera and granted a junior security interest in all
of our assets to Caldera to secure the promissory note and all amounts that may
become due and owing under the line of credit.

     On November 8, 2001 we entered into a Dealer Loan and Security Agreement
for Secured Line of Credit (the "DEALER LOAN") with Textron Financial
Corporation ("TEXTRON") and an Agreement to Provide Letter of Credit and
Financial Accommodations (the "LOC") with Canopy. Under the terms of the Dealer
Loan, Textron provided to us credit and financing in the amount of $500,000 to
facilitate the purchase of goods and inventory on favorable terms from our
suppliers. This has provided assistance in filling orders from our clients and
meeting the demand for our products. Under the LOC, Canopy has provided a
$500,000 letter of credit to secure the credit extended by Textron under the
Dealer Loan.

     Following confirmation of our plan on April 11, 2002, we entered into a
line of credit loan agreement with Canopy on May 14, 2002. Under the terms of
the agreement borrowings under the line of credit are limited to the lesser of
$500,000 or 85% of eligible accounts receivable. The line of credit is secured
by all accounts receivable, inventory and property and equipment of the Company.
In an amendment dated September 4, 2002 the total available under the line was
increased to $700,000.

     Even with the transactions set forth above, we have need for additional
capital and are continuing our efforts to locate and raise additional capital.

SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

     Except for historical information contained herein, this Form 10-KSB
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "SECURITIES ACT") and Section 21E of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"). We may also
make forward-looking statements from time to time in filings with the Securities
and Exchange Commission ("SEC"), press releases or otherwise. We intend that the
forward-looking statements be subject to the safe harbors created by these
statutory provisions. Wherever possible, we have identified the forward-looking
statements by words such as "ANTICIPATES," "BELIEVES," "CONTEMPLATES,"
ESTIMATES," "EXPECTS," "INTENDS," "PLANS," "PROJECTS," "FORECASTS" and similar
expressions.

     Forward-looking statements involve risks and uncertainties and include, but
are not limited to, statements regarding future events, plans and expectations.
Although we believe that the assumptions underlying our forward-looking
statements are reasonable, any of these assumptions could prove inaccurate. Our
forward-looking statements reflect only our current views with respect to future
events and financial performance or operations and speak only as of the date the
statements are made. Our actual results may differ materially from such
statements. Factors that may cause or contribute to such differences include,
but are not limited to, those discussed in "DESCRIPTION OF BUSINESS - Factors
Affecting Future Performance" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," as well as elsewhere in this
report and in the exhibits incorporated by reference.

     The inclusion of forward-looking information should not be regarded as a
representation that the future events, plans or expectations contemplated will
be achieved. We disclaim any obligation to subsequently revise forward-looking
statements to reflect subsequent events or circumstances or the occurrence of
unanticipated events.

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<PAGE>
ITEM 1. DESCRIPTION OF BUSINESS

OVERVIEW AND BUSINESS DEVELOPMENT

     ORGANIZATION STRUCTURE. Ebiz is a Nevada corporation incorporated in June
1998. Our predecessor, Genras, Inc., was incorporated in Arizona in May 1995. On
June 1, 1998, Vinculum Incorporated, a then non-operating company with an
estimated 700 shareholders, acquired all the operating assets and liabilities of
Genras for 5,000,000 shares of Vinculum common stock. Prior to the acquisition,
Genras had no relationship with Vinculum. Vinculum was incorporated in Colorado
in May 1984 as VDG Capital Corporation and changed its name to Vinculum
Incorporated in December, 1994. Immediately following the acquisition of the
Genras assets, the former Genras stockholders held approximately 87% of the
outstanding shares of Vinculum's common stock. For financial accounting
purposes, the acquisition was treated as a recapitalization with Genras as the
acquirer. Ebiz was originally incorporated as a wholly owned subsidiary of
Vinculum. Ebiz was originally incorporated with the name Vinculum Incorporated,
changed its name to CPU MicroMart, Inc. in June 1998 and later changed its name
to Ebiz Enterprises, Inc. in May 1999. In August 1998 Vinculum merged into Ebiz
solely to change its domicile to Nevada.

     We are a developer, provider, and reseller of Linux and Unix based
solutions, computer systems, software and accessories for the business computer
market. We have developed and operate Linux and Unix centric web site that
provide marketing and sales channels for providers of Linux and Unix products
and services, technical information and technical support. We also manufacture
and market Ebiz branded as well as private label Linux and Unix based systems.
Selected products may be sold directly to end user or enterprise customers
through our web site or to Value Added Resellers (VARs) through our own sales
force. We primarily deliver to market via a channel sales model, however,
selected end user or enterprise market segments may be served under a direct
sales model where channel VAR's and Resellers may not be an appropriate delivery
vehicle.

     PURCHASE AND INVESTMENT WITH CALDERA SYSTEMS, INC . On September 15, 2000,
we entered into a Purchase and Sale Agreement with Caldera for the acquisition
of all of the intellectual property, technology and certain specified assets
related to Caldera's proprietary marketing distribution concept known as
Electronic Linux Marketplace. We paid to Caldera 1 million shares of our common
stock for the Electronic Linux Marketplace assets which were transferred into a
wholly owned subsidiary , partnerAxis, Inc. ("PARTNERAXIS"). We then began
further development of the business concept. As part of the transaction, Caldera
purchased $3 million of Ebiz common stock in a private transaction. The $3
million proceeds received from Caldera were used to fund partnerAxis, a
Web-based B2B entity providing knowledge exchange, Linux product sales,
advertising, membership and channel development, all within the Linux
marketplace.

     We reached an agreement in principle with Caldera as reflected in a term
sheet dated January 2, 2001 regarding modification of the Purchase and Sale
Agreement entered into on September 15, 2000. We agreed with Caldera to modify
the Purchase and Sale Agreement with regard to the balance of the $3 million
proceeds which totaled $2.1 million at that time. Per the term sheet, $1 million

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would be immediately deposited with an independent escrow agent and the
remaining $1.1 million would be deposited with the escrow agent no later than
June 30, 2001 (the "ESCROW FUNDS"). Prior to that date, we were entitled to use
those funds for purposes other than developing the business plan of partnerAxis,
and, in fact, we used $1.1 million of the Escrow Funds for other purposes.
Should we have failed to deposit the $1.1 million with the escrow agent by June
30, 2001, we were required to issue to Caldera a warrant to purchase 1 million
shares of our common stock at the price per share and on terms and conditions as
set forth in the warrant. Additional terms include payment of a 5% royalty on
revenues derived from partnerAxis in lieu of issuance of additional shares based
on earnings performance. In April 2001 and prior to completion of final
documents for the modification, we sold partnerAxis in the transaction described
below.

     SALE OF PARTNERAXIS. On April 16, 2001, we completed the sale of
partnerAxis to BySynergy, LLC ("BYSYNERGY"), pursuant to a Stock Purchase
Agreement dated April 13, 2001. Pursuant to the agreement with BySynergy,
BySynergy assumed all of the unperformed obligations we owed to Caldera
including the deposit of $1.1 million with the escrow agent by June 30, 2001.
The major factors leading to the decision to sell partnerAxis were the costs
necessary to operate the subsidiary, approximately $500,000 during the quarter
ended March 31, 2001. The disposition relieved us of the requirement of raising
additional capital necessary to fund the continued development of partnerAxis
until it could begin to produce revenues. But most importantly, the disposition
allowed us to focus primarily on our core business of supplying computing
solutions to our corporate and channel accounts nationwide.

     ACQUISITION OF LINUXMALL.COM, INC. On October 5, 2000, we completed the
acquisition of LinuxMall.com, Inc. ("LINUXMALL") by the merger of LinuxMall into
a newly formed and wholly owned subsidiary. The price paid was $14.7 million
comprised of common stock, options and warrants. As one of the original Linux
companies founded in the early 1990's, LinuxMall had developed great appeal with
the on-line Linux community and had successfully marketed and sold Linux
accessories and small ticket retail products through its websites. Over the
course of calendar 2001 and 2002, it became apparent that our web centric retail
business model was not producing sales revenue as anticipated. Although
reasonably popular with true Linux enthusiasts, commercial interests did not
embrace this "low touch" web centric sales model and therefore sale of our
higher margin Linux and Unix products and services was not well suited to this
medium as a primary go to market strategy. In early 2002, several of the
secondary LinuxMall web sites were suspended from operation and the primary
LinuxMall web site was placed into a maintenance mode until a final
determination could be made as to its relevance and importance to our business
following confirmation of our Plan. We have not yet identified how to
strategically utilize LinuxMall in our current business plan..

     ACQUISITION OF JONES BUSINESS SYSTEMS, INC. On January 4, 2001, we
completed the acquisition of Jones Business Systems, Inc. ("JBSI") by the merger
of a newly formed and wholly owned subsidiary into JBSI. Under terms of the
transaction, we paid $7.8 million for JBSI comprised of common stock and
options. JBSI is a national solutions integrator, white box system builder and
service provider. JBSI manufactures the Terian product line of built-to-order
computing solutions for its reseller and enterprise partners. Terian systems
combine the latest Intel hardware technology with built-to-order flexibility and
reliability. JBSI supplies computing products and services to its reseller and
enterprise partners nationwide in the Linux, UNIX and Windows 2000 marketplaces

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and is one of the nation's top distributors of Informix (Nasdaq: IFMX), SCO
(Nasdaq: SCOC), Data General (Nasdaq: DATA) and Acer products. Under terms of
our Plan, all of the assets and business operations of JBSI were transferred to
Ebiz which became the reorganized, surviving entity. We are in the process of
implementing the dissolution of JBSI.

     The acquisition strengthened our commitment to the expanding market for
specialized servers, also known as appliance servers. Specialized servers are a
new generation of single-purpose computer equipment created as a result of rapid
Internet growth and the evolution to a thin client architecture. Specialized
servers, including web-hosting and database-hosting devices, are used
extensively by application service providers (ASPs) and Internet Service
Providers (ISPs). We share this space with companies such as Cobalt, Network
Engines and Network Appliance. The acquisition was helped to establish us as a
primary beneficiary of the migration from Unix to Linux. We have longstanding
relationships with many Unix VARs (value added resellers) offering an existing
client base for the Company's Linux solutions. The acquisition has further
helped to increase the number of VARs providing Linux solutions. Moreover, JBSI
had been building and supplying white boxes, products and services to the UNIX
community since 1991 and anticipating the rapid growth of the Linux and UNIX
marketplaces. JBSI built in-house systems and facilities to handle sales volume
of more than $200 million per year. The JBSI acquisition and its Stafford, Texas
facility and infrastructure later became the foundation for our post
reorganization business model aimed at higher margin value add products and
services based upon Linux and Unix technology.

     We address the high-growth markets we target through an integrated business
strategy that utilizes our Internet web site intended to appeal to specific
market audiences. EBIZENTERPRISES.COM is our primary web site and it serves as a
launching point into multiple specialty technology areas that in turn present a
very focused story line, such as High Performance Clusters, Terian Servers,
Terian Check Point Fire Wall Appliances, as well as Security and Professional
Services based upon our Linux and Unix product sets and technical expertise.

     While we believe we have the capability to succeed with our business plan,
we are still an early stage company with limited operating history. Our prior
years of operations have resulted in losses. Our auditors have qualified their
opinion to our financial statements indicating there is substantial doubt about
our ability to continue as a going concern. As a growing, early stage company,
our ability to raise capital as well as increase our sales revenue will be
critical to our ability to continue as a going concern. We are also
concentrating the focus of our business on utilization of the Linux operating
system and away from some of our past fulfillment distribution strategies. We
anticipate that because of the focus on Linux and Unix based products, our gross
margins will increase and our operating expenses will stabilize. See the
sections captioned "DESCRIPTION OF BUSINESS - Factors Affecting Future
Performance" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" for a discussion of capital constraints and other
risks of our business.

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BUSINESS OF ISSUER

     THE LINUX MARKET

     OVERVIEW. Linux is a free Unix-similar-computer operating system originally
created by Linus Torvalds at the University of Helsinki in Finland. Mr. Torvalds
began his work in 1991 when he released version 0.02 and worked steadily until
1994 when version 1.0 of the Linux Kernel was released. The current
full-featured version is 2.4 and development continues.

     Linux is developed under the GNU General Public License and its source code
is freely available to everyone. However, companies and developers may charge
for the system and adaptations as long as the source code remains available.
Linux may be used for a wide variety of purposes including networking, software
development, and as an end-user platform. Linux systems are considered a viable,
low-cost alternative to other more expensive operating systems.

     Due to the functionality and availability of the Linux system, it has
become popular worldwide. A vast number of software programmers of the Linux
system have taken the Linux source code and adapted it to meet their individual
needs. At this time, there are numerous ongoing projects for porting Linux to
various hardware configurations and purposes.

     THE RAPIDLY GROWING LINUX MARKET. The Linux operating system is growing
beyond the early adopter phase and reaching the mainstream business market.
Active Linux users worldwide are estimated to be in excess of 10,000,000.
Numerous hardware and software manufacturers have announced and have deployed
Linux-based solutions.

     In a 1999 bulletin titled LINUX OPERATING SYSTEM MARKET OVERVIEW, IDC
presented its first-ever forecast for Linux. Through 2003, total Linux
commercial product shipments are predicted to grow faster than the total
shipments of all other client or server operating environments monitored by IDC.
IDC estimates Linux commercial shipments will increase at a compound annual
growth rate ("CAGR") of 25% from 1999 through 2003. This growth rate estimate
may be compared to an estimated 10% CAGR for all other operating environments
combined and a 12% CAGR for all other server operating environments combined.
IDC reports on only commercial shipments of Linux and is unable to track systems
downloaded from the Internet at no charge.

     Linux has been used in academic and research environments since its
inception for applications such as e-mail, Web servers, bulletin boards and
research projects. In 1999, IDC expects more application vendors to port their
offerings to Linux and hardware vendors to continue to expand their available
product lines running Linux for server-side endeavors. Further, IDC believes
that some desktop initiatives, including an improved graphical user interface
and increased desktop application availability, have the ability to trigger
interest in Linux as a desktop operating system by 2003.

     Linux servers are expected to have a larger impact on the worldwide server
appliance market, according to Dataquest Inc., a unit of Gartner Group, Inc., in
a July 1999 report. Dataquest estimates that by 2003, Linux servers will account
for approximately 24 percent of worldwide server appliance revenue, or $3.8
billion, and 14 percent of server appliance shipments, or 1.1 million units.
Linux based operating systems are now the most commonly used operating system
for Web sites, representing approximately 33% of all installations, according to
the April, 2000 Netcraft Web Server Survey.

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     Moreover, we have seen a convergence of the Linux and Unix markets as many
traditional Unix users are recognizing the advantages of Linux. Importantly,
this factor has opened Linux to a new audience of Unix users that are seeking
what Linux offers. We have many longstanding relationships with Unix customers
who we expect will embrace Linux for many of their future needs. Our selection
of products and solutions will continue to cover both the Linux and the Unix
markets. As a result, the Linux-Unix convergence fits neatly into what we expect
to offer our clients and prospects.

     OUR TARGET MARKETS. As the Linux-Unix operating system moves into the
mainstream, we intend to concentrate our marketing effects on Information
Technology (IT) professionals, computer industry VARs, educational and
governmental users and Linux enthusiasts. Persons in this target market include
chief information officers, network/system administrators, Web developers and
managers, programmers, software and hardware engineers as well as hobbyists and
individuals seeking affordable Internet access. We will also focus on large
corporations seeking to establish Linux in the consumer market through Internet
access appliances and software development.

     BUSINESS OBJECTIVES AND STRATEGIES

     Our objective is to deliver Linux-Unix solutions primarily through channel
partners who in turn focus on the corporate business marketplace. We intend to
achieve this objective by utilizing three primary delivery channels in which we
believe we will have strong presence and positioning. These channels are:

     *    CHANNEL SALES. Our largest source of revenue and growth is expected to
          be through our promotion and sale of products and services through
          channel VAR's and Resellers to the ultimate end user. This approach
          maximizes our sales leverage and territory coverage while minimizing
          internal overhead.

     *    DIRECT SALES. Our direct sales force is relatively small but highly
          focused upon higher margin products and services aimed at very
          specific market segments not well served by our channel partners. A
          direct sales model is more expensive to operate but it permits greater
          control and pin point focus upon very targeted market segments.

     *    E-COMMERCE. Our flagship Web site, EBIZENTERPRISES.COM, provides
          marketing and distribution opportunities for vendors and providers of
          Linux and Unix products and services as well as technical support and
          community information. Several portions of our web site are dedicated
          to user direct interface with our technology, such as our system
          architecture configurator, and e-commerce sales may be made utilizing
          this tool with very little manual intervention.

     Our strategic objectives are to:

     *    Maintain a comprehensive web site that combines product marketing with
          Linux-Unix community interests such as news, resources, links pre- and
          post-sales technical support, hardware service and customer service;

     *    Utilize our Linux-Unix product development expertise to create unique
          product lines for bundling into delivered solutions;

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     *    Generate revenue through product sales as well as through technical
          support, service and training opportunities, customer services,
          Internet advertising, marketing and Web links;

     *    Expand sales, marketing, production and distribution of our branded
          product lines; and

     *    Establish ourselves as an active member of the Linux-Unix community
          known to aggressively support the open source development initiative.

     In order to meet these objectives, we will require additional funding to
implement our planned sales, marketing and product development activities. We
intend to deploy a marketing program focused on building our brand recognition.
We also intend to enhance the performance capabilities of our products to
produce competitive advantages.

     We believe that our technology facility and sales and marketing expertise
differentiates our operations by allowing us to provide true merchant qualities
and capabilities, such as conducting our own purchasing, merchandising, order
fulfillment, supply-chain management, vendor marketing opportunities and product
technical support functions.

     Our e-commerce web site offers targeted audiences relevant content,
services and a quality buying experience, which is a significant element of our
business plan. We believe the key elements to implement our plan include:

     *    PROVIDING A MEANINGFUL VIRTUAL COMMUNITY DESTINATION ON THE INTERNET
          WITH OUR WEB SITE. By providing a broad spectrum of Linux-Unix
          solutions to serve the needs of the Linux-Unix and business community,
          we believe we will provide a common interest Internet destination
          point which will be a source for news and information as well as
          providing an opportunity for product purchases.

     *    ENSURING A SECURE AND CONVENIENT ON-LINE BUYING EXPERIENCE. Our
          e-commerce site features secure buying facilities that are open 24
          hours a day, seven days a week. Our Web site may be reached from the
          customer's home or office and features extensive browsing and search
          capabilities.

     *    DELIVERING EXCELLENT CUSTOMER SERVICE. We intend to provide the
          highest level of customer service from ordering to shipping, and offer
          pre- and post-sales support via the telephone, e-mail and online. We
          also offer online order tracking capabilities.

     *    DEVELOPING CUSTOMER LOYALTY. We are focused on developing and
          promoting customer loyalty, building repeat purchase relationships
          with our customers and maximizing the number of return visits to our
          Web site by our customers.

     *    BUILDING BRAND LEADERSHIP POSITIONING. We are implementing integrated
          online and offline marketing strategies to enhance our brand
          recognition within the vertical markets we target, which include
          advertising, direct online marketing, trade shows and public relations
          activities.

                                       11
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OUR WEB SITE

     Our web site is an important component of our business strategy aimed at
enhancing sales of our products and services. The purpose of our web site is to
combine the best of the community interests with commercial business
opportunities of Linux-Unix. We intend to enhance and develop our Linux-Unix
product offerings, but focus our near-term efforts on developing partnerships
and relationships with manufacturers and suppliers of other Linux-Unix products
and to market their products and services through our site.

     EBIZENTERPRISES.COM. Our primary web site, EBIZENTERPRISES.COM, includes
corporate, public relations, product, services, and community elements tailored
to apprise the general public, investors, and other interested parties about our
strategic direction, management profiles, products and solutions and other
important events.

     PRODUCTS AND SERVICES

     In addition to our ability to integrate unique Linux-Unix solutions from
other suppliers for delivery to the corporate business environment, we have
developed our own line of branded products and services. These include Terian
branded platforms and solution branded appliances such as Terian Pedestals,
Terian Rackmount, Terian Clusters, Terian Solution Appliances, and Terian PCs.

     We are also offering technology based security products and security
oriented professional services. Our SurfControl web and email filtering product
line is aimed squarely at the growing market demand to curtail internal and
external internet abuse. Our Check Point Fire Wall appliance servers are based
upon industry leading software from Check Point, Inc. and is focused upon
preventing internet penetration of customer networks and web sites by
unauthorized personnel or hackers. Both SurfControl and Check Point solutions
generally require a level of technical support and often lead to a broader based
professional services engagement with our client.

     Linux based High Performance Clusters (HPC) represents a major technology,
product, and market focus for us especially within the open architecture or
"commodity off the shelf" (COTS) sector of the HPC market. This sector is
typically motivated to purchase large volumes of computing cycles in the form of
clustered nodes that are powerful but economically more affordable to purchase
and operate than traditional super computers or massively parallel mainframe
systems.

     MARKETING

     We have a complete in-house direct sales department. This department
generates outbound and receives incoming customer calls, referrals and inquiries
generated by our various marketing activities and web site. We also accept sales
orders directly via a secure shopping cart located on each of our web sites.

     Our marketing and promotion strategy is intended to:

     *    Develop unique Linux-Unix hardware and software solutions.

                                       12
<PAGE>
     *    Build brand recognition and become a market leader with our web site.

     *    Generate significant market awareness for our products, web site and
          our company through integrated marketing programs.

     *    Effectively position and promote our products and our web site to
          their target audiences to increase consumer traffic to our site, add
          new customers, stimulate demand and generate revenue.

     *    Develop e-commerce and Internet service revenue from technical
          support, service and training, advertising fees, affiliate programs
          and content providers.

     *    Leverage our strategic partnerships with vendors, industry experts and
          channel partners to effectively merchandise, market and promote our
          initiatives.

     *    Establish a comprehensive database and build strong customer loyalty
          to maximize repeat purchases.

     *    Establish evaluation and accountability processes to manage our sites
          and measure the results of marketing programs and sales support
          activities.

     ESTABLISH CORPORATE AND BRAND POSITIONING. With our business interests
serving the corporate business markets, we believe that it is necessary to
quickly establish and maintain a strong brand presence and communicate corporate
and brand positioning for each of our initiatives. We are implementing a
comprehensive sales and marketing program to promote Ebiz and our brand names.

     Advertising in online and offline media will be utilized to support all of
our e-commerce initiatives and to build brand recognition. Print media
advertising campaigns are used in targeted trade, business and consumer
publications based on the perceived needs of the targeted customers.

     Public and media relations activities have been used extensively, targeting
key online, print and broadcast media to generate visibility and awareness of
our sites, our products and our brands. We distribute newsworthy information on
a timely, consistent basis, produce professional electronic and printed press
materials and manage an accurate media contact database in-house.

     Trade shows are used throughout our marketing program where appropriate to
create brand awareness, primarily among specific vertical market groups or
Internet industry associations. To enhance our corporate positioning and
perception, we intend to expand our presence at the select shows we attend. We
expect to accomplish this by providing multimedia presentation theater format
and individual demonstrations and to interact extensively with the press and
sales promotions to generate traffic and consumer excitement. To ensure
consistency of message, all trade shows revolve around a central theme or
concept that is key to the positioning of our new and featured products.

