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U. S. Securities and Exchange Commission
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
iBIZ Technology Corp.
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(Name of small business issuer in its charter)
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Florida 3571 86-0933890
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(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or Classification Code Number) Identification No.)
organization)
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1919 West Lone Cactus Drive, Phoenix, Arizona 85021, (623) 492-9200
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(Address and telephone number of principal executive offices)
1919 West Lone Cactus Drive, Phoenix, Arizona 85021
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(Address of principal place of business or intended principal place of business)
Robert L. Lane, Lane & Ehrlich, Ltd
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4001 N. Third St., Suite 400, Phoenix, Arizona 85012-2065 (602) 264-4442
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(Name, address and telephone number of agent for service)
Copy to:
Stephen R. Boatwright, Esq.
Daniel A. Larson, Esq.
Gammage & Burnham, PLC
Two North Central Avenue, 18th Floor
Phoenix, Arizona 85004
(602) 256-0566
Approximate date of proposed sale to the public: January 31, 2000
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
|_|______________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
|_|______________
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
|_|______________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.
|_|______________
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CALCULATION OF REGISTRATION FEE
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Title of each class of securities to Amount to be Proposed Proposed maximum Amount of
be registered registered(1) maximum aggregate registration
offering price offering price fee
per share
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Common stock, $.001 par value 5,039,252(2) $1.47(7) $7,407,700.00(7) $2,059.34(7)
Common stock, $.001 par value 1,000,000(3) $1.47(7) $1,470,000.00(7) $ 408.66(7)
Common stock, $.001 par value 500,000(4) $1.47(7) $ 735,000.00(7) $ 204.33(7)
Common stock, $.001 par value 300,000(5) $1.47(7) $ 441,000.00(7) $ 122.60(7)
Common stock, $.001 par value 305,000(6) $1.16(8) $ 353,800.00(8) $ 93.40(8)
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(1) Represents the shares of common stock being registered for resale by
the selling securityholders.
(2) Pursuant to a registration rights agreement between us and a selling
securityholder, the number of shares represents 200% of the maximum
number of shares which would be issuable as of the date of filing this
registration statement upon conversion of two seven percent convertible
debentures. Pursuant to Rule 416, the shares of common stock offered
hereby also include such presently indeterminate number of shares of
common stock as shall be issued by us to the selling securityholder
upon conversion of the debentures. That number of shares is subject to
adjustment under anti-dilution provisions included in the debentures
covering the additional issuance of shares by iBIZ resulting from stock
splits, stock dividends or similar transactions. This presentation is
not intended to constitute a prediction as to the future market price
of the common stock or as to the number of shares of common stock
issuable upon conversion of the debentures.
(3) Pursuant to a registration rights agreement among us and a selling
securityholder, the number of shares includes 200% of the maximum
number of shares which would be issuable as of the date of filing this
registration statement upon exercise of warrants to purchase an
aggregate of 300,000 shares of common stock. Pursuant to Rule 416, the
shares of common stock offered hereby also include such presently
indeterminate number of shares of common stock as shall be issued by us
to the selling securityholder upon exercise of the warrants. That
number of shares is subject to adjustment under anti-dilution
provisions included in the warrants covering the additional issuance of
shares by iBIZ resulting from stock splits, stock dividends or similar
transactions. This presentation is not intended to constitute a
prediction as to the future market price of the common stock or as to
the number of shares of common stock issuable upon exercise of the
warrants.
(4) Issuable upon conversion of options.
(5) Issuable upon conversion of the selling securityholders' eight percent
convertible debentures.
(6) These shares are being registered pursuant to our obligations to the
selling securityholders.
(7) These amounts were previously paid with the filing of our Form SB-2,
File No. 333-94404 on January 11, 2000. The fees were estimated solely
for the purpose of calculating the registration fee pursuant to Rule
457(c) and (g) of the Securities Act of 1933, as amended (the
"Securities Act"); based on the average ($1.47) of the bid ($1.44) and
asked ($1.50) price on the NASD OTC Bulletin Board on January 3, 2000.
(8) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Securities Act; based on the average
($1.16) of the bid ($1.13) and asked ($1.18) price on the NASD OTC
Bulletin Board on January 25, 2000.
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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CROSS REFERENCE SHEET
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CAPTION IN FORM SB-2 CAPTION IN PROSPECTUS
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1. Front of Registration Statement and outside front of Front cover
cover of Prospectus
2. Inside front and outside back cover of Prospectus Inside front cover of Prospectus
3. Summary information and Risk Factors Summary; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Plan of Distribution
6. Dilution Not Applicable
7. Selling Security Holders Selling Securityholders
8. Plan of Distribution Plan of Distribution
9. Legal Proceedings Business
10. Directors, Executive Officers, Promoters and Control Directors and Executive Officers
Persons
11. Security Ownership of Certain Beneficial Owners and Security Ownership of Certain Beneficial Owners
Management and Management
12. Description of Securities Description of Securities
13. Interest of Named Experts and Counsel Not Applicable
14. Disclosure of Commission Position of Indemnification Indemnification for Securities Act Liabilities
for Securities Act Liabilities
15. Organization in last five years Not Applicable
16. Description of business Business
17. Management's Discussion and Analysis or Plan of Management's Discussion and Analysis
Operations
18. Description of Property Business
19. Certain Relationships and Related Transactions Certain Relationships and Related Transactions
20. Market for Common Equity and Related Stockholder Market for Common Equity and Related Shareholder
Matters Matters
21. Executive Compensation Executive Compensation
22. Financial Statements Financial Statements
23. Changes in and Disagreements with Accountants on Not Applicable
Accounting and Financial Disclosure
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iBIZ TECHNOLOGY CORP.
1919 WEST LONE CACTUS DRIVE
PHOENIX, ARIZONA 85021
(623) 492-9200
www.ibizcorp.com
7,144,252 SHARES
COMMON STOCK
7,144,252 shares of common stock are being offered by our
securityholders named under the heading "Selling Securityholders" appearing at
page 14. We will not receive any of the proceeds from the sale of common stock
by the securityholders. However, we will receive amounts upon exercise of
outstanding options or warrants.
Some of the securityholders have agreed to pay a portion of the
expenses related to this offering, and all securityholders will pay sales or
brokerage commissions or discounts with respect to sales of their shares.
The shares of common stock described in this prospectus are for resale.
The shares offered are being registered due to iBIZ's obligations to those
securityholders. The securityholders may elect to sell shares of common stock
described in this prospectus through brokers at the price prevailing at the time
of sale or at negotiated prices. The common stock may also be offered in block
trades, private transactions or otherwise at prices to be negotiated.
Our common stock is traded on the National Association of Securities
Dealers, Inc., OTC Bulletin Board under the symbol "iBIZ." On January 27, 2000,
the price for our common stock was $1.31 per share.
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS, SEE "RISK
FACTORS" ON PAGE 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
January 31, 2000
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TABLE OF CONTENTS
PAGE
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PROSPECTUS SUMMARY ..................................................... 3
RISK FACTORS ........................................................... 6
SELLING SECURITYHOLDERS ................................................ 14
USE OF PROCEEDS ........................................................ 15
PLAN OF DISTRIBUTION ................................................... 15
MANAGEMENT'S DISCUSSION AND ANALYSIS ................................... 16
DESCRIPTION OF BUSINESS ................................................ 21
DIRECTORS AND EXECUTIVE OFFICERS ....................................... 35
EXECUTIVE COMPENSATION ................................................. 37
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ......... 39
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ......................... 40
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS ............... 40
DESCRIPTION OF SECURITIES .............................................. 41
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES ......................... 44
EXPERTS ................................................................ 44
LEGAL MATTERS .......................................................... 45
FINANCIAL STATEMENTS ................................................... F-1
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PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION REGARDING OUR COMPANY, OUR COMMON STOCK AND OUR FINANCIAL STATEMENTS
AND NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS.
OUR COMPANY
OVERVIEW
Our company is incorporated in Florida. Our executive offices are
located at 1919 West Lone Cactus Drive, Phoenix, Arizona 85021, and our
telephone number is (623) 492-9200. Our world wide web address is
http://www.ibizcorp.com. Information contained on our website is not part of
this prospectus.
Through our wholly-owned operating subsidiary, INVNSYS Technology
Corporation, we design, manufacture and distribute desktop computers, monitors,
transactional printers, financial application keyboards, numeric keypads and
related products. We also market a line of original equipment manufacturer
notebook computers and distribute transactional and color printers.
We recently expanded our business to include network integration
services and digital subscriber line high-speed Internet connection services. We
have also recently acquired assets from a company engaged in the business-to-
business sale of software and intend to incorporate software sales into our
business.
Founded in 1979, INVNSYS has evolved from a distributor of bank
automation computer systems to a provider of a variety of computer products
targeted at both the commercial and personal markets. Throughout its history,
INVNSYS has provided innovative products to satisfy its customers' demands.
PRODUCTS
Our product groups currently include:
- Business Application Small Footprint Computers. Designed for
limited space environments, we believe our iT-8000 has the
smallest base or footprint of any desktop in the personal
computer industry.
- Personal Computers. We offer two small footprint personal
computers, the Safari and the Sahara.
- Keyboards. We market a range of keyboards and numeric keypads
targeted at financial institutions. We recently introduced an
innovative keyboard called "KeySync," specifically designed
for use with hand-held personal organizers such as 3COM's Palm
Pilot.
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- Displays and Monitors. We sell a line of space-saving,
zero-emission LCD flat panel displays. We believe our LCD
panels take up less than one-tenth of the space needed for an
equivalent cathode ray tube monitor and are some of the
thinnest available on the market. We also offer a line of
traditional monitors.
- Notebook Computers. We market a complete line of competitively
priced, build-to-order notebook computers under the name
"iBook." Currently, we sell three models, the Roadrunner, the
Apache and the Phoenix.
- Printers and Peripherals. We are an authorized distributor of
Epson printers and peripherals and currently offer two
transactional printers. We recently began offering Tektronix
color printers.
- Third-Party Hardware, Software, and Related Supplies. In an
effort to provide our customers a wider range of products, we
recently began reselling third-party hardware, software, and
related supplies.
SERVICES
We recently began offering the following services:
- Network Integration Services. We have hired a Chief Technology
Officer with significant industry contacts and now have
contracts with American Express and Motorola.
- Digital Subscriber Line Services. In December 1999, we started
offering high-speed Internet connection services marketed to
commercial customers.
MARKETING, SALES AND DISTRIBUTION
We market our products directly to end users through a direct sales
force, regional resellers, value-added providers in the banking and
point-of-sale markets and Internet commerce sites. We market our full range of
products directly to retail customers through our website at www.ibizcorp.com.
MANUFACTURING
Our products are engineered and manufactured by various entities in
Taiwan or Korea. Manufacturers build our products to our specifications with
non-proprietary components. We engage in final assembly, functional testing and
quality control in our Phoenix, Arizona facility.
