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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
iBIZ TECHNOLOGY CORP.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
FLORIDA 3571 86-0933890
(STATE OR JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
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: June 17, 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 2,221,616(2) $1.21 (5) $2,688,155 (5) $709.67
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Common stock, $.001 par value 1,346,250(3) $1.21 (5) $1,628,963 (5) $430.04
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Common stock, $.001 par value 350,000(4) $1.21 (5) $423,500 (5) $111.80
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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 April 7, 2000 upon conversion of
one of our 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 a warrant to purchase 375,000
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) These shares are being registered pursuant to our obligations to the
selling securityholder.
(5) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) and (g) of the Securities Act, based on the
average ($1.21) of the bid ($1.16) and asked ($1.25) price on the NASD OTC
Bulletin Board on April 12, 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 Front cover
outside front of cover of Prospectus
2. Inside front and outside back cover Inside front cover of Prospectus
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, Directors and Executive Officers
Promoters and Control Persons
11. Security Ownership of Certain Security Ownership of Certain
Beneficial Owners and Management Beneficial Owners 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 for Securities Act
Indemnification for Securities Act Liabilities
Liabilities
15. Organization in last five years Not Applicable
16. Description of business Business
17. Management's Discussion and Analysis Management's Discussion and
or Plan of Operations Analysis
18. Description of Property Business
19. Certain Relationships and Related Certain Relationships and Related
Transactions Transactions
20. Market for Common Equity and Related Market for Common Equity and
Stockholder Matters Related Shareholder Matters
21. Executive Compensation Executive Compensation
22. Financial Statements Financial Statements
23. Changes in and Disagreements with Not Applicable
Accountants on 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
3,907,866 SHARES
COMMON STOCK
3,907,866 shares of common stock are being offered by our
securityholders named under the heading "Selling Securityholders" appearing on
page 12. 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 and 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 April 13, 2000,
the price for our common stock was $1.19 per share.
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS, SEE "RISK
FACTORS" ON PAGE 4.
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.
April 17, 2000
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TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUMMARY ..................................................... 1
RISK FACTORS ........................................................... 4
WHERE YOU CAN FIND MORE INFORMATION ABOUT US ........................... 11
SELLING SECURITYHOLDERS ................................................ 12
USE OF PROCEEDS ........................................................ 12
PLAN OF DISTRIBUTION ................................................... 12
MANAGEMENT'S DISCUSSION AND ANALYSIS ................................... 13
DESCRIPTION OF BUSINESS ................................................ 19
DIRECTORS AND EXECUTIVE OFFICERS ....................................... 34
EXECUTIVE COMPENSATION ................................................. 35
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ......... 37
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ......................... 38
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS ............... 38
DESCRIPTION OF SECURITIES .............................................. 39
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES ......................... 42
EXPERTS ................................................................ 42
LEGAL MATTERS .......................................................... 43
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 have incorporated 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 Sahara and the Tomato.
- 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. In January 2000, we became
the exclusive distributor of Harsper Co. LCD panels. We also
offer a line of traditional monitors.
- Notebook Computers. We market a complete line of competitively
priced, build-to-order notebook computers. 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, in
January 2000 we 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 South 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 Warrants Shares
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2,211,616(1) 1,346,250(1) 350,000
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Total shares registered in this prospectus .............. 3,907,866
Shares outstanding after the offering ................... 31,380,919(2)
OTC Bulletin Board symbol ............................... iBIZ
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(1) Under the terms of a registration agreement between iBIZ and the selling
securityholder, iBIZ has agreed to register 200% of the shares of common
stock issuable upon conversion of a 7% convertible debenture and exercise
of a warrant to purchase 375,000 shares. The number of shares issuable
upon conversion of the debentures and exercise of the warrants were
calculated as of April 7, 2000.
(2) Assumes (1) the conversion of the debentures and exercise of all of the
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 conversion of debentures and 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 4.
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 and during the fiscal
quarter ended January 31, 2000, we sustained net losses of approximately
$1,053,563 and $710,000, respectively. Future losses may occur. Our success in
obtaining additional funding will determine our ability to continue operations
and expand our business. 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. Between
November 1999 and March 2000, we issued convertible debentures in an aggregate
amount of $3,200,000. We currently anticipate the proceeds will be sufficient to
maintain our ongoing business until January 2001. However, we cannot assure you
that unforeseen events will not result in the need for additional capital sooner
than we currently anticipate.