                                       13
<PAGE>
     DIRECT MARKETING AND SALES PROMOTION PROGRAMS. We intend to develop
targeted customer retention and promotion programs designed to reward frequent
customers. A Database/Direct Marketing Program has been established for our web
site to enable us to develop community databases, which can be marketed to
cross-sell, re-sell and up-sell our products. This will be accomplished through
product registrations, web customer registrations and newsletter lists. Customer
information will be captured into an enterprise-wide customer database system,
which will then be accessible by the sales team for follow-up and reporting.

     From this database, we intend to address many marketing activities,
including lead management and database marketing. Our goal will be to segment
this database and communicate with key segments on a weekly or bi-weekly basis
at a minimum. We will also promote new products and enhancements, promotions,
training opportunities, sales events and other activities, through direct mail.

     CUSTOMER SERVICE

     Our customer service department includes customer service and technical
support representatives. Our customer service representatives are available from
8:00 a.m. to 6:00 p.m. Central Standard Time, Monday through Friday to assist
customers in placing orders, finding desired products and registering credit
card information. Technical support representatives assist customers in setting
up, configuring and troubleshooting our branded products, and provide return
material authorizations for defective products. We provide technical support
over the telephone, via e-mail and online. We also provide comprehensive user
documentation, online tutorials and a detailed database of product-related
problems and solutions.

     Both customer service groups are a valuable source of feedback regarding
user satisfaction. Our sites also contain customer service pages that outline
store policies and provide answers to frequently asked product questions.

     INFORMATION TECHNOLOGY

     The market in which we compete is characterized by rapidly changing
technology, evolving industry standards, frequent service and new product
announcements, product enhancements and changing customer demands. Accordingly,
our success depends upon our ability to adapt to rapidly changing technologies,
to adapt our services to evolving industry standards, and to continually improve
the performance, reliability and features of our products and service. We have
implemented a broad array of scaleable site management, search, customer
interaction and distribution services systems that we use to process customers'
orders and payments. These systems use a combination of our own proprietary
technologies and commercially available licensed technologies. The systems that
we use to process customers' orders and payments are integrated with our
accounting and financial reporting systems. We focus our internal development
efforts on creating and enhancing the specialized, proprietary software that is
unique to our business.

     Our systems have been designed on industry standard architectures and have
been designed to reduce downtime in the event of outages or catastrophic
occurrences. Our systems are available 24-hours-a-day, seven-days-a-week. Our
system hardware is located in our Stafford, Texas facility.

                                       14
<PAGE>
     PRINCIPAL SUPPLIERS AND STRATEGIC ALLIANCES

     Our principal suppliers have over the past two years included Ingram Micro,
Inc., Kingston Technology Company, ViewSonic Corporation and Advanced
Microdivices, Inc. As we have moved more into the mainstream Linux community
through both internal growth and acquisitions, other major suppliers have
arisen. These suppliers include Caldera Systems, Inc., Corel Corporation, Suse,
Inc., Walnut Creek, Inc. and Red Hat Software, Inc. As we focus on producing
bundled computer systems utilizing the Linux operating system, we anticipate
that suppliers such as 3ware, TurboLinux, Storm Linux, SurfCOntrol, Check Point,
Keylink Systems, and IBM will also become significant suppliers to Ebiz.

     COMPETITION

     Linux operating system companies such as Red Hat, Inc., Caldera, Suse, etc.
are building business models around Linux by selling customer service, technical
support and utility applications around their Linux operating system. Red Hat
has dominated this market by entering into distribution agreements with large
hardware makers such as IBM and Dell. Several Linux based Web site portals which
offer technical news, software downloads, Web site tools, resources, links and
services, as well as product marketing, have been recently developed. The sites
highlight the growing competition in the open-source world, and among Linux
operating system developers in particular. Ebiz does not compete with the
operating system organizations but rather collaborates with them to provide
highly focused business solutions that utilize the Linux O/S and include value
elements provided by Ebiz and/or third party vendors. Within the HPC market,
Ebiz may compete with a wide variety of companies ranging from smaller but
highly specialized firms such as Microway, Atipa, and Racksaver to mega firms
such as IBM, HP, and Dell. Within the security market, Ebiz may compete with
security vendors such as Web Sense, Nokia, and SUN among many others. Our Terian
"white box" product line competes against nearly all the major platform
manufactures, including IBM, HP, Compaq, Dell, and Gateway along with many
second tier manufactures.

     INTELLECTUAL PROPERTY

     We rely primarily on trademark and copyright laws to protect our
intellectual property although in our brief history, we have not developed
significant intellectual property. We have registered several URL domain names,
which include our primary Web sites discussed above as well as others that we
anticipate utilizing in the future.

     EMPLOYEES

     We currently have approximately 40 full-time employees. Our employees are
not covered by any collective bargaining agreements.

                                       15
<PAGE>
     FACTORS AFFECTING FUTURE PERFORMANCE

     OUR INABILITY TO SUCCESSFULLY EXECUTE AND FULFILL OUR OBLIGATIONS UNDER THE
CONFIRMED PLAN OF REORGANIZATION WILL JEOPARDIZE OUR CONTINUATION AS A GOING
CONCERN. Although we were successful in obtaining confirmation of our Plan, we
must execute and fulfill the requirements under the Plan to continue our
operations. There are numerous financial requirements in the form of payments to
secured and unsecured creditors under the Plan that must be made on the
schedules and times set forth therein. We believe that making payments required
under the Plan is manageable, but we will continue to require additional
external funding for our operations.

     WE ARE AN EARLY STAGE COMPANY WITH LIMITED OPERATING HISTORY MAKING IT
DIFFICULT TO EVALUATE OUR FUTURE PROSPECTS. We have recently entered the Linux
computer manufacturing industry and have limited results of operations from this
segment of our business. We have even more recently focused on development of
Linux servers, desktops and specialty appliances, each utilizing the Linux
operating system. We are devoting considerable resources to the development of
these lines and our web site EBIZENTERPRISES.COM. See "OUR BUSINESS - Our Web
Sites."

     We will encounter numerous risks and difficulties encountered by early
stage companies in the rapidly developing Linux markets as well as risks
associated with the manufacturing and distributing of computer systems and
services. We may not be successful in addressing these risks and there can be no
assurance that our business strategies will be successful. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Liquidity and Capital Resources - Fiscal 2002 Liquidity" for additional
discussion of the possible effect of our strategies on future operations.

     WE HAVE A HISTORY OF LOSSES AND ANTICIPATE FUTURE LOSSES. For the fiscal
years ended June 30, 2002 and 2001, we sustained operating net losses before
extraordinary items of approximately $8,939,361 and $49,014,484, respectively.
Future losses are likely to occur. Our independent auditors have noted that
these, among other factors raise substantial doubt about our ability to continue
as a going concern. We have yet to generate and maintain sufficient
profitability to sustain or grow operations without additional external funding.
No assurances can be given that we will be successful in continuing to grow our
revenues or reaching or maintaining profitable operations.

     OUR SUCCESS IS DEPENDENT UPON OUR ABILITY TO RAISE ADDITIONAL CAPITAL AND
THERE ARE NO ASSURANCES WE WILL FIND ADDITIONAL CAPITAL RESOURCES. Our need for
additional capital in the near term is no less urgent because of our bankruptcy
filing. The necessity for additional capital to support continued operations
after our confirmed plan of reorganization is essential. Since inception we have
funded operations with debt and equity capital. Our ability to operate
profitably under our current business plan is largely contingent upon success in
obtaining additional sources of debt and equity capital. There can be no
assurance that sources of capital will be available on satisfactory terms or at
all. Without additional capital we may not be able to fully implement our
business or operating and development plans. No assurance can be given that any
such financing, if obtained, will be adequate to meet our ultimate capital
needs. If adequate capital cannot be obtained or obtained on satisfactory terms,
our operations could be negatively impacted.

                                       16
<PAGE>
     WE ARE DEPENDENT UPON CORPORATE AND CONSUMER ACCEPTANCE OF THE LINUX
OPERATING SYSTEM AND OUR BRANDED SYSTEMS. Systems utilizing the Linux operating
system are relatively new. Our strategy to become a Linux and Unix "Solutions
Provider" has evolved from our prior strategies. While we believe that this
strategy fills a void that is needed in the Linux user market, we have not
proven this strategy. Also, the success of this strategy is directly dependent
upon the wide spread acceptance of the Linux and a continuing interest in Unix.

     Our relatively new server, desktop and appliance lines all utilize the
Linux operating system. Acceptance of the Linux operating system will be
critical to the success of these product lines. None of our manufactured
computer systems have brand name recognition to the same extent as most of our
competitors. There can be no assurance that our computer systems will meet with
consumer acceptance. If our systems are not met with the consumer acceptance we
anticipate, our revenues and operating results will likewise not reach the
levels we anticipate.

     WE FACE UNCERTAINTY WITH OUR SECURITY PRODUCT AND SERVICES INITIATIVES. We
have implemented new initiatives in the security product and security services
marketplace. Although the early reception of our offerings has been favorable,
there are substantial established competitors that could affect our ability to
develop these areas of our business into significant operations.

     WE FACE INTENSE COMPETITION IN THE COMPUTER PRODUCT DISTRIBUTION AND
E-COMMERCE MARKETS AND WE CAN GIVE NO ASSURANCES THAT WE WILL BE ABLE TO COMPETE
SUCCESSFULLY. The computer hardware and software distribution business is an
intensely competitive industry, and we face increasing competition in every
aspect of this business. We also compete in the computer systems manufacturing
market, which is also highly competitive. E-commerce distribution is a
relatively new industry and is anticipated to attract significant competition.
The market for Linux based solutions is new, fragmented, rapidly changing and
also highly competitive.

     In the computer systems manufacturing and distribution market, we face
significant competition from several large companies that have more established
distribution channels as well as better name recognition and much greater
financial resources than we do. Some of these companies include Compaq Computer
Corporation, Dell Computer Corporation, Gateway, Inc., Hewlett-Packard Company
and International Business Machines Corporation.

     WE CANNOT GUARANTEE THAT WE WILL BE ABLE TO MANAGE FUTURE GROWTH. Any
future growth we may experience will present many challenges and place
additional pressure on our already limited resources and infrastructure. No
assurances can be given that we will be able to execute the plan of
reorganization and effectively manage future growth. Our future growth may place
a significant strain on our managerial, operational, financial and other
resources. Our success will depend upon our ability to manage growth
effectively, which will require that we continue to implement and improve our
operational, administrative, financial and accounting systems and controls and
continue to expand, train and manage our employees. Our systems, procedures and
controls may not be adequate to support operations and we may not be able to
achieve the rapid execution necessary to successfully penetrate the Linux
market. Our inability to manage internal or acquisition-based growth effectively
would cause a significant strain on our resources and our resulting financial
performance would be materially adversely affected.

                                       17
<PAGE>
     WE CARRY INVENTORY THAT CAN BECOME OUTDATED RAPIDLY. Computer component
inventory can become outdated due to rapid technological and product advances.
While we obtain our inventory at competitive prices, if we are unable to dispose
of this inventory for a profit due to a shift in consumer demand or product
advances or if we liquidate this inventory at low margins or below costs, our
profitability will be adversely affected.

     WE MUST STOCK SUFFICIENT INVENTORY TO MEET OUR CUSTOMERS NEEDS. It is also
critical to our success that we stock sufficient inventory to meet customer
demand for both third party products and our Linux computer systems. Our
inability to adequately stock inventory, due to capital constraints, procurement
difficulties or other reasons would adversely affect our operating results both
on a quarterly and annual basis.

     WE HAVE EXPERIENCED DIFFICULTY IN ACCURATELY FORECASTING OUR SALES, WHICH
RESULTS IN OUR INVENTORY LEVELS AND SALES REVENUES TO VARY FROM OUR ESTIMATES.
As a result of our limited operating history, it is difficult to accurately
forecast our net sales and we have limited meaningful historical financial data
upon which to base planned inventory purchases and operating expenses. We base
our current and future expense levels on our operating plans and estimates of
future net sales, and our expenses are to a large extent fixed. Sales and
operating results are difficult to forecast because they generally depend on the
volume and timing of the orders we receive. As a result, we may be unable to
adjust our spending in a timely manner to compensate for any unexpected revenue
shortfall. This inability could cause our net losses in a given quarter to be
greater than expected.

     OUR OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS AND MAY
RESULT IN CONTINUED LOSSES. As a result of our limited operating history, rapid
growth and change in business focus, and because of the emerging nature of the
Linux market in which we compete, our historical financial data is of limited
value in planning future operating expenses. Our expense levels will be based in
part on expectations concerning future revenues. Our revenue is derived
primarily from product sales, which are difficult to forecast accurately. We may
be unable to adjust spending in a timely manner to compensate for any unexpected
shortfall in revenues. A significant shortfall in demand for our products could
have an immediate and material adverse effect on our business, results of
operations and financial condition. Our business development and marketing
expenses will increase significantly as we expand our operations. To the extent
that such expenses precede or are not rapidly followed by increased revenue, our
business, results of operations and financial condition may be materially
adversely affected.

     Our quarterly operating results may fluctuate significantly in the future
as a result of a variety of factors, many of which are outside our control.
These factors include:

     *    the level of demand for our products;

     *    the level of demand for conventional and e-commerce marketing;

     *    the introduction of new products or services by us or our competitors;

     *    our ability to attract and retain personnel with the necessary
          strategic, technical and creative skills required for effective
          operations;

     *    the amount and timing of expenditures by customers;

                                       18
<PAGE>
     *    customer budgetary cycles;

     *    the amount and timing of capital expenditures and other costs relating
          to the expansion of operations;

     *    our success in finding and acquiring suitable acquisition candidates;

     *    pricing changes in the industry;

     *    technical difficulties with respect to the use of the Internet;

     *    economic conditions specific to Internet technology usage;

     *    government regulation and legal developments regarding the use of the
          Internet; and

     *    general economic conditions.

     As a strategic response to changes in the competitive environment, we may
from time to time make certain pricing, service, technology or marketing
decisions or business or technology acquisitions that could have a material
adverse effect on our quarterly results. We may also experience seasonality in
our business in the future, resulting in diminished revenues as a consequence of
decreased demand during certain periods of the year. Due to all of these
factors, our operating results may fall below the expectations of securities
analysts and investors in any future quarter. In such event, the trading price
of our common stock will likely be materially and adversely affected.

     SECURITY RISKS OF E-COMMERCE MAY DETER PURCHASES OF OUR PRODUCTS. Our
relationship with our customers may be adversely affected if the security
measures that we use to protect their personal information, such as credit card
numbers, are ineffective. If, as a result, we lose many customers, our net sales
and results of operations would be harmed. We cannot predict whether events or
developments will result in a compromise or breach of the technology we use to
protect a customer's personal information. Furthermore, our servers may be
vulnerable to computer viruses, physical or electronic break-ins and similar
disruptions. We may need to expend significant additional capital and other
resources to protect against a security breach or to alleviate problems caused
by any breaches. We cannot give assurance that we can prevent all security
breaches or will have adequate capital and other resources to devote to security
measures.

     CREDIT CARD FRAUD COULD HARM OUR NET SALES RESULTS. A failure to adequately
control fraudulent credit card transactions would decrease our net sales and
results of operations because we do not carry insurance against this risk.

     OUR INABILITY TO COLLECT ACCOUNTS RECEIVABLE ON A TIMELY BASIS COULD CAUSE
OUR CASH FLOW TO BE IMPAIRED AND REDUCE OUR PROFITABILITY. While we have gained
significant expertise in dealing with Internet distribution and collection
issues and have instituted credit review and approval procedures, no assurances
can be given that future unexpected problems and collection risks will not
develop from these and other customers which could reduce our profitability or
increase our losses.

                                       19
<PAGE>
     RISKS ASSOCIATED WITH MANUFACTURING COMPUTER SYSTEMS, SUCH AS TECHNICAL
SUPPORT, QUALITY CONTROL AND PRODUCTION PROBLEMS, COULD RESULT IN SIGNIFICANT
PRODUCT RETURNS AND CUSTOMER DISSATISFACTION. We are increasingly generating
revenues from manufacturing our own brand of computers. This activity creates a
wide variety of risks associated with manufacturing, including but not limited
to defects and warranty costs exceeding expectations. Also, customer service and
technical support requirements could exceed expectations and have severe adverse
effects on operations. No assurances can be given that we will be able to handle
production and quality control issues as we increase manufacturing activity.
While we perform a substantial amount of pre-delivery testing of our systems and
believe we have a lower than industry average return of our manufactured
products, we may experience significant returns in the future that could reduce
our profitability and harm our reputation in the market.

     IF OUR SUPPLIER RELATIONSHIPS ARE DISRUPTED, OUR ABILITY TO MANUFACTURE
COMPUTER SYSTEMS WOULD BE HARMED. We purchase components utilized in our
computer manufacturing operations from various suppliers. If we are unable to
obtain sufficient quantities of components our net sales would be adversely
affected. We are also subject to risks of fluctuations in our component prices.
If prices charged by our vendors escalate, our cost of goods sold would increase
and our net income could decrease as a result.

     IF OUR INTELLECTUAL PROPERTY PROTECTION IS INADEQUATE, COMPETITORS MAY GAIN
ACCESS TO OUR TECHNOLOGY AND PROPRIETARY PROPERTY WHICH COULD UNDERMINE OUR
COMPETITIVE POSITION. We deal in technically complex products and multi-layered
supply and distribution sources. We have limited proprietary property, and are
relying heavily on copyright, trademark, trade secret, nondisclosure and
confidentiality measures to protect these limited rights. See "OUR BUSINESS -
Intellectual Property" for a discussion of our intellectual property rights.
Such protections may not preclude competitors from developing similar
technologies or services competitive with ours. While we do not believe that any
of our intellectual property infringes on proprietary rights of third parties,
no assurance can be given that infringement claims may not be asserted.
Litigation resulting from assertion of our rights or from defense of a third
party claim could be expensive and adversely affect our operations even if we
were ultimately successful. There is also no assurance that we will have
sufficient resources to sustain or defend protracted legal actions to protect
our proprietary rights.

     OUR SUCCESS DEPENDS ON OUR ABILITY TO CONTINUE TO ADAPT TO A RAPIDLY
CHANGING INDUSTRY. The computer industry is characterized by rapid change,
frequent new product introductions, changing customer demands, evolving
standards, and many other uncontrollable and unforeseeable trends and changes.
Our future success will greatly depend upon our ability to timely and
effectively address changes in this industry. No assurances can be given that we
will be able to effectively deal with these changes, which could result in our
operations being unprofitable.

     WE MAY PURSUE ACQUISITIONS OF COMPLIMENTARY BUSINESSES, PRODUCTS AND
TECHNOLOGIES WHICH, IF UNSUCCESSFULLY IMPLEMENTED, COULD DETER OUR OPERATIONS
AND GROWTH. As part of our growth strategy, we have acquired other businesses.
Other acquisitions may occur in the future which could have material adverse
consequences to our operations or to our stock value. A component of our future
growth strategy is possible acquisition of other companies that meet our
criteria for strategic fit, geographic location, revenues, profitability, growth
potential and operating strategy. Successful implementation of this strategy
depends on our ability to identify suitable acquisition candidates, acquire such

                                       20
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companies on acceptable terms and integrate their operations successfully with
ours. Moreover, in pursuing acquisition opportunities we may compete with other
companies with similar growth strategies, certain of which may be larger and
have financial and other resources greater than ours. Competition for
acquisition targets likely could also result in increased prices of acquisition
targets and a diminished pool of companies available for acquisition.
Acquisitions involve a number of other risks, including adverse effects on
reported operating results from the risks of acquiring undisclosed or undesired
liabilities, acquired in-process technology, stock compensation expense and
increased compensation expense resulting from newly hired employees, the
diversion of management attention, potential disputes with the seller of one or
more acquired entities and the possible failure to retain key acquired
personnel. Any acquired entity or assets may not perform relative to our
expectations. Our ability to meet these challenges has not been established.

     WE DEPEND UPON OUR KEY PERSONNEL AND SKILLED EMPLOYEES AND THEY WOULD BE
DIFFICULT TO REPLACE. While no assurances can be given that our current
management resources will enable us to succeed as planned, a loss of one or more
of our current officers or key employees could severely and negatively impact
our operations. No assurances can be given that we will not suffer the loss of
key human resources for any variety of reasons. Our future success also depends
on our continuing ability to attract, retain and motivate highly skilled
employees. Competition for employees in the industry is intense. We may be
unable to retain our key employees or to attract, assimilate or retain other
highly qualified employees in the future. We have experienced difficulty from
time to time in attracting the personnel necessary to support the growth of our
business and we may experience similar difficulties in the future.

     WE MAY NOT HAVE ADEQUATE INSURANCE TO COVER ALL OF OUR RISKS. We anticipate
the need to procure additional insurance coverage related to product liability,
key man insurance and other risks currently not adequately covered. Failure to
timely obtain additional insurance coverage could have an adverse effect on our
business.

     CANOPY HOLDS A CONTROLLING INTEREST IN US WHICH LIMITS THE ABILITY OF OTHER
SHAREHOLDERS TO INFLUENCE CORPORATE DECISIONS. Canopy holds a controlling
interest in us. Three of the current members of our Board of Directors are
employed by Canopy; therefore, Canopy can effectively control the election of
our Board of Directors. As a practical matter, Canopy will continue to control
Ebiz into the foreseeable future.

     THE PRICE OF OUR COMMON STOCK IS HIGHLY VOLATILE. Our stock is currently
traded in the over the counter market. Our stock is subject to high price
volatility, low volumes of trades and large spreads in bid and ask prices quoted
by market makers. Due to the low volume of shares traded on any trading day,
persons buying or selling in relatively small quantities may easily influence
prices of our common stock. This low volume of trades could also cause the price
of our stock to fluctuate greatly, with large percentage changes in price
occurring in any trading day session. Holders of our common stock may also not
be able to readily liquidate their investment or may be forced to sell at
depressed prices due to low volume trading. If high spreads between the bid and
ask prices of our common stock exist at the time of a purchase, the stock would
have to appreciate substantially on a relative percentage basis for an investor
to recoup its investment.

     Although our New Common Stock has been sponsored on the Over The Counter
Bulletin Board with several market makers currently providing price quotes, no
active market has developed and no assurance can be given that an active market

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in our New Common Stock will develop. If an active market does not develop,
holders of our New Common Stock may be unable to readily sell the shares they
hold or may not be able to sell their shares at all.

ITEM 2. DESCRIPTION OF PROPERTY

     We lease approximately 50,000 square feet of office/warehouse space in
Stafford, Texas through 2004 at an annual rate of $122,148 under a new lease
agreement negotiated with our landlord during our bankruptcy. The new lease also
grants our landlord the right to terminate the lease with three months advance
written notice. Our headquarters and all of our business operations are located
at the facility in Stafford, Texas.

     LinuxMall is obligated under certain leases of office space in Aurora,
Colorado at an annual rate of approximately $58,000 through March 2004, of
office space in Edina, Minnesota at an annual rate of approximately $107,000
through March 2003 and of office space in Lawrence, Kansas at an annual rate of
approximately $9,100 through January 2003. Since early in 2001, these spaces
have not been used by LinuxMall and payments have not been made on those leases
because of insufficient funds from the LinuxMall operations. We do not
anticipate that LinuxMall will have sufficient funds to make the payments in the
future.

