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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB/A
(AMENDMENT NO. 2)
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
iBIZ TECHNOLOGY CORP.
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(Exact name of registrant as specified in its charter)
Florida 86-0933890
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1919 West Lone Cactus, Phoenix, Arizona 85021
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (623) 492-9200
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Securities to be registered under Section 12(b) of the Act:
None
Securities to be registered under Section 12(g) of the Act:
Common stock, $.001 par value per share
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PART I
DESCRIPTION OF BUSINESS
iBIZ HISTORY
iBIZ Technology Corp. (the "Company" or "iBIZ") was originally
incorporated under the laws of the State of Florida in 1994. From its
incorporation through December 31, 1998, the Company operated as a development
stage company with no operations or revenues while it sought to identify a
strategic business combination with a private operating company. To facilitate
the acquisition of a private company doing business outside of its initial
purpose upon incorporation, the corporation changed its name to EVC Ventures,
Inc. in May 1998 and to INVNSYS Holding Corporation in October 1998.
Effective January 1, 1999, the Company entered into a Plan of
Reorganization and Stock Exchange Agreement with INVNSYS Technology Corporation
("INVNSYS") and various shareholders of INVNSYS (the "Reorganization"). As a
result of the Reorganization, INVNSYS became a wholly-owned subsidiary of the
Company. On February 1, 1999, INVNSYS Holding Corporation changed its name to
iBIZ Technology Corp.
While operating as a development stage company, the Company's
officers and directors were not compensated for their services. From
incorporation through December 31, 1994, Mr. Julio A. Padilla served as
President and sole Director. Mr. Eric P. Littman served as President and sole
Director from January 1, 1995 through July 9, 1998. Thereafter, Mr. John Xinos
served as President, Secretary, and Treasurer from July 10, 1998 through
December 31, 1998. Messrs. Padilla, Littman and Xinos are no longer involved in
the management of iBIZ and are believed not to be shareholders.
The Company conducts business solely through its operating
subsidiary INVNSYS. For the convenience of the reader, hereinafter, this Form
10-SB/A will refer to the parent company as iBIZ and the wholly-owned operating
company as INVNSYS.
INVNSYS (formerly known as SouthWest Financial Systems, Inc.)
was founded in 1979. Under the direction of INVNSYS' founder, Kenneth Schilling,
the company initially focused on distributing front-end bank branch automation
computer systems for networking applications. INVNSYS acted as a regional
distributor for SHARP Electronics ("SHARP"), a privately held Japanese
manufacturer of computers and electronic devices. In addition, INVNSYS also
distributed the products of Billcon Company, Ltd., and Glory, manufacturers of
bank automation and money processing systems.
In 1985, INVNSYS became a master distributor of SHARP products
and acquired the exclusive rights to distribute SHARP products to financial
institutions in the western United States. Between 1987 and 1990, INVNSYS won
various awards from SHARP for outstanding sales performance. Also during this
time, INVNSYS began to participate in the design of computer systems for
financial institutions. In cooperation with Wells Fargo Bank and SHARP,
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INVNSYS produced the first plain paper facsimile machine in 1990.
In 1992, INVNSYS began to design and build its own computer
systems, focusing on integrated systems for the banking industry. In 1993,
INVNSYS terminated its relationship with SHARP and focused on developing its own
products. In approximately 1994, INVNSYS began working in conjunction with Epson
America ("Epson"), a leading manufacturer of point-of-sale computer products, in
the development of products for the banking industry. For example, INVNSYS
designed a software program which enabled Epson transactional printers to
produce cashier's checks, an industry innovation. In addition, in cooperation
with Epson, INVNSYS designed and marketed a stackable computer system for
financial institutions. In 1996, INVNSYS produced its first entry into the
market for complete computer systems with its Vision 2000 Multimedia
Notestation, an Intel Pentium-based computer/printer combination. In October
1998, INVNSYS began to market its current line of business transaction
computers, the iT series.
iBIZ's principal offices are located at 1919 West Lone Cactus,
Phoenix, Arizona 85021. iBIZ maintains a website at www.ibizcorp.com. The
information on the website should not be considered part of this Form 10-SB/A.
PRODUCTS
INVNSYS engages in the business of designing, manufacturing
and distributing small-footprint desktop computers, transaction printers,
general purpose financial application keyboards, numeric keypads, cathode ray
tube ("CRT") and liquid crystal display ("LCD") monitors and related products.
INVNSYS also markets a line of original equipment manufacturer ("OEM") notebook
computers and distributes a line of Epson transactional printers.
INVNSYS' continued success is dependant upon the introduction
of new products and the enhancement of existing products. INVNSYS is actively
engaged in the design and development of additional computers and peripherals to
augment its present product line. Currently, INVNSYS designs many of its
products in-house. INVNSYS employs a four-person product design and development
staff which is managed directly by Kenneth Schilling. During 1998, INVNSYS did
not incur costs specifically allocated to research and development. During
fiscal 1999, INVNSYS spent Five Thousand Fourteen Dollars ($5,014.00) on
expenses directly allocated for research and development. Although for financial
accounting purposes INVNSYS has historically not allocated any significant
expenses to research and development because its equipment manufacturers
actually implement the innovations of senior level management of INVNSYS, iBIZ
considers salaries paid to senior level management involved in product design
and development as costs related to research and development.
Because of the rapid pace of technological advances in the
personal computer industry, INVNSYS must be prepared to design, develop,
manufacture and market new and more powerful hardware products in a relatively
short time span. While INVNSYS believes that it has been successful to date in
accomplishing that goal, there can be no assurance that it will continue
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to do so in the future.
Business Application Small Footprint Computers
INVNSYS believes its iT-8000 has the smallest footprint of any
desktop personal computer in the industry. (A "footprint" is the amount of desk
space the computer terminal covers.) The iT-8000 provides the convenience of a
small footprint and the power of a traditional desktop unit. The iT-8000's
compact dimensions allow it to be installed in areas where the physical space
available to install a computer is limited. These applications include corporate
workstations, branch bank teller platforms, supermarkets and other retail
point-of-sale ("POS") machines. The iT-8000 is also suited to other
space-conscious settings such as a hospital patient bedside.
Standard features include extra serial ports for attaching
peripheral devices such as magnetic card readers or check readers and a built-in
LAN connection. Currently, the iT-8000 may be configured with Intel Pentium
processors with MMX Technology (75Mhz through 233Mhz), from 2 to 256 megabyte
("MB") random access memory ("RAM"), a standard 2.5" hard drive, providing
current industry capacity of up to 13 gigabyte ("GB"), and 10.4", 12.0" or 13.3"
color LCD panels.
Personal Computers
Capitalizing on its knowledge and success in designing
computer systems for the financial institution industry, INVNSYS has expanded
its product line to include personal home computers.
Sahara. The Sahara Databook is a small footprint desktop
computer which integrates optional Intel Pentium II/III processor power,
simplified networking and sophisticated manageability features into a compact
form. INVNSYS believes its flexible design allows original equipment
manufacturers ("OEMS") to deliver a range of uses, from a fully-featured
corporate workstation to a stripped-down network personal computer. The Sahara
is sold in four basic configurations, each allowing customers to pick the
options most suitable for their purposes.
Safari. The Safari is a small footprint computer with a full
array of local area network ("LAN"), P.O.S., entertainment and internet
applications. The Safari is offered with a range of processors including Intel
Pentium, Cyrix, IBM, and AMD, may provide up to 256 MB RAM, and can be equipped
with an optional LCD panel, 20X Slim Size CD-ROM drive and a 3D full duplex
sound module.
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Keyboards
Historically, INVNSYS has designed and marketed a range of
keyboards and numeric keypads for financial institutions. Such products
currently include the Geno 628 data pad, the Serial data numeric-only key pad,
the ACK-540GP keyboard, and the TV-3682, a space-efficient keyboard designed for
bank branch teller applications. The TV-3682 is encoded with a proprietary
software which allows the keyboard to be used with any computer without the need
to install a driver. To aid numeric input, the numeric pad is given prominence
over the alpha pad. The TV-3682 also incorporates a touchpad mouse with no
moving parts, which saves space and improves reliability.
Capitalizing on the expanding market for powerful, handheld
organizers, INVNSYS recently introduced its KeySync Keyboard ("KeySync"). The
KeySync directly connects to all Palm devices, including the Palm5, PalmPilot
and PalmIII produced by 3COM, and allows users to more easily input data into
their organizers. The KeySync is integrated with the Palm products through
KeyLink software, exclusively designed for and licensed to INVNSYS.
The KeySync's dimensions are 10" x 4-1/2" x 1-1/4" (LxWxH),
and offers a sixty-two (62) key keyboard, six (6) programmable function keys and
uses three (3) "AAA" batteries to minimize draining the Palm's battery. In
addition to Palm products, future KeySync releases may also be used as an input
device to function with the Casio Cassiopeia, Everex Freestyle, and Philips Nino
Palm PC handheld organizer product lines.
Palm Pilot Accessories
INVNSYS recently began selling a foldable cradle to hold the
various Palm Pilot products. Management believes this cradle is easier to use
than the products offered by competitors. INVNSYS also began selling a 12-volt
power adapter to enable recharging of the batteries used in the Palm Pilot in a
vehicle's cigarette lighter.
Displays and Monitors
INVNSYS also offers a line of space-saving, zero-emission LCD
flat panel displays under the name "iView." INVNSYS believes these LCD monitors
provide superior viewing angles, graphic display and brightness over
conventional monitors while consuming less energy. Moreover, LCD panels do not
flicker like conventional CRT monitors, thus reducing eye strain and user
fatigue. INVNSYS' LCD panels take up less than one-tenth of the space needed for
an equivalent cathode ray tube ("CRT") monitor and are some of the thinnest
available on the market. INVNSYS believes that the flat LCD panel gives the
monitor a competitive edge over conventional CRT products by providing
equivalent screen sizes in less space.
The computer industry is currently experiencing a shortage of
LCD panels. To
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date, INVNSYS has been able to obtain adequate supplies of LCD panels and has
not experienced any significant production delays as a result of the shortage.
However, if the shortage continues and INVNSYS' demand increases, INVNSYS may
experience difficulties in meeting customer demand.
INVNSYS also offers a range of conventional CRT monitors in
sizes 14 to 21 inches with digital controls.
Planned Product Introductions
Thin-client Terminals. Presently, INVNSYS is developing a line
of "thin-client" computers. Thin-client computers are scaled down devices with
limited memory and no local storage capability designed to be integrated with a
centralized server. In a thin-client environment, network software applications
remain on the server, while the terminal functions as the gateway to the system.
INVNSYS believes thin-client systems offer increased manageability and better
security as all applications run on the server and not the terminal.
INVNSYS' thin-client computer, the iTerm-8000 (a derivative of
the iT-8000), will support up to a 233 Mhz processor, 128 MB RAM, optional
floppy and hard drives, and offers an attached LCD monitor. The iTerm 8000 will
come with Citrix Systems, Inc. ("Citrix") Independent Computing Architecture
("ICA") as the server application which will be compatible with Citrix MetaFrame
and WinFrame software.
iT-9000. INVNSYS is currently developing a new small footprint
Pentium II/III computer with attachable LCD monitor, currently called the
iT-9000. The iT-9000 combines numerous technologies into less than one
square-foot of desktop space. As a highly flexible, open-architecture platform,
the iT-9000 can be configured for multiple computing roles. The iT-9000 will
provide functions for visual Internet access, in-home video monitoring, family
message center, home security, home control and high-resolution television
reception. INVNSYS believes that by eliminating the necessity of assembling
numerous electronic components, the iT-9000 will present an all-in-one solution
to office desktop overcrowding. With its optional under-cabinet mounting,
INVNSYS believes the iT-9000 will provide a solution to extremely limited home
and office work areas.
The iT-9000 will offer a flip-down LCD panel, and will utilize
the latest Pentium III processor technology. The iT-9000 is undergoing final
product evaluation and has an anticipated consumer delivery slated for the
fourth quarter of 1999 or the first quarter of 2000.
Lapboard. INVNSYS is also in the final stages of development
of a wireless keyboard to be marketed under the name "Lapboard." This keyboard
incorporates RF wireless technology and is suitable for a variety of
applications including general computing, Web TV and Dish Technology. The
Lapboard is ergonomically designed and features an elevated palm rest allowing
the hands to be in a more natural position above the alpha keys, thus
alleviating stress on the wrist. In addition, the Lapboard will offer a "bottom
case" contoured for the user's
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lap. INVNSYS has incorporated several flexible design elements into the
Lapboard, such as an interchangeable pointing device for users who prefer a
trackball instead of the standard mouse touchpad. A joystick module and a
sixteen (16) key programmable keypad have also been designed as interchangeable
elements. INVNSYS currently anticipates full production of the keyboard for a
November 1999 delivery.
OEM Notebook Computers
In addition to designing its own products, INVNSYS also offers
a complete line of competitively priced, build-to-order notebook computers
manufactured by Twinhead Corporation ("Twinhead") and marketed under the name
"iBook." Currently, INVNSYS offers three (3) notebook models, the Apache,
Phoenix and RoadRunner.
RoadRunner. INVNSYS believes the RoadRunner offers powerful
computing power in a lightweight design. At only 1" high and 3.7 pounds, the
RoadRunner is half the weight of most competing notebooks.
The RoadRunner offers Intel Pentium processors with MMX
Technology up to 366Mhz, as well as Pentium III processors, a built in 56k
fax/modem, external FDD/24X CD-ROM module or DVD drive, a full size keyboard and
a full 12.1" TFT screen offering resolution as high as 800 x 600 pixels. The
RoadRunner offers 32 MB of memory, which can be upgraded to 160 MB. Utilizing
Twinhead's patented (pending) battery auto calibration system and the notebook's
Advanced Configuration and Power Interface ("ACPI") power management standard,
which automatically monitors and optimizes battery use, the RoadRunner provides
up to 2.5 hours of full battery usage.
Apache. The Apache offers high performance in an ultra-slim
(1.54 mm high), compact unit. Models have a range of central processing units
("CPU's") from the Celeron MMC1 366Mhz to the fastest of mobile processors, the
Dixon Pentium II MMC1 400Mhz. The Apache has a 16-bit stereo sound system with
built-in stereo speakers and microphone supporting full-duplex sound, a 3D
graphics system with 2 MB of video RAM operating over a 64-bit memory bus and a
built-in 24X CD-ROM, which is interchangeable with a 2X DVD-ROM drive. The
Apache offers resolution as high as 1024 x 768 pixels with its 13.3" (XGA) or
12.1" (SVGA) built-in TFT screen.
The Apache can be installed with up to 256 MB of memory using
industry-standard Synchronous Dual in-line Memory Modules ("SO DIMM"). To
improve slow input/output, the Apache also features a fast hard disk drive, an
optional built-in 56 Kbps modem and a 32-bit CardBus PC card drive. The Apache
also offers an infrared port which allows wireless file transfer and printing to
other infrared-enabled systems.