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, or enter into
financing arrangements on terms that we would not otherwise accept.
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 products.
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 compete against a wide
range of competitors from large established companies such as IBM and AT&T to
smaller private entities. Our DSL services compete with companies such as U.S.
West Communications, COX Communications, Covad Communications and Rhythms
NetConnections, as well as numerous local and national traditional Internet
service providers. Although many DSL providers 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 Need to Expand our Product and Service 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 and services. 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 and services that keep pace with technological developments. If we fail
to introduce progressive new products and services in a timely and
cost-effective manner, our financial performance may be negatively affected.
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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 sell 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 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.
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.
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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 have an agreement 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.
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, we are 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 Recently Began Offering Third-Party Hardware, Software, and
Related Supplies
In January 2000, we 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.
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.
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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 is 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-person life insurance policies for our
executive officers. We cannot assure you that we will not suffer the loss of key
human resources.
Our Officers and Directors Can Exercise Control Over All Matters
Submitted to a Vote of Shareholders
As of April 5, 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,
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<PAGE> 15
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 debenture or
the sale of shares by the selling securityholders. However, we will receive
funds upon the exercise of 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 2,427,058. We have also filed
three registration statements which registered an aggregate of 3,475,000 shares
issuable upon exercise of options granted to our employees and 4,324,626 shares
issuable to certain of our securityholders, respectively. As of the date of this
prospectus, 2,170,000 employee options are exercisable. As a result, a total of
8,921,684 shares registered by iBIZ are currently eligible for resale.
In addition to the shares to be sold under these offerings, we have
outstanding 14,712,400 shares of "restricted securities" held by our officers
and directors. The remaining 14,241,461 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
2,427,058 shares registered in this offering (which does not include the shares
registered pursuant to anti-dilution provisions) and the 2,170,000 shares
currently issuable upon exercise of employee options and the 4,324,626 shares
issuable to other securityholders are issued, it will increase the available
free trading shares as of April 5, 2000 approximately 83%. A significant amount
of common stock coming on the market at any given time could result in a decline
in the price of our 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 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.
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<PAGE> 16
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 public 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 documents 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.
- Quarterly Report on Form 10-QSB filed March 16, 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 Offering(4) Offering(5) Offering(6)
---- ------------- -------- -------- --------
<S> <C> <C> <C> <C>
Lites Trading, Co. 2,961,616(1)(2) 2,961,616 0 *
Equinet, Inc. 521,250(3) 521,250 0 *
Josephthal & Co., Inc. 75,000(3) 75,000 0 *
Blaine Ruzycki 250,000 250,000 0 *
Paris House Limited 100,000 100,000 0 *
</TABLE>
(1) Issuable upon conversion of the 7% Debentures.
(2) 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 April 7, 2000, upon conversion of the 7% Debenture and a
warrant to purchase 375,000 shares. iBIZ is registering 2,211,616 shares
which represent 200% of the shares issuable upon conversion of the 7%
Debenture and 750,000 shares which represent 200% of the shares issuable
upon conversion of the warrant.
(3) Issuable upon conversion of warrants.
(4) Consists of all shares owned by the selling securityholders as of April
14, 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.
USE OF PROCEEDS
iBIZ will be responsible for the expenses of this Offering, which
are estimated at $22,000. iBIZ will not receive any proceeds from the sale of
the common stock by the selling securityholders. iBIZ will, however, receive up
to $927,437.50 upon the exercise of the warrants. iBIZ intends to use the net
proceeds from exercise of the 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 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
12
<PAGE> 18
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.
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
13
<PAGE> 19
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.
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
-------- --------
<S> <C> <C>
Balance Sheet Data
- ------------------
Total assets $1,309,954 $1,653,998
Total liabilities $1,821,151 $1,999,231
Stockholders' equity (deficit) $(511,197) $(345,233)
</TABLE>
<TABLE>
<CAPTION>
Year Ended
----------
10/31/98 10/31/99
-------- --------
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>
14
<PAGE> 20
<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>
<TABLE>
<CAPTION>
Three Month Period Ended
------------------------
1/31/2000 1/31/99
--------- -------
<S> <C> <C>
Statement of Operations Data
- ----------------------------
Net sales $628,853 $833,519
Gross profit $78,058 $111,858
Operating income (loss) $(695,037) $(19,149)
Net earnings (loss) after tax $(710,120) $(35,033)
Net earnings (loss) per share $(0.03) $(0.001)
<CAPTION>
1/31/2000 1/31/99
--------- -------
<S> <C> <C>
Balance Sheet Data
- ------------------
Total assets $1,724,760 $1,439,067
Total liabilities $2,530,372 $1,889,248
Stockholders' equity (deficit) $(805,612) $(450,181)
</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.