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SERVICE AND SUPPORT
We provide our customers with a comprehensive service and support
program. Technical support is provided to customers via a toll-free telephone
number, as well as through our website.
Our products have either a one or three year limited warranty covering
parts and service. In addition, we offer extended service agreements, which may
extend warranty coverage for up to two additional years.
THE OFFERING
[PIE CHART]
Shares Registered in this Prospectus
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7% Debentures.................... 5,039,252(1)
Warrants......................... 1,000,000(1)
Options.......................... 500,000
Shares........................... 305,000
8% Debentures.................... 300,000
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Total shares registered in this prospectus .............. 7,144,252
Shares outstanding after the offering ................... 31,371,006(2)
OTC Bulletin Board symbol ............................... iBIZ
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(1) Under the terms of registration agreements between iBIZ and the selling
securityholder, iBIZ has agreed to register 200% of the shares of
common stock issuable upon conversion of two 7% convertible debentures
and exercise of warrants to purchase an aggregate of 300,000 shares.
The number of shares issuable upon conversion of the debentures and
exercise of the warrants were calculated as of January 10, 2000.
(2) Assumes (1) the conversion of all of the debentures and exercise of all
of the options and warrants at 100% of the maximum number of shares
issuable and (2) the sale of all shares registered. However, this
amount excludes shares issuable upon exercise of options and warrants
not registered in this prospectus.
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RISK FACTORS
Investing in the common stock involves certain risks. You should review
these "Risk Factors" beginning on page 6.
PLAN OF DISTRIBUTION
Selling securityholders may sell common stock in the over-the-counter
market or on any exchange on which our common stock is listed. Shares may also
be sold in block transactions or private transactions or otherwise, through
brokers or dealers. Brokers or dealers may be paid commissions or receive sales
discounts. The selling securityholders must pay their own commissions and absorb
the discounts. Brokers or dealers used by the selling securityholders may be
deemed to be underwriters under the Securities Act. In addition, the selling
securityholders will be underwriters under the Securities Act with respect to
the common stock offered.
This prospectus contains certain forward-looking statements which
involve substantial risks and uncertainties. These forward-looking statements
can generally be identified because the context of the statement includes words
such as "may," "will," "except," "anticipate," "intend," "estimate," "continue,"
"believe," or other similar words. Similarly, statements that describe our
future plans, objectives and goals are also forward-looking statements. Our
factual results, performance or achievements could differ materially from those
expressed or implied in these forward-looking statements as a result of certain
factors, including those listed in "Risk Factors" and elsewhere in this
prospectus.
RISK FACTORS
INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD CONSIDER THE FOLLOWING DISCUSSION OF RISKS AS WELL AS OTHER INFORMATION
IN THIS PROSPECTUS BEFORE CONVERTING OR EXERCISING DEBENTURES, WARRANTS OR
OPTIONS OR PURCHASING COMMON STOCK. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW
ARE NOT THE ONLY ONES. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO
US OR THAT WE CURRENTLY DEEM IMMATERIAL ALSO MAY IMPAIR OUR BUSINESS OPERATIONS.
IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS COULD BE HARMED. IN
SUCH CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE
ALL OR PART OF YOUR INVESTMENT.
EXCEPT FOR HISTORICAL INFORMATION, THE INFORMATION CONTAINED IN THIS
PROSPECTUS AND IN OUR SEC REPORTS ARE "FORWARD-LOOKING" STATEMENTS ABOUT OUR
EXPECTED FUTURE BUSINESS AND PERFORMANCE. OUR ACTUAL OPERATING RESULTS AND
FINANCIAL PERFORMANCE MAY PROVE TO BE VERY DIFFERENT FROM WHAT WE MIGHT HAVE
PREDICTED AS OF THE DATE OF THIS PROSPECTUS.
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We Have A History Of Losses And Anticipate Future Losses
For the fiscal year ended October 31, 1999, we sustained a net loss of
approximately $1,053,563. Future losses are anticipated to occur. Our success in
obtaining additional funding will determine our ability to continue operations.
We have insufficient cash flow to sustain or grow operations. We cannot assure
you that we will be successful in reaching or maintaining profitable operations.
We Will Require Additional Capital In the Future
We have spent, and will continue to spend, substantial funds on product
research and development and expansion of our sales and marketing efforts. As a
result, we will need to raise short-term capital to maintain our ongoing
business. We are actively seeking to obtain a significant capital infusion to
avoid continuing reliance on short-term capital sources. On December 29, 1999,
we issued convertible debentures in the amount of $1,000,000. We currently
anticipate the proceeds will be sufficient to maintain our ongoing business
until March 2000. However, we cannot assure you that unforeseen events will not
result in the need for additional capital sooner than we currently anticipate.
If at any time we are unable to raise additional financing, we may be forced
into insolvency.
If we do raise additional funds, your stock ownership may be diluted.
Further, new securities may have rights, preferences or privileges senior to
yours. Additionally, debt financing may include restrictive covenants, such as
restrictions on incurring additional debt. If we are unable to raise additional
funds when necessary, we may have to reduce planned expenditures, scale back our
product developments, sales or other operations, enter into financing
arrangements on terms that we would not otherwise accept or be forced into
insolvency.
The Market is Highly Competitive
The market for our products is intensely competitive. We expect to
experience significant and increasing levels of competition. We compete
principally in the following areas:
- Product Quality and Reliability
- Product Performance
- Level of Customer Service
- Ability to Meet Customer Requirements
- Brand Awareness
- Price
In many of our markets, traditional computer hardware manufacturing
companies provide the most significant competition. Our competitors include a
substantial number of large public companies, including IBM, Compaq Computer
Corporation, Dell Computer Corporation, Toshiba, Gateway 2000 and NEC. As a
reseller, we compete against well established companies such as Comp USA,
Computer Discount Warehouse and Insight Enterprises.
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Most of our competitors are much larger, benefit from greater name
recognition and have significantly greater resources than we do. This subjects
us to numerous competitive disadvantages. For example, our current revenue
levels limit our ability to market and advertise on a national or international
level. This in turn makes it more difficult for us to increase brand awareness.
We could be forced to reduce prices and suffer reduced margins or market share
due to increased competition from manufacturers or distributors of products
similar to or competitive with our product.
We Need to Expand our Product Range
To effectively compete, we need to continue to expand our business and
generate greater revenues so that we have the resources to timely develop new
products. We must continue to market our products and services through our
direct sales force and expand our e-commerce distribution channels. We cannot
assure you that we will be able to grow sufficiently to provide the range and
quality of products required to compete.
We Must Keep Pace with Rapid Technological Change to Remain Competitive
The computer industry is characterized by rapidly changing technology,
evolving industry standards, frequent new product introductions and enhancements
and changing customer demands. We must develop and introduce new products that
keep pace with technological developments. If we fail to introduce progressive
new products in a timely and cost-effective manner, our financial performance
may be negatively affected.
Some of Our Products Target Niche Markets
We sell a line of "small footprint" computers. (The footprint is the
amount of desk space a computer requires.) We also recently introduced a "thin
client" computer system designed to utilize thinly equipped terminals with
limited memory and no local storage capability connected to central servers.
We believe that the small footprint and thin client computer segments
of the industry present business opportunities because they are underdeveloped
markets. However, we also believe that the number of competitors offering these
products will grow over the next several years. For example, competitors such as
Gateway 2000 and NEC have recently introduced computers targeted to consumers
requiring less desk space. We compete in the thin client market segment with
well established companies such as Wyse Technology. We believe that Wyse may
hold over 45% of the world-wide general purpose terminal market. We cannot
guarantee you that small footprint products will gain or even sustain current
market share or that our thin client products will achieve market acceptance. In
addition, our products could be rendered obsolete and unmarketable if our
competitors introduce new technology or new industry standards emerge.
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Recent Consolidations May Limit Our Markets
One of our primary markets is the banking and financial institution
industry. Recently, many banking and financial institutions have begun to
consolidate. Although the number of potential customers decrease during
consolidation, many banking and financial institutions upgrade their computer
networks. We cannot assure you that the demand for our products by banking and
financial institutions will not decrease as a result of the consolidation.
Our Products Must Be Compatible With Third-Party Software
Although we market computer hardware and peripherals, we currently do
not develop software. Consequently, we are dependent upon third-parties to
develop software applications that operate on our hardware platforms. If
software providers do not continue to provide software acceptable to our
customers, our sales may suffer.
We cannot guarantee that all available software will be compatible with
our products or that we will have the technical personnel necessary to evaluate
and fix software compatibility problems that may arise. If we do not have
technical personnel available, our sales may decline.
We Are Dependent On Our Manufacturers And Suppliers
Our business depends upon obtaining adequate quantities of products
from our manufacturers and suppliers. Consequently, our results of operations
are dependent, in part, upon our manufacturers' and suppliers' ability to
produce reasonably priced products in adequate amounts to meet our demands.
Currently, our computers and peripherals are engineered and
manufactured by various entities in Taiwan and South Korea. Although we have not
experienced significant problems with our manufacturers and suppliers in the
past, we may experience such problems in the future. We are also subject to
risks of fluctuations in our component prices. If prices charged by our vendors
increase, our costs of goods sold and net income would be adversely affected.
Currently, we believe there is a shortage of 12.1" liquid crystal
display monitors. To date, we have not experienced difficulty in obtaining these
monitors. In addition, we recently agreed with Harsper Co., Ltd. to act as the
exclusive distributor for their liquid crystal display monitors. If our business
expands and monitor supplies remain low, we may experience difficulty in meeting
customer demand.
We cannot assure you that our positive relationships will continue or
that in the event of a termination of a relationship with a manufacturer or
supplier, we would be able to obtain alternative sources of manufacturing or
components without a material disruption in our ability to provide products to
our customers. A material disruption of our ability to supply computers and
peripherals to our customers would have a material adverse effect on our sales
and results of operations.
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We Must Continue to be Authorized to Incorporate Manufacturer
Authorized Products
We are dependent on our continued authorization to provide manufacturer
authorized products, including certain software products. Currently, the Company
is authorized by industry-leading software developers, such as Citrix Systems
and Microsoft to incorporate their software in our products. Without such
authorization, we would be unable to provide the same range of products
currently offered. We cannot assure you that manufacturers will continue to
authorize use of their software in our computers and peripherals.
We Have Recently Added New Lines of Business
We recently began offering network integration services and digital
subscriber line or DSL high-speed Internet communications services. To aid in
the development of these services, we have hired a Chief Technology Officer with
significant experience and industry contacts. However, we cannot assure you that
we will develop and implement successful marketing strategies for these new
services. In addition, as DSL services are an emerging technology, we cannot
assure you that this technology will gain market acceptance.
Our Network Integration and DSL Services Face Intense Competition
We recently began offering network integration services and DSL
high-speed Internet communications services. The market for these products is
highly competitive. Our network integration services will compete against a wide
range of competitors from large established companies such as IBM and AT&T to
smaller private entities. Our DSL services will compete with companies such as
U.S. West Communications, COX Communications and Rhythms NetConnections.