INVNSYS believes power saving is a major concern for notebook
users. To address this issue, the Apache offers a processor which consumes up to
forty percent (40%) less energy than a comparable desktop processor. In
addition, the Apache has numerous user-
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controlled power management routines including suspend to RAM and suspend to
disk. The Apache comes with Twinhead's patented (pending) battery auto
calibration system, which monitors and optimizes battery use automatically.
Using ACPI in tandem with battery auto calibration, battery life can be extended
to more than three (3) hours on one charge. The battery will automatically
recharge in approximately four (4) hours when the AC adapter is plugged in and
the notebook is in suspend mode.
INVNSYS believes the Apache is designed to be user friendly.
It offers OSD (On-Screen Display), which allows the user to see volume and
brightness changes as made. Screen brightness can be changed with special hot
keys. The modular 9.5 mm hard disk drive may be removed, thus allowing users to
switch hard disk drives quickly and keep data secure.
Phoenix. INVNSYS believes the Phoenix is a desktop computer
replacement, providing the user with accelerated graphics in a portable package.
This notebook is designed to provide all the functions of a powerful desktop
multimedia system in a compact, lightweight notebook format. The Phoenix weighs
6.8 pounds and measures 12.2" x 9.8" x 1.6" (LxWxH). INVNSYS believes it is
slimmer and lighter than most other notebooks while providing superior
performance and convenience.
The Phoenix utilizes the latest Intel Pentium II 300 to 400
MHz processors. The notebook features a 10 GB hard disk drive, an optional
built-in 56 Kbps modem, two (2) PC Card slots with integrated CardBus and Zoomed
Video, an infrared port and a built-in 24X CD-ROM, which is interchangeable with
a 2X DVD-ROM drive.
The Phoenix incorporates the latest 2X AGP-bus interface,
which is four (4) times faster than the fastest PCI-bus. In addition, the
Phoenix offers 4 MB of video RAM operating over a 64-bit memory bus, a VGA chip,
and a hardware DVD accelerator with MPEG II support which allows users to watch
full-screen video without dropping frames.
The Phoenix may be configured with a 1024 x 768 pixel built-in
13.3" or 14.1"(XGA) FTF screen and may be connected to an external monitor or
television via built-in ports.
For sound applications, the Phoenix offers the ESS Maestro-2M
PCI, which is the latest industry standard, is compatible with the 16-bit Sound
Blaster Pro, and supported by Microsoft DirectAudio and Direct 3D for use in
Windows NT 5.0 or Windows 98 systems. It features integrated 3D audio effects as
well as dual channel full duplex operation.
The Phoenix comes with an Intel MMC2 CPU module, which allows
for easy upgrades. In addition, the notebook's modular design allows for several
configurations. The notebook may be configured with anywhere from 32 to 256 MB
of RAM. The modular hard disk drive may be removed and replaced with an
alternate drive. Users also have the choice of 24X CD-ROM or 2X DVD-ROM,
depending on their needs. Also available in the Phoenix is an LS-120 drive,
which reads and writes to 120MB Superdisks as well as standard 3.5" floppy
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disks. An additional expandability option for the Phoenix is the proprietary
port replicator, which duplicates all of the connectors that are available on
the rear side of the notebook and adds one extra PS/2 port, one stereo line-out
connector and a Game/MIDI port.
For communications, the Phoenix offers an optional 56 Kbps
fax/modem which facilitates dial-up networking, a full duplex sound system and
built-in microphone and stereo speakers which allow the Phoenix to be installed
with voicemail and speakerphone functions. Network connections are possible
through a 32-bit CardBus slot. In addition, the Phoenix offers an infrared port
which allows wireless file transfer and printing to other infrared-enabled
systems.
The Phoenix supports all the new functions provided with the
Windows 98 operating system. Power management is optimized with an advanced
power management system. Whenever the notebook's processor is not operational
for a short time, the processor becomes idle so that it consumes less power.
When the processor resumes working, it returns to full speed almost
instantaneously with no loss of performance. The Phoenix also supports
Twinhead's patented (pending) battery auto calibration system, which monitors
and optimizes battery use at the touch of a key, ensuring longer battery life.
Epson Computers and Peripherals
INVNSYS is an authorized distributor of Epson computers and
peripherals. INVNSYS distributes the Epson TM-U325, a low cost, high speed
transaction printer. In addition, INVNSYS distributes the Epson TM-U375, a high
speed transaction printer which has the ability to prepare and print cashier's
checks and money orders, including signatures. Management believes this feature
is not available in competing products and the inclusion of this product
increases INVNSYS' ability to offer proprietary products in the marketplace.
Currently, INVNSYS distributes refurbished models of Epson's
iT-U375, a combination computer/printer. This hybrid offers a computer in the
base of a transaction printer, thereby reducing the space required for
operation. Originally manufactured for the retail POS market, INVNSYS currently
utilizes this product in financial institution applications.
INVNSYS intends to market an internet service provider
offering a reduced monthly rate for customers who purchase INVNSYS' hardware or
peripherals. Many of INVNSYS' competitors presently offer similar services.
Management believes this Internet service will expand its ability to market and
sell its hardware products without suffering any significant decrease in
margins. However, there is no assurance that competitor's aggressive price
reductions through implementation of a similar strategy will not negatively
impact the overall profitability of INVNSYS or that the Internet service will be
effectively implemented.
SERVICES
INVNSYS recently started a new line of business through hiring
Rick A.
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Christopher as Chief Technology officer. Mr. Christopher has network integration
service accounts with American Express and Motorola. INVNSYS plans to expand its
network integration servicing business as the market permits.
MARKETING, SALES AND DISTRIBUTION
INVNSYS markets and distributes products directly to end users
through a direct sales force, regional re-sellers, value-add providers in the
banking and POS market and Internet commerce sites. INVNSYS has a direct sales
force of six (6) employees, directed by Mr. Schilling, who market INVNSYS'
products to financial institutions.
In addition to direct sales, INVNSYS also sells its full range
of products directly to retail customers through its website at
www.ibizcorp.com. The website is linked to an Online Consumer site on Yahoo!
Recently, INVNSYS entered into an agreement with Cyberian Outpost, Inc. to
market INVNSYS' products on its website www.outpost.com. To date, INVNSYS has
recognized only nominal revenues from Internet retail sales. Management believes
that direct sales to end users allows INVNSYS to more efficiently and
effectively meet customer needs by providing products which are tailored for the
customer's individual requirements at a more economical price.
INVNSYS distributes a line of Epson computers and
transactional printers. INVNSYS participates in Epson's MasterVar program which
provides INVNSYS a non-exclusive right to sell, support and service Epson
computer peripherals in the United States and Canada. In addition, INVNSYS may
sell Epson personal computers in conjunction with sales of Epson peripherals or
INVNSYS' products.
INVNSYS also distributes its products to regional resellers
and, to a lesser extent, national distributors. For example, INVNSYS has entered
into a vendor agreement for KeySync with MicroAge, Inc., one of the largest
hardware distributors in North America. INVNSYS believes this agreement will
provide a major distribution channel for INVNSYS' products.
In February 1999, INVNSYS entered into a marketing agreement
with Global Telephone Communication, Inc. ("Global"), whereby Global will market
INVNSYS' products in the Pacific Rim. Management believes that Global, through a
joint venture with Pacific Assets International, will provide access to numerous
banks throughout Asia, including Mainland China, Hong Kong, Taiwan, South Korea,
Malaysia, Indonesia and Japan.
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MANUFACTURING
INVNSYS' products are engineered and manufactured by various
entities in Taiwan. Currently, INVNSYS has an agreement with DataComp, a private
Taiwanese company, to manufacture INVNSYS' keyboards and keypads. INVNSYS'
iT-8000 computers are currently manufactured by Puritron, a Taiwanese company.
INVNSYS' LCD's are manufactured by Sampo Technology, a Taiwanese manufacturer,
and receive varying customization ranging from cosmetic items to enhancing
components such as stereo speakers and touchpad screens from Acana Peripherals
Corporation, a Taiwanese company. INVNSYS' Sahara and Safari desktop computers
are currently manufactured by First International Computer in Taiwan.
These manufacturers build INVNSYS' products to INVNSYS'
specifications with non-proprietary components. Therefore, the vast majority of
parts used in INVNSYS' products are available to INVNSYS' competitors. Although
INVNSYS has not experienced difficulties in the past relating to engineering and
manufacturing, the failure of INVNSYS' manufacturers to produce products of
sufficient quantity and quality could adversely affect INVNSYS' ability to sell
the products its customers demand.
INVNSYS engages in final assembly, functional testing and
quality control of its products in its Phoenix, Arizona facility. Management
believes INVNSYS' completion of the final stages of manufacturing allows INVNSYS
to ensure quality control for its products manufactured overseas.
INVNSYS has entered into an agreement with Twinhead
Corporation, a Taiwanese manufacturer of notebook computers ("Twinhead") to
produce build-to-order notebook computers and a 15" LCD flat panel display. The
design, engineering and manufacturing of INVNSYS' notebook computers is done
entirely by Twinhead. Management believes this relationship allows INVNSYS to
offer a broader range of products to its customers without the cost of research
and development and manufacturing.
INVNSYS has experienced no product delays or cancellation of
orders as a result of the recent earthquake in Taiwan. Management believes that
certain costs of components may face a temporary increase as a result of the
earthquake, however, INVNSYS believes most of the increase in costs will be
recouped through increased prices paid by customers.
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LICENSES
Citrix Systems, Inc. On December 30, 1998, INVNSYS entered a
licensing agreement with Citrix Systems, Inc. ("Citrix") for the use of Citrix
Independent Computing Architecture ("ICA"), an emerging industry standard for
server based computing (the "ICA Agreement"). Under the ICA Agreement, INVNSYS
is granted a non-exclusive, non-transferable right to incorporate ICA into
Citrix-approved iBIZ products. The license is for a term of two (2) years and
automatically renews for successive one (1) year periods unless either party
gives notice of an intent to allow the agreement to expire at the end of the
then current term.
In addition, INVNSYS and Citrix have entered into a Citrix
Business Alliance Membership Agreement dated February 22, 1999 (the "CBA
Agreement"). For a membership fee, CBA membership entitles INVNSYS to
engineering, sales, and marketing support by Citrix, as well as access to beta
releases of new Citrix products and discounted current software products.
Microsoft, Inc. In June 1999, INVNSYS entered into an
agreement with Microsoft, Inc. to become a OEM system builder. Participation in
this program will allow INVNSYS to install genuine Microsoft operating systems
in selected applications with full support from Microsoft. In addition, this
agreement entitles INVNSYS to pre-production versions of Microsoft products and
enables INVNSYS to provide input into development and design of new products.
KeyLink Software License. iBIZ has an exclusive, perpetual
license to use, distribute and offer for sale with associated hardware, the
software which facilitates the connection between the KeySync keyboard and the
3COM Palm devices.
PATENTS AND TRADEMARKS
INVNSYS holds no United States or foreign patents for its
products. However, INVNSYS is currently assessing potential patent applications
for keyboard products under development. In general, INVNSYS believes that its
continued success will depend primarily upon the technical expertise, creative
skills, and management abilities of its officers, directors, and key employees
rather than on patent ownership.
iBIZ has filed an application with the United States Patent
and Trademark Office for the use of the names "iBIZ" and "KeySync" and is
currently investigating various other product trademarks.
YEAR 2000 ISSUES
Management believes that all of INVNSYS' current products are
Year 2000 compliant. INVNSYS has recently completed a conversion of its internal
systems, such as
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accounting programs and management believes all internal systems are Year 2000
compliant. Management estimates the Company has incurred costs of approximately
$20,600 to address the Year 2000 computer issue. iBIZ has not conducted an
assessment of the impact of third-party's systems on INVNSYS and it can give no
assurance that failure of third-party systems will not have a material effect on
INVNSYS' operations. As INVNSYS' products and internal systems are all believed
to be Year 2000 compliant, management has not developed a specific contingency
plan beyond that which is required to deal with the day-to-day operations of the
business.
SERVICE AND SUPPORT
INVNSYS provides its customers with a comprehensive service
and support program. Technical support is provided to customers via a toll-free
telephone number as well as through the iBIZ website. The number is available
Monday through Friday 8:00 a.m. to 5:00 p.m., Arizona time. INVNSYS maintains a
staff of approximately ten (10) technical and customer support representatives
who respond to telephone inquiries.
Also available on iBIZ's website are links to files for
software patches and drivers used for software updates.
INVNSYS' products have either a one year (1) or three year (3)
limited warranty covering parts and service. In addition, INVNSYS offers
extended service agreements, which may extend warranty coverage for up to two
(2) additional years. Under the Virtual Spare program, INVNSYS provides
replacement units by next-day shipment in the event a customer's unit fails.
Under this program, customers have, at no additional expense, the option to have
their existing hard-drive configuration installed on the replacement unit. The
customer's units are then returned to INVNSYS' Phoenix facility for service.
Under INVNSYS' On-Site program, customers have the ability to have a
Company-owned spare on-site for immediate availability in the event of a
failure. Failed units are then returned to INVNSYS' facility for service and
returned to replace the spare for future needs. INVNSYS believes its Virtual
Spare and On-Site programs eliminate the need for on-site technical support for
the replacement units and reduce set-up time at customer facilities.
COMPETITION
The personal computer industry is highly competitive. INVNSYS
competes at the product level with various other personal computer manufacturers
and at the distribution level primarily with computer retailers, on-line
marketers and the direct sales forces of large personal computer manufacturers.
At the product level, the personal computer industry is
characterized by rapid technological advances in both hardware and software
development and by the frequent introduction of new and innovative products.
There are approximately 100 manufacturers of personal computers, the majority of
which have greater financial, marketing and technological
13
<PAGE> 14
resources than INVNSYS. Competitors at this level include IBM, Compaq, Dell, and
Gateway 2000. Gateway 2000 and NEC, among other competitors, have recently
introduced smaller desk top computers than have been manufactured in the past.
However, those computers are targeted for the consumer and not for the corporate
customer and are more expensive than the computers offered by INVNSYS. INVNSYS'
main competitors for its planned product line of thin-client computer systems
include specialty manufacturers such as WYSE Technology.
Competitive factors include product quality and reliability,
price to performance characteristics, marketing capability, and corporate
reputation. In addition, a segment of the industry competes primarily for
customers on the basis of price. Although the INVNSYS' products are price
competitive, INVNSYS does not attempt to compete solely on the basis of price.
The intense nature of competition in the computer industry
subjects INVNSYS to numerous competitive disadvantages and risks. For example,
many major companies will exclude consideration of INVNSYS' products due to
limited size of the company. Moreover, INVNSYS' current revenue levels cannot
support a high level of national or international marketing and advertising
efforts. This in turn, makes it more difficult for INVNSYS to develop its brand
name and create customer awareness. Additionally, INVNSYS' products are
manufactured by third parties in Taiwan. As such, INVNSYS is subject to numerous
risks and uncertainties of reliance on offshore manufacturers, including, taxes
or tariffs, non-performance, quality control, and civil unrest. Also, as INVNSYS
holds no patents, the vast majority of parts used in its products are available
to its competitors.