ITEM 3. LEGAL PROCEEDINGS

     On September 7, 2001, we along with our wholly-owned subsidiary JBSI filed
separate voluntary petitions under Chapter 11 of the Bankruptcy Code with the
bankruptcy court in Phoenix, Arizona. Our Amended Joint Plan of Reorganization,
dated January 4, 2002 was confirmed by the bankruptcy court on April 11, 2002,
and the Plan became effective on May 20, 2002. There are currently pending
before the bankruptcy court matters incident to the Plan involving objections to
proofs of claims filed by a few of our alleged creditors and some preference
actions seeking the recovery of funds we paid shortly before our bankruptcy
filing. We consider these to be routine matters incident to our bankruptcy
filing. The bankruptcy court continues to have jurisdiction with regard to our
Plan and these incidental matters.

     Miscellaneous claims, including vendor collection suits, and a claim from a
former service provider are outstanding. We believe that these disputes will be
resolved without material adverse consequences to our operations. Additionally,
litigation involving LinuxMall and the founder of Frank Kasper & Associates,
Frank Kasper, Jr., regarding an employment contract has resulted in a judgment
against LinuxMall for approximately $282,000. The judgment is now final and some
effort has been made to collect the judgment from LinuxMall. The operations of
LinuxMall are currently insignificant and there are insufficient funds to
satisfy the judgment.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

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                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

     Our stock is currently traded on the OTC Bulletin Board. Our stock was
temporarily delisted from the OTC Bulletin Board from November 4, 1999 through
December 23, 1999 for failure to meet the deadline for being subject to the
Exchange Act reporting requirements. During this period, our common stock was
traded through the National Quotation Bureau.


     Upon the Effective Date of our Plan on May 21, 2002, all outstanding shares
of our common stock and preferred stock were cancelled pursuant to the terms of
our Plan. Therefore, the history of trading of our common stock prior to the
Effective Date is of no relevance. Shares of New Common Stock and warrants to
purchase shares of New Common Stock were issued in accordance with provisions of
our Plan on the Effective Date of May 21, 2002 [See, PART 1 RECENT
DEVELOPMENTS]. The class of New Common Stock is currently traded on the Over The
Counter Bulletin Board. During the fiscal year ended June 30, 2002 there were no
reported trades of New Common Stock.

HOLDERS

     As of June 30, 2002, there were approximately 400 owners of record of our
common stock. The transfer agent for our common stock is ComputerShare Investor
Services in Lakewood, Colorado.

DIVIDEND POLICY

     Under Nevada law, dividends may only be paid out of net profits. Holders of
our common stock are entitled to receive dividends, if any, as declared by our
Board of Directors. We have never declared or paid a dividend on our common
stock and we do not intend to pay dividends in the foreseeable future. Since all
outstanding shares of our Series A Preferred Stock were cancelled on the
Effective Date of our Plan, we are no longer required to accrue a 10% ($10 per
share) cumulative annual dividend for such shares.

SALES OF UNREGISTERED SECURITIES

     On March 31, 2000, we issued 2,500,000 shares of common stock to Mr. Shi-En
Shiau for a total purchase price of $5,000,000. The purchase price was paid
$500,000 in cash and $4,500,000 by delivery of a promissory note. A total of
$400,000 of additional cash was received on the promissory note. The remaining
balance on the note was not timely paid and under the terms of the agreement, as
amended, the 2,500,000 shares were canceled and we have agreed to deliver
584,415 shares in consideration for the cash payments received. No underwriters
were involved and the shares were exempt from registration under section 4(2) of
the Securities Act of 1933 (the "Act"). The shares were issued to Mr. Shi-En
Shiau in a private transaction for investment only and not with a view to
distribution of the shares.

     On September 15, 2000, we issued 3,000,000 shares of common stock to
Caldera for a total purchase price of $3,000,000 which was paid in cash. The
proceeds from the sale were originally restricted for use in development of the
Electronic Linux Marketplace assets which were transferred to PartnerAxis. No

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<PAGE>
underwriters were involved and the shares were exempt from registration under
section 4(2) of the Act. The shares were issued to Caldera in a private
transaction for investment only and not with a view to distribution as part of
our purchase of the Electronic Linux Marketplace assets.

     Under terms of our Plan, we were to issue (i) effective May 21, 2002,
810,000 shares of New Common Stock and 4,352,031 warrants, with varying
expirations, to purchase 4,352,031 shares of New Common Stock at $.65 per share,
(ii) effective June 20, 2002, warrants to purchase 118,200 shares of New Common
Stock at $.65 per share, and (iii) effective August 19, 2002, 150,000 shares of
New Common Stock and warrants to purchase 150,000 shares of New Common Stock at
$.65 per share. All of these securities were to be issued pursuant to the
provisions of Section 1145 of the Bankruptcy Code.

     In addition, all outstanding options as well as all authorized but
ungranted options under our 1998 Equity Incentive Plan, as amended, were
cancelled upon the Effective Date of our Plan. We have no new equity
compensation plan in place as of the end of our most recently completed fiscal
year.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     The following discussion provides information that we believe is relevant
to an assessment and understanding of our results of operations and financial
condition for the fiscal year ending June 30, 2002. The following discussion
should be read in conjunction with the Financial Statements and related notes.
See "INDEX TO FINANCIAL STATEMENTS" and the Financial Statements referenced in
the index.

RECENT DEVELOPMENTS

     BANKRUPTCY FILING AND CONFIRMATION OF AMENDED JOINT PLAN OF REORGANIZATION.
On September 7, 2001 we and our wholly owned subsidiary JBSI filed separate
voluntary petitions to reorganize under Chapter 11 of the Bankruptcy Code with
the federal bankruptcy court in Phoenix, Arizona. The bankruptcy court confirmed
our Amended Joint Plan of Reorganization dated January 4, 2002 (the "PLAN") on
April 11, 2002 and the Plan became effective on May 21, 2002. We have certain
financial and other commitments and obligations under the terms of our Plan
which impact our operations. [See, PART 1 RECENT DEVELOPMENTS for a summary of
the primary terms of the Plan]. Payments required under the plan are as follows:
$1,411,028 in 2003; $1,280,343 in 2004; $799,690 in 2005; $753,857 in 2006;
$1,156,346 in 2007 and $678,706 in 2008.

     The accompanying financial statements have been prepared on a going concern
basis which assumes continuity of operations and realization of assets and
liquidation of liabilities in the ordinary course of business. Although we were
successful in confirming our Plan, we must execute the Plan and fulfill our
obligations under the Plan, and therefore, there are uncertainties relating to
our ability to continue as a going concern. The financial statements do not
include any adjustments that might be necessary as a result of the outcome of
the uncertainties discussed herein including the effects of our inability to
meet our obligations under our Plan .

IMPACT OF FRESH START REPORTING ON RESULTS OF OPERATIONS

     In connection with confirmation of our Plan, we adopted fresh start
reporting in accordance with Statement of Position 90-7 "Financial Reporting by
Entities in Reorganization under the Bankruptcy Code" ("SOP 90-7") of the
American Institute of Certified Public Accountants. Under fresh start reporting,
our reorganization value has been allocated to our assets and liabilities on a
basis substantially consistent with purchase accounting. The portion of

                                       24
<PAGE>
reorganization value not attributable to specific tangible assets has been
recorded as "Reorganization Value in Excess of Amounts Allocable to Identifiable
Assets". Certain fresh start reporting adjustments, primarily related to the
adjustment of the Company's assets and liabilities to fair market values, will
have a significant effect on the Company's future statements of operations. The
more significant adjustment relates to reduced depreciation expense on property
and equipment.

OVERVIEW

ACQUISITION OF LINUXMALL.COM, INC.

     On October 5, 2000, we completed the acquisition of LinuxMall.com, Inc. by
the merger of LinuxMall into a newly formed wholly owned subsidiary. The price
paid was $14.7 million comprised of common stock, options and warrants.
LinuxMall.com owned several popular Linux oriented websites on the internet and
these sites include LINUXMALL.COM, LINUXNEWS.COM, PENGUINPOWER.COM and others.
The purpose of this acquisition was to leverage LinuxMall's market awareness and
Linux centric customer base to generate sales revenue via a web interface
e-commerce business model. By the end of 2000, all LinuxMall operations were
consolidated into the Scottsdale, Arizona office and the Denver facility was
closed.

     Over the late months of calendar year 2001 and into 2002, it became
apparent that the LinuxMall e-commerce web centric business model was not
producing sales revenues as anticipated and that maintenance of multiple web
site properties was both time consuming and expensive. Although reasonably
popular with true Linux enthusiasts for hobby and small ticket retail products,
enterprise and commercial interests did not favor the "low touch" web sales
concept and it was apparent that our higher margin Linux and Unix products and
services would not be easily sold through the LinuxMall medium. Given other
market and financial challenges over 2001 and an evolving business model,
several of the lesser LinuxMall web sites were suspended from operation in 2002
and the LinuxMall web site was placed into a maintenance mode while a final
determination was being made as to its relevance and importance to our business
following confirmation of our Plan. We have not yet identified how to
strategically utilize LinuxMall in our current business plan.

ACQUISITION OF JBSI, INC.

     On January 4, 2001, we completed the acquisition of JBSI by the merger of
JBSI into a newly formed wholly owned subsidiary. Under terms of the
transaction, we paid $7.8 million for JBSI comprised of common stock and
options. A ten-year old company with a loyal customer base, JBSI was one of the
largest resellers of Santa Cruz Operations (SCO) Unix software in the country.
JBSI also has a state-of-the-art 50,000 square foot, uniquely configured
manufacturing facility designed to support the Value Added Reseller (VAR)
channel.

                                       25
<PAGE>
     We determined the primary source of new Linux users were migrating from the
Unix environment. This conclusion was underscored by the pending sale of SCO
Unix to Caldera Systems, Inc., a leading supplier of Linux operating software.
The purpose of this merger was to capitalize on JBSI's Unix customer base by
capturing future Linux users as they began their migration path from Unix.
Furthermore, JBSI's manufacturing facilities located in Stafford, Texas were
better equipped to handle our projected manufacturing needs. By March 31, 2001,
a majority of our operations had been moved and integrated into the Stafford,
Texas facilities. The Scottsdale offices were relocated to a smaller facility
housing only a sales force and corporate offices and these were eventually
consolidated into our Stafford, Texas operation by the end of calendar 2001. The
JBSI facility, infrastructure, staff, and customer base formed much of the
foundation for our business operations following the confirmation and effective
date of our Plan. Under terms of our Plan, all of the assets and business
operations of JBSI were transferred to Ebiz which became the reorganized,
surviving entity. JBSI is to be dissolved and cease to exist. We are in the
process of implementing the dissolution of JBSI.

ACQUISITION AND DISPOSITION OF PARTNERAXIS

     On September 19, 2000, we acquired from Caldera all of the intellectual
property and certain other specified assets related to Caldera's proprietary
marketing and distribution concept known as the Electronic Linux Marketplace
("ELM"). We paid to Caldera 1 million shares of our common stock for the
Electronic Linux Marketplace assets which were transferred into a wholly owned
subsidiary , partnerAxis, Inc. ("PARTNERAXIS"). We then began further
development of the business concept. As part of the transaction, Caldera
purchased $3 million of Ebiz common stock in a private transaction. The $3
million proceeds received from Caldera were used to fund partnerAxis. We
operated these assets as a separate, wholly owned corporation known as
partnerAxis, Inc. PartnerAxis attempted to build a business-to-business
Web-based exchange for Linux product sales, advertising, knowledge membership
and channel development. PartnerAxis was intended to be a unique virtual
community specifically designed to attract users, manufacturers and electronic
solution providers, and to provide information and support to develop and market
Linux solutions (and other innovations).

     The ELM assets consisted principally of ideas, concepts, software systems
and other intellectual property related to the ELM. Certain specified computer
and office equipment were also acquired in this transaction.

     In the first quarter of 2001 it became apparent to management that the
development of the partnerAxis concept would take more time and additional
capital than was originally projected. Consequently, a buyer for partnerAxis was
sought. On April 16, 2001, we completed the sale of partnerAxis to BySynergy,
pursuant to a Stock Purchase Agreement dated April 13, 2001. The Company
realized a loss of $3,612,171 in relation to this sale.

LONG TERM DEBT WITH FINOVA CAPITAL AND CANOPY

     With the acquisition of JBSI we assumed a revolving line of credit (RLOC)
and a term note, both from Finova Capital Corporation. Both instruments were
guaranteed by a first position lien on all of our assets, including our accounts
receivable. On April 15, 2001, the Finova RLOC expired and access to funds as a
result of this instrument was terminated. As a result, we had no access to cash
for operations, as all collected receivables were diverted to pay down the
Finova RLOC.

                                       26
<PAGE>
     After some discussions by management with Finova, the RLOC was extended
until June 30, 2001. On June 30, 2001, the RLOC was terminated permanently. In
August, 2001 Canopy assumed Finova's first position lien by purchasing the
$2,000,000 balance of the term note and the approximately $350,000 balance of
the RLOC. Canopy reestablished access to collected accounts receivable at that
time, thereby providing cash to us for our operations.

RESULTS OF OPERATIONS

     The following discussion provides an analysis of our results of operations
and reasons for material changes therein for the combined period from May 21,
2002 to June 30, 2002 and July 1, 2001 to May 20, 2002 and the year ended June
30, 2001. Our results of operations for the periods subsequent to May 20, 2002
have not been prepared on a basis of accounting consistent with its results of
operations for periods prior to May 21, 2002 due to the implementation of fresh
start reporting upon the Effective Date of our Plan .

     COMBINED PERIOD FROM JULY 1, 2001 TO MAY 20, 2002 AND MAY 21, 2002 TO JUNE
30, 2002 COMPARED TO YEAR ENDED JUNE 30, 2001. Net revenue was $8,161,941 for
the year ended June 30, 2002 compared to $20,973,661 for the year ended June 30,
2001. The decrease of $12,811,720, approximately 61.1% over the prior period,
was primarily due a focus on fewer product lines, a reduction in sales staff and
operating under bankruptcy.

     Cost of sales for the year ended June 30, 2002 was $7,198,788 as compared
to $18,434,284 for the year ended June 30, 2001, a decrease of $11,235,496. The
cost of sales percentage for year ended June 30, 2002 increased to 88.2% of
sales from 87.9% of sales for the same period in 2001, resulting in a
corresponding gross profit margin decrease to 11.8% from 12.1%, of sales for
these same periods. The reduction in gross profit margin is primarily due to
higher product costs resulting from fewer suppliers due to operating under
bankruptcy. The gross profit for the year ended June 30, 2002 was $963,153 a
decrease of $1,576,224 from the year ended June 30, 2001.

     Selling, general and administrative expense was $5,175,128, or 63% of
revenue, for the year ended June 30, 2002 as compared to $10,506,995 or 50% of
revenue, for the same period in the prior year. The decrease of $5,331,867, or
50.7%, was primarily due to reduction in expenses related to implementation of
the Plan.

     Depreciation and amortization expense for the year ended June 30, 2002 was
$506,264, a decrease of $5,767,417 over the $6,273,681 recorded for the year
ended June 30, 2001. The decrease was due to a reduction in the amortization of
the goodwill recorded as the result of the impairments in goodwill charges
relating to the LinuxMall and JBSI acquisitions.

     Interest expense was $4,781,236 for the year ended June 30, 2002 as
compared to $4,818,639 for the year ended June 30, 2001. The decrease of $37,403
is primarily due to a reduction in interest resulting from the bankruptcy,
partially offset by certain allowed financing charges associated with bankruptcy
claims. Interest and other income for the year ended June 30, 2002 was $4,736, a
decrease of $179,078 from the same period in 2001, related to a decrease in
available cash.

                                       27
<PAGE>
     The 2002 results include an extraordinary gain of $16,794,923 from the
discharge of certain prepetition indebtedness. (This was indebtedness on our
books as of the date of the filing of our bankruptcy petitions on September 7,
2001). During the last quarter of 2001 we determined that there was an
impairment of the goodwill and other intangibles related to the Linuxmall and
JBSI acquisitions which resulted in a charge of $25,142,645 which includes the
write down of the investment in Vericenter due to the unlikeliness of
collection.

     The preceding factors resulted in a net loss before extra ordinary items of
$9,180,542 compared to a net loss before extraordinary items of $49,014,484 for
the year ended June 30, 2001. Including the extraordinary item the preceding
factors resulted in a the net income attributable to common stockholders of
$7,595,406, or $0.23 per diluted share, for the year ended June 30, 2002 as
compared to a net loss attributable to common stockholders of $49,090,384, or
$2.32 per diluted share, for the year ended June 30, 2001.

LIQUIDITY AND CAPITAL RESOURCES

     At June 30, 2002 we had cash and cash equivalents of $164,821 representing
a $393,073 decrease from the total of $557,894 at June 30, 2001.

     OPERATING ACTIVITIES. Our net cash provided by operating activities was
$640,454 for the fiscal year ended June 30, 2002 compared with net cash used in
operating activities of $6,511,016 for the fiscal year ended June 30, 2001. The
major sources were reductions in accounts receivable and increases in accounts
payable offset by a decrease in accrued expenses, primarily accrued interest.

     INVESTING ACTIVITIES. The net cash used in investing activities was $22,995
and $252,660 for the twelve months periods ending June 30, 2002 and June 30,
2001, respectively. The primary use of the cash during 2001 was for purchase of
furniture and fixtures.

     FINANCING ACTIVITIES. During the year ended June 30, 2002 net cash used by
financing activities was $1,010,532 compared to the net cash provided by
financing activities of $7,270,573 for the year ended June 30, 2001. The
transfer of restricted cash of approximately $4,200,000 was used for conversion
of the Debenture to common stock ($2.1 million), repayment of Debenture
principal ($1.4 million) and to reduce interest payable ($0.7 million). We also
received 3 million from the issuance of 4 million shares of common stock to
Caldera. The cash used during the year ended June 30, 2002 was primarily the
repayment of a secured revolving line of credit prior to filing for Chapter 11
bankruptcy.

DEBENTURE AND WARRANT

     On August 25, 1999 we issued the Debenture and Warrant for a total of $7.1
million. The Debenture was due February 24, 2002. The principal of the Debenture
was initially convertible into a minimum of 947,260 shares of our common stock.
The holder could convert up to $394,444 face amount of the Debenture upon
issuance and up to $394,444 on each monthly anniversary date thereafter (each, a
"DUE DATE"). Any amount not converted accumulates and may be converted
thereafter. The holder is prohibited from converting any amount of the Debenture
which would cause the holder's total ownership of common stock to equal five
percent or more of the total shares outstanding. The per share conversion price
was initially equal to the lesser of (a) $7.4953 or (b) the average of the three
lowest closing bid prices of our common stock for the 15 consecutive trading
days ending on the trading day immediately preceding submission of a notice to
convert by the holder. In the event the closing bid price of our common stock is

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<PAGE>
less than $7.4953 per share at any time during the five trading days preceding a
Due Date, we have the right to redeem for cash the monthly conversion amount of
the Debenture (in lieu of allowing the holder to convert such amount) at
premiums ranging from 105% to 108%. The Debenture is secured by current deposits
at American National Bank and Trust Company of Chicago. The initial amount
deposited was $5,000,000 reduced by $500,000 released during February 2000,
$250,000 in July 2000 and $2,083,500 in October 2000. In connection with the
release of the $250,000 in July 2000, we issued a warrant to acquire 125,000
shares of common stock at $2.00 per share. The warrant is exercisable at any
time prior to July 12, 2003. As of June 30, 2001, the warrant had not been
exercised. The required amount of the restricted cash decreases by $0.7042 for
every $1 of principal reduction of the Debenture whether the reduction occurs by
conversion or redemption. Aggregate conversions of principal and accrued
interest have been made and as of June 30, 2001, $2,725,209 of principal and
accrued interest had been converted to 2,831,028 shares of common stock.

     On February 8, 2000, we agreed with the holder of the Debenture to modify
the terms of conversion of the Debenture. The per share conversion price of the
accrued principal convertible as of February 25, 2000 of $2,761,108 and
outstanding interest as of February 7, 2000 of $140,203 was changed to equal the
lesser of (a) $3.84, or (b) the average of the three lowest closing bid prices
of its common stock for the 15 consecutive trading days ending on the trading
day immediately preceding the submission of a conversion notice by the holder.
The $3.84 per share price equaled the conversion price of the Debenture on
January 25, 2000

     On March 31, 2000 we agreed with the Debenture holder agreed to an
additional modification to the conversion price formula by changing the reset
price determinant to the average of the three lowest trading prices from the
three lowest closing bid prices occurring in the 15 day period prior to
conversion. All other aspects of the formula remained unchanged.

     On October 19, 2000, we agreed to additional modifications of the
Debenture. The holder agreed to convert $2,083,500 principal amount of the
Debenture in exchange for 2,500,000 shares of our common stock. The holder
agreed to reduce the cash collateral requirements of the Debenture by
$2,083,500. We also agreed to convert the per share conversion ratio for an
additional $416,500 principal amount of the Debenture to the lesser of (a) $1.00
or (b) the average of the lowest trading prices occurring on any three of the 15
day period prior to a conversion.

     The original warrant included as part of the transaction when we issued the
Debenture was exercisable for the purchase of 245,000 shares of our common
stock, 60,000 at $7.4723 per share, 60,000 at $8.6219 per share and 125,000 at
$6.3227 per share. The exercise prices were modified on October 19, 2000 to
$4.00 per share in connection with the transaction described above. The Warrant
is exercisable at any time prior to August 22, 2004. As of June 30, 2001 none of
the Warrants have been exercised.

     On June 11, 2001, the Debenture holder withdrew the remaining amount which
was approximately $2,091,000 of the restricted cash. The cash withdrawn was used
to reduce outstanding interest of approximately $678,000 and principal of

                                       29
<PAGE>
approximately $1,413,000. The remaining principal balance of the debenture at
June 30, 2001 was approximately $3,113,000.

     Under terms of our Plan, the outstanding amount of the Debenture was
treated as an unsecured debt and we are making payments in accordance with those
terms. At June 30, 2002 the balance of the note was $271,349 which will be paid
in eight equal quarterly installments.

POST-PETITION FINANCING TRANSACTIONS

     Following the filing of the bankruptcy petitions and prior to confirmation
of our Plan, we entered into several financing transactions as follows:

     On September 13, 2001 we entered into a Stipulation with Canopy which
allows us to use 95% of the collections received from pre-petition accounts
receivable on which Canopy holds a security interest. In exchange for this
agreement, we granted Canopy a first lien security interest in all of our post
petition receivables, inventory and the proceeds thereof. In addition, we may
use 95% of the proceeds from all post petition accounts receivable and inventory
to operate our business. The remaining 5% is to be applied to the outstanding
balance of the debt owed to Canopy which approximated $4,844,289.00 on the
Effective Date. Under terms of the Plan, Canopy elected to convert $1,500,000.00
of this debt to 2,538,462 shares of New Common Stock. On the outstanding balance
of $3,344,289 we are making quarterly payments of $129,090 for two years
followed by monthly payments of $53,030. Interest accrues at 8% per annum, and
the maturity is July 1, 2007 at which the remaining balance and all accrued
interest is due and payable.

     On September 24, 2001 we entered into the Secured Line with Caldera. Under
terms of the Secured Line, Caldera provided a $250,000 line of credit to us
which will facilitate our ability to purchase product from Caldera. In exchange
for the granting of the line of credit, we executed a promissory note for
$542,125.61 representing the pre-petition debt owed to Caldera and granted a
junior security interest in all of our assets to Caldera to secure the
promissory note and all amounts that may become due and owing under the line of
credit. Interest accrues at 8% per annum on the outstanding balance, and monthly
payments to Caldera of $8,337 commence January 1, 2003. A final payment is due
January 1, 2008.