Although these companies are more established, we believe their greater
resources may increase market awareness and acceptance of DSL services. This, in
turn, may make it easier for us to sell DSL services. We cannot assure you,
however, that our new DSL services will enable us to expand our customer base
and generate greater revenues.
We Recently Began Offering Third-Party Hardware, Software, and Related
Supplies
We recently began reselling third-party hardware, software, and related
supplies in the highly competitive, business-to-business market. Management
anticipates a significant portion of revenues will be generated by sales of
hardware, software, and related supplies developed by third-parties. Should
third-party suppliers decide to sell their products through their own direct
sales forces or should competitors develop hardware, software, and related
supplies which replace that provided by our suppliers, the revenues
generated by these sales could materially decline.
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We Have Few Proprietary Rights
We attempt to protect our limited proprietary property through
copyright, trademark, trade secret, nondisclosure and confidentiality measures.
Such protections, however, may not preclude competitors from developing similar
technologies.
Currently, we hold no patents and most of the technology used in the
design and manufacture of our computers and peripherals is known and available
to others. Although we are exploring patent protection for one of our keyboard
products, we believe that our competitive position is based on the ability to
successfully market innovative computers and peripherals rather than on patented
technologies.
Although we believe that our products do not infringe on any third
party's intellectual property rights, we cannot be certain that we will not
become involved in litigation involving proprietary rights. Intellectual
property rights litigation entails substantial legal and other costs. We do not
know if we will have the necessary financial resources to defend or prosecute
our rights in connection with any litigation.
There Is A Limited Market For Our Common Stock
Currently only a limited trading market exists for our common stock.
Our common stock trades on the OTC Bulletin Board under the symbol "iBIZ." The
Bulletin Board is a limited market and subject to substantial restrictions and
limitations in comparison to the NASDAQ system. Any broker/dealer that makes a
market in our stock or other person that buys or sells our stock could have a
significant influence over its price at any given time. We cannot assure you
that the market in our common stock will be sustained. As a result, holders of
our common stock may be unable to readily sell the stock they hold or may not be
able to sell it at all.
Our Stock Price has Been Volatile
The history relating to the prices of newly public companies indicates
that there may be significant volatility in the market price of our common
stock. More particularly, since trading began in July 1998, the market price of
our common stock has fluctuated between a low of $0.56 per share and a high of
$3.06 per share, a 545% variance. As a result, holders of our common stock may
be subject to wide fluctuations in the value of their investment.
We Are Dependent on Key Personnel
Our future success is dependent, in part, upon our six executive
officers and other key employees. A loss of one or more of our current officers
or key employees could negatively impact our operations. However, we have
entered into employment agreements with our executive officers and other key
employees. We currently do not carry key-man life insurance policies for our
executive officers. We cannot assure you that we will not suffer the loss of key
human resources.
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Our Officers and Directors Can Exercise Control Over All Matters
Submitted to a Vote of Shareholders
As of January 27, 2000, our executive officers and directors
beneficially owned an aggregate of approximately 55% of our outstanding common
stock. These officers, acting together, will be able to effectively control
matters requiring approval by our shareholders, including election of members to
our board of directors. As a practical matter, current management will continue
to control iBIZ for the foreseeable future.
Management Will Have Broad Discretion To Use Proceeds
We will not receive the proceeds from conversion of the debentures or
the sale of shares by the selling securityholders. However, we will receive
funds upon the exercise of options and warrants to purchase our common stock. We
intend to use the proceeds principally for working capital and general corporate
purposes, including marketing and product development. Our management and board
of directors have broad discretion with respect to the application of the
proceeds.
Sales of Common Stock Currently Registered for Resale Could Cause a
Decline in Our Stock Price
If all the shares registered in this offering are sold and antidilution
provisions do not trigger issuance of additional shares, this offering will
increase our outstanding shares by 4,324,626. We have also filed a registration
statement to register 3,025,000 shares issuable upon exercise of options granted
to our employees. As of the date of this prospectus, 1,490,000 employee options
are exercisable. As a result, a total of 5,814,626 shares registered by iBIZ are
currently eligible for resale.
In addition to the shares to be sold under these offerings, we have
outstanding 14,677,400 shares of "restricted securities" held by our officers
and directors. The remaining 12,368,980 shares held by persons other than our
officers and directors are currently, or will be available in the future for
sale under Rule 144(k). Under Rule 144(k), restricted securities may be sold by
non-affiliates of iBIZ without restrictions on volume limits.
All shares registered will be freely tradable. If all of the 4,324,626
shares registered in this offering (which does not include the shares
registered pursuant to anti-dilution provisions) and the 1,490,000 shares
currently issuable upon exercise of employee options are issued, it will
increase the available free trading shares as of the date of this prospectus by
approximately 71%. A significant amount of common stock coming on the market at
any given time could result in a decline in the price of such stock or increased
volatility.
We Have Not And Do Not Anticipate Paying Dividends.
To date, we have not paid dividends to our shareholders and we do not
contemplate paying dividends in the future. We anticipate retaining earnings, if
any, to finance
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<PAGE> 16
and develop our business. As a result, the return on your investment will depend
upon any appreciation in the market price in the common stock.
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the pubic
over the Internet at the SEC's website at http://www.sec.gov.
We have filed a registration statement with the SEC on Form SB-2 to
register the shares being offered. This prospectus is part of that registration
statement and, as permitted by the SEC's rules, does not contain all the
information included in the registration statement. For further information with
respect to us and our common stock, you should refer to the registration
statement and to the exhibits and schedules filed as part of the registration
statement, as well as the documents discussed below.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update or supersede this information.
This prospectus may contain summaries of contracts or other documents.
Because they are summaries, they will not contain all of the information that
may be important to you. If you would like complete information about a contract
or other document, you should read the copy filed as an exhibit to the
registration statement or incorporated in the registration statement by
reference.
We incorporate by reference the document listed below and any future
filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 until all of the shares are sold:
- Form 10-SB, filed October 13, 1999, File No. 027619, including
the amendments filed on December 1, 1999 and December 15,
1999.
- Annual Report on Form 10-KSB filed January 27, 2000, File No.
027619.
You may request a copy of these filings, at no cost, by writing to us
at 1919 West Lone Cactus Drive, Phoenix, Arizona 85021, Attention: Terry S.
Ratliff.
You can review and copy the registration statement, its exhibits and
schedules at the public reference facilities maintained by the SEC as described
above. The registration statement, including its exhibits and schedules, are
also available on the SEC's website.
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<PAGE> 17
SELLING SECURITYHOLDERS
The following table lists the selling securityholders, the number of
shares of common stock held by each selling securityholder as of the
commencement date of this offering, the number of shares included in the
offering and the shares of common stock held by each such selling securityholder
after the offering. The shares included in the prospectus are issuable to the
selling securityholders upon conversion of the debentures or the exercise of
options or warrants.
<TABLE>
<CAPTION>
Shares of Percentage of
Common Common
Stock Ownership Ownership Stock
Included in Before the After the Owned After
Name Prospectus(1) Offering(4) Offering(5) Offering(6)
---- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Scott Bishins 180,000(1) 700,000 520,000 1.9%
Dr. Fred Stelzer 45,000(1) 155,000 110,000 * %
Richard Schiff 30,000(1) 215,000 185,000 * %
Marc Nissenbaum 45,000(1) 230,000 185,000 * %
Lance Mullins 300,000(2) 300,000 0 * %
Kim Moore 100,000(2) 100,000 0 * %
Douglas Dragoo 100,000(2) 100,000 0 * %
Scott Waldman 400,000(2) 400,000 0 * %
Globe United Holdings, Inc. 5,639,252 (3) 5,639,252 0 * %
Albert Neufeld 10,000 10,000 0 * %
Art Nemeth 20,000 20,000 0 * %
Bruce Jackson 40,000 52,000 12,000 * %
Dan Taillefer 14,000 14,000 0 * %
Darren Ponak 18,000 20,200 2,200 * %
Deborah Halvorsen 10,000 10,000 0 * %
Doug Bilesky 10,000 10,000 0 * %
Douglas Wolters 10,000 10,000 0 * %
Ed Dyck 10,000 11,200 1,200 * %
Frank Flanagan 6,000 6,000 0 * %
Frank Roberto 10,000 10,000 0 * %
Grant Vanderhoek 20,000 20,000 0 * %
Jim Armstrong 10,000 10,000 0 * %
John Baggio 20,000 20,000 0 * %
Mark Brandsma 13,000 18,000 5,000 * %
Rob Jackson 12,000 12,000 0 * %
Scott Tarasuk 10,000 10,000 0 * %
Simeon Leschied 12,000 12,000 0 * %
Steve Hansen 10,000 10,000 0 * %
Thomas Gleig 10,000 10,000 0 * %
Wesley Heppell 30,000 30,000 0 * %
</TABLE>
(1) Issuable upon conversion of the 8% Debentures.
(2) Issuable upon conversion of options or warrants.
(3) Under the terms of a registration rights agreement between iBIZ and the
selling securityholder, iBIZ agreed to register 200% of the shares
issuable as of January 10, 2000, upon conversion of the 7% Debentures
and warrants to purchase an aggregate of 300,000 shares. iBIZ is
registering 5,039,252 shares which represent 200% of the shares
issuable upon conversion of the 7% Debentures and 600,000 shares which
represent 200% of the shares issuable upon conversion of the warrants.
(4) Consists of all shares owned by the selling securityholders as of
January 31, 2000, plus the shares included in this prospectus.
(5) Assumes the sale of all shares registered in this offering.
(6) *Represents less than one percent.
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<PAGE> 18
USE OF PROCEEDS
Some of the selling securityholders have agreed to be responsible for a
portion of the expenses of this Offering which are estimated at $60,000. iBIZ
will not receive any proceeds from the sale of the common stock by the selling
securityholders. iBIZ will, however, receive up to $1,007,000 upon the exercise
of options and warrants. iBIZ intends to use the net proceeds from exercise of
options or warrants primarily for working capital needs and general corporate
purposes, including product research and development and sales and marketing
expansion. There can be no assurance that any options or warrants will be
exercised.
PLAN OF DISTRIBUTION
iBIZ, is registering the shares on behalf of the selling
securityholders. As used herein, "selling securityholders" includes donees and
pledgees selling shares received from a named selling securityholder after the
date of this prospectus. All costs, expenses and fees in connection with the
registration of the shares offered hereby will be borne by some of the selling
securityholders. Brokerage commissions and similar selling expenses, if any,
attributable to the sale of shares will be borne by the each selling
securityholder.
Sales of shares may be effected by selling securityholders from time to
time in one or more types of transactions (which may include block transactions)
in the over-the-counter market, in negotiated transactions, through put or call
options transactions relating to the shares, through short sales of shares, or a
combination of such methods of sale, at market prices prevailing at the time of
sale, or at negotiated prices. Such transactions may or may not involve brokers
or dealers. The selling securityholders have advised iBIZ that they have not
entered into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of their securities, nor is
there an underwriter or coordinating broker acting in connection with the
proposed sale of shares by the selling securityholders.