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
15
<PAGE> 21
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 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.
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<PAGE> 22
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.
Three month period ended January 31, 2000, compared to three month period ended
January 31, 1999.
Revenues. Sales decreased by approximately 25% from $833,519 for the
three month period ended January 31, 1999 to $628,853 for the three month period
ended January 31, 2000. The decrease was mainly as a result of a focus by
management on pursuing new lines of business, acquisitions and integration of
several new managers into the Company, in addition to a decrease in the demand
for the Company's traditional products.
Cost of Sales. The cost of sales decreased by approximately 24% from
$721,661 in the three month period ended January 31, 1999 to $550,795 for the
three month period ended January 31, 2000. The decrease in cost of sales is
attributable to a similar percentage decrease in sales and reflects hardware
costs which remained fairly stable over the three month period.
Gross Profit. Gross profit decreased from approximately $111,858 for
the three month period ended January 31, 1999 to $78,058 for the three month
period ended January 31, 2000. The decrease resulted primarily from the decrease
in revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately 690% from $131,007 to $773,095
for the three month period ended January 31, 2000. The increase was due
primarily due to a significant increase in the number of employees and the
related payment of salaries to said employees, costs of fees paid for capital
raising and investor relations, and legal and accounting fees related to
registration of the Company's common stock.
Interest Expense. Interest expense of $15,083 for the three month
period ended January 31, 2000 and of $15,884 for the three month period ended
January 31, 1999 was accrued on notes payable to Community First National Bank
(primarily extended for working capital purposes).
Net Earnings. Net losses increased from $35,033 for the three month
period ended January 31, 1999 to $710,120 for the three month period ended
January 31, 2000. The increase in losses resulted primarily from a decline in
sales and a significant increase in selling, general, and administrative
expenses.
17
<PAGE> 23
Liquidity and Capital Resources
Historically, iBIZ has had significant problems with liquidity. The
Company has been unable to generate sufficient internal cash flow to fund all of
its obligations. iBIZ must continue to raise funds to support the strategic
growth initiatives in progress. Specifically, iBIZ will require additional
funding to support its entry into broadband connectivity, its planned
development of web-server co-location facilities, and a planned expansion into
the application service provider segment of the business-to-business sector.
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.
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. As of
April 5, 2000, the Company had paid Equinet $375,500 for its introductions to
investors. The Company paid investor relation fees to several individuals of
approximately $97,000.
Between November 1999 and March 2000, the Company raised an
aggregate of $3,200,000 through issuance of convertible debentures to Globe
United Holdings, Inc. ("Globe") and Lites Trading, Co. Between December
1999 and March 2000, Globe converted aggregate of $1,250,000 of the
convertible debentures. Pursuant to the applicable conversion formula, iBIZ
issued 1,682,381 shares of common stock to Globe. iBIZ also issued $275,000
of common stock to an individual in January.
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.
Management believes that iBIZ now has sufficient reserves and will
generate sufficient cash flow from operations to operate through January 31,
2001. However, iBIZ will need to raise additional short term capital to maintain
its ongoing business beyond January 31, 2001. iBIZ is actively seeking to obtain
a significant capital infusion to avoid continuing reliance on short term
capital sources. Recent option and warrant exercises have also helped increase
the capital of the Company. There is no assurance that iBIZ will raise the
necessary capital to remain in business beyond January 31, 2001 or that
unforeseen events may result in the need for additional capital sooner than
January 31, 2001. If at any time iBIZ is unable to raise financing
18
<PAGE> 24
through additional sales of common stock or alternate funding sources it may be
required to delay or modify planned growth initiatives.
Management believes that its recent diversification into third-party
hardware and software sales should improve its liquidity and cash flow. These
sectors of its business are currently generating approximately $100,000 per
month in sales revenues. There is no assurance, however, that its favorable
relationship with its third-party suppliers will continue or that its customers
will continue to purchase the broadband connectivity service, hardware and the
software packages and upgrades necessary to generate the revenue experienced
since January 2000.
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,
19
<PAGE> 25
INVNSYS also distributed the products of Billcon Company, Ltd., and Glory,
manufacturers of bank automation and money processing systems.