     On November 8, 2001 we entered into the Dealer Loan with Textron, and the
LOC with Canopy. Under the terms of the Dealer Loan, Textron will provide us
credit and financing in the amount of $500,000 to facilitate the purchase of
goods and inventory on favorable terms from our suppliers. This will provide
assistance in filling orders from our clients and meeting the demand for our
products. Under the LOC, Canopy has provided a $500,000 letter of credit to
secure the credit extended by Textron under the Dealer Loan.

     During the 30 day period following the Effective Date ending June 20, 2002,
holders of the secured promissory notes totaling $591,000 (each a "DIP NOTE"),
issued as debtor-in-possession financing during the Chapter 11 cases, were
permitted to exchange all or part of the debt represented by a DIP Note for (i)
shares of New Common Stock at the price of $0.50 per share or (ii) a convertible
secured promissory note (each a "NEW NOTE" ) which provides for interest to
accrue at various rates until the maturity date which is seven years after the
Effective Date. At maturity, all principal and accrued interest will be due. For
the period ending on the date that is twenty-four months after the Effective
Date, each holder of a New Note

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<PAGE>
may convert the amount of such New Note to shares of New Common Stock at the
conversion price of $0.50 per share. The total number of shares of New Common
Stock for which the DIP Notes may be exchanged directly for shares or converted
through the New Notes for shares is 1,182,000 shares which equals approximately
12.71% of the New Common Stock that may be issued under the Plan. A total of
$578,500 of the DIP Notes were actually exchanged for New Notes which may be
converted into 1,157,000 shares of New Common Stock. In addition, the agent for
the holders of the DIP Notes, First Financial Equity Corporation, which also
served as our financial advisor in the debtor-in-possession financing
transaction, will receive 118,200 Canopy/FFEC Warrants which if exercised equals
approximately 1.27% of the New Common Stock that may be issued under the Plan.

     On May 14, 2002 we entered into a line of credit loan agreement with The
Canopy Group. Under the terms of the agreement borrowings under the line of
credit are limited to the lesser of $500,000 or 85% of eligible accounts
receivable. The line of credit is secured by all accounts receivable, inventory
and property and equipment of the Company. In an amendment dated September 4,
2002 the total available under the line was increased to $700,000.

     As a result of the above factors and our continued need for additional
capital, among others, our auditors have modified their opinion to our financial
statements indicating there is substantial doubt about our ability to continue
as a going concern.

                                       31
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          INDEX TO FINANCIAL STATEMENTS


Report of Independent Public Accountants                                      33

Balance Sheets at June 30, 2002 and 2001                                      34

Statement of Operations for the for the Periods
  May 21 to June 30, 2002, July 1, 2001 to May 20,
  2002 and the Year Ended June 30, 2001                                       35

Statementof Stockholders' Equity (Deficit) for the
  for the Periods May 21 to June 30, 2002, July 1, 2001
  to May 20, 2002 and the Year Ended June 30, 2001                            36


Statement of Cash Flows for the Year Ended for the
  Periods May 21 to June 30, 2002, July 1, 2001 to
  May 20, 2002 and the Year Ended June 30, 2001                               37

Notes to Financial Statements for the Year Ended
  June 30, 2002 and 2001                                                      39

                                       32
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

THE BOARD OF DIRECTORS AND STOCKHOLDERS OF EBIZ ENTERPRISES, INC.:

We have audited the accompanying consolidated balance sheets of EBIZ
Enterprises, Inc., a Nevada corporation, (the Company) as of June 30, 2002 and
2001, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of EBIZ Enterprises,
Inc. as of June 30, 2002 and 2001, and the results of its operations and its
cash flows for the period July 1, 2001 through May 20, 2002; the period May 21,
2002 through June 30, 2002 and for the year ended June 30, 2001 in conformity
with accounting principles generally accepted in the United States.

As discussed in note 1 to the financial statements, on May 21, 2002, Ebiz
Enterprises, Inc. emerged from bankruptcy. The financial statements of the
Reorganized Company reflect the impact of adjustments to reflect the fair value
of the assets and liabilities under fresh start reporting. As a result, the
financial statements of the Reorganized Company are presented on a different
basis of accounting then those of the predecessor company and, therefore, are
not comparable in all respects.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company incurred net losses and had negative cash
flows from operations in 2002, has an accumulated deficit, and does not have
sufficient capital to support its operations. These factors raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The accompanying
financial statements do not include any adjustments to classification of asset
carrying amounts or the amount and classification of liabilities that might
result should the Company be unable to continue as a going concern.

/s/ Semple & Cooper, LLP

Phoenix, AZ
September 13, 2002

                                       33
<PAGE>
                             EBIZ ENTERPRISES, INC.
                           Consolidated Balance Sheets
                         June 30, 2002 and June 30, 2001

<TABLE>
<CAPTION>
                                                                    Reorganized     Predecessor
                                                                      Company         Company
                                                                      June 30,        June 30,
                                                                    ------------    ------------
                                                                        2002            2001
                                                                    ------------    ------------
<S>                                                                 <C>             <C>
                                     Assets
Current Assets:
   Cash                                                             $    164,821    $    557,894
   Accounts receivable, net of allowance for doubtful
     accounts of $278,251 and $1,085,815 at June 30,
     2002 and June 30, 2001, respectively                                571,654       1,958,486
   Inventory, net                                                        100,114         999,365
   Prepaid expenses and other current assets                             158,809         179,543
   Deferred Loan Fees, net                                                10,751              --
                                                                    ------------    ------------
              Total current assets                                     1,006,149       3,695,288
Property and Equipment, net                                              317,049       1,183,361
Deferred Loan Fees, net                                                   51,961          52,443
Restricted cash (Note 4)                                                      --         258,879
Goodwill                                                                      --       2,832,230
Reorganized value in excess of amounts allocable to
  identifiable assets                                                  9,496,016              --
Other Assets                                                               7,516          69,557
                                                                    ------------    ------------
                                                                    $ 10,878,691    $  8,091,758
                                                                    ============    ============

Liabilities and Stockholders' Equity (Deficit)
Current Liabilities:
   Accounts payable                                                 $  1,966,041    $  9,499,695
   Accrued expenses                                                      769,454       2,383,609
   Notes payable                                                         667,838       4,722,873
   Related party notes payable                                           947,974       2,330,986
   Convertible Debenture, net of discount                                              2,889,579
                                                                    ------------    ------------
              Total current liabilities                                4,351,307      21,826,742

Notes payable                                                            769,115         486,812
Related party notes payable                                            3,315,415              --
Convertible debenture, net of discount                                   584,410              --
                                                                    ------------    ------------
              Total liabilities                                        9,020,247      22,313,554

Commitments and Contingencies

Stockholders' Equity (Deficit):
   Common Stock Subscribed                                             1,646,436              --
   Convertible preferred stock; $0.001 par value;
     5,000,000 shares authorized; none and 7,590
     shares issued and outstanding at June 30,
     2002 and June 30, 2001, respectively;
     liquidation value $100 per share                                         --         366,737
   Common stock; $0.001 par value; 70,000,000 shares authorized;             697          34,063
   Additional paid-in capital                                            452,492      46,715,220
   Accumulated deficit                                                  (241,181)    (61,337,816)
                                                                    ------------    ------------
              Total stockholders' equity (deficit)                     1,858,444     (14,221,796)
                                                                    ------------    ------------
                                                                    $ 10,878,691    $  8,091,758
                                                                    ============    ============
</TABLE>

                 The accompanying notes are an integral part of
                    these consolidated financial statements

                                       34
<PAGE>
                             EBIZ ENTERPRISES, INC.
                      Consolidated Statements of Operations
     For the Periods May 21 to June 30, 2002, July 1, 2001 to May 20, 2002
                        and the year ended June 30, 2001

<TABLE>
<CAPTION>
                                                                REORGANIZED             PREDECESSOR
                                                                  COMPANY                 COMPANY
                                                               -------------  ------------------------------
                                                                PERIOD FROM     PERIOD FROM      YEAR ENDED
                                                                 MAY 21 TO    JULY 1, 2001 TO      JUNE 30,
                                                               JUNE 30, 2002    MAY 20, 2002        2001
                                                                ------------    ------------    ------------
<S>                                                             <C>             <C>             <C>
Net Revenue                                                     $    638,548    $  7,523,393    $ 20,973,661
Cost of Sales                                                        548,944       6,649,844      18,434,284
                                                                ------------    ------------    ------------
    Gross profit                                                      89,604         873,549       2,539,377

Selling, General and Administrative Expenses                         298,115       4,877,013      10,506,995
Depreciation and Amortization                                            221         506,043       6,273,681
Provisions for Doubtful Accounts                                         708        (314,905)      1,383,544
Loss on sale of partnerAxis                                               --              --       3,612,171
                                                                ------------    ------------    ------------
    Loss from Operations                                            (209,440)     (4,194,602)    (19,237,014)

Other Income (Expense):
  Interest Expense                                                   (31,833)     (4,749,403)     (4,818,639)
  Interest & Other income                                                 92           4,644         183,814
  Impairment of intangibles and investments                               --              --     (25,142,645)
                                                                ------------    ------------    ------------
Loss before extraordinary item                                      (241,181)     (8,939,361)    (49,014,484)
                                                                ------------    ------------    ------------
  Extraordinary gain on elimination of debt                               --      16,794,923              --
                                                                ------------    ------------    ------------
Net Income (Loss)                                                   (241,181)      7,855,562     (49,014,484)
                                                                ------------    ------------    ------------

Dividends on preferred stock                                              --         (18,975)        (75,900)
                                                                ------------    ------------    ------------
Net Income (Loss) Attributable To Common Stockholders           $   (241,181)   $  7,836,587     (49,090,384)
                                                                ============    ============    ============

Net Income (Loss) Per Common Share, Basic and Diluted           $      (0.35)   $       0.23    $      (2.32)
                                                                ============    ============    ============

Weighted Average Common Shares: Basic and Diluted                    697,000      34,062,328      21,197,886
                                                                ============    ============    ============
</TABLE>

                 The accompanying notes are an integral part of
                    these consolidated financial statements.

                                       35
<PAGE>
                             EBIZ ENTERPRISES, INC.
                   Statement of Stockholders' Equity (Deficit)
      For the Periods May 21 to June 30, 2002, July 1, 2001 to May 20, 2002
                        and the year ended June 30, 2001

<TABLE>
<CAPTION>
                                                                              Reorganized company           Predecessor company
                                                      Preferred Stock             Common Stock                  Common Stock
                                                   ---------------------     ----------------------     ---------------------------
                                                    Shares       Amount       Shares       Amount         Shares           Amount
                                                   --------     --------     --------     ---------     -----------     -----------
<S>                                                <C>          <C>          <C>          <C>           <C>             <C>
Balance, June 30, 2000                                7,590      366,737           --            --       8,497,566           8,498
  Options issued for consulting services                 --           --           --            --              --              --
  Stock issued for services                              --           --           --            --         361,600             362
  Warrants issued to debenture holder                    --           --           --            --              --              --
  Accrued dividends on preferred stock                   --           --           --            --              --              --
  Beneficial conversion feature
    of convertible debentures                            --           --           --            --              --              --
  Conversion of debt and interest                        --           --           --            --       5,415,733           5,415
  Stock issued for business acquisition                  --           --           --            --      19,547,429          19,548
  Expiration of redemption
    Provisions on common stock                           --           --           --            --         240,000             240
  Impairment of Note Receivable
    for common stock                                     --           --           --            --              --              --
  Net loss                                               --           --           --            --              --              --
                                                   --------     --------     --------     ---------     -----------     -----------
Balance, June 30, 2001                                7,590      366,737           --            --      34,062,328          34,063
                                                   ========     ========     ========     =========     ===========     ===========
  Net (loss) Income                                      --           --           --            --              --              --
  Accrued dividends on preferred stock                   --           --           --            --              --              --
  Eliminate predecessor equity accounts in
    connection with fresh start                      (7,590)    (366,737)          --            --     (34,062,328)        (34,063)
  Record excess of reorganization value                  --
    over identifiable assets                             --           --           --            --              --              --
  Conversion of related party debt
    and interest                                         --           --           --            --              --              --
  Common Stock issued for management services            --           --      135,000           135              --              --
  Common Stock subscribed for management services        --           --           --            --              --              --
  Common Stock issued for debt                           --           --      547,214           547              --              --
  Net Income                                             --           --           --            --              --              --
                                                   --------     --------     --------     ---------     -----------     -----------
Balance, May 20, 2002                                    --           --      682,214           682              --              --
                                                   ========     ========     ========     =========     ===========     ===========
  Common Stock issued for management services            --           --       15,000            15              --              --
  Common Stock subscribed for management services        --           --           --            --              --              --
  Net loss                                               --           --           --            --              --              --
                                                   --------     --------     --------     ---------     -----------     -----------
Balance, June 30, 2002                                   --           --      697,214           697              --              --
                                                   ========     ========     ========     =========     ===========     ===========


                                                       Additional       Common           Notes         Accumulated     Stockholders'
                                                         Paid-in         Stock         Receivable       Earnings /       Equity
                                                         Capital       Subscribed       for Stock        Deficit        (Deficit)
                                                       -----------     -----------     -----------     -----------     -----------
Balance, June 30, 2000                                   9,808,580              --              --     (12,247,432)     (2,063,617)
  Options issued for consulting services                    54,923              --              --              --          54,923
  Stock issued for services                                385,838              --              --              --         386,200
  Warrants issued to debenture holder                    1,363,496              --              --              --       1,363,496
  Accrued dividends on preferred stock                          --              --              --         (75,900)        (75,900)
  Beneficial conversion feature
    of convertible debentures                              302,566              --              --              --         302,566
  Conversion of debt and interest                        5,057,915              --              --              --       5,063,330
  Stock issued for business acquisition                 28,542,142              --         248,800              --      28,810,490
  Expiration of redemption
    Provisions on common stock                           1,199,760              --              --              --       1,200,000
  Impairment of Note Receivable
    for common stock                                            --              --        (248,800)             --        (248,800)
  Net loss                                                      --              --              --     (49,014,484)    (49,014,484)
                                                       -----------     -----------     -----------     -----------     -----------
Balance, June 30, 2001                                  46,715,220              --              --     (61,337,816)    (14,221,796)
                                                       ===========     ===========     ===========     ===========     ===========
  Net (loss) Income                                             --              --              --       7,855,562       7,855,562
  Accrued dividends on preferred stock                          --              --              --         (18,975)        (18,975)
  Eliminate predecessor equity accounts in
    connection with fresh start                        (46,715,220)             --              --      44,421,351      (2,694,669)
  Record excess of reorganization value
    over identifiable assets                                    --              --              --       9,508,878       9,508,878
  Conversion of related party debt
    and interest                                                --       1,500,000              --              --       1,500,000
  Common Stock issued for management services               87,615              --              --              --          87,750
  Common Stock subscribed for management services               --          65,052              --              --          65,052
  Common Stock issued for debt                             355,142          73,311              --        (429,000)             --
  Net Income                                                    --              --              --              --              --
                                                       -----------     -----------     -----------     -----------     -----------
Balance, May 20, 2002                                      442,757       1,638,363              --              --       2,081,802
                                                       ===========     ===========     ===========     ===========     ===========
  Common Stock issued for management services                9,735                              --              --           9,750
  Common Stock subscribed for management services                            8,073              --              --           8,073
  Net loss                                                      --                              --        (241,181)       (241,181)
                                                       -----------     -----------     -----------     -----------     -----------
Balance, June 30, 2002                                     452,492       1,646,436              --        (241,181)      1,858,444
                                                       ===========     ===========     ===========     ===========     ===========
</TABLE>

                 The accompanying notes are an integral part of
                    these consolidated financial statements.

                                       36
<PAGE>
                              EBIZ ENTERPRISES, INC
                           Consolidated Statements of
                    Cash Flows For the Periods May 21 to June
                     30, 2002, July 1, 2001 to May 20, 2002
                        and the year ended June 30, 2001

<TABLE>
<CAPTION>
                                                                                        REORGANIZED             PREDECESSOR
                                                                                          COMPANY                 COMPANY
                                                                                       -------------    ---------------------------
                                                                                        PERIOD FROM     PERIOD FROM     YEAR ENDED
                                                                                         MAY 21 TO     JULY 1 2001 TO    JUNE 30,
                                                                                       JUNE 30, 2002    MAY 20, 2002       2001
                                                                                       -------------    ------------    -----------
<S>                                                                                       <C>              <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                                                       (241,181)        7,855,562    (49,014,484)
  Adjustments to reconcile net loss to net cash used in operating activities-
    Depreciation and amortization                                                              221           506,043      6,273,681
    Loss on sale of partnerAxis                                                                 --                --      3,612,171
    Stock, options and warrants exchanged for services                                          --                --        441,123
    Stock issued for management                                                             17,823           152,802             --
    Impairment of intangibles and investments                                                   --                --     25,505,092
    Warrants issued to debt holders                                                             --                --      1,363,496
    Increase in reserves and allowances                                                         --                --      2,686,736
    Interest costs of Beneficial Conversion Feature                                             --                --      1,679,202
    Amortization (capitalization) of discount and loan fees                                (62,712)          151,759        741,374
    Accrued Interest added to principle balance                                                 --         4,555,171             --
    Accounts Payable converted to debt                                                          --           630,168             --
    Extraordinary gain on elimination of debt                                                   --       (16,805,199)            --
    Changes in assets and liabilities:
      Accounts receivable, net                                                              33,055         1,353,777        509,335
      Inventory, net                                                                        30,486           868,765       (376,265)
      Prepaid expenses and other assets                                                      9,136            24,093         16,060
      Deferred financing fees, net                                                          63,608           (11,165)
      Accounts payable                                                                      54,799         2,025,094      1,154,528
      Accrued expenses                                                                      14,201          (585,852)    (1,103,065)
                                                                                          --------       -----------    -----------
              Net cash used in operating activities                                        (80,564)          721,018     (6,511,016)
                                                                                          --------       -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES: (net of effect of business acquisitions):
  Cash from Business acquisition                                                                --                --        128,355
  Increase in other assets                                                                      --                --         (5,686)
  Purchase of furniture, fixtures, intellectual property and equipment, net                   (221)          (22,774)      (375,329)
                                                                                          --------       -----------    -----------
              Net cash provided (used) in investing activities                                (221)          (22,774)      (252,660)
                                                                                          --------       -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES: (net of effect of business acquisitions):
  Net borrowings under  line of credit, pre petition                                            --                --        912,206
  Borrowings (repayments) under secured convertible note                                    (9,545)        1,157,689      1,581,462
  Borrowings under Related parties notes payable                                           160,011         2,838,551             --
  Borrowings (repayments) of notes payable                                                   5,982        (5,422,099)            --
  Repayments of debt                                                                            --                --     (2,468,380)
  Borrowings (repayments) under liabilities subject to compromise                               --                --             --
  Transfer from restricted cash (non-current), net                                              --           258,879      4,245,285
  Sale of stock, net of expenses                                                                --                --      3,000,000
                                                                                          --------       -----------    -----------
              Net cash provided (used) by financing activities                             156,448        (1,166,980)     7,270,573
                                                                                          --------       -----------    -----------

  Net increase (decrease) in cash                                                           75,663          (468,736)       506,897
  Cash, beginning of period                                                                 89,158           557,894         50,997
                                                                                          --------       -----------    -----------
  Cash, end of period                                                                      164,821            89,158        557,894
                                                                                          ========       ===========    ===========
</TABLE>

                 The accompanying notes are an integral part of
                    these consolidated financial statements.

                                       37
<PAGE>
<TABLE>
<CAPTION>
                                                                                 REORGANIZED             PREDECESSOR
                                                                                   COMPANY                 COMPANY
                                                                                -------------    ---------------------------
                                                                                 PERIOD FROM     PERIOD FROM     YEAR ENDED
                                                                                  MAY 21 TO     JULY 1 2001 TO    JUNE 30,
                                                                                JUNE 30, 2002    MAY 20, 2002       2001
                                                                                -------------    ------------    -----------
<S>                                                                             <C>             <C>             <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid during the period for interest                                          11,054           23,556          301,453

SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND OPERATING ACTIVITIES:
  Issuance of common stock for services                                                 --               --          386,200
  Dividends accrued on preferred stock                                                  --           18,975           75,900
  Beneficial Conversion Feature on Convertible Debenture                                --        1,679,202        1,679,202
  Issuance of warrants to Debenture holder                                              --               --        1,363,496
  Conversion of debt and related interest to common stock                               --        2,160,000        5,063,330
  Accrued interest added to principle of Debt                                           --          570,965               --
  Account Payable converted to debt                                                     --          630,204               --
  Issuance of common stock for business acquisition                                     --               --       25,561,690
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       38
<PAGE>
                             EBIZ ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------
                                     NOTE 1
                   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------

BASIS OF PRESENTATION

     Ebiz Enterprises, Inc. and its wholly-owned subsidiary, Jones Business
Systems, Inc., (consolidated as the "Predecessor Company") filed separate
voluntary petitions on September 7, 2001, to reorganize under Chapter 11 of the
U.S. Bankruptcy Code. On April 11, 2002, the Plan of Reorganization ("Plan"),
filed by the Predecessor Company, was confirmed and became effective on May 21,
2002 (the "Effective Date"). On May 21, 2002, Ebiz Enterprises, Inc., (the
"Reorganized Company" or the "Company") adopted fresh start reporting in
accordance with Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code" ("SOP 90-7") of the American Institute
of Certified Public Accountants. Accordingly, the Company's post-reorganization
balance sheet and statement of operations have not been prepared on a consistent
basis with such pre-reorganization financial statements and are not comparable
in all respects to financial statements prior to reorganization. For accounting
purposes, the inception date of the Reorganized Company is deemed to be May 21,
2002. A vertical black line is shown in the financial statements to separate the
Reorganized Company from the Predecessor Company since they have not been
prepared on a consistent basis of accounting.

     The substantive provisions of the Plan are as follows:

*    The effective date of the Plan was May 21, 2002 (the "EFFECTIVE DATE"). On
     the Effective Date, all of the assets and business operations of JBSI were
     transferred to Ebiz which became the reorganized, surviving entity
     ("REORGANIZED Company"). JBSI is to be dissolved and cease to exist. We are
     in the process of implementing the dissolution of JBSI. All purchases,
     manufacturing, sales and other business operations are being performed by
     Reorganized Company.

*    As of the Effective Date of May 21, 2002, all outstanding shares of
     preferred stock and common stock of Ebiz were cancelled. Warrants to
     purchase shares of common stock in Reorganized Company, par value $0.001
     ("NEW COMMON STOCK") at $0.65 per share were issued to the former
     stockholders (each a "NEW WARRANT") at the rate of one share of New Common
     Stock for every ten (10) shares of Ebiz's common stock owned as of the
     Effective Date. Terms of the New Warrants provided for a sixty-day exercise
     period from the Effective Date. For purposes of calculating the exchange
     for the New Warrants set forth above, the 7,590 outstanding shares of
     preferred stock as of the Effective Date were converted into 3,220,000
     shares of common stock. The total number of shares of New Common Stock for
     which the New Warrants may be exercised is 3,728,185. The total amount of
     New Common Stock issued to preferred and common shareholders of the Company
     from exercise of the New Warrants (assuming exercise of all New Warrants)
     equals approximately 40.09% of the New Common Stock that may be issued
     under the Plan. Prior to July 20, 2002, the expiration date, 15,589 of the
     New Warrants were exercised.