The selling securityholders may effect such transactions by selling
shares directly to purchasers or to or through broker-dealers, which may act as
agents or principals. Such broker-dealers may receive compensation in the form
of discounts, concessions, or commissions from the selling securityholders or
the purchasers of shares for whom such broker-dealers may act as agents or to
whom they sell as principal, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions).
The selling securityholders and any broker-dealers that act in
connection with the sale of shares might be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, and any commissions received
by such broker-dealers and any profit on the resale of the shares sold by them
while acting as principals might be deemed to be underwriting discounts or
commissions under the Securities Act. iBIZ has agreed to indemnify some of the
selling securityholders against certain liabilities, including liabilities
arising under the Securities Act. The selling securityholders may agree to
indemnify any agent, dealer or broker-dealer that participates in transactions
involving sales of the shares against certain liabilities, including liabilities
arising under the Securities Act.
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<PAGE> 19
Because selling shareholders may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, the selling securityholders
will be subject to the prospectus delivery requirements of the Securities Act.
iBIZ has informed the selling securityholders that the anti-manipulative
provisions of Regulation M promulgated under the Exchange Act may apply to their
sales in the market.
Upon the Company being notified by a selling securityholder that any
material arrangement has been entered into with a broker-dealer for the sale of
shares through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, a supplement to this
prospectus will be filed, if required, pursuant to Rule 424(b) under the
Securities Act, disclosing (i) the name of each such selling shareholder and of
the participating broker-dealer(s); (ii) the number of shares involved; (iii)
the price at which such shares were sold; (iv) the commissions paid or discounts
or concessions allowed to such broker-dealer(s), where applicable; (v) that such
broker-dealer(s) did not conduct any investigation to verify the information set
out or incorporated by reference in this prospectus; and (vi) other facts
material to the transaction. In addition, upon iBIZ being notified by a selling
securityholder that a donee or pledgee intends to sell more than 500 shares, a
supplement to this prospectus will be filed.
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 transactional and color printers. iBIZ recently began
offering network integration services, digital subscriber line high-speed
Internet connection services, and business-to-business software sales. To
provide a greater range of products, iBIZ recently began reselling third-party
hardware, software and related supplies.
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<PAGE> 20
SELECTED FINANCIAL INFORMATION.
<TABLE>
<CAPTION>
Year Ended
----------
10/31/97 10/31/98
-------- --------
Statement of Operations Data
- ----------------------------
<S> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
10/31/97 10/31/98
-------- --------
Balance Sheet Data
- ------------------
<S> <C> <C>
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
-------- --------
Statement of Operations Data
- ----------------------------
<S> <C> <C>
Net sales $ 3,402,681 $ 2,082,515
Gross profit $ 1,182,885 $ 399,610
Operating income (loss) $ 37,600 $(1,074,180)
Net earnings (loss) after tax $ 7,863 $(1,053,563)
Net earnings (loss) per share $ 0.79 $ (.04)
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data
- ------------------
<S> <C> <C>
Total assets $ 1,653,998 $ 1,043,030
Total liabilities $ 1,999,231 $ 1,411,019
Stockholders' equity (deficit) $ (345,233) $ (433,527)
</TABLE>
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.
17
<PAGE> 21
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 in
October 1997 to $1,182,885 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 63% from $3,402,681 in the
fiscal year ended October 1998 to $2,082,515 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 by any
significant sales of new products, and 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 $1,682,905 in the fiscal year ended October 1999, or an
approximate 32% 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 66% from
$1,182,885 in the fiscal year ended October 1998 to $399,610 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
18
<PAGE> 22
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 38% from $1,070,003 in the
fiscal year ended October 1998 to $1,473,790 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 $28,260 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 $1,053,563 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 significant 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 1999, INVNSYS had an overdraft of $13,700.
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 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 must continue to raise additional substantial funds for research
and development and production of new products. Entry into additional lines of
business have required ever increasing capital infusions.
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.
In November 1999 and December 1999, iBIZ issued an aggregate of
$1,600,000 of convertible debentures to Globe United Holdings, Inc. ("Globe").
On December 6, 1999, Globe
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<PAGE> 23
converted $200,000 of the convertible debentures. Pursuant to the applicable
conversion formula, iBIZ issued 300,962 shares of common stock.
Effective November 15, 1999, iBIZ and Equinet, Inc. ("Equinet") entered
into a Financial Project Management Agreement (the "Agreement"), whereby iBIZ
engaged Equinet to implement a program to increase shareholder value through
equity investment or a business combination (the "Program").
For the earlier of six (6) months or until completion of the Program,
iBIZ is obligated to pay Equinet a monthly fee of $3,500. In addition, iBIZ will
pay Equinet a fee on a sliding scale ranging from 10% to 1% of the amount of
equity funding raised from investors introduced by Equinet. At its option, iBIZ
may elect to pay Equinet in common stock of the Company.
In connection with the first $5,000,000 raised under the Program, iBIZ
will grant to Equinet warrants to purchase three (3) shares of the Company's
common stock for each $20.00 raised, up to a maximum of 750,000 shares. The
warrants will be issued concurrently with the closing of each equity funding
transaction. The exercise price of the warrants will be the average closing
price for the immediately preceding 10 business day prior to closing of the
funding. As of January 10, 2000, investors introduced by Equinet had purchased
$1.875 million of securities from the Company. iBIZ has issued warrants to
purchase 281,250 shares of the Company's common stock. iBIZ agreed to provide
Equinet a discounted exercise price of $0.99 per share for these warrants if the
first $1.875 million were received by January 10, 2000.
By letter agreement dated December 14, 1999, iBIZ engaged Josephthal &
Co. Inc. ("Josephthal"), to provide financial communication services. iBIZ paid
Josephthal a one-time retainer fee of $50,000, and is obligated to pay
Josephthal $10,000 per month for advisory fees commencing June 1, 2000. The
agreement is effective for a period of one year and may be terminated by either
party upon 10 days written notice.
Beginning in November 1, 1998, and continuing through January 7, 2000,
iBIZ raised approximately $3,120,411 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 March 31, 2000. However, iBIZ will need to raise additional short term
capital to maintain its ongoing business beyond March 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 March 31, 2000 or that unforeseen
events may result in the need for additional capital sooner than March 31, 2000.
If at any time iBIZ is unable to raise financing through additional sales of
common stock it may be forced into insolvency.
Management believes that its recent diversification into third-party
software sales should improve its liquidity and cash flow. This sector of its
business is already generating approximately $100,000 per month in sales
revenues and is not as capital intensive as its hardware assembly and
manufacturing sector. There is no assurance, however, that its favorable
20
<PAGE> 24
relationship with its third party suppliers will continue or that its customers
will continue to purchase hardware and the software packages and upgrades
necessary to generate the revenue experienced since December 1999.
DESCRIPTION OF BUSINESS
iBIZ HISTORY
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 Company 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, the Company 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.
BUSINESS HISTORY OF INVNSYS
The Company conducts business solely through its operating subsidiary
INVNSYS. For your convenience, this prospectus will refer to the parent company
as the Company or 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
21
<PAGE> 25
computer systems for financial institutions. In cooperation with Wells Fargo
Bank and SHARP, 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 is not part of this prospectus.
Statements regarding the various hardware products offered by the
Company, joint ventures and marketing agreements, are forward looking and you
should not rely on them or assume that the products discussed will ever be
shipped in quantities sufficient to generate material revenue or that marketing
agreements will generate any revenue. Many products discussed in this prospectus
may ultimately not be sold or may only be sold in limited quantities. Marketing
agreements may not result in anticipated revenue for the Company. Technology
used in computer products is subject to rapid obsolescence, changing consumer
preferences, software advancements, and competitors' products time to market.
These factors, among others, may result in unforeseen changes in the types of
products ultimately sold by the Company.
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 transactional and color printers. In addition to
hardware, in December 1999, INVNSYS began reselling third-party hardware,
software and related supplies.
INVNSYS' continued success is dependent 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
22
<PAGE> 26
allocated for research and development. 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. However, 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 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 local area
network ("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.
INVNSYS recently introduced 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), supports up to a 233 Mhz processor, 128 MB RAM, optional floppy
and hard drives, and offers an attached LCD monitor. The iTerm 8000 will support
Citrix Systems, Inc. ("Citrix") Independent Computing Architecture ("ICA") as
the server application which is compatible with Citrix MetaFrame and WinFrame
software.
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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
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.
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,
in September 1999, INVNSYS introduced its KeySync Keyboard ("KeySync"). The
KeySync directly connects to all Palm devices, including the PalmVII, 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 it
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, the KeySync is currently compatible with Microsoft CE
handheld organizers.
Palm Pilot Accessories
In December 1999, INVNSYS began selling a foldable cradle to hold the
various Palm Pilot products. Management believes this cradle is easier to use
than the products offered
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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 offers a line of space-saving, zero-emission LCD flat panel
displays. 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.
In January, 2000, INVNSYS and Harsper Co., Ltd. ("Harsper") entered
into an agreement whereby INVNSYS will act as the exclusive United States
distributor of certain current and all future models of Harsper LCD panels. In
addition, INVNSYS will handle service and support functions for Harsper. The LCD
panels will be marketed under both the iBIZ and Harsper names and will include
12.1", 14.1", 15.1" and 18.1" computer displays. INVNSYS will also offer
Harsper's "high-style" LCD panels with metal cases and flat glass fronts
designed for the executive or deluxe home office. INVNSYS currently anticipates
offering Harsper LCD panels in the first quarter of 2000.
The computer industry is currently experiencing a shortage of 12.1" LCD
panels. To date, INVNSYS has been able to obtain adequate supplies of these 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
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.
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The iT-9000 will offer a flip-down LCD panel, and will utilize the
latest Pentium III processor technology. The iT-9000 is undergoing product
evaluation and management has not yet determined a customer delivery date.
Lapboard. INVNSYS is also developing 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 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 has filed a patent application for the Lapboard with the United
States Patent and Trademark Office. INVNSYS is conducting product evaluation and
testing and management is currently evaluating the capital resources necessary
to begin production.
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 notebook models, the Apache, Phoenix
and RoadRunner.
RoadRunner. INVNSYS believes the RoadRunner offers powerful computing
power in a lightweight design. At only 1.28" high and 4.4 pounds, INVNSYS
believes the RoadRunner is half the weight of most competing notebooks.
The RoadRunner offers Intel Pentium II processors with up to 366Mhz, as
well as Pentium III processors, a built in 56k fax/modem, external FDD/24X
CD-ROM module or 2X/4X 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 64
MB of memory, which can be upgraded to 192 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"
high), compact unit. Models have a range of central processing units ("CPU's")
from the Celeron MMC1 366Mhz to Intel Pentium II 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.