In 1985, INVNSYS became a master distributor of SHARP products and
acquired the exclusive rights to distribute SHARP products to financial
institutions in the western United States. Between 1987 and 1990, INVNSYS won
various awards from SHARP for outstanding sales performance. Also during this
time, INVNSYS began to participate in the design of computer systems for
financial institutions. In cooperation with Wells Fargo Bank and SHARP, 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.
20
<PAGE> 26
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 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
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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.
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.
Tomato. The Tomato is designed to provide customers the advantage of
a small footprint book-size PC (10-3/4" x 113/5" x 3-1/4") with home and
corporate networking, home theater and full Internet capability. It may be
configured with Intel Celeron 300 to 500Mhz processors and comes with a 52X IDE
CD ROM or an optional DVD drive, TV connectors, four channel speakers and AC3
audio out/in support.
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.
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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 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
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mounting, INVNSYS believes the iT-9000 will provide a solution to extremely
limited home and office work areas.
The iT-9000 will offer a flip-down LCD panel, and will utilize the
latest Pentium III processor technology. The iT-9000 is undergoing 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"). Currently, INVNSYS offers
three notebook models, the RoadRunner, the Apache and the Phoenix.
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 III 600Mhz. 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
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interchangeable with a 4X DVD-ROM drive. The Apache offers resolution as high as
1024 x 768 pixels with its 13.3" (XGA) or 12.1" (SVGA) built-in TFT screen.
The Apache can be installed with up to 256 MB of memory using
industry-standard Synchronous Dual in-line Memory Modules ("SO DIMM"). To
improve slow input/output, the Apache also features up to 12 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 may be configured with Celeron 466 to Intel Pentium III
650 MHz processors. The notebook features a 12 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 4X 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 is configured with a 1024 x 768 pixel built-in
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
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Microsoft DirectAudio and Direct 3D for use in Windows NT 5.0 or Windows 98
systems. It features integrated 3D audio effects as well as dual channel full
duplex operation.
The Phoenix comes with an Intel MMC2 CPU module, which allows for
easy upgrades. In addition, the notebook's modular design allows for several
configurations. The notebook may be configured with anywhere from 32 to 256 MB
of RAM. The modular hard disk drive may be removed and replaced with an
alternate drive. 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 and hardware 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 resellers, 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 commercial customers.
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 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
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done entirely by Twinhead. Management believes this relationship allows INVNSYS
to offer a broader range of products to its customers without the cost of
research and development and manufacturing.
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
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accounting programs and management believes all internal systems are Year 2000
compliant. 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
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are targeted for the consumer and not for the corporate customer and are more
expensive than the computers offered by INVNSYS. INVNSYS' main competitors for
its 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, Covad Communications and Rhythms NetConnections offer DSL
services. Management believes that these companies' greater resources may
increase market awareness and acceptance of DSL services. However, as
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INVNSYS has only recently entered the market for Internet connection services,
there can be no assurance that it can successfully compete in the marketplace.
INVNSYS' DSL services also compete with numerous local and national
conventional dial-up Internet service providers such as America Online and
MindSpring. Although capable of providing higher connection speeds than
traditional modem dial-up services, the market for DSL services is currently
limited by the technological requirement that customers be located within a
fixed proximity of a central office which provides the service. In contrast,
conventional dial-up Internet services, while providing slower connection
speeds, may be accessed by any telephone line. There can be assurance that the
market for DSL services will develop to successfully compete against
conventional dial-up Internet service providers or that INVNSYS will
successfully market its DSL services.
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, 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 hardware and software has generated
sales of approximately $100,000 per month. However, there is no assurance that
iBIZ's 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 April 7, 2000, INVNSYS had approximately 42 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.
32
<PAGE> 38
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.
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 the 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 assurances 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.
33
<PAGE> 39
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, Secretary,
Controller, Director
Mark H. Perkins 36 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.
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
attended Nicholls State University in Thibodaux, Louisiana where she studied
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.
34
<PAGE> 40
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.
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.
35
<PAGE> 41
Compensation of Directors
Pursuant to the terms of their employment agreements, effective
April 22, 1999, Messrs. Schilling, Perkins and Ms. Ratliff each received fifty
thousand (50,000) options to purchase fifty thousand (50,000) shares of common
stock in consideration for their services as directors of iBIZ. Each director
holds office until the next annual meeting of shareholders or until their
successors are elected and qualified.