*    Obligations to all of our secured creditors are to be paid in full with
     interest. Long-term periodic payments will be made to our secured creditors
     until full payment has been made.

*    At the Effective Date, the general unsecured creditors were issued on a pro
     rata basis based upon the amount of their claims, shares of common stock in
     Reorganized Company from a pool of securities consisting of (i) 660,000
     shares of New Common Stock and (ii) warrants to purchase 220,000 shares of
     Reorganized Company (each an "UNSECURED CREDITORS WARRANT"). The terms of
     the Unsecured Creditors Warrants provide for a two-year exercise period
     from the Effective Date and an exercise price of $0.65 per share. The total
     amount of New Common Stock issued directly to the general unsecured
     creditors and from exercise of the Unsecured Creditors Warrants (assuming
     exercise of all Unsecured Creditors Warrants) equals approximately 9.46% of

                                       39
<PAGE>
                             EBIZ ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     the New Common Stock that may be issued under the Plan. In addition, each
     general unsecured creditor will receive equal quarterly payments over a two
     year period, beginning on the date that is three months after the Effective
     Date, which aggregate 7% of such general unsecured creditor's allowed
     claim. The first payments were made effective August 19, 2002. As of June
     30, 2002 no warrants have been exercised.

*    The Canopy Group, Inc. ("CANOPY' ) had the right, for the period that ended
     June 20, 2002, to exchange up to $1,500,000 of its secured debt for shares
     of New Common Stock. The total number of shares of New Common Stock for
     which Canopy may make such exchange is 2,538,462. Canopy made the election
     and converted $1,500,000 of its secured debt for 2,538,462 shares of New
     Common Stock. In addition, Canopy received on the Effective Date, warrants
     to purchase 253,846 shares of New Common Stock (each a "CANOPY/FFEC
     WARRANT"). The terms of the Canopy/FFEC Warrants provide for a three-year
     exercise period from the Effective Date and an exercise price of $0.65 per
     share. The total amount of New Common Stock issued to Canopy from the
     exchange of its secured debt and the exercise of the Canopy/FFEC Warrants
     (assuming Canopy exchanges the entire amount of its secured debt and
     exercises all of its Canopy/FFEC Warrants) equals approximately 30.02% of
     the New Common Stock that may be issued under the Plan.

*    During the period ending June 20, 2002, holders of the secured promissory
     notes totaling $591,000 (each a "DIP NOTE" ), issued as
     debtor-in-possession financing during the Chapter 11 cases, were permitted
     to exchange all or part of the debt represented by a DIP Note for (i)
     shares of New Common Stock at the price of $0.50 per share or (ii) a
     convertible secured promissory note (each a "NEW NOTE") which provides for
     interest to accrue at various rates until the maturity date which is seven
     years after the Effective Date. At maturity, all principal and accrued
     interest will be due. For the period ending on the date that is twenty-four
     months after the Effective Date, each holder of a New Note may convert the
     amount of such New Note to shares of New Common Stock at the conversion
     price of $0.50 per share. The total number of shares of New Common Stock
     for which the DIP Notes may be exchanged directly for shares or converted
     through the New Notes for shares is 1,182,000 shares which equals
     approximately 12.71% of the New Common Stock that may be issued under the
     Plan. A total of $ 578,500 of the DIP Notes were exchanged for a New Note.
     In addition, the agent for the holders of the DIP Notes, which also served
     as the financial advisor to the Company in the debtor-in-possession
     financing transaction, will receive 118,200 Canopy/FFEC Warrants which if
     exercised equals approximately 1.27% of the New Common Stock that may be
     issued under the Plan.

*    The Transition Management Team collectively has received 300,000 shares of
     New Common Stock and warrants to purchase 300,000 shares of New Common
     Stock (each a "TRANSITION WARRANT"). The terms of the Transition Warrants
     provide for a one-year exercise period from the Effective Date and an
     exercise price of $0.65 per share. Fifty percent of the total number of
     shares of New Common Stock and Transition Warrants were distributed to
     members of the Transition Management Team on May 21, 2002 with the balance
     distributed on August 19, 2002. The total amount of New Common Stock issued
     directly to the Transition Management Team and from exercise of the New
     Warrants equals approximately 6.45% of the New Common Stock that may be
     issued under the Plan.

*    The board of directors of New Company consists of Bruce Parsons, three
     designees of Canopy Dan Baker, Darcy Mott and Allan Smart (as a result of
     the exchange of Canopy's secured debt for New Common Stock), and up to one
     designee of FFEC (depending upon the amount of the DIP Notes that are
     exchanged for New Common Stock ).

     The Plan requires that certain administrative claims be paid on the
Effective Date. The amount of administrative claims paid was $42,542.

                                       40
<PAGE>
                             EBIZ ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NATURE OF OPERATIONS

     EBIZ Enterprises, Inc. (the Company) manufactures and sells its Terian
general purpose application computer servers as a packaged computing solution
with software applications provided by its independent software vendor partners
and vertical channel partners. The Company also distributes and serves as a
value-added reseller of computer equipment and software throughout the United
States. The Company is based in Houston, Texas.

     On October 5, 2000, the Company completed the acquisition of LinuxMall.com,
Inc. ("LINUXMALL") by the merger of LinuxMall into a newly formed wholly owned
subsidiary of the Company. (See Note 3)

     On January 4, 2001, the Company completed the acquisition of JBSI by the
merger of a newly formed subsidiary into JBSI. JBSI was one of the largest
resellers of Santa Cruz Operations (SCO) Unix software in the country. The
purpose of this merger was to capitalize on JBSI's Unix customer base by
capturing future Linux users as they began their migration path from Unix.
Furthermore, JBSI's manufacturing facilities located in Stafford, Texas were
better equipped to handle the projected manufacturing needs of EBIZ Enterprises.
(See Note 3)

     The Company was originally incorporated in Colorado in May 1984, as VDG
Capital Corporation. Following a reorganization, the Company's name was changed
to Vinculum Incorporated (Vinculum) in August 1994. In June 1998, the Company
acquired the operating assets and liabilities of Genras, Inc. (an Arizona
corporation) and reincorporated in Nevada as CPU Micromart, Inc. In May 1999,
the Company changed its name to EBIZ Enterprises, Inc.

MANAGEMENT PLANS

     Our objective is to deliver Linux-Unix solutions primarily through channel
partners who in turn focus on the corporate business marketplace. We intend to
achieve this objective by utilizing three primary delivery channels in which we
believe we will have strong presence and positioning. These channels are:

     *    CHANNEL SALES. Our largest source of revenue and growth is expected to
          be through our promotion and sale of products and services through
          channel VAR's and Resellers to the ultimate end user. This approach
          maximizes our sales leverage and territory coverage while minimizing
          internal overhead.

     *    DIRECT SALES. Our direct sales force is relatively small but highly
          focused upon higher margin products and services aimed at very
          specific market segments not well served by our channel partners. A
          direct sales model is more expensive to operate but it permits greater
          control and pin point focus upon very targeted market segments.

     *    E-COMMERCE. Our flagship Web site, EBIZENTERPRISES.COM, provides
          marketing and distribution opportunities for vendors and providers of
          Linux and Unix products and services as well as technical support and
          community information. Several portions of our web site are dedicated
          to user direct interface with our technology, such as our system
          architecture configurator, and e-commerce sales may be made utilizing
          this tool with very little manual intervention.

     Our strategic objectives are to:

     *    Maintain a comprehensive web site that combines product marketing with
          Linux-Unix community interests such as news, resources, links pre- and
          post-sales technical support, hardware service and customer service;

                                       41
<PAGE>
                             EBIZ ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     *    Utilize our Linux-Unix product development expertise to create unique
          product lines for bundling into delivered solutions;

     *    Generate revenue through product sales as well as through technical
          support, service and training opportunities, customer services,
          Internet advertising, marketing and Web links;

     *    Expand sales, marketing, production and distribution of our branded
          product lines; and

     *    Establish ourselves as an active member of the Linux-Unix community
          known to aggressively support the open source development initiative.

     In order to meet these objectives, we will require additional funding to
implement our planned sales, marketing and product development activities. We
intend to deploy a marketing program focused on building our brand recognition.
We also intend to enhance the performance capabilities of our products to
produce competitive advantages.

     We believe that our technology facility and sales and marketing expertise
differentiates our operations by allowing us to provide true merchant qualities
and capabilities, such as conducting our own purchasing, merchandising, order
fulfillment, supply-chain management, vendor marketing opportunities and product
technical support functions.

     Our e-commerce web site offers targeted audiences relevant content,
services and a quality buying experience, which is a significant element of our
business plan. We believe the key elements to implement our plan include:

     *    PROVIDING A MEANINGFUL VIRTUAL COMMUNITY DESTINATION ON THE INTERNET
          WITH OUR WEB SITE. By providing a broad spectrum of Linux-Unix
          solutions to serve the needs of the Linux-Unix and business community,
          we believe we will provide common interest Internet destination point
          which will be a source for news and information as well as providing
          an opportunity for product purchases.

     *    ENSURING A SECURE AND CONVENIENT ON-LINE BUYING EXPERIENCE. Our
          e-commerce site features secure buying facilities that are open 24
          hours a day, seven days a week. Our Web site may be reached from the
          customer's home or office and feature extensive browsing and search
          capabilities.

     *    DELIVERING EXCELLENT CUSTOMER SERVICE. We intend to provide the
          highest level of customer service from ordering to shipping, and offer
          pre- and post-sales support via the telephone, e-mail and online. We
          also offer online order tracking capabilities.

     *    DEVELOPING CUSTOMER LOYALTY. We are focused on developing and
          promoting customer loyalty, building repeat purchase relationships
          with our customers and maximizing the number of return visits to our
          Web site by our customers.

     *    BUILDING BRAND LEADERSHIP POSITIONING. We are implementing integrated
          online and offline marketing strategies to enhance our brand
          recognition within the vertical markets we target, which include
          advertising, direct online marketing, trade shows and public relations
          activities.

OUR WEB SITE

     Our web site is an important component of our business strategy aimed at
enhancing sales of our products and services. The purpose of our web site is to
combine the best of the community interests with commercial business

                                       42
<PAGE>
                             EBIZ ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


opportunities of Linux-Unix. We intend to enhance and develop our Linux-Unix
product offerings, but focus our near-term efforts on developing partnerships
and relationships with manufacturers and suppliers of other Linux-Unix products
and to market their products and services through our site.

     EBIZENTERPRISES.COM. Our primary web site, EBIZENTERPRISES.COM, includes
corporate, public relations, product, services, and community elements tailored
to apprise the general public, investors, and other interested parties about our
strategic direction, management profiles, products and solutions and other
important events.

     In order to meet these objectives, we will require additional funding to
implement our planned sales, marketing and product development activities.

     On September 7, 2001 EBIZ Enterprises, Inc. filed a voluntary petition
under Chapter 11 of the Bankruptcy Code with the federal bankruptcy court in
Phoenix, Arizona. Although we were successful in obtaining confirmation of our
Plan, we must execute and fulfill the requirements under the Plan to continue
our operations. There are numerous financial requirements in the form of
payments to secured and unsecured creditors under the Plan that must be made on
the schedules and times set forth therein. We believe that making payments
required under the Plan is manageable, but we will continue to require
additional external funding for our operations.

     The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company incurred losses and had
negative cash flows from operations in 2002 and 2001 and does not have
sufficient capital needed to support its operations. The accompanying financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.

PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements include the accounts of EBIZ
Enterprises, Inc. and its subsidiaries from their respective dates of
acquisition. All intercompany accounts and transactions have been eliminated in
the consolidated financial statements.

FINANCIAL REPORTING FOR BANKRUPTCY PROCEEDINGS

     During the reorganization period, the Company implemented the guidance as
to financial reporting by entities that have filed petitions with the Bankruptcy
Court, provided by SOP 90-7 in the accompanying financial statements. Pursuant
to SOP 90-7, pre-petition liabilities are reported on the basis of the expected
amounts of such allowed claims, as opposed to the amounts for which those
allowed claims may be settled and are classified as "Liabilities Subject to
Chapter 11 Proceedings". The accrual for interest on such unsecured or
undersecured liabilities was discontinued from the period September 7, 2001 to
May 21, 2002, the Effective Date of the Plan.

CASH AND CASH EQUIVALENTS

     The Company considers highly liquid investments with an original maturity
of three months or less from the date of purchase to be classified as cash and
cash equivalents.

REVENUE RECOGNITION

     Revenues are recognized upon shipment of product under confirmed customer
purchase orders. Provision is made for an estimate of doubtful accounts and is
based on historical experience. A provision is also made for estimated returns

                                       43
<PAGE>
                             EBIZ ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


and warranty repairs. System component and replacement costs are generally
covered under the third-party manufacturer's warranty. The Company had an
allowance for warranty repair costs of approximately $19,000 at June 30, 2002
and $18,000 at June 30, 2001 related to the sales of its computers.

     The Company has authorized distributorship agreements with various
manufacturers. These agreements also provide for periodic reimbursement of a
portion of the Company's advertising expenses and credit toward purchases based
on the Company's transaction volume.

     The cost of software to be sold, leased or otherwise marketed that has
alternative future use is recorded in cost of sales in the period the related
revenue is recognized. The Company did not sell any software that was internally
developed and no costs were incurred for internal development of software during
the years ending June 30, 2002 and June 30, 2001. In accordance with SFAS No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased or
otherwise Marketed", the Company expenses the research and development costs
incurred until technological feasibility is attained. The Company would consider
technological feasibility upon the completion of a product design and working
model.

     The Securities and Exchange Commission ("SEC") released Staff Accounting
Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements," on
December 3, 1999. On June 26, 2000 the SEC staff announced that they are
delaying the required implementation date for SAB No. 101 with the issuance of
SAB No. 101B. The SAB provides additional guidance on the accounting for revenue
recognition, including both broad conceptual discussions as well as certain
industry-specific guidance. The new guidance concerning customer acceptance and
installation terms may have a significant impact on the timing of the Company's
revenue recognition. The Company does not anticipate any material impact from
the adoption of SAB No. 101 on its future results of operations and financial
position.

ADVERTISING AND PROMOTION

     Advertising costs are expensed as incurred and are included in sales and
marketing expenses in the accompanying consolidated statement of operations.
Advertising expense was approximately $1,345,000 and $632,000 for the years
ended June 30, 2002 and June 30, 2001, respectively.

INCOME TAXES

     The Company accounts for income taxes using an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, all expected future events are considered other than enactments of
changes in the tax law or rates.

NET INCOME (LOSS) PER COMMON SHARE

Basic earnings per share include no dilution and are computed by dividing income
available to common stockholders by the weighted average number of shares
outstanding for the period.

Diluted earnings per share amounts are computed based on the weighted average
number of shares actually outstanding plus the shares that would be outstanding
assuming the exercise of dilutive stock options, all of which are considered to
be common stock equivalents. The number of shares that would be issued from the
exercise of stock options has been reduced by the number of shares that could
have been purchased from the proceeds at the average market price of the
Company's stock. In addition, certain outstanding options are not included in
the computation of diluted earnings per share because their effect would be
antidilutive.

                                       44
<PAGE>
                             EBIZ ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Basic net loss per common share is computed based on weighted average shares
outstanding and excludes any potential dilution from stock options, warrants and
other common stock equivalents. Basic net loss per share is computed by dividing
loss available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted net loss per common share reflects
potential dilution from the exercise or conversion of securities into common
stock or from other contracts to issue common stock. Assumed exercise of the
outstanding stock options of 892,046 at June 30, 2002 and May 20, 2002, and
8,250,353 at June 30, 2001 have been excluded from the calculation of diluted
net loss per common share, as their effect is antidilutive.

PENDING ACCOUNTING PRONOUNCEMENTS

     In June 2001 the Financial Accounting Standards Board adopted Opinion No.
141, Business Combinations, and Opinion No. 142, Goodwill and Other Intangibles.
The pronouncements provide for the cessation of the pooling method of accounting
for business combinations as well as providing that goodwill and other
intangible assets that have indefinite useful lives will not be amortized but
rather will be tested at least annually for impairment. The Company does not
expect the adoption of the standards to have a material effect on the financial
statements. The effective dates for Financial Accounting Standards Nos. 141 and
142 are July 1, 2001 and for fiscal years beginning after December 15, 2001,
respectively.

     The Financial Accounting Standards Board has adopted Opinion No. 143,
Accounting for Asset Retirement Obligations, effective for fiscal years
beginning after June 15, 2002.

     In September 2001 the Financial Accounting Standards Board adopted Opinion
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." The
pronouncement provides a single, comprehensive accounting model for impairment
and disposal of long-lived assets and discontinued operations. The standard is
effective for fiscal years beginning after December 15, 2001.

     In November 2001, the Emerging Issues Task Force ("EITF") reached a
consensus on EITF Issue No. 01-09, "Accounting for Consideration Given by a
Vendor to a Customer or a Reseller of the Vendor's Products," ("EITF No.
01-09"). EITF No. 01-09 requires recording certain consideration paid to
distributors of the Company's products as a reduction of revenue. The Company
adopted the provisions of EITF No. 01-09 effective January 1, 2002. The
implementation of EITF No. 01-09 did not have a material effect on the Company's
financial position and results of operations.

     FASB Statement No.145, an amendment of FASB Statement No. 13, and Technical
Corrections, is effective for fiscal years beginning after May 15, 2002. Under
SFAS No.145, gains and losses from the extinguishment of debt should be
classified as extraordinary items only if they meet the criteria of APB Opinion
No. 30. SFAS No. 145 also addresses financial accounting and reporting for
capital leases that are modified in such a way as to give rise to a new
agreement classified as an operating lease. The Company believes that the
adoption of SFAS No. 145 will not have a material impact on the consolidated
financial position or results of the operations of the Company.

     In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or
Disposal Activities". SFAS No. 146 addresses significant issues regarding the
recognition, measurement, and reporting of costs that are associated with exit
and disposal activities, including restructuring activities that are currently
accounted for under EITF No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." The scope of the SFAS No.146 also includes
costs related to terminating a contract that is not a capital lease and
termination benefits that employees who are involuntarily terminated receive
under the terms of a one-time benefit arrangement that is not an ongoing benefit
arrangement or an individual deferred-compensation contract. SFAS No.146 will be
effective for exit or disposal activities that are initiated after December 31,
2002, but early application is encouraged. The provisions of EITF No. 94-3 shall
continue to apply for an exit activity initiated under an exit plan that met the

                                       45
<PAGE>
                             EBIZ ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


criteria of EITF No. 94-3 prior to the adoption of SFAS No.146. Adopting the
provisions of SFAS No. 146 will change, on a prospective basis, the timing of
when restructuring charges are recorded from a commitment date approach to when
the liability is incurred.

     The adoption of SFAS 141 did not have a material effect on the Company's
financial statements.

     The Company does not anticipate the adoption of SFAS 143, SFAS 144, SFAS
145 and SFAS 146 will have a material effect on the Company's financial
statements. The Company cannot estimate at this time the effect of the adoption
of SFAS 142.

STOCK BASED COMPENSATION

     The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standard (SFAS) No. 123, "Accounting for Stock-Based
Compensation Issued to Employees." SFAS No. 123 prescribes using the fair value
method of accounting for stock-based compensation issued to employees; however,
the Company has elected, as permitted by SFAS No. 123, to continue to use the
intrinsic value method in its primary financial statements. The intrinsic value
method records compensation expense for stock based upon the difference between
the exercise price and the fair market value of the Company's stock at the date
of grant, recognized over the vesting period of the options.

CONCENTRATION OF CREDIT RISK

     Financial instruments which subject the Company to concentrations of credit
risk consist primarily of cash equivalents and accounts receivable. The Company
maintains a majority of its cash equivalent balance in overnight sweep
investments. Management believes that concentrations of credit risk with respect
to accounts receivable are limited because the Company's customer base is large
and dispersed across many different industries and geographic regions. The
Company performs ongoing credit evaluations of its customers to minimize risks.

INVENTORY

     Inventory consists of microcomputers and related peripheral products and
software and is valued at the lower of cost (first-in, first-out) or market. The
inventory balance at June 30, 2002 and June 30, 2001 is shown net of an
allowance for obsolescence of $995,490 and $1,048,912, respectively.

PROPERTY AND EQUIPMENT

     Property and equipment were recorded at cost as of June 30, 2001 and at
fair market value as of May 20, 2002; subsequent acquisitions are recorded at
cost. The cost of additions and improvements is capitalized, while maintenance
and repairs are charged to operations when incurred. Depreciation is recorded
using the straight-line method over the estimated useful life of the asset.

                                       46
<PAGE>
                             EBIZ ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE ASSETS

     The Company assesses the recoverability of this asset based upon expected
future undiscounted cash flows and other relevant information. The carrying
amount of the Reorganization Value in Excess of Amounts Allocable to
Identifiable Assets is considered impaired when anticipated undiscounted cash
flows expected to result from the use of the asset and its eventual disposition,
is less than its carrying amount.

LONG-LIVED ASSETS

     The Company reviews for the impairment of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The carrying amount
of a long-lived asset is considered impaired when anticipated undiscounted cash
flows expected to result from the use of the asset and its eventual disposition,
is less than its carrying amount.

     In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets", the Corporation recorded an impairment loss on the
long-lived assets of its Linuxmall.com business. The trends in the Linuxmall.com
business indicated that the undiscounted future cash flows from this business
would be less than the carrying value of the long-lived assets related to that
business. Accordingly, during the year ended June 30, 2001 the Corporation
recognized an asset impairment loss of $17,062,336 ($17,062,336 net of tax, or
$0.80 per share). This loss is the difference between the carrying value of the
Linuxmall.com assets and related goodwill and other intangibles, and the fair
value of these assets based on discounted estimated future cash flows.

     The Corporation also recorded an impairment loss on the long-lived assets
of its JBSI business. The trends in the JBSI business indicated that the
undiscounted future cash flows from this business would be less than the
carrying value of the long-lived assets related to that business. Accordingly,
during the year ended June 30, 2001 the Corporation recognized an asset
impairment loss of $7,085,978 ($7,085,978 net of tax, or $0.33 per share). This
loss is the difference between the carrying value of the JBSI assets and related
goodwill and other intangibles, and the fair value of these assets based on
discounted estimated future cash flows.

     The Corporation also recorded an impairment loss on the long-lived assets
of its Infomagic business. The trends in the Infomagic business indicated that
the undiscounted future cash flows from this business would be less than the
carrying value of the long-lived assets related to that business. Accordingly,
during the year ended June 30, 2001 the Corporation recognized an asset
impairment loss of $406,371 ($406,371 net of tax, or $0.02 per share). This loss
is the difference between the carrying value of the Infomagic assets and related
goodwill and the fair value of these assets based on discounted estimated future
cash flows.

FAIR VALUE OF FINANCIAL INSTRUMENTS

     The Company enters into various types of financial instruments in the
normal course of business and in connection with acquisitions and divestitures.
The Company does not hold or issue financial instruments for trading purposes
nor does it hold interest rate, leveraged or other types of derivative financial
instruments. The carrying values of cash and cash equivalents, accounts
receivables, notes receivable, related party receivables, accounts payable and
indebtedness reflected in the June 30, 2002 and June 30, 2001 consolidated
balance sheets approximate their fair value at that date.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Management believes these
estimates are reasonable

                                       47
<PAGE>
                             EBIZ ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------
                                     NOTE 2
                              FRESH START REPORTING
--------------------------------------------------------------------------------

     In connection with its emergence from bankruptcy, the Company adopted fresh
start reporting in accordance with SOP 90-7. The fresh start reporting common
equity value of $2,081,802 was determined by the Company with the assistance of
financial advisors. The significant factors used in the determination of this
value were analyses of industry, economic and overall market conditions and the
historical and estimated performance of the Company as well as of the computer
industry, discussions with various potential investors and certain other
financial analyses.