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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 up to 6.4 MB 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 as of the date of this
prospectus consumes up to forty percent (40%) less energy than a comparable
desktop processor. In addition, the Apache has numerous user-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. The Phoenix provides 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 Intel Pentium II 333 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 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.
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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. Also available in the Phoenix is an LS-120 drive, which reads
and writes to 120MB Superdisks as well as standard 3.5" floppy disks. An
additional expandability option for the Phoenix is Twinhead's 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.
Printers and Peripherals
INVNSYS is an authorized distributor of Epson printers 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.
In December 1999, INVNSYS began offering color printers manufactured by
Tektronix, Inc. Printers include the Phaser 840 solid ink color printer, which
management believes is, as of the date of this prospectus, twice as fast as most
color printers.
Third-Party Software and Hardware Reselling
In December 1999, iBIZ acquired certain assets from PC Solutions, Inc.,
a business-to-business and retail software provider. The Company also hired
three employees formerly associated with PC Solutions. Through this acquisition,
INVNSYS began selling third-party software. To date, INVNSYS is recognizing
approximately $100,000 per month in revenues from third-party software sales.
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In addition, INVNSYS recently began reselling various companies'
hardware and related supplies. Management believes the ability of INVNSYS to
offer the products of numerous companies will allow it to more effectively
provide complete networking solutions.
SERVICES
Responding to market demand for complete network solutions, INVNSYS
began providing network integration services in the last quarter of 1999.
Through previous contacts developed by its Chief Technology Officer prior to
joining the Company, INVNSYS acquired network integration service accounts with
American Express and Motorola.
Expanding its networking capabilities, in November 1999, INVNSYS
entered into an agreement with Northpoint Communications. Through this
agreement, INVNSYS began offering digital subscriber line ("DSL") services to
commercial customers. DSL service is an emerging technology providing high-speed
Internet connections over phone carriers' existing copper wiring at connection
speeds ranging from 144 kbps to 1.5 mbps. Management believes DSL service offers
a lower cost alternative to competing products such as T-1 and frame relay
services which provide similar connection speeds but require additional
infrastructure expenditures.
Management believes that the addition of network integration and DSL
services will allow INVNSYS to expand its customer base by enabling the Company
to offer complete networking solutions. To date, INVNSYS has not recognized
significant revenues from these new services. There can be no assurance that
INVNSYS will be successful in developing, integrating and profiting from its
network integration or DSL services.
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 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, iBIZ has recognized only
nominal revenues from Internet retail sales. Management believes that direct
sales to end users should allow 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 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.
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In January, 2000, INVNSYS was named the exclusive United States
distributor of certain current and all new Harsper Co., Ltd. products and
services. The Master Distribution Agreement is effective until September 31,
2000, subject to annual renewal unless terminated by either party prior to the
then effective renewal date. After the initial period, the agreement may be
terminated subject to mutual acceptance of the parties and upon 30 days written
notice.
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. To date however, INVNSYS has not recognized
significant revenues from its vendor agreement with MicroAge.
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. To date however, INVNSYS has not recognized
revenues from its marketing agreement with Global.
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. The Harsper LCD panels are manufactured in
South Korea. 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. The design, engineering and manufacturing of
INVNSYS' notebook computers is done entirely by Twinhead. Management believes
this relationship allows INVNSYS to offer a
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broader range of products to its customers without the cost of research and
development and manufacturing.
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 computers. The license is for a term of two years and automatically renews
for successive one 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 an 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, iBIZ has filed a patent application for its Lapboard keyboard. 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. In December 1999, INVNSYS completed a conversion of its internal
systems, such as accounting programs and management believes all internal
systems are Year 2000 compliant.
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Management estimates the Company incurred costs of approximately $20,600 to
address the Year 2000 computer issue. To date, iBIZ has not experienced any
material disruptions related to the Year 2000 computer issue. However, iBIZ can
give no assurance that future failures of third-party systems will not have a
material effect on INVNSYS' operations.
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., Mountain Standard Time. INVNSYS maintains
a staff of approximately 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 or three year limited warranty
covering parts and service. In addition, INVNSYS offers extended service
agreements, which may extend warranty coverage for up to two 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
Personal Computers
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 resources than INVNSYS.
Competitors at this level include IBM, Compaq, Dell, NEC, 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
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computers offered by INVNSYS. INVNSYS' main competitors for its 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 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 or South Korea. 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.
Services
INVNSYS recently began offering network integration services and DSL
high-speed Internet connection services. Although management believes these
services will enable INVNSYS to expand its customer base through the offering of
complete network solutions, each service will experience intense competition.
For example, network integration services are offered by a wide range of
competitors, including large established companies such as IBM and AT&T, as well
as small private entities. Many of INVNSYS' competitors in network integration
services are more established and have greater resources. INVNSYS has hired a
Chief Technology Officer with significant network integration experience and
industry contacts. However, as this is a new line of business, no assurance can
be given that INVNSYS will be able to expand its business through network
integration services.
Similarly, the market for Internet connection services is highly
competitive. INVNSYS' agreement with Northpoint Communications enables it to
offer DSL high-speed Internet connection services. DSL is an emerging technology
which allows for higher speed connections over existing copper phone lines.
Currently, large established companies such as U.S. West Communications, COX
Communications and Rhythms NetConnections, Inc. offer DSL services. Management
believes that these companies' greater resources may increase market awareness
and acceptance of DSL services. However, as INVNSYS has only recently entered
the
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market for Internet connection services, there can be no assurance that it can
successfully compete in the marketplace.
Reselling
As part of its efforts to provide complete networking solutions, in
December 1999, INVNSYS began reselling third-party hardware, software, and
related supplies to business customers. The market for reselling these products
is highly competitive. INVNSYS competes against a wide range of competitors,
including the direct sales forces of companies such as COMP USA, and ASAP
Software Express, a division of Corporate Express, Inc., and mail order
companies such as Insight Enterprises, and Computer Discount Warehouse. Many of
INVNSYS' competitors are more established and have greater resources. Management
believes that INVNSYS can compete effectively in this market segment in that
INVNSYS can provide complete network solutions in conjunction with competitively
priced third-party hardware, software and related supplies. To date, management
estimates that the reselling of third-party software has generated sales of
approximately $100,000 per month. However, there is no assurance that INVNSYS'
relationship with its third-party suppliers will continue, that such revenue
levels will be sustained or that the Company will be able to effectively compete
in the third-party reselling market segment.
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 10% of INVNSYS' revenues.
EMPLOYEES; LABOR RELATIONS
As of January 27, 2000, INVNSYS had approximately 27 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.
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.
34
<PAGE> 38
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, 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 iBIZ's current
plan of growth and expansion.
LITIGATION
iBIZ is not currently a party to any lawsuit or proceeding. However,
from time to time, 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 assurance that future lawsuits will not have a
material adverse effect on its financial condition or results of operations.
iBIZ has been assessed approximately $62,000 in penalties and interest
by the IRS. The Company is disputing the assessment and is currently negotiating
with the IRS. iBIZ can give no assurance that any settlement can be reached for
an amount less than $62,000.
USE OF TRADEMARKS AND TRADENAMES
All trademarks and tradenames used in this prospectus are the property
of their respective owners.
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
James A. Ratliff(1) 42 Chief Operating Officer
</TABLE>
(1) James Ratliff and Terry Ratliff, were, but are not currently, husband
and wife.
35
<PAGE> 39
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.
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 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.
James A. Ratliff, joined iBIZ as Chief Operating Officer in January,
2000. Prior to joining the Company, Mr. Ratliff held the position of Director of
Global Procurement at American Express from February 1998 to December 1999. From
August 1995 to January 1998, Mr. Ratliff served as International Program Manager
for AlliedSignal Aerospace, where he was responsible for the development of
international partnerships. From 1991 through July 1995, Mr. Ratliff served as
an International Buyer for Amoco Corporation. Mr. Ratliff earned an MBA and a BS
in Purchasing Materials and Logistics from Arizona State University, where he
graduated summa cum laude in 1991.
36
<PAGE> 40
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
NAME AND ANNUAL STOCK LTIP ALL OTHER
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 1999 $200,000 250,000
Officer
</TABLE>
(1) Includes 50,000 options granted for service as a director of the
Company.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
PERCENT OF TOTAL
NUMBER OF SECURITIES OPTIONS
UNDERLYING OPTIONS/SARs /SARs GRANTED TO EXERCISE OF BASE
NAME GRANTED (1) EMPLOYEES PRICE EXPIRATION DATE
(a) (b) IN FISCAL YEAR ($/SH) (e)
(c) (d)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kenneth W. Schilling 250,000 -----% $0.75 4/21/09
</TABLE>
(1) Includes 50,000 options granted for service as a director of the
Company. 200,000 options vested upon granting on April 22, 1999, and
25,000 will vest on April 22, 2000 and April 22, 2001 respectively.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES ACQUIRED ON VALUE FISCAL YEAR END AT FISCAL YEAR END
EXERCISE (#) REALIZED EXERCISABLE/ EXERCISABLE/
NAME ($) UNEXERCISABLE UNEXERCISABLE (1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kenneth W. Schilling -0- -0- 250,000/200,000 $227,500/$182,000
</TABLE>
(1) Based on closing price of the Common Stock on October 29, 1999 of
$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.
37
<PAGE> 41
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 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 (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 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.
38
<PAGE> 42
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's common stock as of January 27, 2000 by:
- - all directors
- - each person who is known by the Company 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 January 27, 2000, 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 0.7 %
1919 W. Lone Cactus Drive, Phoenix, AZ 85021
Moorea Trust(2) 11,120,000 --------- 11,120,000 40.8%
1919 W. Lone Cactus Drive, Phoenix, AZ 85021
Terry S. Ratliff 1,771,200 300,000 2,071,200 7.6%
1919 W. Lone Cactus Drive, Phoenix, AZ 85021
Mark H. Perkins 1,771,200 300,000 2,071,200 7.6%
1919 W. Lone Cactus Drive, Phoenix, AZ 85021
All directors and officers as group 14,677,400 1,675,000 16,352,400 56.9%
(6 persons)
</TABLE>
(1) Includes options vested on January 27, 2000 and options which will
become vested on or before March 27, 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 "Stock Option Plan")
provides for the grant of stock options to purchase common stock to eligible
directors, officers, key employees, and service providers of iBIZ. The Stock
Option Plan covers an aggregate maximum of 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
39
<PAGE> 43
amended) and non-qualified stock options (options which do not meet the
requirements of Section 422). Under the Stock Option Plan, the exercise price
may not be less than the fair market value of the common stock on the date of
the grant of the option. As of January 27, 2000, three million four hundred
thousand (3,400,000) 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
Stock Option Plan and is authorized to grant options thereunder to all eligible
persons. In the event the Board has at least two (2) members who are not either
employees or officers of iBIZ or of any parent or subsidiary of iBIZ, the Stock
Option Plan will be administered by a committee of not less than two (2) persons
who are such independent directors. The Board designates the optionees, the
number of shares subject to the options and the terms and conditions of each
option. Certain changes in control of iBIZ, as defined in the Stock Option Plan,
will cause the options to vest immediately. Each option granted under the Stock
Option Plan must be exercised, if at all, during a period established in the
grant 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 Stock Option
Plan from time to time it deems proper and in the best interests of iBIZ
provided it may not take any action which disqualifies any option granted under
the Stock Option Plan as an incentive stock option or which adversely effects or
impairs the rights of the holder of any option under the Stock Option Plan.