Management believes that it can compete effectively by
providing computers and peripherals utilizing unique designs and space-saving
qualities, such as small footprints. Although Management believes it has been
successful to date, there can be no assurance that INVNSYS will be able to
compete successfully in the future.
CUSTOMERS
Throughout its history, INVNSYS' ability to deliver innovative
product designs and quality customer service has enabled it to provide products
to major financial institutions including Wells Fargo, Bank of America, Security
Pacific, Northrim Bank, and First Interstate Banks. Currently, no single
customer accounts for more than ten percent (10%) of INVNSYS' revenues.
EMPLOYEES; LABOR RELATIONS
As of November 24, 1999, INVNSYS had approximately twenty-five
(25) full-time employees. No employee of INVNSYS is represented by a labor union
or is subject to a collective bargaining agreement. INVNSYS has never
experienced a work-stoppage due to labor difficulties and believes that its
employee relations are good.
14
<PAGE> 15
FCC REGULATIONS
The Federal Communications Commission (the "FCC") has adopted
regulations setting radio frequency emission standards for computing equipment.
Management believes all of INVNSYS' current products meet applicable FCC and
foreign requirements.
INVNSYS is in the process of exploring foreign operations.
Many foreign jurisdictions require governmental approval prior to the sale or
shipment of personal computing equipment and in certain jurisdictions such
requirements are more stringent than in the United States. Any delays or
failures in obtaining necessary approvals from foreign jurisdictions may impede
or preclude INVNSYS' efforts to penetrate such markets.
LITIGATION
iBIZ is not a party to any material pending litigation.
USE OF TRADEMARKS AND TRADENAMES
All trademarks and tradenames used in this Form 10-SB/A are
the property of their respective owners.
15
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Through its operating subsidiary, INVNSYS, iBIZ designs,
manufactures, and distributes small footprint desktop computers, transaction
printers, general purpose financial application keyboards, numeric keypads,
CRT's, LCD monitors and related products. INVNSYS also markets a line of OEM
notebook computers and distributes a line of Epson transactional printers.
SELECTED FINANCIAL INFORMATION.
<TABLE>
<CAPTION>
Year Ended
----------
10/31/97 10/31/98
-------- --------
<S> <C> <C>
Statement of Operations Data
Net sales $ 2,350,459 $ 3,402,681
Gross profit $ 771,019 $ 1,182,885
Operating income (loss) $ (403,889) $ 112,882
Net earnings (loss) after tax $ (321,109) $ 7,863
Net earnings (loss) per share $ (32.11) $ 0.79
<CAPTION>
10/31/97 10/31/98
-------- --------
<S> <C> <C>
Balance Sheet Data
Total assets $ 1,309,954 $ 1,653,998
Total liabilities $ 1,821,151 $ 1,999,231
Stockholders' equity (deficit) $ (511,197) $ (345,233)
</TABLE>
<TABLE>
<CAPTION>
Year Ended
----------
10/31/98 10/31/99
-------- --------
<S> <C> <C>
Statement of Operations Data
Net sales $ 3,402,681 $ 2,079,331
Gross profit $ 1,182,885 $ 470,602
Operating income (loss) $ 37,600 $ (983,264)
Net earnings (loss) after tax $ 7,863 $ (954,099)
Net earnings (loss) per share $ 0.79 $ (.038)
Balance Sheet Data
Total assets $ 1,653,998 $ 1,081,956
Total liabilities $ 1,999,231 $ 1,511,019
Stockholders' equity (deficit) $ (345,233) $ (429,063)
</TABLE>
16
<PAGE> 17
RESULTS OF OPERATIONS.
Fiscal year ended October 31, 1998 compared to fiscal year ended October 31,
1997.
Revenues. Sales increased by approximately 45% from $2,350,459
for the fiscal year ended October 1997 to $3,402,681 for the fiscal year ended
October 1998. The increase was mainly as a result of greater demand for INVNSYS'
iT business application products and new product introductions and shipments for
its keyboards.
Cost of Sales. The cost of sales increased by approximately
41% from $1,579,440 in the fiscal year ended October 1997 to $2,219,796 in the
fiscal year ended October 1998. The increase in cost of sales is attributable to
a similar percentage increase in sales and reflects hardware costs which
remained fairly stable over the two-year period.
Gross Profit. Gross profit increased from approximately
$771,019.00 in October 1997 to $1,182,885.00 in October 1998. The increase
resulted primarily from the increase in revenues coupled with a slight decline
in the costs of products components.
Selling, General and Administrative Expenses. Selling, general
and administrative expenses decreased approximately 9% in the fiscal year ended
October 1997 to the fiscal year ended October 1998. The decrease resulted
primarily from cost reductions in promotion, insurance, payroll, payroll taxes,
rent, telephone and entertainment.
Interest Expense. Interest expense of $75,282 for the fiscal
year ended October 1998 and of $74,147 for the fiscal year ended October 1997
was accrued on notes payable to Community First National Bank (primarily
extended for working capital purposes).
Income Taxes. Because INVNSYS incurred a loss of approximately
$471,130 for the fiscal year ended October 1997, INVNSYS obtained a refund of
$150,021. For the fiscal year ended October 1998, INVNSYS incurred taxes of
$75,372 even though income before taxes was only $83,235. The significant tax on
nominal income resulted from certain non-deductible expenses.
Net Earnings. A loss in fiscal year October 1997 of $321,109
increased to a profit of $7,863 for fiscal year ended October 1998.
Profitability resulted primarily from a dramatic increase in sales and a
decrease in selling, general and administrative expenses.
Fiscal year ended October 31, 1999 compared to fiscal year ended October 31,
1998.
Revenues. Sales decreased by approximately 64% from $3,402,681
in the fiscal year ended October 1998 to $2,079,331 in the fiscal year ended
October 1999. The decrease was mainly as a result of the focus by management on
raising financing for iBIZ and a transition to a new line of products.
INVNSYS experiences short product life cycles and the declining revenues reflect
declining sales volumes for existing products which were not replaced
17
<PAGE> 18
by any significant sales of new products which management estimates did not
exceed $10,000.
Cost of Sales. The cost of sales of $2,219,796 in the fiscal
year ended October 1998 declined to $1,608,729 in the fiscal year ended October
1999, or an approximate 38% decrease. This decline reflects a coinciding
decrease in the sale of products resulting in the purchase of less hardware from
INVNSYS' overseas suppliers.
Gross Profit. Gross profit decreased by approximately 60%
from $1,182,885 in the fiscal year ended October 1998 to $470,602 in the fiscal
year ended October 1999. The significant decrease resulted primarily from the
decrease in revenues coupled with the cost of sales which did not decrease in
direct proportion to the decrease in revenues. Gross profits also decreased as a
result of selling more products to retailers at lower prices and a decline in
maintenance service income, both of which reflected greater competitiveness in
the product sector.
Selling, General and Administrative Expenses. Selling, general
and administrative expenses increased approximately 36% from $1,070,003 in the
fiscal year ended October 1998 to $1,453,866 for the fiscal year ended October
1999. The increase was primarily due to costs of consulting paid in connection
with the acquisition, legal and accounting fees associated with the acquisition
and an increase in the salaries of INVNSYS' key employees.
Interest Expense. Interest expense of $49,537 for the fiscal
year ended October 1999 and of $75,282 for the fiscal year ended October 1998
was accrued on notes payable to Community First National Bank primarily extended
for working capital purposes. The decline in interest expense resulted from
repayment of most of the principal of the notes in June, 1999.
Net Earnings. Net earnings decreased from $7,863 for the
fiscal year ended October 1998 to a loss of $954,099 for the fiscal year ended
October 1999. The loss resulted from an increase in the selling, general and
administrative expenses, a cost of sales decrease which was not in proportion to
the decrease in revenues, and a substantial decrease in revenues for the fiscal
year ended October 1999.
Liquidity and Capital Resources
For the year ended October 1997, INVNSYS supplemented cash
flow with proceeds from notes payable of approximately $138,000. At year end,
INVNSYS had an overdraft of $14,133. For the year ending October 1998, INVNSYS
received an advance from iBIZ Technology Corp. (prior to the acquisition) for
approximately $158,101. INVNSYS also repaid notes of approximately $211,631. For
the fiscal year ended October 1998, INVNSYS had an overdraft of $13,500.
Historically, INVNSYS has had and now iBIZ has significant
problems with liquidity. The Company has been unable to generate sufficient
internal cash flow to fund all of its obligations. Outside sources of
18
<PAGE> 19
financing consisting of bank loans have been insufficient. While INVNSYS pays
most of its suppliers in full prior to delivery of product by its manufacturers
of hardware in Taiwan, its banking customers are not obligated to make payments
until 30 days after delivery of products. INVNSYS is in an industry subject to
rapid obsolescence and change. It will continue to need to raise additional
substantial funds for research and development and production of new products.
During 1999, INVNSYS repaid $225,000 on an outstanding loan
from Community First National Bank in the amount of $350,000 and delinquent
payroll taxes, penalties and interest of approximately $260,000.
Beginning in November 1, 1998 and continuing through November
18, 1999, iBIZ raised approximately $1,845,411 though sales of iBIZ common stock
and convertible debentures which it used to finance the working capital needs of
its wholly-owned subsidiary, INVNSYS. Management believes that iBIZ has
sufficient reserves and will generate sufficient cash flow from operations to
operate through January 31, 2000. However, iBIZ will need to raise additional
short term capital to maintain its ongoing business beyond January 31,2000. iBIZ
is actively seeking to obtain a significant capital infusion to avoid continuing
reliance on short term capital sources. There is no assurance that iBIZ will
raise the necessary capital to remain in business beyond January 31, 2000 or
that unforeseen events may result in the need for additional capital sooner than
January 31, 2000. If at any time iBIZ is unable to raise financing through
additional sales of common stock it may be forced into insolvency.
DESCRIPTION OF PROPERTY
On July 1, 1999, iBIZ began leasing an approximately 15,000
square foot custom-built office building located at 1919 West Lone Cactus,
Phoenix, Arizona. The facility is used for administration, design, engineering
and assembly of products. iBIZ's lease ("Lease") is for a term of twenty-six and
one-half years (26.5), with monthly rental payments of $12,800.00, subject to
annual increases, plus taxes and operating costs.
The facility is leased from Lone Cactus Capital Group, L.L.C.,
a limited liability company in which Kenneth Schilling is a member. The Lease is
personally guaranteed by Mr. Schilling and his wife, Diane. Management believes
this new facility will provide adequate space to accommodate the iBIZ's
current plan of growth and expansion.
19
<PAGE> 20
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding
the beneficial ownership of iBIZ's common stock as of November 24, 1999, by:
- all directors
- each person who is known by iBIZ to be the beneficial owner of more than
five percent (5%) of the outstanding common stock
- each executive officer named in the Summary Compensation Table below
- all directors and executive officers as a group
The number of shares beneficially owned by each director or
executive officer is determined under rules of the SEC, and the information is
not necessarily indicative of beneficial ownership for any other purpose. Under
the SEC rules, beneficial ownership includes any shares as to which the
individual has the sole or shared voting power or investment power. In addition,
beneficial ownership includes any shares which the individual has the right to
acquire within sixty (60) days of November 24, 1999, through the exercise of any
stock option or other right. Unless otherwise indicated, each person listed
below has sole investment and voting power (or shares such powers with his or
her spouse). In certain instances, the number of shares listed includes (in
addition to shares owned directly), shares held by the spouse or children of the
person, or by a trust or estate of which the person is a trustee or an executor
or in which the person may have a beneficial interest.
<TABLE>
<CAPTION>
Number of Shares of
Common Stock Beneficially Owned
- --------------------------------------------------------------------------------------------------------------------
Name and Address of Vested
Beneficial Owner Shares Options(1) Total(1) Percent(1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kenneth W. Schilling(2) -- 200,000 200,000 0.8%
8512 W. Via Montoya, Peoria, AZ 85382
Moorea Trust(2) 12,120,000 -- 12,120,000 45.9%
8512 W. Via Montoya, Peoria, AZ 85382
Terry S. Ratliff 1,771,200 300,000 2,071,200 7.8%
5312 W. Westwind Drive, Glendale, AZ 85310
Mark H. Perkins 1,771,200 300,000 2,071,200 7.8%
16410 N. 9th Place, Phoenix, AZ 85022
All directors and officers as group
(5 persons) 15,662,400 1,675,000 17,337,400 61.8%
</TABLE>
(1) Includes options vested on November 24, 1999 and options which will become
vested on or before January 23, 2000.
(2) Kenneth and Diane Schilling are husband and wife and hold the shares as
trustees under the Moorea Trust dated December 18, 1991.
iBIZ Technology Corp. Stock Option Plan
The iBIZ Technology Corp. Stock Option Plan (the "Plan")
provides for the grant of stock options to purchase common stock to eligible
directors, officers, key employees, and
20
<PAGE> 21
service providers of iBIZ. The Plan covers an aggregate maximum of five million
(5,000,000) shares of common stock and provides for the granting of both
incentive stock options (as defined in Section 422 of the Internal Revenue Code
of 1986, as amended) and non-qualified stock options (options which do not meet
the requirements of Section 422). Under the Plan, the exercise price may not be
less than the fair market value of the common stock on the date of the grant of
the option. As of October 31, 1999, two million eight hundred fifty thousand
(2,850,000) options ("the Options")had been granted under the plan at exercise
prices of $0.75 and $1.00. The Options are granted for a period of ten (10)
years, subject to earlier cancellation upon termination of employment,
resignation, disability and death. The Options vest pursuant to the terms of
each individual option, which to date have ranged from immediate to a five (5)
year period.
The Board of Directors (the "Board") administers and
interprets the Plan and is authorized to grant options thereunder to all
eligible persons. In the event the Board has at least two (2) members who are
not either employees or officers of iBIZ or of any parent or subsidiary of iBIZ,
the Plan will be administered by a committee of not less than two (2) persons
who are such independent directors. The Board designates the optionees, the
number of shares subject to the options and the terms and conditions of each
option. Certain changes in control of iBIZ, as defined in the Plan, will cause
the options to vest immediately. Each option granted under the Plan must be
exercised, if at all, during a period established in the grant which may not
exceed ten (10) years from the date of grant. An optionee may not transfer or
assign any option granted and may not exercise any options after a specified
period subsequent to the termination of the optionee's employment with iBIZ. The
Board may make such amendments to the Plan from time to time it deems proper and
in the best interests of iBIZ provided it may not take any action which
disqualifies any option granted under the Plan as an incentive stock option or
which adversely effects or impairs the rights of the holder of any option under
the Plan.