     Under fresh start reporting, the reorganization value of the entity has
been allocated to the Company's assets and liabilities on a basis substantially
consistent with purchase accounting. The portion of reorganization value not
attributable to specific tangible assets has been recorded as "Reorganization
Value in Excess of Amounts Allocable to Identifiable Assets" in the accompanying
balance sheet as of June 30, 2002. The fresh start reporting adjustments,
primarily related to the adjustment of the Company's assets and liabilities to
fair market values, will have a significant effect on the Company's future
statements of operations. The more significant of these adjustments relate to
reduced depreciation expense on property and equipment increased interest
expense and reduced operating expense for leases adjusted to fair market rental
rates.

                                       48
<PAGE>
                             EBIZ ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                             EBIZ ENTERPRISES, INC.

The Effects of the Plan and fresh start reporting on the balance sheet at the
Effective Date are as follows:

<TABLE>
<CAPTION>
                                                                        (A)              (B)              (C)
                                                   Predecessor                                                         Reorganized
                                                     Company            Debt           Exchange       Fresh Start        Company
                                                   May 20, 1998       Discharge        of stock       Adjustments      May 20, 1998
                                                   ------------     ------------     ------------     ------------     ------------
<S>                                                <C>              <C>              <C>              <C>              <C>
                                     ASSETS
Current Assets:
  Cash                                             $     89,158     $         --     $         --     $         --     $     89,158
  Accounts receivable, net                              604,709               --               --               --          604,709
  Inventory, net                                        130,600               --               --               --          130,600
  Prepaid expenses and other current assets             167,724               --               --               --          167,724
  Deferred Loan Fees, net                                10,751               --               --               --           10,751
                                                   ------------     ------------     ------------     ------------     ------------
          Total current assets                        1,002,942               --               --               --        1,002,942
Property and Equipment, net                             698,543               --               --         (381,494)         317,049
Deferred Loan Fees, net                                  52,857               --               --               --           52,857
Restricted cash (Note 2)                                     --               --               --               --               --
Goodwill, net                                         2,832,230               --               --       (2,832,230)              --
Reorganized value in excess of amounts
  allocable to identifiable assets                           --               --               --        9,508,878        9,508,878
Other Assets                                             57,277               --               --          (49,540)           7,737
                                                   ------------     ------------     ------------     ------------     ------------
                                                   $  4,643,849     $         --     $         --     $  6,245,614     $ 10,889,463
                                                   ============     ============     ============     ============     ============

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
  Accounts payable                                 $  1,911,242     $         --     $         --     $         --     $  1,911,242
  Accrued expenses                                      909,259               --               --         (141,144)         768,115
  Notes payable                                         662,471               --               --               --          662,471
  Notes payable                                              --               --               --               --               --
  Related party notes payable                           254,815          540,420               --               --          795,235
  Convertible Debenture, net of discount                     --               --               --               --               --
                                                   ------------     ------------     ------------     ------------     ------------
          Total current liabilities                   3,737,787          540,420               --         (141,144)       4,137,063

Notes payable                                                --               --               --               --               --
Notes payable                                                --          768,500               --               --          768,500
Related party notes payable                                  --        3,308,143               --               --        3,308,143
Convertible debenture, net of discount                  593,955               --               --               --          593,955
Liabilities Subject to Compromise                    23,493,788      (23,493,788)              --               --               --
                                                   ------------     ------------     ------------     ------------     ------------
          Total liabilities                          27,825,530      (18,876,725)              --         (141,144)       8,807,661
Commitments and Contingencies
  Redeemable Common Stock                                    --               --               --               --               --
Stockholders' Equity (Deficit):
  Common Stock Subscribed                                    --        1,638,363               --               --        1,638,363
  Convertible preferred stock                           366,737               --         (366,737)              --               --
  Common stock, Reorganized company                          --              682                                                682
  Common stock, Predecessor Company                      34,063               --          (34,063)              --
  Additional paid-in capital                         46,715,220          442,757          400,800      (47,116,020)         442,757
  Accumulated deficit                               (70,297,701)      16,794,923               --       53,502,778               --
                                                   ------------     ------------     ------------     ------------     ------------
          Total stockholders' equity (deficit)      (23,181,681)      18,876,725               --        6,386,758        2,081,802
                                                   ------------     ------------     ------------     ------------     ------------
                                                   $  4,643,849     $         --     $         --     $  6,245,614     $ 10,889,463
                                                   ============     ============     ============     ============     ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements

----------
(a)  To record the discharge or reclassification of pre-petition obligations as
     well as the issuance of new equity securities.
(b)  To record the exchange of preferred stock to common stock.
(c)  To record adjustments to reflect assets and liabilities at fair market
     values and to record reorganization value in excess of amounts allocable to
     identifiable assets.

                                       49
<PAGE>
                             EBIZ ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------
                                     NOTE 3
                                  ACQUISITIONS
--------------------------------------------------------------------------------

AQUISITION OF LINUXMALL.COM , INC.

     On October 5, 2000, the Company completed the acquisition of LinuxMall.com
by the merger of LinuxMall into a newly formed wholly owned subsidiary of the
Company. Under the terms of the final transaction, the Company paid $14.7
million for the acquisition comprised of 7.4 million shares of the Company's
common stock valued at $9.6 million, options to purchase 0.9 million shares of
the Company's common stock valued at $0.9 million, warrants for 4.6 million
shares of the Company's common stock valued at $4.1 million and related
transaction costs totaling $0.1 million. The fair value of all shares to be
issued to acquire LinuxMall equals approximately $9.6 million or $1.30 per
share. In addition, $5.7 million in net liabilities are included in the
calculation for a total consideration of $20.5 million. Approximately 2.5
million shares were issued in January 2001 upon conversion of the remaining
outstanding preferred convertible debentures. The amendments to the original
purchase agreement were not significant, except for a change in the conversion
ratio on October 3, 2000, which reduced the ratio from 2.2 to 1 for all shares
to a ratio of 2.0 to 1 for preferred stock and 1.8 to 1 for common stock, which
triggered a new measurement date for the purchase price determination. The
transaction was accounted for under the purchase method of accounting in
accordance with APB 16. The Company engaged a third party to determine the
purchase price allocation of the intangible assets acquired. The allocation of
the total purchase price is as follows:

                                                            Period of
                                                           Amortization
                                             Amount          In Years
                                          ------------       --------
          ALLOCATION:

          Current assets                  $    722,071

          Other non-current assets             461,163

          Current liabilities               (4,387,921)

          Long-term debt                    (2,526,270)

          Assembled workforce                  330,000          3

          Technology                         1,310,000          3

          Customer List                        770,000          2

          Trademarks                         4,210,000          5

          Goodwill                          13,845,771          5
                                          ------------

                                          $ 14,734,814
                                          ============

     The liabilities were comprised of convertible debt, trade accounts payable
and accrued expenses.

During the year ended June 30, 2001 the Company recognized an asset impairment
loss of $17 million. This loss is the difference between the carrying value of
the Linuxmall.com assets and related goodwill and other intangibles, and the
fair value of these assets based on discounted estimated future cash flows. (See
Note 3)

                                       50
<PAGE>
                             EBIZ ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     Given other market and financial challenges over 2001 and an evolving
business model, several of the lesser LinuxMall web sites were suspended from
operation in 2002 and the LinuxMall web site was placed into a maintenance mode
while a final determination was being made as to its relevance and importance to
our business following confirmation of our Plan. We have not yet identified how
to strategically utilize LinuxMall in our current business plan.

AQUISITION OF JBSI, INC.

     On January 4, 2001, the Company completed the acquisition of JBSI by the
merger of JBSI into a newly formed wholly owned subsidiary of the Company. Under
the terms of the final transaction, the Company paid $7.7 million for the
acquisition comprised of 8.3 million shares of the Company's common stock valued
at $6.0 million and options for 3.7 million shares of the Company's common stock
valued at $1.7 million. The fair value of all shares to be issued to acquire
JBSI equals approximately $6.0 million or $0.7312 per share. The fair value of
the options was calculated by using the Black-Scholes pricing model using the
following weighted average assumptions: stock price of $0.7312, exercise price
of $0.40, risk free rate of 6.48%, expected life of two years, a volatility
factor of 80% and a dividend yield of 0%. In addition, $3.7 million in net
liabilities are included in the calculation of the total consideration of $11.5
million. Amendments to the Plan of Merger dated November 20, 2000 were not
significant, and this measurement date was used for the purchase price
determination. The transaction was accounted for under the purchase method of
accounting in accordance with APB 16. The Company has engaged a third party to
determine the purchase price allocation of the intangible assets acquired. The
intangible assets are anticipated to be amortized over a useful life of two to
five years.

     During the year ended June 30, 2001 the Company recognized an asset
impairment loss of $7.1 million. This loss is the difference between the
carrying value of the JBSI assets and related goodwill and other intangibles,
and the fair value of these assets based on discounted estimated future cash
flows. (See Note 3) On the Effective Date of the Plan, all of the assets and
business operations of JBSI were transferred to Ebiz which became the
reorganized, surviving entity. JBSI is to be dissolved and cease to exist. We
are in the process of implementing the dissolution of JBSI. All purchases,
manufacturing, sales and other business operations are being performed by Ebiz.

PURCHASE AND INVESTMENT WITH CALDERA SYSTEMS, INC.

     On September 15, 2000, the Company entered into a Purchase and Sale
Agreement with Caldera Systems, Inc. ("CALDERA") for the acquisition of all of
the intellectual property, technology and certain specified assets related to
Caldera's proprietary marketing distribution concept known as Electronic Linux
Marketplace. The Company planned to further develop the business concept in a
wholly owned subsidiary, PartnerAxis, Inc. ("PARTNERAXIS"). The Company issued
4,000,000 shares of its common stock to Caldera as its initial payment for cash
and assets. The stock issued was valued at $1.60 per share, the average closing
price for September 11, 2000 through September 15, 2000. Of the $6.4 million
total, $3,360,811 was recorded as PartnerAxis intangible assets, $3 million as
restricted cash and $39,189 as furniture and equipment in the accompanying
consolidated financial statements. The $3 million of restricted cash was
dedicated for use in developing and implementing the PartnerAxis business plan.
The intangible assets were anticipated to be amortized over a useful life of 2
to 3 years. Up to 4,000,000 additional shares of common stock were issuable to
Caldera based on the earnings performance of PartnerAxis, as defined in the
Purchase and Sale Agreement, during the period of December 15, 2000 through
December 15, 2001.

     The Company has reached an agreement in principle with Caldera as reflected
in a term sheet dated January 24, 2001 regarding modification of the Purchase
and Sale Agreement entered into on September 15, 2000. As part of the Purchase
and Sale Agreement, $3 million in proceeds from the sale to Caldera of 3 million

                                       51
<PAGE>
                             EBIZ ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


shares of common stock of the Company were to be used in developing the business
plan of PartnerAxis. Caldera and the Company agreed to modify the Purchase and
Sale Agreement with regard to the balance of the $3 million proceeds which now
totals $2.1 million. Per the term sheet, $1 million would be immediately
deposited with an independent escrow agent and the remaining $1.1 million must
be deposited with the escrow agent no later than June 30, 2001 (the "ESCROW
FUNDS"). Prior to this date, the Company may use those funds for purposes other
than developing the business plan of PartnerAxis, and the Company has, in fact,
used $1.1 million of the Escrow Funds for other purposes. Should the Company
fail to deposit the $1.1 million with the escrow agent by June 30, 2001, the
Company was required to issue to Caldera a warrant to purchase 1 million shares
of common stock of the Company at the price per share and on terms and
conditions as set forth in the warrant. Additional terms included payment of a
5% royalty on revenues derived from PartnerAxis in lieu of issuance of
additional shares based on earnings performance.

DISPOSITION OF PARTNERAXIS, INC.

     On April 16, 2001, the Company completed the sale of its wholly owned
subsidiary, PartnerAxis, Inc.("PartnerAxis"), to BySynergy, LLC ("BySynergy"),
pursuant to a Stock Purchase Agreement dated April 13, 2001. The Company
realized a loss of $3,612,171 in relation to the sale of PartnerAxis.

     At the Closing, the Company conveyed all of the outstanding capital stock
of PartnerAxis to BySynergy for a nominal cash payment, and the Company
delegated to BySynergy certain duties and obligations of the Company (the
"Obligations") set forth in the Use Restriction Agreement dated September 15,
2000 by and between the Company and Caldera Systems, Inc. ("Caldera") as
modified. BySynergy expressly assumed the Obligations and agreed to fully
perform all of the Obligations which are identified as (i) providing a minimum
of $1.1 million in financing for PartnerAxis no later than June 30, 2001 and
continuing to develop, fund and operate PartnerAxis until December 31, 2001,
(ii) paying to Caldera a 5% royalty on the total gross revenue earned by
PartnerAxis, their successors and assigns with respect to the business of
PartnerAxis, and (iii) granting to Caldera, for its internal business purposes
only, a perpetual fully paid-up, royalty free license to use all of the
intellectual property, technology, software, the computer programs, trade
secrets, data, designs, proprietary works and processes now-existing or as it
may be developed in the future that is used in or related to or associated with
the business of PartnerAxis.

--------------------------------------------------------------------------------
                                     NOTE 4
                             PROPERTY AND EQUIPMENT
--------------------------------------------------------------------------------

     Property and equipment consists of the following at June 30, 2002 and June
30, 2001:

                                       52
<PAGE>
                             EBIZ ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                              Estimated
                                             useful life      June 30, 2001     June 30, 2001
                                             ------------     -------------     -------------
<S>                                          <C>               <C>               <C>
Furniture, fixtures and office equipment     3 to 7 years      $   315,500       $ 1,008,750
Software                                        3 years                 --            80,779
Property under capital lease                    5 years                 --           348,846
Leasehold improvements                       2 to 5 years               --            96,835
                                                                                 -----------
                                                                   315,500         1,535,210
Accumulated depreciation                                                --          (351,849)
                                                               -----------       -----------

                                                               $   315,500       $ 1,183,361
                                                               ===========       ===========
</TABLE>

--------------------------------------------------------------------------------
                                     NOTE 5
                           RELATED PARTY INDEBTEDNESS
--------------------------------------------------------------------------------

     On August 22, 2000, the Company issued a Secured Convertible Promissory
Note to Canopy in the amount of $500,000 in exchange for cash. The note bears
interest at the annual compounded rate of 10% per annum and is convertible into
shares of common stock at $1.00 per share at the holder's discretion. The
original maturity date of the note was September 22, 2000. The fair market value
of the Company's stock was $1.26 on the date of issuance. A beneficial
conversion feature of $130,000 has been recorded as interest expense.

     The note was amended December 31, 2000 and combined with a $500,000 Secured
Convertible Promissory Note dated July 10, 2000 from LinuxMall to Canopy plus
all accrued interest (the "AMENDED NOTE"). The Amended Note was issued for a
total principal amount of $1,041,781 and was due June 30, 2001. If the Amended
Note is not timely paid it is convertible into shares of common stock at a per
share conversion price equal to the lesser of 50% of the average closing price
of the stock for the five day period prior to conversion or 200% of the closing
price on the date of the Amended Note. In addition, warrants to purchase
1,230,769 shares of the Company's common stock at $0.375 per share were issued
to Canopy. The fair value of these warrants, as calculated by using the
Black-Scholes pricing model, was estimated to be approximately $215,000, using
the following weighted average assumptions: stock price of $0.375, exercise
price of $0.375, risk free rate of 6.48%, expected life of two years, a
volatility factor of 80% and a dividend yield of 0%, and is recorded as interest
expense. As of June 30, 2001 the note is in default yet the debtor has not
requested a conversion of the debt to common stock pursuant to the conversion
provision.

     On January 29, 2001, the Company issued a Secured Convertible Promissory
Note to Canopy in the amount of $1,000,000 in exchange for cash. The note bears
interest at the annual compounded rate of 10% per annum and is due on October
29, 2001 (THE "CANOPY 1/29/01 NOTE"). If the Canopy 1/29/01 Note is not timely
paid it is convertible into shares of common stock at a per share conversion
price equal to the lesser of 50% of the average closing price of the stock for
the five day period prior to conversion or 200% of the closing price on the date
of the Canopy 1/29/01 Note. In addition, warrants to purchase 1,063,829 shares
of the Company's common stock at $0.47 per share were issued to Canopy. The fair
value of these warrants, as calculated by using the Black-Scholes pricing model,
was estimated to be approximately $233,000, using the following weighted average
assumptions: stock price of $0.47, exercise price of $0.47, risk free rate of
6.48%, expected life of two years, a volatility factor of 80% and a dividend
yield of 0%, and is recorded as interest expense.

     On May 14, 2002 we entered into a line of credit loan agreement with The
Canopy Group. Under the terms of the agreement borrowings under the line of
credit are limited to the lesser of $500,000 or 85% of eligible accounts

                                       53
<PAGE>
                             EBIZ ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


receivable and 50% of eligible inventory. The line of credit is secured by all
accounts receivable, inventory and property and equipment of the Company. In an
amendment dated September 4, 2002 the total available under the line was
increased to $700,000. As of June 30, 2002 the balance outstanding under the
line of credit was $204,783.

     The components of Related Party indebtedness at June 30, 2002 and June 30,
2001 are summarized as follows:

<TABLE>
<CAPTION>
                                                                            June 29, 1998    June 29, 1997
                                                                            -------------    -------------
<S>                                                                          <C>              <C>
Note payable to a stockholder, fixed interest amount,
  due on demand, unsecured                                                            --           71,928
Note payable to a stockholder resulting from acquisition, fixed
  interest amount, due on demand, unsecured                                      174,282          177,596
Convertible note payable to a related entity,  interest at 10%, payable
  on June 30, 2001, in default. Secured by all assets of the Company                  --        1,041,781
Convertible note payable to a related entity,  interest at 10%, payable
  on October 29, 2001. Secured by all assets of the Company                           --        1,000,000
Note payable in exchange for cash, interest at 10%,
  payable on October 5, 2001; secured by specific accounts receivables
  and inventory                                                                                    39,681
Line of credit, as amended May 13, 2002 -$700,000, interest at 12%
  due on demand, secured by specific accounts receivable, inventory
  and all assets of the Company                                                  204,783
Note payable to a related entity, interest at 8%, payable quarterly
  final payment due July 1, 2007                                               3,344,289               --
Note payable to related entity, fixed interest amount, quarterly payments
  final payment due May 21, 2004                                                 535,000
Note payable to related party, fixed interest amount, quarterly payments
  final payment due May 21, 2004                                                   5,035               --
                                                                             -----------      -----------
                                                                               4,263,389        2,330,986
Less - current maturities                                                       (947,974)      (2,330,986)
                                                                             -----------      -----------
                                                                             $ 3,315,415      $        --
                                                                             ===========      ===========
</TABLE>

     As of June 30, 2001, the note payable to a related entity in the amount of
$1,041,781 was in default. The note has conversion provisions which had not been
exercised as of June 30, 2001. The aggregate maturities of Related Party
indebtedness described above are as follows: $947,974 in 2003; $618,917 in 2004;
$736,399 in 2005; $736,399 in 2006; $1,138,888 in 2007 and $84,812 in 2008.

                                       54
<PAGE>
                             EBIZ ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------
                                     NOTE 6
                                  INDEBTEDNESS
--------------------------------------------------------------------------------

The components of indebtedness at June 30, 2002 and June 30, 2001 are summarized
as follows

<TABLE>
<CAPTION>
                                                                            June 29, 1998   June 29, 1997
                                                                            -------------   -------------
<S>                                                                          <C>             <C>
Financial institution borrowings:
  Line of credit, as amended in 1998 - $10 million, interest at prime
    plus 2.5%, matures July 2001                                                      --       2,270,311
  Term note, as amended in 1998 - principal due in July 2001,
    interest at prime plus 2.5%                                                       --       2,000,000
Other borrowings:
  Subordinated convertible debentures from acquisitions, interest at 6%               --         183,837
    interest payable monthly with principal due April 30, 2002
  Note payable resulting from acquisition, interest at 10.5%,
    payable in equal quarterly installments beginning February 12, 1999
    with principal due May 12, 2001, in default                                       --         300,000
  Note payable resulting from acquisition, interest at 6%,
    payable quarterly with all principal due October 18, 2002                         --         100,000
  Capital leases resulting from acquisitions, with aggregate
    monthly payments approximating $12,000 and bearing
    interest at rates between 9% and 11%; expiring
    through June, 2004                                                                --         355,537
  Note payable, fixed interest, quarterly payments
    final payment due May 21, 2004                                             1,207,155              --
  Note payable, fixed interest, equal monthly installments
    final payment due July 21, 2005                                              100,000              --
  Note payable, 8% interest, equal monthly installments
    final payment due January 1, 2008                                             92,715              --
  Convertible debentures, interest rates between 4% and 6%
    interest payable quarterly with principal due May 1, 2008                    584,410              --
  Note payable, fixed interest, equal monthly installments
    final payment due July 21, 2005                                               37,083              --
                                                                             -----------     -----------
                                                                               2,021,363       5,209,685
Less - current maturities                                                       (667,838)     (4,722,873)
                                                                             -----------     -----------
                                                                             $ 1,353,525     $   486,812
                                                                             ===========     ===========
</TABLE>

                                       55
<PAGE>
                             EBIZ ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     During 2001 borrowings under the line of credit were limited to 85% of
eligible accounts receivable and 50% of eligible inventory. The line of credit
was secured by all accounts receivable, inventory and property and equipment of
the Company. The term note was secured by property and equipment. These
borrowings contain various covenants which required, among other things, the
maintenance of certain working capital and financial ratios and limitations on
the declaration of dividends. In August 2001, Canopy assumed Finova's first
position lien by purchasing the $2,000,000 balance of the term note and the
approximately $350,000 balance of the LOC. Canopy reestablished access to
collected accounts receivable at that time, thereby allowing EBIZ cash for
operations.

     The aggregate maturities of indebtedness described above are as follows:
$667,838 in 2003; $661,426 in 2004; $63,291 in 2005; $17,457 in 2006; $17,457 in
2007 and $593,894 in 2008.

--------------------------------------------------------------------------------
                                     NOTE 7
                              CONVERTIBLE DEBENTURE
--------------------------------------------------------------------------------

     During the period ending June 20, 2002, holders of the secured promissory
notes totaling $591,000 (each a "DIP NOTE"), issued as debtor-in-possession
financing during the Chapter 11 cases, were permitted to exchange all or part of
the debt represented by a DIP Note for (i) shares of New Common Stock at the
price of $0.50 per share or (ii) a convertible secured promissory note (each a
"NEW NOTE" ) which provides for interest to accrue at various rates until the
maturity date which is seven years after the Effective Date. At maturity, all
principal and accrued interest will be due. For the period ending on the date
that is twenty-four months after the Effective Date, each holder of a New Note
may convert the amount of such New Note to shares of New Common Stock at the
conversion price of $0.50 per share. The total number of shares of New Common
Stock for which the DIP Notes may be exchanged directly for shares or converted
through the New Notes for shares is 1,182,000 shares which equals approximately
12.71% of the New Common Stock that may be issued under the Plan. A total of $
578,500 of the DIP Notes were exchanged for a New Note. In addition, the agent
for the holders of the DIP Notes, which also served as the financial advisor to
the Company in the debtor-in-possession financing transaction, will receive
118,200 Canopy/FFEC Warrants which if exercised equals approximately 1.27% of
the New Common Stock that may be issued under the Plan.