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 Fifty-six Thousand Eight Hundred Ten Dollars
($356,810.00). 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.
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company'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 the Company's common stock for each fiscal quarter between
September 30, 1998 and December 1999.
40
<PAGE> 44
[BAR CHART]
<TABLE>
<CAPTION>
1998 COMMON STOCK PRICES EVCV - iBIZ
QUARTER
ENDED HIGH LOW
- ------- ---- ---
<S> <C> <C>
Sept. 98.................. $3.06 $2.25
Dec. 98................... $2.69 $1.88
</TABLE>
[BAR CHART]
<TABLE>
<CAPTION>
1999 COMMON STOCK PRICES iBIZ
QUARTER
ENDED HIGH LOW
- ------- ---- ---
<S> <C> <C>
Mar-99.................... $2.06 $0.94
Jun-99.................... $2.44 $0.56
Sep-99.................... $2.22 $0.94
Dec-99.................... $1.81 $0.84
</TABLE>
As of January 27, 2000, management believes there to be 127 holders of
record of iBIZ's common stock. To date, iBIZ has not paid any dividends on its
common stock. iBIZ does not currently intend to pay dividends in the future.
iBIZ is prohibited from declaring or paying dividends while certain debentures
or warrants are outstanding.
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 January 27, 2000,
there were 27,046,380 shares of common stock outstanding and an aggregate of
4,506,250 options and warrants to purchase common stock.
41
<PAGE> 45
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 the Company'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 the
Company, the holders of common stock are entitled to share ratably in all assets
remaining after payment in full of all creditors of the Company 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.
Debentures. iBIZ has issued Two Hundred Thousand Dollars ($200,000.00)
of 8% Debentures. The 8% Debentures are due on June 21, 2000, bear interest at
eight percent per annum, and are unsecured. Under the terms of the 8%
Debentures, iBIZ is obligated to include the shares issuable upon conversion of
the debentures in this SB-2 registration statement. Upon the effectiveness of
this registration statement, the 8% Debentures will automatically convert to
300,000 fully paid and nonassessable shares of common stock.
On November 6, 1999, iBIZ issued Six Hundred Thousand Dollars
($600,000.00) of 7% Debentures (the "600k 7% Debentures") to Globe United
Holdings, Inc. ("Globe"). Thereafter, on December 29, 1999, iBIZ issued to Globe
additional 7% Debentures in the amount of One Million Dollars ($1,000,000.00)
(the "1000k 7% Debentures").
The 7% Debentures accrue interest at seven percent per annum and are
due November 9, 2004, and December 29, 2004, respectively. iBIZ is obligated to
make payments of accrued interest semi-annually; interest on the 600k 7%
Debentures is due on the first day of April and November and interest on the
1000k 7% Debentures is due on the first day of May and December. At Globe'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. On December 6, 1999, Globe converted $200,000 of the 7%
Debentures, plus accrued interest to date. Pursuant to the conversion formula,
iBIZ issued 300,962 shares of common stock.
In consideration for the purchase of the 1000k 7% Debentures, iBIZ
agreed to amend the Applicable Conversion Price of the remaining amount of the
600k 7% Debentures. The Applicable Conversion Price, as amended, is defined as
the lesser of (i) $0.675 or (ii) the product obtained by multiplying (x) the
Average Closing Price (as defined in the 7% Debentures) by (y) .80.
The Applicable Conversion Price for the 1000k 7% Debentures, is the
lesser of (i) $0.94 or (ii) the product obtained by multiplying (x) the Average
Closing Price (as defined in the 7% Debentures) by (y) .80. In addition, Globe
may require iBIZ to redeem the 7% Debentures
42
<PAGE> 46
for cash at a redemption price equal to 120% of the aggregate principal and
accrued interest outstanding in the event of a Change in Control of iBIZ (as
defined in the 7% Debentures).
In connection with the sale of the 7% Debentures, iBIZ agreed to file a
registration statement to cover the resale of the common stock issuable upon
conversion of the 7% Debentures and the exercise of the warrants (described
below) by January 7, 2000, and to use its best efforts to cause the registration
statement to be declared effective by February 21, 2000. If the registration
statement is not filed by January 7, 2000, or is not effective by February 21,
2000, iBIZ is obligated to pay liquidated damages equal to 2% of the purchase
price of all the 7% Debentures and the warrants (described below) for each 30
day period the registration statement is not filed or effective.
Pursuant to the terms of the 7% Debentures, iBIZ may 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, for the period ending on the earlier of (i) one hundred eighty
(180) days after the date on which this registration statement 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 Seven Million
Five Hundred Thousand Dollars ($7,500,000.00) in connection with a bona fide,
firm commitment, underwritten public offering under the Securities Act; and (ii)
may issue additional shares of common stock upon the exercise or conversion of
outstanding options, warrants and other convertible securities issued prior to
November 15, 1999; (iii) may issue options, in addition to all options
previously issued as of November 15, 1999, 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 option and
warrant holders as of November 15, 1999) until the later to occur of (i) the
expiration of the respective Lock-Up Periods or (ii) the registration statement
filed by iBIZ covering shares to be issued to Globe upon conversion of the 7%
Debentures or exercise of the warrants has been effective under the Securities
Act for a period of at least one-hundred and eighty (180) days.
In addition, the 7% Debentures grant Globe a right of first refusal on
purchases of additional securities for a period of eighteen (18) months from the
date of execution. So long as the 7% Debentures or warrants are outstanding,
iBIZ may not (i) declare or pay any dividends or make distributions to any
holder of common stock or (ii) acquire any common stock of iBIZ.
Options and Warrants Included in Prospectus. Of the total 7,144,252
shares registered for sale by the selling securityholders, 900,000 shares are
issuable upon exercise of options and warrants issued to consultants. These
consultants warrants and options are immediately exercisable, have an exercise
price of $0.75 or $1.00 per share and have terms from three to ten years.
In addition, in connection the issuance of the 7% Debentures, iBIZ has
issued a warrant to purchase 100,000 shares of common stock and a warrant to
purchase 200,000 shares of
43
<PAGE> 47
common stock. As the registration rights agreement between the selling
securityholder and iBIZ requires the registration of 200% of the original shares
issuable under the warrants, this prospectus covers the sale of 600,000 shares.
The terms of these warrants are as follows:
<TABLE>
<CAPTION>
Shares Exercise Price Vesting Expiration
- ------ -------------- ------- ----------
<S> <C> <C> <C>
100,000 $0.94 Immediate November 9, 2004
200,000 $0.94 Immediate December 28, 2004
</TABLE>
Options and Warrants Not Included in Prospectus. In addition to the
shares issuable upon exercise of options and warrants included in this
prospectus, iBIZ has issued 3,025,000 options to employees under the Stock
Option Plan. The shares underlying these options have been registered on a
registration statement on Form S-8, File No. 333-95475, filed on January 27,
2000. In connection with the 7% Debentures, as of the date of this prospectus,
iBIZ has issued to Equinet warrants to purchase 281,250 shares of common stock.
The warrants issued to Equinet have an exercise price of $0.99 per share, have a
term of five years and are immediately exercisable.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
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 may be permitted to its directors, officers and controlling persons pursuant
to the foregoing provisions or otherwise, iBIZ has been advised that in the
opinion of the SEC such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.
EXPERTS
The financial statements for iBIZ as of October 31, 1997 and 1998 and
for the one year period ended October 31, 1999, included in this prospectus have
been audited by Moffitt & Company, P.C., independent public accountants. As
indicated in their reports with respect thereto, such statements are herein
included in reliance upon the authority of such firm as experts in accounting
and auditing in rendering the reports.
44
<PAGE> 48
LEGAL MATTERS
Certain legal matters with respect to the validity of the common stock
offered will be passed upon by iBIZ's legal counsel, Gammage & Burnham, P.L.C.,
Phoenix, Arizona.
45
<PAGE> 49
FINANCIAL STATEMENTS
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
FINANCIAL STATEMENTS
OCTOBER 31, 1998 AND 1997
F-1
<PAGE> 50
TABLE OF CONTENTS
PAGE NO.
--------
INDEPENDENT AUDITORS' REPORT ......................................... F-3
FINANCIAL STATEMENTS
Balance Sheets ................................................ F-4
Statements of Income .......................................... F-6
Statement of Changes in Stockholders' Equity .................. F-7
Statements of Cash Flows ...................................... F-8
Notes to Financial Statements ................................. F-10
F-2
<PAGE> 51
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> 52
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 $1,508,994 $1,105,195
========== ==========
</TABLE>
F-4
<PAGE> 53
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> 54
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> 55
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
COMMON STOCK FROM IBIZ
------------------------------- TECHNOLOGY RETAINED
SHARES AMOUNT CORP. EARNINGS
------------ --------- ------------ -----------
<S> <C> <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> 56
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> 57
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> 58
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> 59
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)
----------------------------------
<TABLE>
<CAPTION>
<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 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> 60
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 judgment is required in interpreting market
data to develop the estimates of fair value, and accordingly, the
estimates are not necessarily indicative of the amounts that the
company could realize in a current market exchange.
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> 61
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> 62
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 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> 63
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 $
========= ========= ========= =========
</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 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> <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> 64
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> 65
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
========== ==========
</TABLE>
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
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> 66
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> 67
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 $ 1,508,994 $ 247,175 $ (247,175) $ 1,508,994
=========== =========== =========== ===========
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 1,999,007 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> 68
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 $ (.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> 69
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> 70
FINANCIAL STATEMENTS
IBIZ TECHNOLOGY CORP. AND
CONSOLIDATED SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999
F-22
<PAGE> 71
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
INDEPENDENT AUDITORS' REPORT ....................................... F-24
FINANCIAL STATEMENTS
Consolidated Balance Sheet .................................. F-25
Consolidated Statement of Operations ........................ F-27
Consolidated Statement of Changes in Stockholders' Deficit .. F-28
Consolidated Statement of Cash Flows ........................ F-30
Notes to Consolidated Financial Statements .................. F-32
</TABLE>
F-23
<PAGE> 72
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders
IBIZ Technology Corp. and Consolidated Subsidiary
Phoenix, Arizona
We have audited the accompanying balance sheet of IBIZ Technology Corp. and
Consolidated Subsidiary as of October 31, 1999, and the related statements of
operations, changes in stockholders' deficit, and cash flows for the year then
ended. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on 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 IBIZ Technology Corp. and
Consolidated Subsidiary as of October 31, 1999, and the results of its
operations and its cash flows for the year then ended 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 $1,053,563 during the year ended October 31,
1999, and, as of that date had a working capital deficit of $912,169 and a
shareholders' deficit of $433,527. 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 these
uncertainties.