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Kenneth W. Schilling 47 President, Chief Executive Officer, Director
Terry S. Ratliff 41 Vice President, Controller, Director
Mark H. Perkins 35 Vice President of Operations, Director
Richard A. Christopher 34 Chief Technology Officer
Jeffrey A. Slosky 41 Director of Marketing
</TABLE>
Kenneth W. Schilling, founded INVNSYS' predecessor, SouthWest
Financial Systems, in 1979, and has been Chief Executive Officer, President and
a Director since INVNSYS' founding. Mr. Schilling studied for a B.S. in
electrical engineering at the University of Pittsburgh from 1970 to 1972 but
left for military service prior to receiving his degree.
21
<PAGE> 22
Terry S. Ratliff, joined INVNSYS in 1989 as controller and
currently serves as Vice President, and Controller. Ms. Ratliff was appointed to
iBIZ's Board of Directors on March 5, 1999. Ms. Ratliff graduated from Nicholls
State University in Thibodaux, Louisiana where she received a B.A. in
accounting.
Mark H. Perkins, joined INVNSYS in 1994 and currently serves
as Vice President of Operations. Mr. Perkins was appointed to iBIZ's Board of
Directors on March 5, 1999. Prior to his joining INVNSYS, Mr. Perkins was
employed at American Express as a project manager for major systems
implementation, a position he held for eight (8) years. Mr. Perkins earned a
degree in business management from California State University-Sonoma.
Richard A. Christopher, joined iBIZ September 1, 1999, and
currently serves as Chief Technology Officer. Prior to joining iBIZ, Mr.
Christopher was the President of A Better Computer Solution, Inc., a provider of
network integration and related services he founded in 1991. He also served in
the U.S. Navy from 1982 through 1994. Mr. Christopher attended Arizona State
University where he studied engineering.
Jeffrey A. Slosky, joined iBIZ as a marketing consultant in
January 1999 and became a full-time employee in July 1999. Mr. Slosky currently
serves as Director of Marketing where he is responsible for product and
corporate marketing, including the design of advertising and products sheets.
From October 1991 through November 1998, he was the founder and partner of
Scottsdale Cellular, LLC, a provider of cellular telecommunications technology.
Mr. Slosky earned a B.S. in Marketing/Advertising from Arizona State University
in 1980.
EXECUTIVE COMPENSATION
The following table sets forth certain compensation paid or
accrued by the Company to Mr. Schilling, iBIZ's current chief executive officer
during fiscal years ended 1998 and 1999.
<TABLE>
<CAPTION>
OTHER RESTRICTED
ANNUAL STOCK LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARD(S) OPTIONS(1) PAYOUT COMPENSATION
($) ($) ($) ($) (#) ($) ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kenneth W. Schilling, 1998 $200,000
President, Chief Executive ----
Officer 1999 $200,000
250,000
</TABLE>
(1) Includes 50,000 options granted for service as a director of iBIZ.
22
<PAGE> 23
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING PERCENT OF TOTAL
OPTIONS/ OPTIONS/SARS
SARS GRANTED TO EMPLOYEES EXERCISE OF
GRANTED IN FISCAL BASE PRICE EXPIRATION
NAME (1) YEAR ($/SH) DATE
(a) (b) (c) (d) (e)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kenneth W. Schilling 250,000 10.6% $0.75 4/21/09
</TABLE>
(1) Includes 50,000 options granted for service as a director of iBIZ. 200,000
options vested upon granting on April 22, 1999, and 25,000 will vest on
April 22, 2000 and April 22, 2001 respectively.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES ACQUIRED ON VALUE FISCAL YEAR END AT FISCAL QUARTER ENDED
EXERCISE (#) REALIZED EXERCISABLE/ JUNE 30, 1999
NAME ($) UNEXERCISABLE EXERCISABLE/
UNEXERCISABLE (1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kenneth W. Schilling -0- -0- 200,000/50,000 $182,000/$45,500
</TABLE>
(1) Based on closing price of the common stock on October 29, 1999, at $0.91.
Compensation of Directors
Pursuant to the terms of their employment agreements,
effective April 22, 1999, Messrs. Schilling, Perkins and Ms. Ratliff each
received fifty thousand (50,000) options to purchase fifty thousand (50,000)
shares of common stock in consideration for their services as directors of
iBIZ. Each director holds office until the next annual meeting of shareholders
or until their successors are elected and qualified.
Employment Agreement for Kenneth W. Schilling
Effective March 5, 1999, Kenneth W. Schilling and iBIZ entered
into an Employment Agreement (the "Agreement"), as amended as of September 8,
1999.
Under the Agreement, Mr. Schilling has been retained to act as
President and Chief Executive Officer of iBIZ. The Agreement is for a term of
two (2) years ending March 4, 2001. Under the Agreement, Mr. Schilling shall
receive an annual base salary of $200,000.00. In addition, effective April 22,
1999, Mr. Schilling received two hundred fifty thousand
23
<PAGE> 24
(250,000) options to purchase two hundred fifty thousand (250,000) shares of
common stock of iBIZ at an exercise price of $0.75 per share. Two hundred
thousand (200,000) options were issued in consideration of Mr. Schilling's
services as an officer of iBIZ and fifty thousand (50,000) options were issued
in consideration for services as a director. Two hundred thousand (200,000)
options vested upon granting on April 22, 1999, and twenty-five thousand
(25,000) options will vest on April 22, 2000 and April 22, 2001, respectively.
The Agreement provides that upon total and permanent
disability, as defined in the Agreement, iBIZ shall pay Mr. Schilling such
benefits as may be provided to officers of iBIZ under any Company provided
disability insurance or similar policy or under any iBIZ adopted disability
plan. In the absence of such policy or plan, iBIZ shall continue to pay Mr.
Schilling for a period of not less than six (6) months the compensation then in
effect as of the effective date of his termination.
Mr. Schilling may terminate the Agreement upon written notice,
within thirty (30) days following the occurrence of an event constituting "Good
Reason," as defined below. Upon the termination by Mr. Schilling for Good
Reason, Mr. Shilling will be entitled to receive a payment equal to the lesser
of: (1) an amount equal to one-half of his annual base salary in effect at the
time of termination; or (2) the remaining compensation due to Mr. Schilling
under the terms of the Agreement. If Mr. Schilling fails to exercise his rights
to terminate the Agreement for Good Reason within thirty (30) days following an
event constituting Good Reason, such rights shall expire and be of no further
force or effect.
"Good Reason" is defined to mean the occurrence of any of the
following events without Mr. Schilling's consent: (1) assignment of Mr.
Schilling to any duty substantially inconsistent with his position or duties
contemplated by the Agreement or a substantial reduction of his duties
contemplated by the Agreement; (2) the removal of any titles bestowed under the
Agreement; (3) any material breach or failure of iBIZ to carry out the
provisions of the Agreement after notice and an opportunity to cure; and (4) the
relocation of Mr. Schilling, his corporate office facilities, or personnel
outside the Phoenix metropolitan area.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to the Reorganization, INVNSYS operated as a
closely-held private corporation. While a private company, INVNSYS made loans
totaling $992,037 to Kenneth Schilling. These loans are payable on demand and
accrued interest at eight percent (8%) during 1997 and six percent (6%) during
1998 and 1999. As of October 31, 1999, the balance of the loans payable by Mr.
Schilling to INVNSYS totaled Three Hundred Forty-six Thousand Two Hundred
Twenty-six Dollars ($346,226.00). Effective October 31, 1999, Mr. Schilling, as
trustee of the Moorea Trust, pledged 500,000 shares of iBIZ common stock to
secure this debt.
iBIZ leases its facility from Lone Cactus Capital Group,
L.L.C., a limited liability company in which Kenneth Schilling is a member. iBIZ
believes the terms of the lease are at an arms-length fair market rate.
24
<PAGE> 25
DESCRIPTION OF SECURITIES
General. IBIZ's Articles of Incorporation authorize the
issuance of 100,000,000 shares of common stock, $.001 par value. As of November
24, 1999, there were 26,370,418 shares of common stock outstanding and an
aggregate of 3,250,000 options and warrants to purchase common stock.
Common Stock. Holders of shares of common stock are entitled
to one vote for each share of common stock held of record on all matters
submitted to a vote of the shareholders. Each share of common stock is entitled
to receive dividends as may be declared by iBIZ's Board of Directors out of
funds legally available. Management, however, does not presently intend to pay
any dividends. In the event of liquidation, dissolution or winding up of iBIZ,
the holders of common stock are entitled to share ratably in all assets
remaining after payment in full of all creditors of iBIZ and the liquidation
preferences of any outstanding shares of preferred stock, if any. There are no
redemption or sinking fund provisions applicable to the common stock.
25
<PAGE> 26
PART II
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
IBIZ's common stock is currently traded on the OTC Bulletin
Board. The common stock was initially listed under the symbol "EVCV" on June 3,
1998, and trading began on July 16, 1998. On October 26, 1998, the Company
changed its trading symbol to "IBIZ." The following charts indicate the high and
low sales price for iBIZ's common stock for each quarter between September 30,
1998 and September 30, 1999. The high and low sales prices for the month ended
October 31, 1999, were $1.31 and $0.84 respectively.
[BAR GRAPH]
FISCAL 1998 COMMON STOCK PRICES
EVCV - iBIZ
<TABLE>
<CAPTION>
Quarter Ended
-------------
Stock Price Sept. 98 Dec. 98
----------- -------- -------
<S> <C> <C>
High $3.06 $2.69
Low 2.25 1.88
</TABLE>
[BAR GRAPH]
FISCAL 1999 COMMON STOCK PRICES
iBIZ
<TABLE>
<CAPTION>
Quarter Ended
-------------
Stock Price Mar. 99 Jun. 99 Sept. 99
----------- -------- ------- --------
<S> <C> <C> <C>
High $2.06 $2.44 $2.22
Low 0.94 0.56 0.94
</TABLE>
26
<PAGE> 27
As of November 24, 1999, Management believes there to be 59
holders of record of iBIZ's common stock. To date, iBIZ has not paid any
dividends on its common stock. iBIZ does not currently intend to pay dividends
in the future.
LEGAL PROCEEDINGS
iBIZ is not currently a party to any lawsuit or proceeding.
However, iBIZ is subject to lawsuits occurring in the regular course of
business. Most such lawsuits involve claims for money damages. iBIZ carries
insurance to protect itself against such claims, subject to any applicable
deductibles. iBIZ can give no assurances that future lawsuits will not have a
material adverse effect on iBIZ's financial condition or results of operations.
RECENT SALES OF UNREGISTERED SECURITIES
iBIZ Technology Corp.
On July 10, 1998, iBIZ issued 3,000,000 shares of common
stock, $.001 par value, at a sales price of $.05 per share totaling $150,000.
iBIZ relied upon Regulation D, Rule 504 promulgated under the Securities Act
with respect to these sales.
Between November 13, 1998 and January 13, 1999, iBIZ issued
540,318 shares of common stock, $.001 par value, at a sales price of $.35 per
share totaling $189,111.30. iBIZ relied upon Regulation D, Rule 506 promulgated
under the Securities Act with respect to these sales.
Effective January 1, 1999, iBIZ entered into a Plan of
Reorganization and Share Exchange Agreement with INVNSYS and the below
referenced individuals. Pursuant to the Reorganization, iBIZ issued 16,000,000
shares of common stock, $.001 par value, in exchange for one hundred percent
(100%) of the outstanding shares of INVNSYS. The shares were allocated as
follows:
<TABLE>
<CAPTION>
NO. OF SHARES
-------------
<S> <C>
Moorea Trust dated December 18, 1991 12,120,000
Terry Ratliff 1,771,200
Mark Perkins 1,771,200
Paul Russo 46,400
Frank Ligammari 33,600
Richard Bielfelt 28,800
Terry Neild 228,800
</TABLE>
The shares issued by iBIZ were issued pursuant to the
exemption provided by Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act").
27
<PAGE> 28
From March 8, 1999 through November 18, 1999, iBIZ issued
1,730,100 shares of common stock, $.001 par value, at a sales price of $.50 per
share and 640,318 shares of common stock, $.001 par value, at a sales price of
$.35 totaling an aggregate of $1,089,161. iBIZ relied upon Regulation D, Rule
506 promulgated under the Securities Act with respect to these sales.
From April 22, 1999 through May 13, 1999, iBIZ issued options
to purchase 2,850,000 shares of common stock, $.001 par value to employees and
various consultants. The exercise price of the options is the fair market value
on the date of grant, which ranged from $0.75 to $1.00 per share. iBIZ relied
upon either Rule 701 or Section 4(2) with respect to the granting of the
options.
On June 30, 1999, iBIZ issued Two Hundred Thousand Dollars
($200,000.00) of convertible debentures (the "Debentures"). The Debentures are
due on June 21, 2000, bear interest at eight percent (8%) per annum, and are
unsecured. Under the terms of the Debentures, iBIZ is obligated to use its best
efforts to include the shares issuable upon conversion of the Debentures in a
registration statement filed with the SEC under the Securities Act
("Registration Statement") by June 21, 2000. Upon the effectiveness of the
Registration Statement, the Debentures shall automatically convert to 300,000
fully paid and nonassessable shares of common stock, $.001 par value.
Effective May 1999, iBIZ issued a warrant entitling the holder
to acquire 400,000 shares of common stock, $.001 par value, at an exercise price
of $0.75 per share for the first 300,000 shares and $1.00 per share for the
remaining 100,000 shares.
In November 1999, iBIZ issued convertible debentures in the
amount of Six Hundred Thousand Dollars ($600,000.00) ( the "$600k Debentures")
pursuant to that certain Securities Purchase Agreement dated November 9, 1999,
by and between Globe United Holdings, Inc. ("Globe") and iBIZ (the "SPA"). The
$600k Debentures accrue interest at seven percent (7%) per annum and are due
November 9, 2004. iBIZ is obligated to make payments of accrued interest on the
first day of April and November each year the $600k Debentures are outstanding.
At the holder's option, iBIZ may make interest payments in the form of shares of
common stock (calculated as if a portion of principal as described below).
Globe may, at any time, convert all or a portion of the
outstanding principal amount, together with any accrued but unpaid interest,
into that number of shares of common stock equal to the quotient obtained by
dividing (i) the principal amount of the debenture to be converted by (ii) the
Applicable Conversion Price. The Applicable Conversion Price is defined as the
lesser of (i) $0.94 or (ii) the product obtained by multiplying (x) the Average
Closing Price (as defined in the $600k Debentures) by (y) .80. In addition, the
holder of the $600k Debentures may require iBIZ to redeem the $600k Debentures
for cash at a redemption price equal to one hundred twenty percent (120%) of the
aggregate principal and accrued interest outstanding in the event of a Change in
Control of iBIZ (as defined in the $600k Debentures).