Employment Agreement for Kenneth W. Schilling
Effective March 5, 1999, Kenneth W. Schilling and iBIZ entered into
an Employment Agreement (the "Agreement"), as amended as of September 8, 1999.
Under the Agreement, Mr. Schilling has been retained to act as
President and Chief Executive Officer of iBIZ. The Agreement is for a term of
two 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
36
<PAGE> 42
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.
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 April 5, 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
- 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 April 5, 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) -------- 225,000 225,000 0.8 %
1919 W. Lone Cactus Drive, Phoenix, AZ
85021
Moorea Trust(2) 11,120,000 --------- 11,120,000 38.4%
1919 W. Lone Cactus Drive, Phoenix, AZ
85021
Terry S. Ratliff 1,771,200 325,000 2,096,000 7.2%
1919 W. Lone Cactus Drive, Phoenix, AZ
85021
Mark H. Perkins 1,771,200 325,000 2,096,000 7.2%
1919 W. Lone Cactus Drive, Phoenix, AZ
85021
All directors and officers as group 14,712,400 1,825,000 16,537,400 53.7%
(6 persons)
</TABLE>
(1) Includes options vested on April 5, 2000 and options which will become
vested on or before June 5, 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
37
<PAGE> 43
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 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 April 5, 2000,
four million three hundred eighty thousand (4,380,000) options ("the Options")
had been granted under the plan at exercise prices between $0.75 and $2.00. The
Options are granted for a period of three (3) to 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
$992,037.00 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 January 31, 2000, the balance of the loans payable by Mr. Schilling
to INVNSYS totaled $412,162.00. 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
38
<PAGE> 44
"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
March 2000.
[BAR GRAPH OMITTED]
1998 - 2000 Common Stock Prices
EVCV - iBIZ
<TABLE>
<CAPTION>
Stock Price
-------------
Quarter Ended High Low
- ------------- ---- ---
<S> <C> <C>
Sept. 98 $3.06 $2.25
Dec. 98 $2.66 $1.88
Mar 99 $2.06 $0.94
Jun 99 $2.44 $0.56
Sep 99 $2.22 $0.94
Dec 99 $1.81 $0.94
Mar 00 $1.00 $3.00
</TABLE>
As of April 5, 2000, management believes there to be 149 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 April 5, 2000, there
were 28,953,861 shares of common stock outstanding and an aggregate of 5,651,250
options and warrants to purchase common stock.
Common Stock. Holders of shares of common stock are entitled to one
vote for each share of common stock held of record on all matters submitted to a
vote of the shareholders. Each share of common stock is entitled to receive
dividends as may be declared by 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.
39
<PAGE> 45
Debentures. Between November 1999 and March 2000, iBIZ issued a
series of three 7% Debentures totaling an aggregate of $3.2 million. 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 March 27, 2000, iBIZ issued One Million Six Hundred Thousand
Dollars ($1,600,000.00) of 7% Debentures (the "$1600k 7% Debentures) to
Lites Trading, Co. ("Lites Trading").
The material terms of all the 7% Debentures are the same, except for
purchase amounts, certain relevant dates and time periods and related warrants.
Where the rights of Globe and Lites Trading conflict, Globe has agreed to waive
its rights in favor of Lites Trading.
On December 6, 1999, Globe converted $200,000 of the $600k 7%
Debentures, plus accrued interest to date, on March 2, 2000, Globe converted
$1,000,000 of the $1000k 7% Debentures, plus accrued interest to date and on
April 14, 2000, Globe converted $50,000 of the $600k 7% Debentures, plus accrued
interest to date. Pursuant to the applicable conversion formula, iBIZ issued
300,962 shares of common stock, 1,292,481 shares of common stock and 88,938
shares of common stock, respectively. Accordingly, as of April 15, 2000, Globe's
remaining $600k 7% Debentures totaled $200,000, plus accrued interest.
The remaining 7% Debentures accrue interest at seven percent per
annum and are due November 9, 2004, and March 27, 2005, 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 $1600k 7% Debentures is due on the first day of May and December. At the
holders' option, iBIZ may make interest payments in the form of shares of common
stock (calculated as if a portion of principal, as described below).
The holder 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.
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 $1600k 7% Debentures, is the
lesser of (i) $1.45 or (ii) the product obtained by multiplying (x) the Average
Closing Price (as defined in the 7% Debentures) by (y) .80. In addition, the
holders may require iBIZ to redeem the 7% Debentures 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).
40
<PAGE> 46
In connection with the sale of the $600k and $1000k 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). This Registration Statement on Form SB-2, File No.