MOFFITT & COMPANY, P. C.
SCOTTSDALE, ARIZONA
January 10, 2000
F-24
<PAGE> 73
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED BALANCE SHEET
OCTOBER 31, 1999
ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 25,343
Accounts receivable, trade 212,300
Inventories 268,087
Prepaid expenses 38,984
--------
TOTAL CURRENT ASSETS $ 544,714
PROPERTY AND EQUIPMENT 124,747
OTHER ASSETS
Note receivable, related party 356,810
Deposits 16,759
--------
TOTAL OTHER ASSETS 373,569
----------
TOTAL ASSETS $1,043,030
==========
</TABLE>
F-25
<PAGE> 74
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable, trade $ 762,965
Customer deposits 115,408
Notes payable, current 67,497
Accrued liabilities 138,199
Sales and payroll taxes payable 98,774
Corporation income taxes payable 19,078
Deferred income 54,962
Convertible debentures payable 200,000
-----------
TOTAL CURRENT LIABILITIES $ 1,456,883
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 1,106,266
Advance on stock subscription 75,000
Retained earnings (deficit) (1,641,163)
-----------
TOTAL STOCKHOLDERS' DEFICIT (433,527)
--------------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 1,043,030
==============
</TABLE>
F-26
<PAGE> 75
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
SALES $ 2,082,515
COST OF SALES 1,682,905
------------
GROSS PROFIT 399,610
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 1,473,790
------------
(LOSS) BEFORE OTHER INCOME (1,074,180)
OTHER INCOME (EXPENSE)
Cancellation of debt $ 154,933
Other income 32,339
Interest income 28,260
Interest expense (58,085)
------------
TOTAL OTHER INCOME, NET 157,447
------------
(LOSS) BEFORE INCOME TAXES (916,733)
INCOME TAXES 136,830
------------
NET (LOSS) $ (1,053,563)
============
NET (LOSS) PER COMMON SHARE
Basic and Diluted $ (0.04)
============
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING
Basic and diluted 25,116,013
============
</TABLE>
F-27
<PAGE> 76
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> <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 CENTS PER SHARE 640,318 640
AT .50 CENTS PER SHARE 1,730,100 1,730
FEES AND COSTS FOR ISSUANCE
OF STOCK 0 0
ADVANCES ON STOCK SUBSCRIPTION 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> 77
<TABLE>
<CAPTION>
PAID IN
CAPITAL IN
EXCESS OF ADVANCES RETAINED
PAR VALUE ON STOCK EARNINGS
OF STOCK SUBSCRIPTIONS (DEFICIT)
------------ ------------- -----------
<S> <C> <C> <C>
$ 145,282 $ 154,111 $ (74,266)
0 0 (513,334)
223,471 0 0
863,320 (154,111) 0
(125,807) 0 0
0 75,000 0
0 0 (1,053,563)
------------ -------- ------------
$ 1,106,266 $ 75,000 $(1,641,163)
============ ======== ============
</TABLE>
F-29
<PAGE> 78
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) $(1,053,563)
Adjustments to reconcile net (loss) to
net cash (used) by operating activities
Depreciation 42,104
Increase (decrease) in
Accounts receivable, trade (58,764)
Other receivables 1,500
Inventories 55,310
Prepaid expenses (11,984)
Deferred tax asset 145,054
Deposits 3,396
Accounts payable (26,898)
Customer deposits (279,856)
Accrued liabilities and taxes (80,443)
Deferred income (16,069)
-----------
NET CASH FLOWS (USED)
BY OPERATING ACTIVITIES $ (1,280,213)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (90,315)
Repayment of related party loans 634,030
-----------
NET CASH FLOWS PROVIDED BY
INVESTING ACTIVITIES 543,715
</TABLE>
F-30
<PAGE> 79
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED OCTOBER 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft $ ( 13,700)
Net proceeds from issuance of common stock 806,873
Advances on stock subscription 75,000
Proceeds from issuance of convertible debentures 200,000
Decrease in notes payable ( 306,532)
---------------
NET CASH FLOWS PROVIDED
BY FINANCING ACTIVITIES $ 761,641
----------------
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> 80
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 and
offering network integration services, digital subscriber line high
speed internet connection services and business-to-business software
sales. They also provide repair services and sell maintenance
contracts. The corporation 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> 81
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>
<CAPTION>
<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 in the financial statements. Deferred tax assets and
liabilities are included in the financial statements at currently
enacted income.
F-33
<PAGE> 82
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)
------------------------
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>
<CAPTION>
<S> <C>
Accounts receivable $ 214,800
Allowance for doubtful accounts 2,500
------------
$ 212,300
============
</TABLE>
F-34
<PAGE> 83
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> <C> <C> <C> <C> <C>
Computer and components:
Finished products $ 217,236
Demonstration and loaner units 5,731
Depot units 20,089
Office 24,712
Parts 319
---------------
Total inventories $ 268,087
===============
</TABLE>
NOTE 5 PROPERTY AND EQUIPMENT
Property and equipment and accumulated depreciation consisted of:
<TABLE>
<CAPTION>
<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>
<CAPTION>
<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. $ 356,810
==================
</TABLE>
F-35
<PAGE> 84
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>
<CAPTION>
<S> <C>
(Loss) from continuing operations
before income taxes $(916,733)
---------
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
---------
</TABLE>
Temporary differences and carry forwards that gave rise to deferred tax
assets and liabilities included the following:
<TABLE>
<CAPTION>
DEFERRED TAX
------------
ASSETS LIABILITIES
------ -----------
<S> <C> <C>
Net operating loss $294,800 $ 0
Accrued expenses and miscellaneous 23,414 0
Tax credit carryforward 38,424 0
Depreciation 0 6,199
-------- --------
</TABLE>
F-36
<PAGE> 85
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 $ 356,638 $ 6,199
Valuation allowance (356,638) (6,199)
--------- ---------
Total deferred taxes $ 0 $ 0
========= =========
</TABLE>
As discussed in note 22, there is substantial doubt about the company's
ability to continue as a going concern. Consequently, the company must
maintain a 100% valuation allowance for the deferred taxes as there is
doubt that the company will generate profits which will be absorbed by
the tax differences.
A reconciliation of the valuation allowance is as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance, November 1, 1998 $291,068
Addition to allowance for year ended October 31, 1999 65,570
--------
Balance, October 31, 1999 $356,638
========
</TABLE>
NOTE 9 TAX CARRYFORWARD
The company has the following tax carryforwards at October 31, 1999:
<TABLE>
<CAPTION>
EXPIRATION
YEAR AMOUNT DATE
------------------- -------- ----------------
Net operating loss
<S> <C> <C>
October 31, 1995 $ 2,500 October 31, 2010
October 31, 1996 24,028 October 31, 2011
October 31, 1997 192,370 October 31, 2012
October 31, 1998 71,681 October 31, 2013
October 31, 1999 991,162 October 31, 2019
Capital loss
October 31, 1997 25,600 October 31, 2002
Contribution
October 31, 1997 545 October 31, 2002
October 31, 1999 2,081 October 31, 2004
Research tax credits 38,424
</TABLE>
F-37
<PAGE> 86
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 10 NOTES PAYABLE
<TABLE>
<CAPTION>
<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> 87
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>
<CAPTION>
<S> <C>
October 31, 2000 $ 156,160
October 31, 2001 163,968
October 31, 2002 172,168
October 31, 2003 180,780
October 31, 2004 189,820
November 1, 2004 - December 31, 2024 6,676,000
</TABLE>
F-39
<PAGE> 88
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-40
<PAGE> 89
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 $50,000 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.
The company issued the following options:
F-41
<PAGE> 90
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 20 STOCK OPTIONS (CONTINUED)
<TABLE>
<CAPTION>
DATE OF NUMBER VESTING
ISSUANCE OF SHARES RECIPIENT PERIOD TERM
-------------- ---------- ---------- -------------------- ----------
<S> <C> <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
10% immediately
balance over five
years
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 Immediately 10 years
---------
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 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.
F-42
<PAGE> 91
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 20 STOCK OPTIONS (CONTINUED)
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 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 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.
F-43
<PAGE> 92
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 21 PLAN OF REORGANIZATION AND STOCK EXCHANGE AGREEMENT (CONTINUED)
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>
<CAPTION>
<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 (965,300)
-----------
Net (loss) for the year ended October 31, 1999 $(1,053,563)
===========
</TABLE>
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
$912,169 and a shareholders' deficit of $433,527. In addition, sales
have declined significantly from prior years. As described in note 23,
the company obtained $1,600,000 of additional financing in November
1999 and December 1999.
F-44
<PAGE> 93
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 23 SUBSEQUENT EVENT
$600,000 DEBENTURE
------------------
In November 1999, the company issued $600,000 of 7% convertible
debentures under the following amended terms and conditions:
1. Due date - November 9, 2004.
2. Interest only on April 1 and November 1 of each year commencing
January 1, 2000.
3. Warrants to purchase 100,000 shares of common stock at $ 0.94 per
share.
4. Conversion terms - The debenture holder shall have the right to
convert all or a portion of the outstanding principal amount of this
debenture plus any accrued interest into such number of shares of
common stock as shall equal the quotient obtained by dividing the
principal amount of this debenture by the applicable conversion price.
5. Conversion price - Lesser of (i) $ 0.675 (fixed price) or (ii) the
product obtained by multiplying the average closing price by .80.
6. Average closing price - The debenture holder shall have the election
to choose any three trading days out of twenty trading days immediately
preceding the date on which the holder gives the company a written
notice of the holders' election to convert outstanding principal of
this debenture.
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.
12. On December 6, 1999, $200,000 plus $3,149 of accrued interest was
converted to 300,962 shares of common stock.
FINANCIAL PROJECT MANAGEMENT AGREEMENT
--------------------------------------
In December 1999, the company entered into a six month agreement with
Equinet, Inc., the project manager, to promote the growth of, or
increase in the shareholder value of the company.
The project manager will be compensated as follows:
1. A monthly fee of $3,500 for the first 6 months of the agreement
payable in cash or stock.
2. A fee of 1% - 10% based upon the funding received from the project
manager's recommendations.
3. In connection with the first $5,000,000 raised by the project
manager, the company will issue to the project manager warrants to
purchase three shares of common stock for each $20 raised, up to a
maximum of 750,000 shares. In the event the first $1,875,000 is
received by January 10, 2000, the Company will provide Equinet
a discounted exercise price of $0.99 per share in connection with
the warrants for these Funds.