28
<PAGE> 29
In connection with the issuance of the $600k Debentures, iBIZ
issued a warrant to purchase 100,000 shares of common stock at a purchase price
of $0.94 per share ("Warrant"). The Warrant is immediately exercisable and
expires November 9, 2004.
iBIZ has also agreed to provide Globe certain registration
rights for the common stock issuable upon conversion of the respective
convertible securities. In particular, iBIZ is obligated to file, no later than
forty-five (45) days after the Closing Date (as defined in the SPA) a
registration statement covering the resale of the common stock issuable upon
conversion of the $600k Debentures and the Warrant.
The SPA provides iBIZ shall not, without the prior written
consent of Globe, offer or sell, shares of its capital stock or any security or
other instrument convertible into or exchangeable for shares of common stock, in
each case for a period commencing on November 9, 1999, and ending on the earlier
of (i) one hundred eighty (180) days after the date on which a registration
statement relating to common stock issuable upon conversion of the Warrants and
the Debentures, is declared effective by the SEC or (ii) the date on which Globe
shall have converted all of the Debentures into common stock (the "Lock-Up
Period"), except that iBIZ (i) may issue securities for the aggregate
consideration of at least $7.5 million in connection with a bona fide, firm
commitment, underwritten public offering under the Securities Act; and (ii) may
issue shares of common stock upon the exercise or conversion of currently
outstanding options, warrants and other convertible securities; (iii) may issue
additional options to purchase up to 1,000,000 shares of its common stock to its
directors, officers and employees in connection with its existing stock option
plans.
In addition, iBIZ is restricted from registering any shares of
its capital stock (other than shares to be received upon exercise by existing
option and warrant holders) until the later to occur of (i) the expiration of
the Lock-Up Period or (ii) the registration statement filed by iBIZ covering
shares to be issued to Globe upon conversion of its debentures has been
effective under the Securities Act for a period of at least one-hundred and
eighty (180) days.
In addition, the SPA grants Globe a right of first refusal on
purchases of additional securities for a period of eighteen (18) months. The SPA
further provides that so long as the Debentures or Warrant are outstanding, iBIZ
shall not (i) declare or pay any dividends or make distributions to any holder
of common stock or (ii) acquire any common stock of iBIZ.
iBIZ relied upon Regulation D, Rule 506 promulgated under the
Securities Act with respect to the issuance of the $600k Debentures and the
Warrant.
29
<PAGE> 30
INVNSYS Technology Corporation
Effective November 1, 1997, INVNSYS issued the following
shares of common stock, One Dollar ($1.00) par value:
<TABLE>
<CAPTION>
NO. OF SHARES
-------------
<S> <C>
Moorea Trust dated December 18, 1991 605
Terry Ratliff 1,550
Mark Perkins 1,550
Paul Russo 40
Frank Ligammari 30
Richard Bielfelt 25
Terry Neild 200
</TABLE>
INVNSYS relied on either Rule 701 promulgated under the
Securities Act or Section 4(2) of the Securities Act with respect to all sales
and offers referenced above.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Limitation of Liability and Indemnification Matters. iBIZ's
Articles of Incorporation, as amended, provide to the fullest extent permitted
by Florida law, a director or officer of iBIZ shall not be personally liable to
iBIZ or its shareholders for damages for breach of such director's or officer's
fiduciary duty. The effect of this provision of iBIZ's Articles of
Incorporation, as amended, is to eliminate the right of iBIZ and its
shareholders (through shareholders' derivative suits on behalf of iBIZ) to
recover damages against a director or officer for breach of the fiduciary duty
of care as a director or officer (including breaches resulting from negligent or
grossly negligent behavior), except under certain situations defined by statute.
iBIZ believes that the indemnification provisions in its Articles of
Incorporation, as amended, are necessary to attract and retain qualified persons
as directors and officers.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
30
<PAGE> 31
PART F/S
FINANCIAL STATEMENTS
1. INVNSYS Technology Corporation formerly known as Southwest
Financial Systems, Inc. Financial Statements October 31, 1998 and 1997,
originally issued June 14, 1999, and reissued November 22, 1999.
2. iBIZ Technology Corporation Financial statements for the one
year period ended October 31, 1999.
31
<PAGE> 32
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
FINANCIAL STATEMENTS
OCTOBER 31, 1998 AND 1997
F-1
<PAGE> 33
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
INDEPENDENT AUDITORS' REPORT ................................................................... 1
FINANCIAL STATEMENTS
Balance Sheets........................................................................... 2
Statements of Income..................................................................... 3
Statement of Changes in Stockholders' Equity............................................. 4
Statements of Cash Flows................................................................. 5-6
Notes to Financial Statements............................................................ 7-18
</TABLE>
F-2
<PAGE> 34
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders
Invnsys Technology Corporation
Formerly known as Southwest Financial Systems, Inc.
Phoenix, Arizona
We have audited the accompanying balance sheets of Invnsys Technology
Corporation formerly known as Southwest Financial Systems, Inc., as of October
31, 1998 and 1997, and the related statements of income, changes in
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on the financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 financial statements referred to above present fairly, in all
material respects, the financial position of Invnsys Technology Corporation as
of October 31, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
MOFFITT & COMPANY, P. C.
SCOTTSDALE, ARIZONA
June 14, 1999 (original issuance date)
November 22, 1999 (reissue date)
F-3
<PAGE> 35
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
BALANCE SHEETS
OCTOBER 31, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ 200 $ 412
Accounts receivable, trade 153,536 91,073
Other receivables 1,500 1,000
Corporation income tax refund 0 19,919
Inventories 323,397 202,320
Prepaid expenses, current 24,577 3,882
--------------- ----------------
TOTAL CURRENT ASSETS 503,210 318,606
--------------- ----------------
PROPERTY AND EQUIPMENT 76,536 97,069
--------------- ----------------
OTHER ASSETS
Note receivable, related party 906,620 666,103
Deposits 20,155 17,765
Prepaid expenses, long-term 2,423 5,655
--------------- ----------------
TOTAL OTHER ASSETS 929,198 689,523
--------------- ----------------
TOTAL ASSETS $ 1,508,944 $ 1,105,195
=============== ================
</TABLE>
F-4
<PAGE> 36
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CURRENT LIABILITIES
Bank overdraft $ 13,700 $ 14,545
Accounts payable, trade 780,815 691,944
Customer deposits 395,264 267,630
Notes payable, current 28,378 215,976
Accrued liabilities 63,243 30,713
Sales and payroll taxes payable 255,410 61,840
Corporation income taxes payable,
Current 17,841 13,741
Deferred income 71,031 110,797
------------------ -----------------
TOTAL CURRENT LIABILITIES 1,625,682 1,407,186
------------------ -----------------
LONG-TERM LIABILITIES
Notes payable 365,325 389,358
------------------ -----------------
TOTAL LONG-TERM LIABILITIES 365,325 389,358
------------------ -----------------
STOCKHOLDER'S EQUITY
Common stock, $1.00 par value,
100,000 shares authorized,
10,000 shares issued and outstanding 10,000 10,000
Advance from IBIZ Technology Corp. 158,101 0
Retained earnings (deficit) (650,164) ( 701,346)
------------------ -----------------
TOTAL STOCKHOLDER'S EQUITY
(DEFICIT) (482,063) ( 691,346)
------------------ -----------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY (DEFICIT) $ 1,508,944 $ 1,105,198
================== =================
</TABLE>
F-5
<PAGE> 37
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED OCTOBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
SALES $ 3,402,681 $ 2,350,459
COST OF SALES 2,219,796 1,579,440
----------- ----------
GROSS PROFIT 1,182,885 771,019
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 1,070,003 1,174,908
----------- ----------
INCOME (LOSS) FROM OPERATIONS 112,882 (403,889)
----------- ----------
OTHER INCOME (EXPENSES)
Interest expense (75,282) (74,147)
Interest income 40,320 27,848
Miscellaneous income 3,815 10,835
Gain/loss on disposition of assets 1,500 (6,177)
Loss on Investment property 0 (25,600)
----------- ----------
TOTAL OTHER INCOME (EXPENSE) (29,647) (67,241)
----------- ----------
INCOME (LOSS) BEFORE INCOME TAXES
(REFUND) 83,235 (471,130)
INCOME TAXES (REFUND) 32,053 (30,128)
----------- ----------
NET INCOME (LOSS) $ 51,182 $ (501,258)
=========== ==========
NET INCOME (LOSS) PER COMMON SHARE
Basic and Diluted $ 5.12 $ (50.13)
=========== ==========
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 10,000 10,000
=========== ==========
</TABLE>
F-6
<PAGE> 38
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ADVANCE
FROM IBIZ
COMMON STOCK TECHNOLOGY RETAINED
SHARES AMOUNT CORP. EARNINGS
------ ------ ----- --------
<S> <C> <C> <C> <C>
BALANCE, NOVEMBER 1, 1996 10,000 $ 10,000 $ 0 $ ( 200,088)
NET (LOSS) FOR THE YEAR
ENDED OCTOBER 31, 1997 0 0 0 ( 501,258)
--------------- --------------- ----------------- ------------------
BALANCE, OCTOBER 31, 1997 10,000 10,000 0 ( 701,346)
ADVANCE FROM IBIZ
TECHNOLOGY CORP. 0 0 158,101 0
NET INCOME FOR THE YEAR
ENDED OCTOBER 31, 1998 0 0 0 51,182
--------------- --------------- ----------------- ------------------
BALANCE, OCTOBER 31, 1998 10,000 $ 10,000 $ 158,101 $ ( 650,164)
=============== =============== ================= ===================
</TABLE>
F-7
<PAGE> 39
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 51,182 $ ( 501,258)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities
Depreciation 38,604 92,407
Gain/loss on disposition of equipment and
investment properties ( 1,500) 31,777
Increase (decrease) in
Accounts receivable, trade ( 62,463) 29,242
Other receivables ( 500) 3,000
Income tax refunds 19,919 56,146
Inventories ( 121,077) 98,263
Prepaid expenses ( 17,463) 8,794
Deferred tax asset ( 16,383) ( 24,607)
Deposits ( 2,390) 73
Accounts payable 88,871 ( 32,201)
Customer deposits 127,634 267,630
Accrued liabilities and taxes 226,100 ( 32,104)
Corporation income taxes payable ( 12,283) 12,469
Deferred income ( 39,766) 30,136
--------------- ----------------
NET CASH FLOWS PROVIDED
BY OPERATING ACTIVITIES 311,251 39,767
--------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment ( 18,071) ( 97,923)
Loans to related party ( 240,517) ( 35,000)
Proceeds from sale of property and equipment 1,500 0
--------------- ----------------
NET CASH FLOWS (USED) BY
INVESTING ACTIVITIES ( 257,088) ( 132,923)
--------------- ----------------
</TABLE>
F-8
<PAGE> 40
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft $ (845) $ 0
Advance from IBIZ Technology Corp. 158,101 0
Proceeds from notes payable 0 138,000
Repayments of notes payable (211,631) (32,364)
--------- ---------
NET CASH FLOWS PROVIDED (USED)
BY FINANCING ACTIVITIES (54,375) 105,636
--------- ---------
NET INCREASE (DECREASE) IN CASH (212) 12,480
CASH BALANCE (OVERDRAFT), BEGINNING
OF YEAR 412 (26,613)
--------- ---------
CASH BALANCE, END OF YEAR $ 200 $ 412
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during year:
Interest $ 61,117 $ 74,108
========= =========
Taxes $ 850 $ 50,913
========= =========
</TABLE>
F-9
<PAGE> 41
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998 AND 1997
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Invnsys Technology Corporation, formerly known as Southwest Financial
Systems, Inc., was incorporated in the State of Arizona on July 30,
1980 and is in the business of selling retail and wholesale
financial, computing and communication equipment. They also provide
repair services and sell maintenance contracts. The corporation
currently operates a service center in Phoenix, Arizona.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Uncollectible accounts receivable are written off at the time
management specifically determines them to be uncollectible. In
addition, the allowance for doubtful accounts is provided at an
amount determined by management.
A summary of accounts receivable and the allowance for doubtful
accounts is as follows:
<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
Accounts receivable $156,036 $ 98,073
Allowance for doubtful accounts 2,500 7,000
-------- --------
Net accounts receivable $153,536 $ 91,073
======== ========
</TABLE>
INVENTORIES
Inventories are stated at the lower of cost (determined principally
by the first-in, first-out method) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Major renewals and
improvements are charged to the asset accounts while replacement,
maintenance and repairs, which do not improve or extend the lives of
the respective assets, are expensed. At the time property and
equipment are retired or otherwise disposed of, the asset and related
accumulated depreciation accounts are relieved of the applicable
amounts. Gains or losses from retirements or sales are credited or
charged to income.
The company depreciates its property and equipment for financial
reporting purposes using the straight-line method based upon the
following useful lives of the assets:
F-10
<PAGE> 42
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998 AND 1997
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT (CONTINUED)
Tooling 3 Years
Machinery and equipment 5-10 Years
Office furniture and equipment 5-10 Years
Vehicles 5 Years
Leasehold improvements 5 Years
ACCOUNTING ESTIMATES
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent
assets and liabilities, and the reported revenues and expenses.
Actual results could vary from the estimates that were used.
REVENUE RECOGNITION
The company recognizes revenue from product sales when the
goods are shipped and title passes to customers.
SALES OF MAINTENANCE AGREEMENTS
The revenue received for the maintenance agreements is being
reported evenly over the life of the contracts. Such unearned
portion is recorded as deferred income.
INCOME TAXES
Provisions for income taxes are based on taxes payable or
refundable for the current year and deferred taxes on temporary
differences between the amount of taxable income and pretax
financial income and between the tax bases of assets and
liabilities and their reported amounts in the financial
statements. Deferred tax assets and liabilities are included in
the financial statements at currently enacted income tax rates
applicable to the period in which the deferred tax assets and
liabilities are expected to be realized or settled as prescribed
in FASB Statement No., 109, Accounting for Income Taxes. As
changes in tax laws or rates are enacted, deferred tax assets
and liabilities are adjusted through the provision for income
taxes.
F-11
<PAGE> 43
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998 AND 1997
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET EARNINGS PER SHARE
The company adopted Statement of Financial Accounting Standards
No. 128 that requires the reporting of both basic and diluted
earnings per share. Basic earnings per share is computed by
dividing net income available to common shareowners by the
weighted average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common
stock.
RISKS AND UNCERTAINTIES
The company is in the computer and computer technology industry.
The company's products are subject to rapid obsolescence and
management must authorize funds for research and development
costs in order to stay competitive.
NOTE 2 DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The company has financial instruments, none of which are held
for trading purposes. The company estimates that the fair value
of all financial instruments at October 31, 1998 and 1997, as
defined in FASB 107, does not differ materially from the
aggregate carrying values of its financial instruments recorded
in the accompanying balance sheet. The estimated fair value
amounts have been determined by the company using available
market information and appropriate valuation methodologies.
Considerable judgement is required in interpreting market data
to develop the estimates of fair value, and accordingly, the
estimates are not necessarily indicative of the amounts that the
company could realize in a current market exchange.