333-94409, was declared effective February 1, 2000 and has remained continuously
effective through the date hereof.
In connection with the sale of the $1600k 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 April 17, 2000, and to use its best efforts to cause the
registration statement to be declared effective by June 25, 2000. If the
registration statement is not filed by April 17, 2000, or is not effective by
June 25, 2000, iBIZ is obligated to pay liquidated damages equal to 2% of the
purchase price of the $1600k 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 the holders, 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 the respective registration statement
is declared effective by the SEC or (ii) the date on which the holders 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 March 27, 2000; (iii) may issue options, in addition
to all options previously issued as of March 27, 2000 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 March 27, 2000) 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 the holders 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 $600k and $1000k 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. In connection with the sale of the
$1600k 7% Debentures, Globe agreed to waive its right of first refusal in favor
of Lites Trading. In the event Lites Trading elects not to exercise its rights,
such rights will revert back to Globe. 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 2,427,058
shares registered for sale by the selling securityholders (which amount does not
include the shares
41
<PAGE> 47
registered pursuant to anti-dilution provisions), 596,250 shares are issuable
upon exercise of warrants issued to consultants. These consultants warrants are
immediately exercisable, have an exercise price between $0.99 and $2.05 per
share and have terms from three to five years.
In addition, in connection the issuance of the $1600k 7% Debentures,
iBIZ has issued a warrant to purchase 375,000 shares of common stock. As the
registration rights agreement between Lites Trading and iBIZ requires the
registration of 200% of the original shares issuable under the warrants, this
prospectus covers the sale of 750,000 shares. The warrant is immediately
exercisable, has an exercise price of $1.45 per share and expires March 27,
2005.
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 3,475,000 options to employees under the Stock
Option Plan. The shares underlying these options have been registered on
registration statements on Form S-8, File No. 333-95475, filed on January 27,
2000, and File No. 333-34926 filed on April 17, 2000. In addition, iBIZ has
registered an aggregate of 900,000 shares issuable upon conversion of warrants
granted to consultants on a registration statement on Form SB-2, File No.
333-94409, filed January 11, 2000, as amended January 31, 2000.
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,
as of October 31, 1999, and for the three month period ended January 31, 2000,
included in this prospectus have been audited or reviewed 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.
42
<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.
43
<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
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
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
</TABLE>
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>
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>
<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
--------- ---------
Temporary differences and carry forwards that
gave rise to deferred tax assets and liabilities
included the following:
</TABLE>
<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 $ 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>
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>
<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-26
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
<TABLE>
<CAPTION>
ASSETS
<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>
<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>
<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>
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 .354 PER SHARE 640,318 640
AT .504 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>
$ 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>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
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>
<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>
<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>
<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:
Computer and components:
<TABLE>
<S> <C>
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>
<S> <C>
Tooling $ 68,100
Machinery and equipment 39,032
Office furniture and equipment 105,627
Vehicles 39,141
Leasehold improvements 17,031
268,931
Less accumulated depreciation 144,184
--------
Total property and equipment $124,747
========
</TABLE>
The depreciation expenses for the year ended October 31, 1999 is $
42,104.
NOTE 6 NOTE RECEIVABLE, RELATED PARTY
<TABLE>
<S> <C>
The related note is secured by 500,000 shares of
common stock in the company, payable on demand
and accrues interest at 6%. At October 31, 1999,
management believed the notes would not be collected
within the current operating cycle and classified the
asset as a long-term asset. $ 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>
<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>
<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
<S> <C> <C>
Net operating loss
October 31, 1995 $ 2,500 October 31, 2010
October 31, 1996 24,028 October 31, 2011
October 31, 1997 192,370 October 31, 2012
October 31, 1998 71,681 October 31,2013
October 31, 1999 991,162 October 31, 2019
Capital loss
October 31, 1997 25,600 October 31, 2002
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>
<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>
<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>
NOTE 14 ADVERTISING
The company expenses all advertising as incurred. For the year ended
October 31, 1999, the company charged to operations $15,492 in
advertising costs.
F-39
<PAGE> 88
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-40
<PAGE> 89
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>
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 .754 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-41
<PAGE> 90
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:
OPTIONS OUTSTANDING
-------------------
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE
AVERAGE REMAINING
PRICE EXERCISE CONTRACTUAL
RANGE SHARES PRICE LIFE
----- ------ ----- ----
<S> <C> <C> <C> <C>
$ .754 2,350,000 $ .75 9 years, 6
months
</TABLE>
OPTIONS EXERCISABLE
-------------------
<TABLE>
<CAPTION>
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-42
<PAGE> 91
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>
<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-43
<PAGE> 92
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 a discounted exercise price of $0.96 per
share in connection with the warrants for these
funds.