F-45
<PAGE> 94
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 23 SUBSEQUENT EVENT (CONTINUED)
$1,000,000 DEBENTURE
--------------------
In December 1999, the company issued an additional $1,000,000 of 7%
convertible debentures under the following terms and conditions:
1. Due date - December 28, 2004.
2. Interest only on May 1 and December 1 of each year commencing April
1, 2000, payable in cash or stock.
3. Warrants to purchase 200,000 shares of common stock at $0.94 per
share.
4. Conversion terms - The debenture holder shall have the right to
convert all or a portion of the outstanding principal amount of this
debenture plus any accrued interest into such number of shares of
common stock as shall equal the quotient obtained by dividing the
principal amount of this debenture by the applicable conversion price.
5. Conversion price - Lesser of (i) $0.94 (fixed price) or (ii) the
product obtained by multiplying the average closing price by .80.
6. Average closing price - The debenture holder shall have the election
to choose any three trading days out of twenty trading days immediately
preceding the date on which the holder gives the company a written
notice of the holders' election to convert outstanding principal of
this debenture.
7. Redemption by company - If there is a change in control of the
company, the holder of 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.
12. The company paid a $100,000 brokerage fee for obtaining the
$1,000,000 debentures.
13. The debenture agreement provides monetary penalties in the event
the company delays the issuance of the conversion stock.
STOCK ISSUANCE
On November 29, 1999, the company received $50,000 and issued 100,000
shares of restricted stock.
INVESTOR COMMUNICATION AGREEMENT
--------------------------------
In December 1999, the company entered into an agreement with an
investment company for the purpose of providing investor communications
and enhancing shareholder values.
The agreement is for one year and requires the following payments by
the company:
F-46
<PAGE> 95
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 23 SUBSEQUENT EVENT (CONTINUED)
INVESTOR COMMUNICATION AGREEMENT (CONTINUED)
--------------------------------------------
1. Non-refundable retainer of $50,000.
2. $10,000 per month advisory fee commencing June 1, 2000.
3. Warrants to purchase 75,000 shares of the company's common
stock at 120% of the last trade price as of the execution of
the agreement and the warrants must be exercised within three
years from date of issuance.
ASSET PURCHASE AGREEMENT
------------------------
On December 23, 1999, the company purchased the customer and vendor
list from PC Solutions, Inc. for a purchase price of $11,250.
In addition, the company acquired two key-employees of PC Solutions,
Inc, and entered into two employment contracts with the following terms
and conditions:
<TABLE>
<CAPTION>
EMPLOYEE ONE EMPLOYEE TWO
------------ ------------
<S> <C> <C>
Effective date December 9, 1999 December 23, 1999
Salary annual $60,000 $0
Salary - per each half-day $0 $250
Commissions 2%
Options -December 9, 1999 25,000 shares 0
Options - January 3, 2000 0 25,000 shares
Options - January 2, 2001 25,000 shares 0
Options - January 2, 2002 50,000 shares 0
Options - January 2, 2003 50,000 shares 0
Each month after January 3, 2000
monthly 5,000 share options to
a maximum of 50,000 shares 0 50,000 shares
Option price $1.00 per share $1.00 per share
Option vesting period Immediate Immediate
Option expiration dates 10 years 10 years
Term of employment contract 3 years Mutually agreed date
Automatic renewal Annually 0
</TABLE>
F-47
<PAGE> 96
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. 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 "Securities 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 Securities 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
Securities Act and will be governed by the final adjudication of such issue.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The follow table sets forth the estimated costs and expenses incurred
by the selling securityholders in connection with this Offering.
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee $ 2,888.33
Legal Fees and Expenses $ 60,000.00
Accounting Fees and Expenses $ 20,000.00
Printing Expenses $ 5,000.00
Blue Sky Fees and Expenses $ 6,000.00
TOTAL(1) $ 93,888.33
</TABLE>
- ----------
1. Except for the SEC registration fee, all fees and expenses are
estimates.
<PAGE> 97
ITEM 26. 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.
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 January 2000, iBIZ issued options to
purchase 3,400,000 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 8% Debentures. The 8% Debentures are due on June 21, 2000, bear
<PAGE> 98
interest at eight percent (8%) per annum, and are unsecured. Under the terms of
the 8% Debentures, iBIZ is obligated to include the shares issuable upon
conversion of the 8% Debentures in this registration statement. Upon the
effectiveness of this registration statement, the 8% 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 Six Hundred Thousand Dollars
($600,000.00) of 7% Debentures (the "$600k 7% Debentures") to Globe United
Holdings, Inc. ("Globe"). Thereafter, in December 1999, iBIZ issued to Globe an
additional One Million Dollars ($1,000,000.00) of 7% Debentures (the "$1000k 7%
Debentures). On December 6, 1999, Globe converted $200,000 of the $600k 7%
Debentures, plus accrued interest to date. Pursuant to the applicable conversion
formula, iBIZ issued 300,962 shares of common stock.
In connection with the issuance of the $600k 7% Debentures, iBIZ issued
a warrant to purchase 100,000 shares of common stock at a purchase price of
$0.94 per share. The warrant is immediately exercisable and expires November 9,
2004.
In connection with the issuance of the $1000k 7% Debentures, iBIZ
issued a warrant to purchase 200,000 shares of common stock at a purchase price
of $0.94 per share. The warrant is immediately exercisable and expires December
28, 2004 (collectively the "Warrants).
iBIZ relied upon Regulation D, Rule 506 promulgated under the
Securities Act with respect to the issuance of the 7% Debentures and the
Warrants.
On January 7, 2000, iBIZ issued 250,000 shares of common stock, $.001
par value, at a sales price of $1.10 per share for a total amount of $275,000.
iBIZ relied upon Regulation D, Rule 506 promulgated under the Securities Act
with respect this sale.
On January 10, 2000, iBIZ issued warrants to purchase and aggregate of
281,250 shares of common stock at a purchase price of $0.99 per share. The
warrant is immediately exercisable and expires December 29, 2004 The warrants
have terms of five years and are immediately exercisable. iBIZ relied upon
either Section 4(2) or Regulation D, Rule 506 promulgated under the Securities
Act with respect these warrants.
<PAGE> 99
ITEM 27. EXHIBITS
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <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
5.01(3) Opinion of Gammage & Burnham, P.L.C.
10.01(1) Citrix Business Alliance Membership Agreement dated February
10, 1999, between INVNSYS and Citrix Systems, Inc.
10.02(1) Client Software License Agreement dated December 30, 1998,
between INVNSYS and Citrix Systems, Inc.
10.03(1) iBIZ Technology Corporation Distributed Software License
Agreement dated June 2, 1999, between iBIZ and Jeremy Radlow
10.04(1) 3Com Designed for Palm Computing Platform Logo License
Agreement, between iBIZ and Palm Computing, Inc.
10.05(1) IBIZ Technology Corp. Stock Option Plan dated January 31,
1999
10.06(1) Form of Stock Option
10.07(1) Lease Agreement dated June 1, 1999, between iBIZ and Lone
Cactus Capital Group, L.L.C.
10.08(1) Strategic Teaming and Marketing Agreement dated
February 18, 1999, between iBIZ and Global Telephone
Communication, Inc.
10.09(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.
10.18(3) Securities Purchase Agreement dated December 29, 1999,
between iBIZ and Globe United Holdings, Inc.
10.19(3) 7% Convertible Debenture Due December 29, 2004, between iBIZ
and Globe United Holdings, Inc.
</TABLE>
<PAGE> 100
<TABLE>
<CAPTION>
<S> <C>
10.20(3) Warrant dated December 29, 1999
10.21(3) Registration Rights Agreement dated December 29, 1999,
between iBIZ and Globe United Holdings, Inc.
10.22(3) Subscription Agreement for Common Stock of iBIZ Technology
Corp.
10.23(4) Master Distribution Agreement dated January 12, 2000,
between iBIZ and Harsper Co. Ltd.
21.01(1) Subsidiaries of Registrant
23.01(3) Consent of Moffitt & Company
27.02(4) 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.
3. Incorporated by reference from iBIZ's Form SB-2, File No. 333-94409, filed
with the SEC on January 11, 2000.
4. Incorporated by reference from iBIZ's Form 10-KSB, File No. 027619, filed
with the SEC on January 27, 2000.
ITEM 28. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made
of the securities registered hereby, a post-effective amendment to this
Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information set forth in this Registration Statement; and
(iii) include any additional or changed material information on
the plan of distribution.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
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 Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by
<PAGE> 101
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
Securities Act and will be governed by the final adjudication of such issue.
<PAGE> 102
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Phoenix,
State of Arizona on January 31, 2000.
iBIZ Technology Corp.,
a Florida Corporation
By:/s/ Kenneth W. Schilling
--------------------------------
Kenneth W. Schilling, President,
Director
By:/s/ Terry S. Ratliff
--------------------------------
Terry S. Ratliff, Vice President,
Comptroller, Director
By:/s/ Mark H. Perkins
--------------------------------
Mark H. Perkins, Vice President of
Operations, Director
<PAGE> 103
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <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
5.01(3) Opinion of Gammage & Burnham, P.L.C.
10.01(1) Citrix Business Alliance Membership Agreement dated February
10, 1999, between INVNSYS and Citrix Systems, Inc.
10.02(1) Client Software License Agreement dated December 30, 1998,
between INVNSYS and Citrix Systems, Inc.
10.03(1) IBIZ Technology Corporation Distributed Software License
Agreement dated June 2, 1999, between iBIZ and Jeremy Radlow
10.04(1) 3Com Designed for Palm Computing Platform Logo License
Agreement, between iBIZ and Palm Computing, Inc.
10.05(1) IBIZ Technology Corp. Stock Option Plan dated January 31,
1999
10.06(1) Form of Stock Option
10.07(1) Lease Agreement dated June 1, 1999, between iBIZ and Lone
Cactus Capital Group, L.L.C.
10.08(1) Strategic Teaming and Marketing Agreement dated February 18,
1999, between iBIZ and Global Telephone Communication, Inc.
10.09(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.
10.18(3) Securities Purchase Agreement dated December 29, 1999,
between iBIZ and Globe United Holdings, Inc.
10.19(3) 7% Convertible Debenture Due December 29, 2004, between iBIZ
and Globe United Holdings, Inc.
10.20(3) Warrant dated December 29, 1999
</TABLE>
<PAGE> 104
<TABLE>
<CAPTION>
<S> <C>
10.21(3) Registration Rights Agreement dated December 29, 1999,
between iBIZ and Globe United Holdings, Inc.
10.22(3) Subscription Agreement for Common Stock of iBIZ Technology
Corp.
10.23(4) Master Distribution Agreement dated January 12, 2000,
between iBIZ and Harsper Co. Ltd.
21.01(1) Subsidiaries of Registrant
23.01(3) Consent of Moffitt & Company
27.02(4) 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.
3. Incorporated by reference from iBIZ's Form SB-2, File No. 333-94409, filed
with the SEC on January 11, 2000.
4. Incorporated by reference from iBIZ's Form 10-KSB, File No. 027619, filed
with the SEC on January 27, 2000.