NOTE 3 INVENTORIES
At October 31, 1998 and 1997, inventories were comprised of:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Computer equipment $208,725 $161,212
Office equipment 25,693 25,689
Depot 9,343 9,343
Demo units 77,576 4,016
Parts 2,060 2,060
-------- --------
Totals $323,397 $202,320
======== ========
</TABLE>
F-12
<PAGE> 44
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998 AND 1997
NOTE 4 PROPERTY AND EQUIPMENT
At October 31, 1998 and 1997, property and equipment and
accumulated depreciation consisted of:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Tooling $ 68,100 $ 68,100
Machinery and equipment 30,656 75,104
Office furniture and equipment 60,406 45,476
Vehicles 39,141 59,596
Leasehold improvements 18,044 18,044
-------- --------
216,347 266,320
Less accumulated depreciation 139,811 169,251
-------- --------
Total property and equipment $ 76,536 $ 97,069
======== ========
</TABLE>
The depreciation expenses for the years ended October 31, 1998
and 1997 were $38,604 and $92,407, respectively.
NOTE 5 NOTE RECEIVABLE, RELATED PARTY
<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
The related note is unsecured, payable on demand and accrues
interest at 6% for 1998 and 8% for 1997. At October 31, 1998 and
1997, management believed the notes would not be collected
within the current operating cycle and classified the asset as a
long-term asset. $615,250 of the loan was repaid in 1999
Total $ 906,620 $666,103
========== ========
</TABLE>
F-13
<PAGE> 45
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998 AND 1997
NOTE 6 CUSTOMER DEPOSITS
It is the company's policy to obtain a portion of the sales
price when orders are received. These funds are recorded as
customer deposits and are applied to the customer invoices when
the merchandise is shipped.
NOTE 7 INCOME TAXES
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Income (loss) from continuing operations
before income taxes $ 83,235 $(471,130)
--------- ---------
The provision for income taxes were estimated as follows:
Currently payable $ 0 $ 0
Deferred 32,053 30,128
--------- ---------
A reconciliation of the provision for income taxes compared with
the amounts at the U.S. Federal Statutory rate was as follows:
Tax at U.S. Federal Statutory income tax rates $ 32,053 $ 30,128
--------- ---------
Deferred income tax assets and liabilities before valuation
allowance reflect the impact of temporary differences between
amounts of assets and liabilities for financial reporting purposes
and the basis of such assets and liabilities as measured by tax laws.
The net deferred tax assets is $ 136,830 $ 180,139
--------- ---------
</TABLE>
Temporary differences and carry forwards that gave rise to deferred
tax assets and liabilities included the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
Deferred Tax Deferred Tax
------------ ------------
Assets Liabilities Assets Liabilities
------ ----------- ------- -----------
<S> <C> <C> <C> <C>
Net operating loss $116,382 $ 0 $176,591 $ 0
Accrued expenses and miscellaneous 8,497 0 7,990 0
Tax credit carryforward 20,175 0 20,175 0
Depreciation 0 8,224 0 24,607
-------- -------- -------- --------
</TABLE>
F-14
<PAGE> 46
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998 AND 1997
NOTE 7 INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
---- ----
Deferred Tax Deferred Tax
------------ ------------
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Subtotals $145,054 $ 8,224 $ 204,756 $ 24,607
Less valuation allowance $(145,054) $ (8,224) $(204,756) $ (24,607)
-------- -------- -------- --------
Total deferred taxes 0 0 0 0
======== ======== ======== ========
</TABLE>
Realization of the net deferred tax assets is dependent on
future reversals of existing taxable temporary differences and
adequate future taxable income, exclusive of reversing temporary
differences and carryforwards. Although realization is not
assured, management believes that it is more likely than not
that the net deferred tax assets will not be realized.
NOTE 8 TAX CARRYFORWARD
The company has the following tax carryforwards at October 31,
1998:
<TABLE>
<CAPTION>
EXPIRATION
YEAR AMOUNT DATE
------------------ ---------- -----------------
<S> <C> <C>
Net operating loss
October 31, 1997 $ 342,302 October 31, 2012
Capital loss
October 31, 1997 25,600 October 31, 2002
Contribution
October 31, 1995 1,536 October 31, 2000
October 31, 1996 2,068 October 31, 2001
</TABLE>
NOTE 9 PAYROLL TAXES PAYABLE
At October 31, 1998, the company was delinquent in the payment
and filing of payroll tax returns in the amount of $236,923. The
payroll taxes were paid in 1999.
F-15
<PAGE> 47
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998 AND 1997
NOTE 10 NOTES PAYABLE
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Note payable to Community First National Bank due in monthly
payments of interest of approximately $3,100. Interest is
computed at national prime as stated in the Wall Street Journal
plus 3 percent. The principal amount is due July 31, 2000. This
note is secured by accounts receivable, general intangibles and
all equipment and leasehold improvements. The shareholder has
personally guaranteed the loan and the bank is the beneficiary
of an insurance policy on the life of the shareholder $340,613 $334,890
Note payable to Community First National Bank due in monthly
installments of principal and interest of $3,754 until May 7,
1999. Interest is computed at national prime as stated in the
Wall Street Journal plus 3 percent. This note is secured by
accounts receivable, general intangibles and all equipment and
leasehold improvements. The shareholder has personally
guaranteed the loan and the bank is the beneficiary of an
insurance policy on the life of the shareholder
The loan was paid off in 1999 23,737 64,798
Note payable to Community First National Bank due in monthly
payments of principal and interest of $545 with interest at 7
percent until March 7, 2004. The note is secured by
an automobile 29,353 33,646
</TABLE>
F-16
<PAGE> 48
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998 AND 1997
NOTE 10 NOTES PAYABLE (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Note payable to an individual payable in one payment of $50,000
on February 1, 1998 and a final balance and accrued interest on
May 21, 1998. The note is secured by a houseboat
owned by a stockholder of the company $ 0 $100,000
Unsecured note payable from an individual
with interest computed at 14%. Principal
and accrued interest is due December 5, 1997 0 72,000
-------- --------
393,703 605,334
Less: current portion of long-term debt 28,378 215,976
-------- --------
Net long-term debt $365,325 $389,358
======== ========
Maturities of long-term debt are as follows:
1998 1997
-------- --------
Year ended October 31,
1998 $ 0 215,976
1999 28,378 29,790
2000 345,588 339,865
2001 5,336 5,336
2002 5,721 5,721
2003 & thereafter 8,680 8,646
-------- --------
$393,703 $605,334
======== ========
</TABLE>
F-17
<PAGE> 49
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998 AND 1997
NOTE 11 OPERATING LEASE - REAL ESTATE
The company leases office space under a non-cancelable operating
lease agreement expiring on July 15, 1999. The lease provides
for annual rentals of approximately $40,000 plus increases due
to changes in the consumer price index and building operating
costs. The lease is guaranteed by the major stockholders of the
company.
Future minimum lease payments, excluding taxes and expenses, are
as follows for the years ending October 31:
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
1998 $ 0 $ 47,320
1999 35,128 35,128
-------------- --------------
$ 35,128 $ 82,448
============== ==============
</TABLE>
NOTE 12 ADVERTISING
The company expenses all advertising as incurred. For the years
ended October 31, 1998 and 1997, the company charged to
operations $89,656 and $24,721, respectively, in advertising
costs.
NOTE 13 INTEREST
The company incurred interest expenses for the years ended
October 31, 1998 and 1997 of $75,282 and $74,147, respectively.
NOTE 14 WARRANTY RESERVE
In 1998, the company established a warranty reserve of $ 10,000
to cover any potential warranty costs on computer equipment that
are not reimbursed by the computer manufacturer's warranty.
NOTE 15 ECONOMIC DEPENDENCY
The company purchases the majority of its computer equipment
from three suppliers.
NOTE 16 PLAN OF REORGANIZATION AND STOCK EXCHANGE AGREEMENT
On January 1, 1999, the company issued 16,000,000 shares of
newly issued restricted common stock for 100% of the issued and
outstanding stock of Invnsys Technology Corporation. Invnsys
Technology Corporation became a wholly-owned subsidiary of IBIZ
Technology Corp. and the acquisition was accounted for as a
reverse acquisition. On the consolidated financial statements,
the reverse acquisition method requires that the net assets of
Invnsys Technology Corporation be transferred to IBIZ Technology
Corp. at book value and the statement of operations include the
operations of both companies from the beginning of their fiscal
years which was November 1, 1998 for both companies.
F-18
<PAGE> 50
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998 AND 1997
NOTE 16 PLAN OF REORGANIZATION AND STOCK EXCHANGE AGREEMENT
(CONTINUED)
The following unaudited pro-forma combined financial date as of
October 31, 1998, has been derived from the historical financial
statements of IBIZ Technology Corp. and Invnsys Technology
Corporation giving effect to the business combination using the
reverse acquisition method of accounting. This information is
for illustration purposes only and is not necessarily indicative
of the consolidated financial position or results of operations
which would have been realized had the acquisition been
considered to occur as of the date for which the pro-forma
financial statements are presented. The pro-forma financial
statements also are not necessarily indicative of the
consolidated position or results of operations in the future.
Pro-Forma Consolidated Balance Sheet
<TABLE>
<CAPTION>
Invnsys IBIZ
Technology Technology Pro-forma Pro-forma
Corporation Corp. Adjustments Consolidated
----------- ----- ----------- ------------
<S> <C> <C> <C> <C>
Assets
Cash $ 200 $ 0 $ 0 $ 200
Accounts receivable 153,536 0 0 153,536
Inventories 323,397 0 0 323,397
Other 26,077 247,175 (247,175) 26,077
----------- ----------- ----------- -----------
Total current assets 503,210 247,175 (247,175) 503,210
Property and equipment 76,536 0 0 76,536
Other assets 929,198 0 0 929,198
----------- ----------- ----------- -----------
Total $ 1,508,944 $ 247,175 $ (247,175) $ 1,508,944
=========== =========== =========== ===========
Liabilities
Accounts payable $ 780,815 $ 9,048 $ ( 247,175) $ 542,688
Customer deposits 395,264 0 0 395,264
Other liabilities 449,603 0 0 449,603
----------- ----------- ----------- -----------
Total current
liabilities 1,625,682 9,048 (247,175) 1,387,555
Long-term debt 365,325 0 0 365,325
----------- ----------- ----------- -----------
Total liabilities 1,991,007 9,048 (247,175) 1,752,880
Stockholders' equity (482,063) 238,127 0 (243,936)
----------- ----------- ----------- -----------
Total $ 1,508,944 $ 247,175 $ (247,175) $ 1,508,944
=========== =========== =========== ===========
</TABLE>
F-19
<PAGE> 51
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998 AND 1997
NOTE 16 PLAN OF REORGANIZATION AND STOCK EXCHANGE AGREEMENT
(CONTINUED)
Pro-Forma Consolidated Statement of Income
<TABLE>
<CAPTION>
Invnsys IBIZ
Technology Technology Pro-forma Pro-forma
Corporation Corp. Adjustments Consolidated
----------- ----- ----------- ------------
<S> <C> <C> <C> <C>
Sales $ 3,402,681 $ 0 $ 0 $ 3,402,681
Cost of sales 2,219,796 0 0 2,219,796
------------ ------------ ------------ ------------
Gross Profit 1,182,885 0 0 1,182,885
Selling, general and
administrative expenses $ 1,070,003 $ 71,766 $ 0 $ 1,141,769
------------ ------------ ------------ ------------
Income from operations 112,882 (71,766) 0 41,116
Other income (expense) (29,647) 0 0 (29,647)
------------ ------------ ------------ ------------
Income before income
taxes 83,235 (71,766) 0 11,469
Income taxes 32,053 0 0 32,053
------------ ------------ ------------ ------------
Net income (loss) $ 51,182 $ (71,766) $ 0 $ (20,584)
============ ============ ============ ============
Loss per common share $ (0.001)
============
Weighted average number of
shares of common stock 24,000,000
============
</TABLE>
Pro-forma financial information for the year ended October 31,
1997 is not presented as IBIZ Technology Corp. was an inactive
public shell and had no activity.
NOTE 17 OFFICERS' COMPENSATION
On March 5, 1999, the company entered into three employment
agreements with the following officers:
<TABLE>
<CAPTION>
PRESIDENT VICE
AND CHIEF VICE PRESIDENT
EXECUTIVE PRESIDENT/ OF
OFFICER COMPTROLLER OPERATIONS
------- ----------- ----------
<S> <C> <C> <C>
Annual compensation $200,000 $ 88,000 $ 88,000
</TABLE>
F-20
<PAGE> 52
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998 AND 1997
NOTE 17 OFFICERS' COMPENSATION (CONTINUED)
<TABLE>
<CAPTION>
PRESIDENT VICE
AND CHIEF VICE PRESIDENT
EXECUTIVE PRESIDENT/ OF
OFFICER COMPTROLLER OPERATIONS
------- ----------- ----------
<S> <C> <C> <C>
Options for IBIZ Technology
Corp. stock 250,000 350,000 350,000
shares shares shares
Exercise price per share $ 0.75 $ 0.75 $ 0.75
</TABLE>
NOTE 18 INCOME TAXES FOR YEAR ENDED OCTOBER 31, 1998
The net income before taxes was $83,235 and the corporation
income taxes was $75,372. The large tax was due to the fact
that the following expenses were incurred but not deductible
for income tax purposes:
<TABLE>
<CAPTION>
<S> <C>
Penalties $ 70,661
Travel and entertainment 5,184
Country club dues 8,920
Warranty reserves 10,000
Other (64)
--------
Total $ 94,701
========
</TABLE>
F-21
<PAGE> 53
IBIZ TECHNOLOGY CORP. AND
CONSOLIDATED SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999
F-22
<PAGE> 54
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
ACCOUNTANTS' REPORT ...................................................... 1
FINANCIAL STATEMENTS
Consolidated Balance Sheet......................................... 2
Consolidated Statement of Operations............................... 3
Consolidated Statement of Changes in Stockholders' Deficit......... 4
Consolidated Statement of Cash Flows............................... 5-6
Notes to Consolidated Financial Statements......................... 7-19
</TABLE>
F-23
<PAGE> 55
ACCOUNTANTS' REPORT
To The Board of Directors and Stockholders
IBIZ Technology Corp. and Consolidated Subsidiary
Phoenix, Arizona
We have reviewed the accompanying consolidated balance sheet of IBIZ Technology
Corp. and Consolidated Subsidiary as of October 31, 1999, and the related
consolidated statements of operations, changes in stockholders' deficit, and
cash flows for the year then ended, in accordance with Statements on Standards
for Accounting and Review Services issued by the American Institute of Certified
Public Accountants. All information included in these financial statements is
the representation of the management of IBIZ Technology Corp. and Consolidated
Subsidiary.
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. As shown in the financial statements,
the company incurred a net loss of $954,099 during the year ended October 31,
1999, and, as of that date had a working capital deficit of $897,121 and a
shareholders' deficit of $429,063. In addition sales have declined significantly
from prior years. As discussed in note 22 to the financial statements, the
company's significant operating losses and capital needs raise substantial doubt
about its ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
MOFFITT & COMPANY, P.C.