F-44
<PAGE> 93
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-45
<PAGE> 94
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-46
<PAGE> 95
IBIZ TECHNOLOGY CORP. AND
CONSOLIDATED SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000
F-47
<PAGE> 96
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT.......................................................... 49
FINANCIAL STATEMENTS
Consolidated Balance Sheet............................................................... 50
Consolidated Statement of Operations..................................................... 52
Consolidated Statement of Changes in Stockholders' Deficit............................... 53
Consolidated Statement of Cash Flows..................................................... 55
Notes to Consolidated Financial Statements............................................... 57
</TABLE>
F-48
<PAGE> 97
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To The Board of Directors and Stockholders
IBIZ Technology Corp. and Consolidated Subsidiary
Phoenix, Arizona
We have reviewed the accompanying balance sheet of IBIZ Technology Corp. and
Consolidated Subsidiary as of January 31, 2000, and the related statements of
operations, changes in stockholders' deficit, retained earnings and cash flows
for the three months then ended, in accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants. All information included in these financial statements is
the representation of the management of IBIZ Technology Corp. and Consolidated
Subsidiary.
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
As discussed in Note 22, certain conditions indicate that the company may be
unable to continue as a going concern. The accompanying financial statements do
not include any adjustments to the financial statements that might be necessary
should the company be unable to continue as a going concern.
MOFFITT & COMPANY, P. C.
SCOTTSDALE, ARIZONA
March 6, 2000
F-49
<PAGE> 98
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JANUARY 31, 2000
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 450,757
Accounts receivable, trade 382,637
Inventories 238,059
Prepaid expenses 28,246
---------------
TOTAL CURRENT ASSETS $ 1,099,699
PROPERTY AND EQUIPMENT, NET OF
ACCUMULATED DEPRECIATION 185,182
OTHER ASSETS
Note receivable, related party 412,162
Deposits 16,412
Customer list, net of accumulated amortization 11,305
---------------
TOTAL OTHER ASSETS 439,879
----------------
TOTAL ASSETS $ 1,724,760
================
</TABLE>
F-50
<PAGE> 99
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<S> <C>
CURRENT LIABILITIES
Accounts payable, trade $ 521,941
Customer deposits 30,014
Notes payable, current 6,540
Accrued liabilities 131,890
Sales and payroll taxes payable 117,606
Corporation income taxes payable 19,078
Deferred income 86,298
Convertible debentures payable 200,000
-----------------
TOTAL CURRENT LIABILITIES $ 1,113,367
LONG - TERM LIABILITIES
Convertible debentures payable 1,400,000
Notes payable 17,005
-----------------
TOTAL LONG - TERM LIABILITIES 1,417,005
STOCKHOLDERS' DEFICIT
Common stock
Authorized - 100,000,000 shares, par
value $.001 per shares
Issued and outstanding - 27,021,380 shares 27,021
Paid in capital in excess of par value of stock 1,443,650
Advance on stock subscription 75,000
Retained earnings (deficit) ( 2,351,283)
-----------------
TOTAL STOCKHOLDERS' DEFICIT ( 805,612)
------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 1,724,760
==================
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
F-51
<PAGE> 100
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JANUARY 31, 2000
(UNAUDITED)
<TABLE>
<S> <C> <C>
SALES $ 628,853
COST OF SALES 550,795
----------------
GROSS PROFIT 78,058
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES ( 773,095)
----------------
(LOSS) BEFORE OTHER INCOME ( 695,037)
OTHER INCOME (EXPENSE)
Interest income $ 5,398
Interest expense ( 20,481)
---------------
TOTAL OTHER INCOME, NET ( 15,083)
----------------
(LOSS) BEFORE INCOME TAXES ( 710,120)
INCOME TAXES 0
----------------
NET (LOSS) $ ( 710,120)
================
NET (LOSS) PER COMMON SHARE
Basic and Diluted $ ( 0.03)
================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Basic and diluted 26,721,059
================
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
F-52
<PAGE> 101
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE THREE MONTHS ENDED JANUARY 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
------------
SHARES AMOUNT
------ ------
<S> <C> <C>
BALANCE, NOVEMBER 1, 1999 26,370,418 $ 26,370
CONVERSION OF DEBENTURES TO
COMMON STOCK 300,962 301