     In August, 1999 the Company completed a private placement of a $7.1 million
convertible debt facility (the "DEBENTURE"). In conjunction with the Debenture,
the Company issued warrants to acquire 245,000 shares of common stock at a
market-based exercise price as defined by the Debenture agreement. The warrants
were originally exercisable for the purchase of shares of common stock as
follows: 60,000 at $7.4723 per share, 60,000 at $8.6219 per share and 125,000 at
$6.3227 per share. The fair value of these warrants, as calculated by using the
Black-Scholes pricing model, was estimated to be approximately $796,000, using
the following weighted average assumptions: stock price of $7.625, risk free
interest rate of 5.63%, expected life of two years, a volatility factor of 80%
and a dividend yield of 0%, and is recorded as a debt discount in the
accompanying consolidated financial statements. Additional issuance costs of
approximately $197,000 were paid and recorded as deferred loan fees in the
accompanying consolidated financial statements. Discounts and deferred loan fees
are amortized using the straight-line method, which approximates the effective
interest method, as additional interest expense over the term of the loan.

     The Company received an initial infusion of $2.1 million as a result of
issuance of the Debenture, which was utilized to repay outstanding debt at June
30, 1999 and to provide working capital. The remaining $5.0 million was
deposited with a bank to collateralize a letter of credit issued as security for
the Debenture.

                                       56
<PAGE>
                             EBIZ ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     The Debenture is convertible, at the holder's option, into shares of the
Company's common stock over an 18 month period at approximately $394,000 per
month. The Company's ability to reduce the cash collateral and to have these
amounts available for working capital is contingent upon the holder converting
the Debenture or the Company's ability to pay down the Debenture with cash from
other sources. If the holder, at its discretion, converts the Debenture, the
Company could draw approximately $.70 for each $1 of Debenture principal
converted to fund operations. This ratio has been modified. The unconverted
balance, if any, of the Debenture and the unconverted accrued interest is due
February 24, 2002.

     The per share conversion price was initially equal to the lesser of (a)
$7.4953 or (b) the average of the three lowest closing bid prices of the
Company's common stock for the 15 consecutive trading days ending on the trading
day immediately preceding submission of a notice to convert by the holder. In
the event the closing bid price of the Company's common stock is less than
$7.4953 at any time during the five trading days preceding a due date, the
Company has the right to redeem for cash the monthly conversion amount of the
Debenture at premiums ranging from 105% to 108%.

     The Debenture required that the related shares of the Company's common
stock issuable upon conversion of the Debenture be registered under the
Securities Act of 1933 and the regulations of the SEC before the holder could
begin to convert the Debenture to common stock. The necessary registration was
initiated by the Company in October 1999 and became effective in February 2000.
As of June 30, 2001, the holder had accrued the rights to convert all the
outstanding principal of approximately $4.5 million of the principal of the
Debenture into shares of the Company's common stock.

     The Company recorded a beneficial conversion feature of approximately $3.6
million related to the issuance of the Debenture. The beneficial conversion
feature was based on the difference between the closing trade price and the
conversion price on the date of issuance on the portion of the Debenture that
was convertible, net of the proceeds allocated to the warrants. For the portion
of the Debenture not convertible upon issuance, the holder accrues the right to
convert over a period of 18 months.

     In February 2000, the Debenture was amended to reduce the conversion price
on accrued principal of $2,761,108 and interest of $140,203 to equal the lesser
of (a) $3.84 or (b) the average of the three lowest closing bid prices of the
Company's common stock for the 15 consecutive trading days ending on the trading
day immediately preceding submission of a notice to convert by the holder. In
March 2000, the Debenture was amended to change the formula on the variable
conversion price from the three lowest closing bid prices to the three lowest
trading prices in the 15 consecutive trading days ending on the trading day
immediately preceding submission of a notice to convert by the holder. In
connection with the amendments to the Debenture, the Company recorded additional
deferred loan fees of approximately $140,000, which are being amortized over the
remaining term of the Debenture that the holder accrues the right to convert.

     In July 2000, the Debenture was amended to reduce the conversion price of
$264,087 of principal to the lesser of (a) $1.00 or (b) the average of the three
lowest trade prices of the Company's common stock for the 15 consecutive trading
days ending on the trading day immediately preceding submission of a notice to
convert by the holder. In connection with the amendment to the Debenture, the
Company recorded additional deferred loan fees of approximately $170,000, which
are being amortized over the remaining term of the Debenture that the holder
accrues the right to convert.

     In connection with the February 2000 amendment, $500,000 of the cash
collateral was released by the holder. In connection with the July 2000
amendment, an additional $250,000 of cash collateral was released by the holder.

     Also, in conjunction with the July 2000 release of funds, the Company
issued warrants to acquire 125,000 shares of common stock at $2.00 per share.
The fair value of these warrants, as calculated by using the Black-Scholes

                                       57
<PAGE>
                             EBIZ ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


pricing model, was estimated to be approximately $125,000, using the following
weighted average assumptions: stock price of $1.56, exercise price of $2.00,
risk free rate of 6.48%, expected life of five years, a volatility factor of 80%
and a dividend yield of 0%, and is recorded as financing costs in the
accompanying consolidated financial statements. The remaining net cash
collateral is reflected as other restricted cash in the accompanying
consolidated financial statements.

     On October 19, 2000, the Debenture holder and the Company agreed to
additional modifications of the Debenture. The Company agreed to convert
$2,083,500 principal amount of the Debenture in exchange for 2.5 million shares
of the Company's common stock. The Debenture holder agreed to reduce the
collateral requirements under the Debenture by a total of $2,083,500
immediately, and by up to an additional $416,500, in two $208,250 increments
provided November and December net revenues equaled or exceeded certain
projected levels. Upon reduction of the collateral requirements, the outstanding
Debenture balance/letter of credit requirement ratio is to be reset and all
further reductions of Debenture principal will reduce the letter of credit
requirement by the amount of such ratio. The Company also agreed to reduce the
per share conversion ratio of the Debenture to the lesser of (a) $1.00 or (b)
the amount equal to the average of the lowest three trade prices of the
Company's common stock for the 15 consecutive trading days ending on the day
preceding the date of submission of a conversion notice, for an additional
$416,500 principal amount of the Debenture and to re-price the exercise price of
an existing outstanding warrant to purchase 245,000 shares to $4.00 per share.
The warrant was originally exercisable at $6.3227 per share for 125,000 shares,
$7.4723 per share for 60,000 shares and $8.6219 per share for 60,000 shares. The
fair market value of the re-priced warrant, as calculated by the Black-Scholes
pricing model, was estimated to be approximately $55,000, using the following
weighted average assumptions: stock price of $0.88, exercise price of $4.00,
risk free interest rate of 6.48%, expected life of 3.5 years, a volatility
factor of 80% and a dividend yield of 0%. In connection with the re-pricing of
the warrant, the Company recorded additional deferred loan fees of approximately
$55,000, which will be amortized as interest expense over the remaining term of
the Debenture.

     In connection with October 19, 2000 modification of the Debenture, the
Company issued warrants to purchase 850,000 shares of its common stock at $1.00
per share and 500,000 shares at $1.10 per share to The Canopy Group, Inc.
("Canopy"). In consideration for issuance of the warrants, Canopy purchased the
2.5 million shares issued upon conversion of the Debenture from the Debenture
holder. The fair value of these warrants, as calculated by the Black-Scholes
pricing model, was estimated to be approximately $740,000, using the following
weighted average assumptions: stock price of $0.84, risk free interest rate of
6.48%, expected life of five years, a volatitlity factor of 80% and a dividend
yield of 0%. In connection with the issuance of the warrants, the Company
recorded a charge to interest expense of approximately $740,000.

     On June 11, 2001, the Debenture holder withdrew the remaining approximately
$2,091,000 of the restricted cash. The cash withdrawn was used to reduce
outstanding interest of approximately $678,000 and principal of approximately
$1,413,000. The remaining principal balance of the debenture at June 30, 2001
was approximately $3,113,000.

     Interest payable to the holder has been accrued monthly since September
1999 with approximately $150,000 paid in cash, as required by the terms of the
Debenture, prior to the registration process. During February 2000,
approximately $140,500 of interest was converted into 36,546 shares of common
stock. An additional $8,200 of interest converted into 4,799 shares of common
stock during March through June 2000. The fair value of the Company's common
stock ranged from $6.90 to $1.92 on the dates of the interest conversions during
the period from February to June 2000. The Company recorded a beneficial
conversion feature on the conversion of interest for the period of February
through June of 2000 of approximately $86,000. Additionally, during February
through June 2000, approximately $429,000 of principal was converted to 222,683
shares. No conversions were made during July and August 2000. During September
2000, approximately $60,900 of principal and $3,293 of interest was converted
into 63,563 and 3,437 shares of common stock, respectively. The fair value of
the Company's common stock ranged from $1.06 to $2.13 on the dates of the
interest conversion in September 2000. The Company recorded a beneficial
conversion feature on the conversion of interest of approximately $2,000, which

                                       58
<PAGE>
                             EBIZ ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


is reflected as additional interest expense during the three months ending
September 30, 2000. As of June 30, 2001 the remaining balance of accrued
interest payable was approximately $14,585.

Under terms of our Plan, the outstanding amount of the Debenture was treated as
an unsecured debt and we are making payments in accordance with those terms. At
June 30, 2002 the balance of the note was $271,349 which will be paid in eight
equal quarterly installments. Also under the terms of the Plan, all of the
unexercised warrants discussed above were cancelled upon the Effective Date of
the Plan.

--------------------------------------------------------------------------------
                                     NOTE 8
                                  INCOME TAXES
--------------------------------------------------------------------------------

     The Company has cumulative net operating losses as of June 30, 2002, in
excess of $64 million. The Company's ability to utilize its net operating losses
to offset future taxable income may be limited under the Internal Revenue Code
Section 382 change in ownership rules. The Company has established a valuation
reserve as it has not determined that it is more likely than not that the
deferred tax asset is realizable.

The provision for income taxes for the year ended June 30, 2001 consists of the
following:

                                                  JUNE 30, 2002    JUNE 30, 2001
                                                  -------------    -------------
Current tax expense (benefit)                     $          --    $          --
Deferred tax expense (benefit)                               --               --
                                                  -------------    -------------
(Benefit) for income taxes                        $          --    $          --
                                                  =============    =============

Deferred income tax assets (liabilities) at June 30, 2001 consist of the
following:

<TABLE>
<CAPTION>
                                                           June 30, 2002    June 30, 2001
                                                           -------------    -------------
<S>                                                        <C>              <C>
Current deferred tax assets (liabilities):
  Reserves and other accruals                              $     500,000    $     830,000
  Valuation Allowance                                           (500,000)        (830,000)
                                                           -------------    -------------
     Total current deferred tax assets (liabilities)        $          --    $          --
                                                           =============    =============

Non-current deferred tax assets (liabilities):
  Amortization of goodwill                                 $          --    $      19,000
  Net operating loss carry forward                            20,740,000       23,790,000
  Valuation allowance                                        (20,740,000)     (23,809,000)
                                                           -------------    -------------
     Total non-current deferred tax assets (liabilities)              --               --
                                                           -------------    -------------
          Net deferred tax asset (liability)               $          --    $          --
                                                           =============    =============
</TABLE>

                                       59
<PAGE>
                             EBIZ ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------
                                     NOTE 9
                              STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------

REVERSE STOCK SPLIT

     Share amounts in the accompanying consolidated financial statements of the
Predecessor Company and notes to the consolidated financial statements give
retroactive effect to a one-for-ten reverse stock split effective June 1998.

CAPITALIZATION

     The Company amended its Articles of Incorporation in 1999 to authorize the
issuance of up to 70,000,000 shares of Class A common stock. In addition, the
Articles of Incorporation authorize the issuance of up to 5,000,000 shares of
preferred stock. The Board of Directors of the Company, at its sole discretion,
may establish par value, divide the shares of preferred stock into series, and
fix and determine the dividend rate, designations, preferences, privileges,
ratify powers, if any, and determine the restrictions and qualifications of the
shares of each series of preferred stock as established.

PREFERRED STOCK

     The Board of Directors has designated 100,000 shares of Series A
Convertible Preferred Stock, (Preferred Stock) and during fiscal 1999, the
Company issued 10,895 shares of Preferred Stock, at $100 per share. Net proceeds
from the issuance of Preferred Stock was approximately $869,000. These shares
have a liquidation preference of $100 per share, and are entitled to a $10 per
share cumulative, annual dividend, accrued quarterly commencing April 1, 1999,
and payable at the discretion of the Company. The Company, at its discretion,
may redeem the Preferred Stock whenever the price of its common stock is equal
to or greater than $9.00 per share 20 out of 30 consecutive trading days. Each
share of Preferred Stock may be converted, at the option of the holder into
common stock at a conversion rate of one share for every $6.00 of principal
converted. In addition, the Preferred Stock automatically converts into common
stock whenever the price of the Company's common stock is equal to or greater
than $13.50 per share 20 out of 30 consecutive trading days. During March
through May 2000, shareholders converted 3,305 shares of Preferred Stock to
55,086 shares of the Company's common stock. Upon the Effective Date of our
Plan, all shares of preferred stock were cancelled.

WARRANTS TO PURCHASE COMMON STOCK

     The Company had outstanding warrants, issued in connection with various
financing and consulting transactions.

As of June 30, 2002 the following groups of warrants were outstanding:

     Expiration Date             Exercise Price             Common Shares
     ---------------             --------------             -------------
     August - 2003                    0.65                      150,000
     May - 2003                       0.65                      150,000
     June - 2004                      0.65                      220,000
     May - 2005                       0.65                      372,046

                                       60
<PAGE>
                             EBIZ ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


As of June 30, 2001 the following groups of warrants were outstanding*:

     Expiration Date             Exercise Price             Common Shares
     ---------------             --------------             -------------
     February 2002                    7.20                        9,086
     December 2003                 3.00 - 8.25                  230,000
     August 2004                   6.32 - 8.62                  245,000
     November 2002                    1.00                       70,000
     July 2002                        2.00                      125,000
     August 2003                      2.00                       37,500
     March 2005                       0.88                      600,000
     December 2005                    1.10                    1,000,000
     March 2005                       1.10                    1,363,636
     April 2005                       1.10                    1,611,368
     October 2002                     1.10                      500,000
     October 2002                     1.00                      850,000
     January 2003                     0.375                   1,230,769
     January 2003                     0.47                    1,063,829

*Upon the Effective Date of our Plan, the above warrants outstanding as of June
30, 2001 were cancelled.

STOCK, WARRANTS AND OPTIONS ISSUED FOR CONSULTING SERVICES

     The Company records equity instruments that are issued for goods and
services at the fair value of the consideration received or the fair value of
the equity instrument issued, whichever is more readily determinable. The
Company utilizes the Black-Scholes pricing model to determine fair value.

     In November 2000, the Company issued 70,000 options to a consulting firm
for consulting services related to investor relations. The fair value of these
warrants, as calculated by using the Black-Scholes pricing model, was estimated
to be approximately $19,000, using the following assumptions: stock price of
$0.72, risk free rate of 6.48%, expected life of two years, a volatility factor
of 80% and a dividend yield of 0%. The warrants vested 100% upon issuance and
had an exercise price of $1.00.

     In December 2000, the Company issued 70,000 options to an individual for
consulting services related to strategic planning. The fair value of these
options, as calculated by using the Black-Scholes pricing model, was estimated
to be approximately $36,000, using the following assumptions: stock price of
$0.51, risk free rate of 6.48%, expected life of ten years, a volatility factor
of 80% and a dividend yield of 0%. The options vested 100% upon issuance and had
an exercise price of $2.00.

     In February and March 2001, the Company issued 230,000 and 131,600 shares
of common stock to two different consulting firms for consulting services
related to investor relations. The fair value of the common stock, determined by
using the fair market value of the stock on the date of Board of Director
approval, was determined to be $287,000 and $99,000 respectively.

     Under terms of our Plan, all of the unexercised warrants discussed above
were cancelled upon the Effective Date of the Plan.

     The Transition Management Team collectively has received 300,000 shares of
New Common Stock and warrants to purchase 300,000 shares of New Common Stock
(each a "TRANSITION WARRANT"). The terms of the Transition Warrants provide for
a one-year exercise period from the Effective Date and an exercise price of
$0.65 per share. Fifty percent of the total number of shares of New Common Stock

                                       61
<PAGE>
                             EBIZ ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


and Transition Warrants were distributed to members of the Transition Management
Team on May 21, 2002 with the balance distributed on August 19, 2002. The total
amount of New Common Stock issued directly to the Transition Management Team and
from exercise of the New Warrants equals approximately 6.45% of the New Common
Stock that may be issued under the Plan.

COMMON STOCK ISSUED FOR ADVERTISING

     In January, 2000 the Company entered into a Premier Advertiser Agreement
with CNET, Inc. Under the agreement, the Company became a part of CNET's
"PREMIER ADVERTISER" program for CNET's Linux Center and received advertising
for, and links to, the Company's Web site, TheLinuxStore.com. The term of the
agreement was through February 2001, subject to earlier termination. The Company
was required to purchase a minimum of $2 million of advertising under the
agreement during its stated term. Additionally, the Company paid an integration
fee equal to $1.2 million by issuing 240,000 shares of its common stock to CNET,
Inc. valued at the fair value of $5.00 per share on the date of the agreement.
This integration fee was recorded as prepaid advertising and was being amortized
over the term of the agreement. The advertising on the CNET Linux Center began
in February, 2000. The 240,000 shares of common stock issued are redeemable at
the discretion of the holder within one year of the signing of the agreement. As
of January, 2001, the expiration of the redemption provision, the shares were no
longer redeemable, therefore, the shares have been reflected as common stock as
of June 30, 2001.

     In May 2000, the Company negotiated the termination of the agreement. Under
the terms of the termination agreement, CNET is to release the Company from its
liabilities under the agreement upon the Company's registration of the 240,000
shares of common stock. Accordingly, the remaining balance of the integration
fee, $1,050,000, was expensed in the fourth quarter of fiscal 2000 and $501,000
was recorded as a liability for unpaid promotions pending release upon the
registration of the common stock.

CONVERSION OF DEBENTURES TO COMMON STOCK

     As a result of the merger with LinuxMall, we assumed convertible debentures
in the amount of approximately $2.6 million. These debentures were required to
convert into common stock ninety days after the date of the merger with
LinuxMall. The debentures converted into 2,508,410 shares of common stock on
January 3, 2001, at a conversion rate of $1.10.

SETTLEMENT OF ACCOUNTS PAYABLE WITH COMMON STOCK

     As part of the merger with LinuxMall, we agreed to settle a specific amount
of accounts payable owed to two vendors. In January 2001, we issued 303,287
shares of common stock in exchange for settlement of $156,375 of accounts
payable, at a conversion rate of $0.5156 per share.

--------------------------------------------------------------------------------
                                     NOTE 10
                              EMPLOYEE COMPENSATION
--------------------------------------------------------------------------------

401K PLAN

     The Company sponsors a defined contribution 401(k) Savings Plan for its
employees. Company contributions to the plan are discretionary and totaled
$9,899 and $23,036 for the years ended June 30, 2002 and 2001, respectively.

                                       62
<PAGE>
                             EBIZ ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


STOCK OPTION PLAN

     Our Board of Directors adopted, and our shareholders approved, effective
December 1998, the 1998 Equity Incentive Plan (the "ESOP"). In December 2000,
the Board of Directors amended the ESOP to increase the number of shares of our
common stock available under the ESOP. The purpose of the ESOP is to promote the
interests of our company and to motivate, attract and retain the services of
persons upon whose judgment, efforts and contributions the success of our
business depends. A further purpose of the ESOP is to align the personal
interests of such persons with the interests of our shareholders through equity
participation in our growth and success. The ESOP provides for granting options,
incentive stock options and restricted stock awards, or any combination of the
foregoing for up to 12,000,000 shares of our common stock. Our bankruptcy filing
has stayed the enforcement by an option holder of the terms of any unexercised
option grant. The effect of this is that no unexercised option can now be
exercised unless the Bankruptcy Court directs otherwise. As of June 30, 2001, a
total of 12,048,368 stock options were outstanding of which 8,250,353 were
vested under the ESOP. A total of 101,500 options to purchase shares under the
ESOP have been exercised.

Information with respect to stock options outstanding as of June 30, 2002, is as
follows:

                                                                     WEIGHTED
                                                                      AVERAGE
                                                      OPTIONS     EXERCISE PRICE
                                                    -----------   --------------
Options outstanding at July 1, 2000                     747,000    $       2.94
  Granted                                            11,301,368            0.61
  Exercised                                                  --              --
  Canceled                                                   --              --
                                                   ------------    ------------
Options outstanding at June 30, 2001                 12,048,368    $       0.75
                                                   ------------    ------------
  Granted                                                    --              --
  Exercised                                                  --              --
  Canceled                                           12,048,368            0.75
Options outstanding at June 30, 2002                         --    $         --
                                                   ============    ============
Options exercisable at June 30, 2002                         --
                                                   ============
Weighted average fair value per share
  of options granted                                               $         --
                                                                   ============

Under terms of our Plan, all outstanding options were cancelled upon the
Effective Date of the Plan, therefore no options were outstanding as of June 30,
2002.

                                       63
<PAGE>
                             EBIZ ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The following pro forma disclosures of net loss are made assuming the Company
had accounted for the stock options pursuant to the provision of SFAS No. 123,
Accounting for Stock-Based Compensation.

                                                 June 30, 2002    June 30, 2001
                                                 -------------    -------------
Net income (loss):
  As reported                                    $   7,595,406    $ (49,090,384)
  Pro forma                                      $   7,595,406    $ (52,050,412)
                                                 -------------    -------------
Income (loss) per common and common share equivalent:
  As reported - basic                            $        0.23    $       (2.32)
  As reported - diluted                          $        0.23    $       (2.32)
  Pro forma - basic                              $        0.23    $       (2.46)
  Pro forma - diluted                            $        0.23    $       (2.46)

The fair value of each option is estimated on the date of grant using the
Black-Scholes options pricing model with the following weighted average
assumptions used for grants during fiscal 2001: risk-free interest rate of
6.00%, expected life of one to five years, volatility factor of 80%, and an
assumed dividend yield of 0%. Upon the Effective Date of our Plan, all
outstanding unexercised options were cancelled.

--------------------------------------------------------------------------------
                                     NOTE 11
                          COMMITMENTS AND CONTINGENCIES
--------------------------------------------------------------------------------

OPERATING LEASES

     The Company leases an office and warehouse facility in Stafford, Texas.
Rental expense related to this lease was approximately $122,000. Aggregate
rental expense under noncancelable operating leases for the year ended June 30,
2001 was approximately $434,310. The aggregate future rental payments under
noncancelable operating leases are as follows:

               YEAR ENDING
                 JUNE 30:                                AMOUNT
               -----------                              ---------
                  2002                                    223,000
                  2003                                    206,000
                                                        ---------
                                                        $ 429,000
                                                        =========

LITIGATION

     In the normal course of its business, the Company is subject to certain
contractual obligations and litigation. In management's opinion, upon
consultation with legal counsel, there is no current litigation which will
materially affect the Company's financial position or results of operations.