SCOTTSDALE, ARIZONA
November 18, 1999
F-24
<PAGE> 56
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED BALANCE SHEET
OCTOBER 31, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 25,343
Accounts receivable, trade 212,537
Inventories 317,360
Prepaid expenses 38,984
----------
TOTAL CURRENT ASSETS $ 594,224
PROPERTY AND EQUIPMENT 124,747
OTHER ASSETS
Note receivable, related party 346,226
Deposits 16,759
----------
TOTAL OTHER ASSETS 362,985
----------
TOTAL ASSETS $1,081,956
==========
</TABLE>
F-25
<PAGE> 57
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable, trade $ 840,856
Customer deposits 115,408
Notes payable, current 67,497
Accrued liabilities 92,369
Sales and payroll taxes payable 98,082
Corporation income taxes payable 19,078
Deferred income 58,055
Convertible debentures payable 200,000
-----------
TOTAL CURRENT LIABILITIES $ 1,491,345
LONG - TERM LIABILITIES
Notes payable 19,674
-----------
TOTAL LONG - TERM LIABILITIES 19,674
STOCKHOLDERS' DEFICIT
Common stock
Authorized - 100,000,000 shares, par
value $.001 per shares
Issued and outstanding - 26,370,418 shares 26,370
Paid in capital in excess of par value of stock 1,086,266
Retained earnings (deficit) (1,541,699)
-----------
TOTAL STOCKHOLDERS' DEFICIT (429,063)
-----------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 1,081,956
===========
</TABLE>
F-26
<PAGE> 58
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
SALES $ 2,079,331
COST OF SALES 1,608,729
-------------
GROSS PROFIT 470,602
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 1,453,866
-------------
(LOSS) BEFORE OTHER INCOME (983,264)
OTHER INCOME (EXPENSE)
Cancellation of debt $ 154,933
Other income 32,339
Interest income 28,260
Interest expense (49,537)
-----------
TOTAL OTHER INCOME, NET 165,995
-------------
(LOSS) BEFORE INCOME TAXES (817,269)
INCOME TAXES 136,830
-------------
NET (LOSS) $ (954,099)
=============
NET (LOSS) PER COMMON SHARE
Basic and Diluted $ (.038)
=============
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING
Basic and diluted 25,116,013
=============
</TABLE>
F-27
<PAGE> 59
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEAR ENDED OCTOBER 31, 1999
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------
SHARES AMOUNT
---------- -----------
<S> <C> <C>
BALANCE, NOVEMBER 1, 1998 8,000,000 $ 8,000
ISSUANCE OF COMMON STOCK
FOR ACQUISITION OF INVNSYS
TECHNOLOGY CORPORATION
AND TRANSFER OF NET ASSETS
AT BOOK VALUE PER REVERSE
ACQUISITION 16,000,000 16,000
ISSUANCE OF COMMON STOCK
FOR CASH
AT .35(CENT)PER SHARE 640,318 640
AT .50(CENT)PER SHARE 1,730,100 1,730
FEES AND COSTS FOR ISSUANCE
OF STOCK 0 0
NET (LOSS) FOR THE YEAR ENDED
OCTOBER 31, 1999 0 0
---------- ----------
BALANCE, OCTOBER 31, 1999 26,370,418 $ 26,370
========== ==========
</TABLE>
F-28
<PAGE> 60
<TABLE>
<CAPTION>
PAID IN
CAPITAL IN
EXCESS OF ADVANCES RETAINED
PAR VALUE ON STOCK EARNINGS
OF STOCK SUBSCRIPTIONS (DEFICIT)
------------ ------------- -------------
<S> <C> <C>
$ 145,282 $ 154,111 $ (74,266)
(6,000) 0 (513,334)
223,471 0 0
863,320 (154,111) 0
(139,807) 0 0
0 0 (954,099)
----------- ----------- -----------
$ 1,086,266 $ 0 $(1,541,699)
=========== =========== ===========
</TABLE>
F-29
<PAGE> 61
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 31, 1999
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) $ (954,099)
Adjustments to reconcile net (loss) to
net cash (used) by operating activities
Depreciation 42,104
Increase (decrease) in
Accounts receivable, trade (59,001)
Other receivables 1,500
Inventories 6,037
Prepaid expenses (11,984)
Deferred tax asset 145,054
Deposits 3,396
Accounts payable 50,993
Customer deposits (279,856)
Accrued liabilities and taxes (126,965)
Deferred income (12,976)
-----------
NET CASH FLOWS (USED)
BY OPERATING ACTIVITIES $ (1,195,797)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (90,315)
Repayment of related party loans 644,614
-----------
NET CASH FLOWS PROVIDED BY
INVESTING ACTIVITIES 554,299
</TABLE>
F-30
<PAGE> 62
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED OCTOBER 31, 1999
<TABLE>
<CAPTION>
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C>
Bank overdraft $ (13,700)
Net proceeds from issuance of common stock 786,873
Proceeds from issuance of convertible debentures 200,000
Decrease in notes payable (306,532)
----------
NET CASH FLOWS PROVIDED
BY FINANCING ACTIVITIES $ 666,641
---------
NET INCREASE IN CASH 25,143
CASH BALANCE, NOVEMBER 1, 1998 200
---------
CASH BALANCE, OCTOBER 31, 1999 $ 25,343
=========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during year:
Interest $ 56,766
=========
Taxes $ 0
=========
NON CASH INVESTING AND FINANCING
ACTIVITIES
Issuance of company stock for investment in
Invnsys Technology Corporation $ 16,000
=========
</TABLE>
F-31
<PAGE> 63
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The company was organized on April 6, 1994, under the laws of
the State of Florida. In January, 1999, the company acquired
Invnsys Technology Corporation, an Arizona corporation. Per the
acquisition agreement, the company issued 16,000,000 shares of
newly issued restricted common stock for 100% of the issued and
outstanding stock of Invnsys Technology Corporation.
Invnsys Technology Corporation is in the business of selling
retail and wholesale, financial, computing and communication
equipment. They also provide repair services and sell
maintenance contracts. The corporation currently operates a
service center in Phoenix, Arizona.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
IBIZ Technology Corp. and its wholly owned subsidiary, Invnsys
Technology Corporation.
All material inter-company accounts and transactions have been
eliminated.
CORPORATION NAME CHANGES
The corporation has changed its name as follows:
1. At date of incorporation - Exotic Video City, Inc.
2. May 28, 1998 - EVC Ventures, Inc.
3. October 10, 1998 - Invnsys Holding Corporation
4. January 21, 1999 - IBIZ Technology Corp.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Uncollectible accounts receivable are written off at the time
management specifically determines them to be uncollectible. In
addition, the allowance for doubtful accounts is provided at an
amount determined by management.
INVENTORIES
Inventories are stated at the lower of cost (determined
principally by first-in, first-out method) or cost.
F-32
<PAGE> 64
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Major renewals and
improvements are charged to the asset accounts while
replacement, maintenance and repairs, which do not improve or
extend the lives of the respective assets, are expensed. At the
time property and equipment are retired or otherwise disposed
of, the asset and related accumulated depreciation accounts are
relieved of the applicable amounts. Gains or losses from
retirements or sales are credited or charged to income.
The company depreciates its property and equipment for financial
reporting purposes using the straight-line method based upon the
following useful lives of the assets:
<TABLE>
<S> <C>
Tooling 3 Years
Machinery and equipment 5-10 Years
Office furniture and equipment 5-10 Years
Vehicles 5 Years
Leasehold improvements 5 Years
</TABLE>
ACCOUNTING ESTIMATES
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent
assets and liabilities, and the reported revenues and expenses.
Actual results could vary from the estimates that were used.
REVENUE RECOGNITION
The company recognizes revenue from product sales when the goods
are shipped and title passes to customers.
SALES OF MAINTENANCE AGREEMENTS
The revenue received for the maintenance agreements is being
reported evenly over the life of the contracts. Such unearned
portion is recorded as deferred income.
INCOME TAXES
Provisions for income taxes are based on taxes payable or
refundable for the current year and deferred taxes on temporary
differences between the amount of taxable income and pretax
financial income and between the tax bases of assets and
liabilities and their reported amounts
F-33
<PAGE> 65
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES (CONTINUED)
in the financial statements. Deferred tax assets and liabilities
are included in the financial statements at currently enacted
income tax rates applicable to the period in which the deferred
tax assets and liabilities are expected to be realized or
settled as prescribed in FASB Statement No., 109, Accounting for
Income Taxes. As changes in tax laws or rates are enacted,
deferred tax assets and liabilities are adjusted through the
provision for income taxes.
NET EARNINGS PER SHARE
The company adopted Statement of Financial Accounting Standards
No. 128 that requires the reporting of both basic and diluted
earnings per share. Basic earnings per share is computed by
dividing net income available to common shareowners by the
weighted average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common
stock. In accordance with FASB 128, potentially dilutive
warrants and options that would have an anti-dilutive effect on
net loss per share are excluded.
RISKS AND UNCERTAINTIES
The company is in the computer and computer technology industry.
The company's products are subject to rapid obsolescence and
management must authorize funds for research and development
costs in order to stay competitive.
NOTE 2 DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The company has financial instruments, none of which are held
for trading purposes. The company estimates that the fair value
of all financial instruments at October 31, 1999, as defined in
FASB 107, does not differ materially from the aggregate carrying
values of its financial instruments recorded in the accompanying
balance sheet. The estimated fair value amounts have been
determined by the company using available market information and
appropriate valuation methodologies. Considerable judgement is
required in interpreting market data to develop the estimates of
fair value, and accordingly, the estimates are not necessarily
indicative of the amounts that the company could realize in a
current market exchange.
NOTE 3 ACCOUNTS RECEIVABLE
A summary of accounts receivable and allowance for doubtful
accounts is as follows:
<TABLE>
<S> <C>
Accounts receivable $ 215,037
Allowance for doubtful accounts 2,500
-----------
$ 212,537
===========
</TABLE>
F-34
<PAGE> 66
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 4 INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
<S> <C>
Computer and components:
Finished products $218,018
Demonstration and loaner units 56,009
Depot units 18,302
Office 24,712
Parts 319
--------
Total inventories $317,360
========
</TABLE>
NOTE 5 PROPERTY AND EQUIPMENT
Property and equipment and accumulated depreciation consisted
of:
<TABLE>
<S> <C>
Tooling $ 68,100
Machinery and equipment 39,032
Office furniture and equipment 105,627
Vehicles 39,141
Leasehold improvements 17,031
--------
268,931
Less accumulated depreciation 144,184
--------
Total property and equipment $124,747
========
</TABLE>
The depreciation expenses for the year ended October 31, 1999 is
$ 42,104.
NOTE 6 NOTE RECEIVABLE, RELATED PARTY
<TABLE>
<S> <C>
The related note is secured by 500,000 shares of common stock in
the company, payable on demand and accrues interest at 6%. At October
31, 1999, management believed the notes would not be collected within
the current operating cycle and classified the asset as a long-term asset. $ 346,226
=========
</TABLE>
F-35
<PAGE> 67
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 7 CUSTOMER DEPOSITS
It is the company's policy to obtain a portion of the sales
price when orders are received. These funds are recorded as
customer deposits and are applied to the customer invoices when
the merchandise is shipped.
NOTE 8 INCOME TAXES
<TABLE>
<S> <C>
(Loss) from continuing operations
before income taxes $ (954,099)
-----------
The provision for income taxes is estimated as follows:
Currently payable $ 0
Deferred 136,830
-----------
A reconciliation of the provision for income taxes compared with
the amounts at the U.S. Federal Statutory rate was as follows:
Tax at U.S. Federal Statutory income tax rates $ 136,830
-----------
Deferred income tax assets and liabilities reflect the impact of
temporary differences between amounts of assets and liabilities for
financial reporting purposes and the basis of such assets and
liabilities as measured by tax laws. The net deferred tax assets is: $ 0
-----------
Temporary differences and carry forwards that
gave rise to deferred tax assets and liabilities
included the following:
</TABLE>
<TABLE>
<CAPTION>
Deferred Tax
Assets Liabilities
------ -----------
<S> <C> <C>
Net operating loss $261,863 $ 0
Accrued expenses and miscellaneous 9,030 0
Tax credit carryforward 20,175 0
Depreciation 0 6,199
-------- --------
</TABLE>
F-36
<PAGE> 68
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 8 INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
Deferred Tax
Assets Liabilities
------ -----------
<S> <C> <C>
Subtotals $ 291,068 $ 6,199
Valuation allowance (291,068) (6,199)
--------- ---------
Total deferred taxes $ 0 $ 0
========= =========
</TABLE>
As discussed in note 22, there is substantial doubt about the
company's ability to continue as a going concern. Consequently,
the company must maintain a 100% valuation allowance for the
deferred taxes as there is doubt that the company will generate
profits which will be absorbed by the tax differences.
A reconciliation of the valuation allowance is as follows:
<TABLE>
<S> <C>
Balance, October 31, 1998 $145,054
Addition to allowance for year ended October 31, 1999 146,014
--------
Balance, October 31, 1999 $291,068
========
</TABLE>
NOTE 9 TAX CARRYFORWARD
The company has the following tax carryforwards at October 31,
1999:
<TABLE>
<CAPTION>
EXPIRATION
YEAR AMOUNT DATE
--------------------- --------- -----------------
<S> <C> <C>
Net operating loss
October 31, 1997 $342,302 October 31, 2012
October 31, 1999 796,236 October 31, 2019
Capital loss
October 31, 1997 25,600 October 31, 2002
Contribution
October 31, 1995 1,536 October 31, 2000
October 31, 1996 2,068 October 31, 2001
October 31, 1999 2,081 October 31, 2004
</TABLE>
F-37
<PAGE> 69
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 10 NOTES PAYABLE
<TABLE>
<S> <C>
Note payable to Community First National Bank due in monthly
payments of interest of approximately $3,100. Interest is
computed at national prime as stated in the Wall Street Journal
plus 3 percent. The principal amount is due July 31, 2000. This
note is secured by accounts receivable, general intangibles and
all equipment and leasehold improvements. The shareholder has
personally guaranteed the loan and the bank is the beneficiary of
an insurance policy on the life of the shareholder. $62,426
Note payable to Community First National Bank due in monthly
payments of principal and interest of $545 with interest at 7
percent until March 7, 2004. The note is secured by an automobile. 24,745
-------
87,171
Less: current portion 67,497
-------
Net long-term debt $19,674
=======
Maturities of long-term debt are as follows:
Year ended October 31,
2000 $67,497
2001 5,336
2002 5,721
2003 6,135
2004 2,482
-------
$87,171
=======
</TABLE>
F-38
<PAGE> 70
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 11 COMMON STOCK PURCHASE WARRANTS
The company has issued the following common stock purchase warrants:
<TABLE>
<CAPTION>
NUMBER EXERCISE
DATE OF SHARES TERM PRICE
---- --------- ---- --------
<S> <C> <C> <C>
May 7, 1999 100,000 3 years $ 0.75
May 13, 1999 100,000 3 years $ 1.00
May 7, 1999 300,000 3 years $ 0.75
May 7, 1999 300,000 10 years $ 0.75
May 13, 1999 100,000 10 years $ 1.00
</TABLE>
NOTE 12 CONVERTIBLE DEBENTURES
On June 30, 1999, the company authorized $200,000 of convertible
debentures. The debentures bear interest at 8%, are unsecured and are
due on June 21, 2000.
Upon the effectiveness of the required registration statements, the
debentures will automatically convert into 300,000 fully paid and
nonassessable shares of common stock of the company.
NOTE 13 REAL ESTATE LEASE
On June 1, 1999, the company leased a new facility from a related
entity. The lease commenced on July 1, 1999, requires initial annual
rentals of $153,600 (with annual increases) plus taxes and operating
costs and expires on December 31, 2024. The company has also
guaranteed the mortgage on the premises.
Future minimum lease payments, excluding taxes and expenses, are as
follows:
<TABLE>
<S> <C>
October 31, 2000 $ 156,160
October 31, 2001 163,968
October 31, 2002 172,168
October 31, 2003 180,780
October 31, 2004 189,820
November 1, 2004 - December 31, 2004 6,676,000
</TABLE>
NOTE 14 ADVERTISING
The company expenses all advertising as incurred. For the year ended
October 31, 1999, the company charged to operations $15,492 in
advertising costs.
F-39
<PAGE> 71
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 15 INTEREST
The company incurred interest expenses for the year ended October 31,
1999 of $49,537.
NOTE 16 RESEARCH AND DEVELOPMENT COSTS
The company incurred research and development costs for the year
ended October 31, 1999 of $5,014.
NOTE 17 WARRANTY RESERVE
The company established a warranty reserve of $10,000 to cover any
potential warranty costs on computer equipment that are not covered
by the computer manufacturer's warranty.
NOTE 18 ECONOMIC DEPENDENCY
The company purchases the majority of its computer equipment from
three suppliers.
NOTE 19 OFFICERS' COMPENSATION
On March 5, 1999, the company entered into three employment
agreements with the following officers:
<TABLE>
<CAPTION>
PRESIDENT VICE
AND CHIEF VICE PRESIDENT
EXECUTIVE PRESIDENT/ OF
OFFICER COMPTROLLER OPERATIONS
--------- ----------- ----------
<S> <C> <C> <C>
Annual compensation $ 200,000 $ 88,000 $ 88,000
=========== =========== ===========
</TABLE>
NOTE 20 STOCK OPTIONS
On January 31, 1999, the corporation adopted a stock option plan for
the purpose of providing an incentive based form of compensation to
the directors, key employees and service providers of the
corporation.
The stock subject to the plan and issuable upon exercise of options
granted under the plan are shares of the corporation's common stock,
$.001 par value, which may be either unissued or treasury shares. The
aggregate number of shares of common stock covered by the plan and
issuable upon exercise of all options granted shall be 5,000,000
shares, which shares shall be reserved for use upon the exercise of
options to be granted from time to time.
F-40
<PAGE> 72
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 20 STOCK OPTIONS (CONTINUED)
The company issued the following options:
<TABLE>
<CAPTION>
DATE OF NUMBER VESTING
ISSUANCE OF SHARES RECIPIENT PERIOD TERM
-------- --------- --------- ------ ----
<S> <C> <C> <C> <C>
April 22, 1999 800,000 Officers One year 10 years
50% immediately
50% in six months
April 22, 1999 240,000 Employees Five years 10 years
20% per year
April 22, 1999 200,000 Employee Five years 10 years
10% immediately
balance over four
years
April 22, 1999 150,000 Directors Two years 10 years
50% per year
May 7, 1999 500,000 Employee Immediately 10 years
May 7, 1999 85,000 Employees Five years 10 years
10,000 shares
immediately
balance over five
years
May 7, 1999 375,000 Employee After two years, 10 years
--------- 50% per year
2,350,000
=========
</TABLE>
The exercise price is the fair market value of the shares (average of
bid and ask price) at the date of the grant which was .75(cents) per
share.
The company applied APB Opinion 25 and related interpretations in
accounting for this stock option plan. Had compensation costs for the
company's plan been determined based on the fair value at the grant
date consistent with the method of FASB Statement 123, the company's
net
F-41
<PAGE> 73
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 20 STOCK OPTIONS (CONTINUED)
income and earnings per share would not have changed.
The fair value of the option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions: (1) dividend yield of 0%, (2) expected volatility of
30%, (3) risk-free interest rate of 6.40%, and (4) expected life of
10 years.
A summary of the stock options is as follows:
<TABLE>
<CAPTION>
SHARES
------
<S> <C>
Outstanding at November 1, 1998 0
Granted during the year 2,350,000
---------
Outstanding at October 31, 1999 2,350,000
=========
</TABLE>
Information regarding stock options outstanding as of October 31,
1999 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------
WEIGHTED
WEIGHTED AVERAGE
AVERAGE REMAINING
PRICE EXERCISE CONTRACTUAL
RANGE SHARES PRICE LIFE
----- ------ -------- -----------
<S> <C> <C> <C>
$ .75(cents) 2,350,000 $ .75 9 years, 6 months
</TABLE>
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
-------------------
WEIGHTED
AVERAGE
PRICE EXERCISE
RANGE SHARES PRICE
----- ------ --------
<S> <C> <C>
$ 0 0 N/A
</TABLE>
Since the exercise price and the fair market value of the stock were
the same, there is no compensation costs to report and required
pro-forma net income and earnings per share are the
F-42
<PAGE> 74
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 20 STOCK OPTIONS (CONTINUED)
same as the historical financial statement presentations.
NOTE 21 PLAN OF REORGANIZATION AND STOCK EXCHANGE AGREEMENT
On January 1, 1999, the company issued 16,000,000 shares of newly
issued restricted common stock for 100% of the issued and outstanding
stock of Invnsys Technology Corporation. Invnsys Technology
Corporation became a wholly-owned subsidiary of IBIZ Technology Corp.
and the acquisition was accounted for as a reverse acquisition.
The details of the results of operation (unaudited) for each separate
company, prior to the date of combination, that are included in the
current net income are:
<TABLE>
<CAPTION>
INVNSYS IBIZ
TECHNOLOGY TECHNOLOGY
CORPORATION CORP.
----------- -----------
<S> <C> <C>
Sales $ 402,127 $ 0
Cost of sales 239,704 0
--------- ---------
Gross profit 162,423 0
Selling, general and administrative
expenses 243,094 27,742
--------- ---------
(Loss) before income taxes (refund) (80,671) (27,742)
Income taxes (refund) (20,150) 0
--------- ---------
Net (loss) $ (60,521) $ (27,742)
========= =========
</TABLE>
There were no adjustments in the net assets of the combining
companies to adopt the same accounting policies.
Each of the companies had an October 31 fiscal year so no accounting
adjustments were necessary.
An (unaudited) reconciliation of revenues and earnings reconciled
with the amounts shown in the combined financial statements is as
follows:
<TABLE>
<S> <C>
Net (loss) on IBIZ Technology Corp. at December 31, 1998 $ (27,742)
Add Invnsys Technology Corporation (loss)
for November 1, 1998 to December 31, 1998 (60,521)
Additional net (loss) from January 1, 1999 to October 31, 1999 (865,836)
---------
Net (loss) for the year ended October 31, 1999 $(954,099)
=========
</TABLE>
F-43
<PAGE> 75
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 22 GOING CONCERN
These financial statements are presented on the basis that the
company is a going concern. Going concern contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business over a reasonable length of time. The
accompanying financial statement show that current liabilities exceed
current assets by $897,021 and a shareholders' deficit of $429,063.
In addition, sales have declined significantly from prior years. As
described in note 23, the company obtained $600,000 of additional
capital in November 1999.
NOTE 23 SUBSEQUENT EVENT
In November 1999, the company issued $600,000 of 7% convertible
debentures under the following terms and conditions:
1. Due date - November 9, 2004.
2. Interest only on April 1 and November 1 of each year
commencing January 1, 2000.
3. Warrants to purchase 100,000 shares of common stock at $
0.94 per share.
4. Conversion terms - The debenture holder shall have the
right to convert all or a portion of the outstanding
principal amount of this debenture plus any accrued
interest into such number of sales of common stock as shall
equal the quotient obtained by dividing the principal
amount of this debenture by the applicable conversion
price.
5. Conversion price - Lesser of (i) $ 0.94 (fixed price) or
(ii) the product obtained by multiplying the average
closing price by $ 0.80.
6. Average closing price - The debenture holder shall have the
election to choose any three trading days out of twenty
trading days immediately preceding the date on which the
holder gives the company a written notice of the holders'
election to convert outstanding principal of this
debenture.
7. Redemption by company - If there is a change in control of
the company, the holder of the debenture can request that
the debenture be redeemed at a price equal to 125% of the
aggregate principal and accrued interest outstanding under
this debenture.
8. The debentures are unsecured.
9. Any further issuance of common stock or debentures must be
approved by debenture holders.
10. Debenture holders have a eighteen month right of first
refusal on future disposition of stock by the company.
11. Restriction on payment of dividends, retirement of stock or
issuance of new securities.
F-44
<PAGE> 76
PART III
INDEX TO EXHIBIT
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ----------- --------
<S> <C> <C>
2.01(1) Plan of Reorganization and Stock Exchange Agreement dated
January 1, 1999
3.01(1) Articles of Incorporation, as amended
3.02(1) Bylaws
10.1(1) Citrix Business Alliance Membership Agreement dated
February 10, 1999, between INVNSYS and Citrix Systems, Inc.
10.2(1) Client Software License Agreement dated December 30, 1998,
between INVNSYS and Citrix Systems, Inc.
10.3(1) iBIZ Technology Corporation Distributed Software License
Agreement dated June 2, 1999, between iBIZ and Jeremy
Radlow
10.4(1) 3Com Designed for Palm Computing Platform Logo License
Agreement, between iBIZ and Palm Computing, Inc.
10.5(1) iBIZ Technology Corp. Stock Option Plan dated January 31,
1999
10.6(1) Form of Stock Option
10.7(1) Lease Agreement dated June 1, 1999, between iBIZ and Lone
Cactus Capital Group, L.L.C.
10.8(1) Strategic Teaming and Marketing Agreement dated February
18, 1999, between iBIZ and Global Telephone Communication,
Inc.
10.9(1) Form of iBIZ Technology Corp. Common Stock Purchase Warrant
10.10(1) Form of iBIZ Technology Corp. Convertible Debenture
10.11(1) Employment Agreement dated March 5, 1999, as amended,
between iBIZ, INVNSYS and Kenneth Schilling
10.12(1) Employment Agreement dated March 5, 1999, as amended,
between iBIZ, INVNSYS and Terry Ratliff
10.13(1) Employment Agreement dated March 5, 1999, as amended,
between iBIZ, INVNSYS and Mark Perkins
10.14(2) Securities Purchase Agreement dated November 9, 1999,
between iBIZ and Globe United Holdings, Inc.
10.15(2) 7% Convertible Debenture Due November 9, 2004, between iBIZ
and Globe United Holdings, Inc.
10.16(2) Warrant dated November 9, 1999
10.17(2) Registration Rights Agreement dated November 9, 1999,
between iBIZ and Globe United Holdings, Inc.
21.(1) Subsidiaries of Registrant
27.(2) Financial Data Schedule
</TABLE>
- ---------------
(1.) Incorporated by reference from iBIZ's Form 10-SB, File No. 027619,
filed with the SEC on October 13, 1999.
(2.) Incorporated by reference from iBIZ Form 10-SB/A, File No. 027619, filed
with the SEC on December 1, 1999.
<PAGE> 77
Pursuant to the requirements of Section 12 of the Securities Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned thereunto duly authorized.
Dated this 15th day of December, 1999
IBIZ TECHNOLOGY CORP., A FLORIDA
CORPORATION
By: /s/ Kenneth W. Schilling
______________________________________________
Kenneth W. Schilling, President, Director
By: /s/ Terry S. Ratliff
______________________________________________
Terry S. Ratliff, Vice President,
Comptroller, Director
By: /s/ Mark H. Perkins
______________________________________________
Mark H. Perkins, Vice President of Operations,
Director
<PAGE> 78
INDEX TO EXHIBIT
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ----------- --------
<S> <C> <C>
2.01(1) Plan of Reorganization and Stock Exchange Agreement dated
January 1, 1999
3.01(1) Articles of Incorporation, as amended
3.02(1) Bylaws
10.1(1) Citrix Business Alliance Membership Agreement dated
February 10, 1999, between INVNSYS and Citrix Systems, Inc.
10.2(1) Client Software License Agreement dated December 30, 1998,
between INVNSYS and Citrix Systems, Inc.
10.3(1) iBIZ Technology Corporation Distributed Software License
Agreement dated June 2, 1999, between iBIZ and Jeremy
Radlow
10.4(1) 3Com Designed for Palm Computing Platform Logo License
Agreement, between iBIZ and Palm Computing, Inc.
10.5(1) iBIZ Technology Corp. Stock Option Plan dated January 31,
1999
10.6(1) Form of Stock Option
10.7(1) Lease Agreement dated June 1, 1999, between iBIZ and Lone
Cactus Capital Group, L.L.C.
10.8(1) Strategic Teaming and Marketing Agreement dated February
18, 1999, between iBIZ and Global Telephone Communication,
Inc.
10.9(1) Form of iBIZ Technology Corp. Common Stock Purchase Warrant
10.10(1) Form of iBIZ Technology Corp. Convertible Debenture
10.11(1) Employment Agreement dated March 5, 1999, as amended,
between iBIZ, INVNSYS and Kenneth Schilling
10.12(1) Employment Agreement dated March 5, 1999, as amended,
between iBIZ, INVNSYS and Terry Ratliff
10.13(1) Employment Agreement dated March 5, 1999, as amended,
between iBIZ, INVNSYS and Mark Perkins
10.14(2) Securities Purchase Agreement dated November 9, 1999,
between iBIZ and Globe United Holdings, Inc.
10.15(2) 7% Convertible Debenture Due November 9, 2004, between iBIZ
and Globe United Holdings, Inc.
10.16(2) Warrant dated November 9, 1999
10.17(2) Registration Rights Agreement dated November 9, 1999,
between iBIZ and Globe United Holdings, Inc.
21.(1) Subsidiaries of Registrant
27.(2) Financial Data Schedule
</TABLE>
- ---------------
(1). Incorporated by reference from iBIZ's Form 10-SB, File No. 027619,
filed with the SEC on October 13, 1999.
(2). Incorporated by reference from iBIZ's Form 10-SB/A, File No. 027619,
filed with the SEC on December 1, 1999.