                                       64
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURES

     On January 24, 2001 our principal independent accountant, Arthur Andersen
("AA"), resigned. AA issued a qualified opinion for our fiscal year 2000
financial statements, the last completed year for which AA rendered an opinion
for us. There was no disagreement with AA which precipitated its resignation,
and AA provided no reason or explanation for its resignation. Following the
resignation of AA, Semple & Cooper, LLP was selected and approved as our
principal independent accountant.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(a) OF THE EXCHANGE ACT

DIRECTORS AND EXECUTIVE OFFICERS

     The directors and executive officers of Ebiz are:

     NAME                     AGE      POSITION
     ----                     ---      --------
     Bruce Parsons             56      President, Chief Executive Officer,
                                       and Director
     Dan Baker                 41      Director
     Darcy Mott                50      Director
     Allan Smart               42      Director
     Michael G. Colesante      35      Chief Financial Officer

     BRUCE PARSONS, PRESIDENT, CHIEF EXECUTIVE OFFICER, AND DIRECTOR. Mr.
Parsons joined Ebiz as its President in January 2001 as a result of the
acquisition of JBSI. In early October 2001 he assumed the additional duties of
Chief Executive Officer. He is the former President of JBSI and has over 25
years of experience as an entrepreneur and in sales, marketing and strategic
management roles. He was an original co-founder of JBSI in 1979, and co-managed
the company through its acquisition by Decision Data Services, Inc. in 1986. In
1988, he co-founded and served as president of Prologue Technology, Inc., a UNIX
Systems Integrator. In 1989, Mr. Parsons became General Manager and Vice
President of the Western Pacific Data Systems Distribution Division as a result
of the acquisition of Prologue Technology by Western Pacific Data Systems.
Western Pacific Data Systems was in turn acquired by Microware Distributors in
1992. Mr. Parsons remained with Microware Distributors until 1993, when he
returned to JBSI. Mr. Parsons acted as JBSI President from 1993 to 1994, and
from 1995 to 1999 as Executive Vice President of Sales and Marketing. Mr.
Parsons was President of Ebiz at the time of its bankruptcy filing on September
7, 2001 and earlier during 2001 had served as a director of the company.

     DAN BAKER, DIRECTOR. Ebiz Enterprises, Inc. Director since June 20, 2002.
Prior to joining The Canopy Group, Inc. in 2000, Mr. Baker spent 12 years at
Novell, Inc. in a variety of finance positions spanning financial planning and
analysis, external financial reporting, regional controllership, risk
management, and treasury management. Mr. Baker currently serves as Director of
Finance of Canopy.

                                       65
<PAGE>
     DARCY G. MOTT has served as a director of the Company since June 2002. Mr.
Mott has served as Vice President, Treasurer and Chief Financial Officer of
Canopy, a management and resource company, since May 1999. Prior to joining
Canopy, Mr. Mott served as Vice President and Treasurer of Novell, a provider of
Internet business solutions, from December 1995 to September 1998 and prior to
serving in that position, Mr. Mott served in various other financial management
positions for Novell since September 1986. Mr. Mott worked for Arthur Andersen
LLP, a global provider of professional services from 1977 to 1986. Mr. Mott has
served as a member of the board of directors of Altiris, Inc., a software and
systems management company, since May 2000, of The SCO Group, Inc. a company
that provides Linux-based solutions, since March 2002 and of MTI Technology
Corporation, a mass storage and high availability company, since July 2002. Mr.
Mott also serves as a member of the board of directors of various privately held
companies. Mr. Mott is a certified public accountant and holds a B.S. degree in
Accounting from Brigham Young University.

     ALLAN SMART, DIRECTOR. Ebiz Enterprises, Inc. Director since June 20, 2002.
Mr. Smart joined The Canopy Group, Inc. as the Director of Business Development
in January of 2002. Prior to joining Canopy, he held the position of Executive
Vice President and board member for Lineo Korea, a joint venture between Samsung
and Lineo, Inc. Previously, he held the position of Director of Education
Services and Director of Technical Services at Caldera Systems. Mr. Smart
currently serves as Vice President of business development of Canopy.

     MICHAEL G. COLESANTE, CHIEF FINANCIAL OFFICER. Mr. Colesante joined Ebiz as
Chief Operating Officer in January 2001 and became Chief Financial Officer in
October 2001 responsible for all company accounting and finances. Prior to
joining Ebiz, he served as controller of JBSI beginning in January 1993 and as
Chief Financial Officer from 1995 until early January 2001. Mr. Colesante holds
a bachelor's degree in Accounting from New York State University. Mr. Colesante
served as Chief Operating Officer of Ebiz at the time of its bankruptcy filing
on September 7, 2001.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     The following information relates to reports under Section 16(a) of the
Exchange Act that were not timely filed by officers, directors and beneficial
owners of 10% or more of Ebiz's common stock during the fiscal year ended June
30, 2002. This information is based on a review of Section 16(a) reports
furnished to Ebiz.

     The Canopy Group, Inc. failed to file two reports on Form 4 for shares of
New Common Stock received under the terms of our Plan and comprising a total of
2,598,175 shares of New Common Stock, a total of 253,846 of Canopy/FFEC Warrants
and a total of 19,893 Unsecured Creditors Warrants.

     Bruce Parsons failed to timely file one report Form 4 for a total of 22,400
of New Common Stock and 22,400 of Transition Warrants received under the terms
of the Plan. The required Form 4 was filed on September 11, 2002.

ITEM 10. EXECUTIVE COMPENSATION

     The following table is based upon compensation for the fiscal years ended
June 30, 2002, 2001 for those individuals who served as executive officers
during the last completed fiscal year ending June 30, 2002.

                           SUMMARY COMPENSATION TABLE

                           FISCAL                ANNUAL
                            YEAR              COMPENSATION           AWARDS
                           ------          -------------------     ----------
                                                                   SECURITIES
                                                                   UNDERLYING
      NAME                                  SALARY       BONUS      OPTIONS
      ----                                 --------      -----     ----------
Bruce Parsons               2002           $115,125     $11,953      89,600(1)
President and               2001           $ 69,250     $15,938     478,179(2)
Chief Executive
Officer

Mike Colesante              2002           $109,207     $1,875        89,600(3)
Chief Financial             2001           $ 57,913     $  625       469,905(4)
Officer

Dave Shaw(5)                2002           $ 59,959     $8,614        78,400(6)
Chief Executive             2001           $110,416     $6,563       758,500(7)
Officer

Don Young                   2002           $109,081     $1,875        89,600(8)
Director of                 2001           $ 57,913     $  625       632,723(9)
Engineering

----------
(1)  Includes 44,800 shares of New Common Stock and 44,800 Transition Warrants
     issued as a member of the Transition Management Team under terms of our
     Plan.
(2)  Cancelled on the effective date of the Plan.
(3)  Includes 44,800 shares of New Common Stock and 44,800 Transition Warrants
     issued as a member of the Transition Management Team under terms of our
     Plan.
(4)  Cancelled on the effective date of the Plan.
(5)  Mr. Shaw served as CEO from October 2000 until October 2001.
(6)  Includes 39,200 shares of New Common Stock and 39,200 Transition Warrants
     issued as a member of the Transition Management Team under terms of our
     Plan.
(7)  Cancelled on the effective date of the Plan.
(8)  Includes 44,800 shares of New Common Stock and 44,800 Transition Warrants
     issued as a member of the Transition Management Team under terms of our
     Plan.
(9)  Cancelled on the effective date of the Plan.

                                       66
<PAGE>
DIRECTOR COMPENSATION

     All authorized out-of-pocket expenses incurred by a director on our behalf
are subject to reimbursement.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth, as of September 30, 2002, the ownership of
each person we know to be the beneficial owner of five percent or more of our
New Common Stock, each executive officer and director individually, and all
executive officers and directors as a group. We have been advised that each
person has sole voting and investment power over the shares listed below unless
otherwise indicated.

                                                    AMOUNT AND       PERCENT OF
NAME AND ADDRESS                                    NATURE OF        BENEFICIAL
OF BENEFICIAL OWNER                              BENEFICIAL OWNER     OWNERSHIP
-------------------                              ----------------     ---------
The Canopy Group, Inc.*
240 West Center Street
Orem, UT 84057                                      2,871,914(1)        82.09%

Bruce Parsons*
13715 Murphy Rd., Ste. D
Stafford, TX 77477                                     89,600(2)         2.56%

Mike Colesante*
13715 Murphy Rd., Ste. D
Stafford, TX 77477                                     89,600            2.56%

Dan Baker
333 South 520 West ste 300
Lindon, UT 84042                                    2,871,914(4)        82.09%

Darcy Mott
333 South 520 West ste 300
Lindon, UT 84042                                    2,871,914(5)        82.09%

Allan Smart
333 South 520 West ste 300
Lindon, UT 84042                                    2,871,914(6)        82.09%

All Directors and Executive Officers as a Group       179,200            5.12%

----------
(1)  INCLUDES WARRANTS EXERCISEABLE AT $.65 PER SHARE FOR 273,739 SHARES OF NEW
     COMMON STOCK.
(2)  INCLUDES WARRANTS EXERCISEABLE AT $.65 PER SHARE FOR 44,800 SHARES OF NEW
     COMMON STOCK.
(3)  INCLUDES WARRANTS EXERCISEABLE AT $.65 PER SHARE FOR 44,800 SHARES OF NEW
     COMMON STOCK.
(4)  MR. BAKER'S SHARES INCLUDE 2,871,914 SHARES HELD BY CANOPY. MR. BAKER
     DISCLAIMS BENEFICIAL OWNERSHIP OF THESE SHARES, EXCEPT AS TO HIS PECUNIARY
     INTEREST THEREIN.
(5)  MR. MOTT'S SHARES INCLUDE 2,871,914 SHARES HELD BY CANOPY. MR. MOTT
     DISCLAIMS BENEFICIAL OWNERSHIP OF THESE SHARES, EXCEPT AS TO HIS PECUNIARY
     INTEREST THEREIN.
(6)  MR. SMART'S SHARES INCLUDDE 2,871,914 SHARES HELD BY CANOPY. MR. SMART
     DISCLAIMS BENEFICIAL OWNERSHIP OF THESE SHARES, EXCEPT AS TO HIS PECUNIARY
     INTEREST THEREIN.

                                       67
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     THE CANOPY GROUP, INC. Canopy has participated in several transactions with
us and our subsidiaries during the past twelve months. In July 2000, Canopy made
a $500,000 loan to LinuxMall, and in August 2000 Canopy made a $500,000 loan
directly to us. Both loans were secured by assets of each respective company,
and the loan amounts were convertible into common stock of each respective
company. In late December 2000, these loans were combined into a single
six-month loan between Canopy and us in the amount of $1,041,780.82 which is
secured by our assets and is convertible into shares of our common stock. In
addition, a two-year warrant to purchase 1,230,769 shares of our common stock at
$.375 per share was issued to Canopy as part of the loan renewal.

     In October 2000, we entered into a stock and warrant purchase agreement
with Canopy and the holder of the Debenture whereby Canopy purchased 2,500,000
shares of our common stock from the Debenture holder obtained from conversion of
a portion of the Debenture into such shares of our common stock. In addition, we
issued to Canopy a five-year warrant to purchase 850,000 shares of our common
stock at $1.00 per share, and a five-year warrant to purchase 500,000 shares of
our common stock at $1.10 per share.

     In late January 2001, we negotiated a loan with Canopy in the amount of
$1,000,000 with interest accruing at 10% per annum and a maturity of October 29,
2001. Interest is payable quarterly on April 29 and July 29, 2001. Proceeds were
used for our general working capital needs. Canopy may elect to convert all or a
portion of the outstanding balance into our common stock should we default under
the terms of the secured convertible note.

     In early April 2001, we negotiated a revolving line of credit with Canopy
in the amount of $1,000,000 with interest accruing at 10% per annum and a
maturity of October 5, 2001. The purpose of the line of credit was to facilitate
the manufacture and assembly of computer clusters for LinuxNetworX, Inc.
("LNXI") customers pursuant to purchase orders received from LNXI. All of the
balance has been paid as of July 2001 from the proceeds of payments on invoices
made by LNXI customers and the line of credit has been terminated.

     JBSI ACQUISITION. In January 2001 we acquired JBSI under an agreement and
plan of merger whereby a newly created and wholly-owned subsidiary of ours was
merged into JBSI. By way of the agreement and plan of merger, shareholders of
JBSI and those with options to acquire shares of JBSI common stock received
shares of our common stock and options to acquire shares of our common stock,
respectively. In addition, employment agreements were executed between us and
several people in the company, four of which were formerly with JBSI. Therefore,
as a result of the agreement and plan of merger Bruce Parsons, President and
Chief Executive Officer, held a beneficial interest in 722,903 shares of our
common stock which were received under the agreement and plan of merger and
options to purchase an additional 478,178 shares of our common stock at various
prices. The option to purchase 278,178 shares of our common stock was obtained
pursuant to the agreement and plan of merger and the remaining option to
purchase 200,000 shares of our common stock was granted to Mr. Parsons per his
employment agreement. Mike Colesante, CFO, directly held 91,655 shares of our
common stock and options to acquire 378,250 shares of our common stock. The
option to purchase 278,250 shares of our common stock was obtained pursuant to
the agreement and plan of merger and the remaining option to purchase 100,000
shares of our common stock was granted to Mr. Colesante per his employment
agreement. As a result of our Plan confirmation, the employment contracts have
been extinguished . All of those individuals who were parties to those
employment contracts that are currently employed with us are employed on an
"at-will" basis. In addition, all shares of common stock and unexercised options
granted to those individuals have been cancelled.

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<PAGE>
     DEBTOR-IN-POSSESSION FINANCING. Following our bankruptcy filing on
September 7, 2001 and prior to the confirmation of our Plan on April 11, 2002,
we completed various transactions related to the financing of working capital
for our ongoing operations.

     On September 13, 2001 we entered into the Stipulation with Canopy which
allowed us to use 95% of the collections received from pre-petition accounts
receivable on which Canopy held a security interest. In exchange for this
agreement, we granted to Canopy a first lien security interest in all of our
post petition receivables, inventory and the proceeds thereof. In addition, we
may use 95% of the proceeds from all post petition accounts receivable and
inventory to operate our business. The remaining 5% is to be applied to the
outstanding balance of the debt owed to Canopy which approximates $4,100,000.
The Stipulation has provided some temporary relief for the cash flow challenges
we continue to experience.

     On September 24, 2001 we entered into the Secured Line with Caldera. Under
terms of the Secured Line, Caldera provided a $250,000 line of credit to
facilitate the purchase of product from Caldera. In exchange for the granting of
the line of credit, we executed a promissory note for $542,125.61 representing
the pre-petition debt owed to Caldera and granted a junior security interest in
all of our assets to Caldera to secure the promissory note and all amounts that
may become due and owing under the line of credit.

     On November 8, 2001 we entered into the Dealer Loan with Textron, and the
LOC with Canopy. Under the terms of the Dealer Loan, Textron provided to us
credit and financing in the amount of $500,000 to facilitate the purchase of
goods and inventory on favorable terms from our suppliers. This has provided
assistance in filling orders from our clients and meeting the demand for our
products. Under the LOC, Canopy has provided a $500,000 letter of credit to
secure the credit extended by Textron under the Dealer Loan.

     FINANCING POST CONFIRMATION OF OUR PLAN. On May 14, 2002 we entered into a
line of credit loan agreement with Canopy. Under the terms of the agreement
borrowings under the line of credit are limited to the lesser of $500,000 or 85%
of eligible accounts receivable. The line of credit is secured by all accounts
receivable, inventory and property and equipment of the Company. In an amendment
dated September 4, 2002 the total available under the line was increased to
$700,000.

     Our general policy for entering into transactions with our directors,
officers and affiliates that have a financial interest in the transaction is to
adhere to Nevada corporate law regarding the approval of such transactions. In
general, a transaction between a Nevada corporation and a director, officer or
affiliate of the corporation in which such person has a financial interest is
not void or voidable if the interest is disclosed and approved by disinterested
directors or shareholders or if the transaction is otherwise fair to the
corporation.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

EXHIBITS

     2.1(1)         Asset Exchange Agreement by and among Genras, Jeffrey I.
                    Rassas, Vinculum and Aztore Holdings, dated as of March 18,
                    1998.

     2.2(6)         Amended Joint Plan of Reorganization dated January 4, 2002
                    and three immaterial modifications to Amended Joint Plan of
                    Reorganization

     3.1(1)         Articles of Incorporation

     3.2(1)         Certificate of Amendment to Articles of Incorporation

     3.3(1)         Second Certificate of Amendment to the Articles of
                    Incorporation

                                       69
<PAGE>
     3.4(1)         Certificate of Designation / Resolution of Designation -
                    Series A 10% convertible Preferred Stock

     3.5(1)         Bylaws

     10.1(1)        Office Building Lease, dated April 16, 1999, between Ebiz
                    and Van Wagner Properties

     10.2(1)        1998 Equity Incentive Plan, Effective December 23, 1998

     10.3(1)        Securities Purchase Agreement dated as of August 25, 1999,
                    by and between JEM Ventures Ebiz, LLC ("JEM") and Ebiz.

     10.4(1)        Subordinated Convertible Debenture, dated August 25, 1999,
                    in the amount of $7,100,000, made by Ebiz in favor of JEM

     10.5(1)        Warrant to Purchase Common Stock, dated August 25, 1999,
                    issued by Ebiz to JEM, for 245,000 shares

     10.6(1)        Registration Rights Agreement, dated as of August 25, 1999,
                    by and between Ebiz and JEM, LLC

     10.7(2)        OEM Agreement between Corel Corporation and Ebiz, dated
                    September 13, 1999

     10.8(3)        Stock Exchange Agreement dated March 22, 2000, between Ebiz,
                    InfoMagic, Inc. and Joel and Kim Goldberg

     10.9(3)        Registration Rights Agreement dated March 22, 2000, between
                    Ebiz and Joel and Kim Goldberg

     10.10(3)       Purchase and Sale Agreement, dated September 15, 2000,
                    between Ebiz and Caldera Systems, Inc. ("CALDERA")

     10.11(3)       Investor Rights Agreement, dated September 15, 2000, between
                    Ebiz and Caldera

     10.12(3)       Use Restriction Agreement, dated September 15, 2000, between
                    Ebiz and Caldera

     10.13(3)       Shareholder Voting Agreement and Proxy, dated September 15,
                    2000, between Ebiz and Caldera

     10.14(3)       Agreement and Plan of Merger, dated August 7, 2000, between
                    Ebiz, LinuxMall.com, Inc. ("LINUXMALL") and LinuxMall
                    Acquisition, Inc. ("MERGER SUB")

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<PAGE>
     10.15(3)       First Amendment to Agreement and Plan of Merger, dated
                    October 3, 2000, between Ebiz, LinuxMall and Merger Sub

     10.16(3)       Registration Rights Agreement, dated October 5, 2000 between
                    Ebiz, LinuxMall and Merger Sub

     10.17(4)       Shareholder Voting Agreement and Proxy, dated October 5,
                    2000 by Jeffrey J. Rassas

     10.18(4)       Shareholder Voting Agreement and Proxy, dated October 5,
                    2000 by Stephen C. Herman

     10.19(4)       Compensation Agreement, dated October 5, 2000, between Ebiz
                    and LinuxMall

     10.20(5)       Agreement and Plan of Merger, dated November 17, 2000,
                    between Ebiz, JBSI and JBSI Acquisition, Inc. ("JBSI
                    ACQUISITION")

     10.21(5)       First Amendment to Agreement and Plan of Merger, dated
                    December 22, 2000, between Ebiz, JBSI and JBSI Acquisition

     10.22(5)       Second Amendment to Agreement and Plan of Merger, dated
                    January 3, 2001, between Ebiz, JBSI and JBSI Acquisition

     10.23(5)       Shareholder Voting Agreement and Proxy, dated December 28,
                    2000, between, Ebiz and Caldera, Hayjour Family Limited
                    Partnership, Jeffrey I. Rassas, Kona Investments Limited
                    Partnership, Stephen C. Herman, MV3LP, LLLP, Mark Bolzern,
                    Bomar Shaw Family Trust, LLC, Dave Shaw, Bruce Parsons, the
                    Stephen P. and Roberta G. Shadle Trust, Steve Shadle, Scott
                    Shadle, Nick Futter, Don Young, Dave Colesante and Mike
                    Colesante

     10.24(5)       Registration Rights Agreement, dated January 4, 2001,
                    between Ebiz and various former shareholders of JBSI

     10.25(5)       Lock-Up Agreement, dated November 28, 2000, between Ebiz and
                    various former shareholders of JBSI

     21.1           Subsidiaries

     99.1           Certification pursuant to 18 U.S.C. Section 1350, as adopted
                    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

     99.2           Certification pursuant to 18 U.S.C. Section 1350, as adopted
                    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

                                       71
<PAGE>
----------
(1)  INCORPORATED BY REFERENCE FROM EBIZ'S FORM 10-SB AS FILED WITH THE
     SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 19, 1999.
(2)  INCORPORATED BY REFERENCE FROM EBIZ'S FORM 10-SB/A (AMENDMENT NO. 2) AS
     FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 30, 1999.
(3)  INCORPORATED BY REFERENCE FROM EBIZ'S FORM 10-KSB AS FILED WITH THE
     SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 13, 2000.
(4)  INCORPORATED BY REFERENCE FROM EBIZ'S FORM 8-K AS FILED WITH THE SECURITIES
     AND EXCHANGE COMMISSION ON OCTOBER 20, 2000.
(5)  INCORPORATED BY REFERENCE FROM EBIZ'S FORM 8-K AS FILED WITH THE SECURITIES
     AND EXCHANGE COMMISSION ON JANUARY 19, 2001.
(6)  INCORPORATED BY REFERENCE FROM EBIZ'S FORM 8-K AS FILED WITH THE SECURITIES
     AND EXCHANGE COMMISSION ON APRIL 24, 2002.

REPORTS ON FORM 8-K

Form 8-K filed April 24, 2002 regarding confirmation of the Amended Joint Plan
of Reorganization dated January 4, 2002 by the Federal bankruptcy court in
Phoenix, Arizona.

                                       72
<PAGE>
     In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                        EBIZ ENTERPRISES, INC.


Dated: October 15, 2002                 By /s/ Bruce Parsons
                                           -------------------------------------
                                           Bruce Parsons, President & Chief
                                           Executive Officer


                                        BOARD OF DIRECTORS


Dated: October 15, 2002                 By /s/ Bruce Parsons
                                           -------------------------------------
                                           Bruce Parsons, Director


Dated: October 15, 2002                 By /s/ Dan Baker
                                           -------------------------------------
                                           Dan Baker


Dated: October 15, 2002                 By /s/ Darcy Mott
                                           -------------------------------------
                                           Darcy Mott


Dated: October 15, 2002                 By /s/ Allan Smart
                                           -------------------------------------
                                           Allan Smart

                                       73
<PAGE>
                                 CERTIFICATIONS


I, Bruce Parsons, certify that:

1. I have reviewed this annual report on Form 10-KSB of Ebiz Enterprises, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.


Dated October 15, 2002                  By: /s/ Bruce Parsons
                                            ------------------------------------
                                            Bruce Parsons
                                            President & Chief Executive Officer


I, Mike Colesante, certify that:

1. I have reviewed this annual report on Form 10-KSB of Ebiz Enterprises, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.


Dated October 15, 2002                  By: /s/ Mike Colesante
                                            ------------------------------------
                                            Mike Colesante
                                            Chief Financial Officer