ISSUANCE OF COMMON STOCK
FOR CASH
AT .50(CENT) PER SHARE 100,000 100
AT $1.10 PER SHARE 250,000 250
FEES AND COSTS FOR ISSUANCE
OF STOCK 0 0
NET (LOSS) FOR THE THREE MONTHS
ENDED JANUARY 31, 2000 0 0
---------- ----------
BALANCE, JANUARY 31, 2000 27,021,380 $ 27,021
========== ==========
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
F-53
<PAGE> 102
<TABLE>
<CAPTION>
PAID IN
CAPITAL IN
EXCESS OF ADVANCES RETAINED
PAR VALUE ON STOCK EARNINGS
OF STOCK SUBSCRIPTIONS (DEFICIT)
-------- ------------- ---------
<S> <C> <C> <C>
$ 1,106,266 $ 75,000 $ (1,641,163)
200,734 0 0
49,900 0 0
274,750 0 0
(188,000) 0 0
0 0 (710,120)
----------- ----------- -----------
$ 1,443,650 $ 75,000 $(2,351,283)
=========== =========== ===========
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
F-54
<PAGE> 103
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31, 2000
(UNAUDITED)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(710,120)
Adjustments to reconcile net (loss) to
net cash (used) by operating activities
Depreciation 10,774
Interest on debentures converted to common stock 1,036
Changes in operating assets and liabilities
Accounts receivable, trade (170,337)
Inventories 30,028
Prepaid expenses 10,738
Deposits 347
Accounts payable (241,024)
Customer deposits (85,394)
Accrued liabilities and taxes 12,523
Deferred income 31,336
----------------
NET CASH FLOWS (USED)
BY OPERATING ACTIVITIES $(1,110,093)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (70,615)
Loan to related party (55,352)
Purchase of customer list (11,900)
----------------
NET CASH FLOWS (USED) BY
INVESTING ACTIVITIES (137,867)
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
F-55
<PAGE> 104
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE THREE MONTHS ENDED JANUARY 31, 2000
(UNAUDITED)
<TABLE>
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock $ 137,000
Proceeds from issuance of convertible debentures 1,600,000
Decrease in notes payable (63,626)
----------------
NET CASH FLOWS PROVIDED
BY FINANCING ACTIVITIES $ 1,673,374
----------------
NET INCREASE IN CASH 425,414
CASH BALANCE, NOVEMBER 1, 1999 25,343
----------------
CASH BALANCE, JANUARY 31, 2000 $ 450,757
================
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during year for:
Interest $ 3,787
==============
Taxes $ 0
==========
NON CASH INVESTING AND FINANCING
ACTIVITIES
Issuance of common stock for convertible debentures $ 200,000
================
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
F-56
<PAGE> 105
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
IBIZ Technology Corp. was organized on April 6, 1994, under the laws of
the State of Florida. The company is a holding company and owns 100% of
Invnsys Technology Corporation.
Invnsys Technology Corporation is in the business of selling retail and
wholesale, financial, computing and communication equipment and
offering network integration services, digital subscriber line high
speed internet connection services and business-to-business software
sales. They also provide repair services and sell maintenance
contracts. The corporation 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.
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.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Major renewals and
improvements are charged to the asset accounts while replacement,
maintenance and repairs, which do not improve or extend the lives of
the respective assets, are expensed. At the time property and equipment
are retired or otherwise disposed of, the asset and related accumulated
depreciation accounts are relieved of the applicable amounts. Gains or
losses from retirements or sales are credited or charged to income.
The company depreciates its property and equipment for financial
reporting purposes using the straight-line method based upon the
following useful lives of the assets:
See Accompanying Notes and Independent Accountants' Review Report.
F-57
<PAGE> 106
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
<TABLE>
<CAPTION>
PROPERTY AND EQUIPMENT (CONTINUED)
<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
Location equipment 5 years
</TABLE>
CUSTOMER LISTS
The customer list is recorded at cost and is being amortized
on a straight-line basis over five years.
ACCOUNTING ESTIMATES
Management uses estimates and assumptions in preparing
financial statements in accordance with generally accepted
accounting principles. Those estimates and assumptions affect
the reported amounts of assets and liabilities, the disclosure
of contingent assets and liabilities, and the reported
revenues and expenses. Actual results could vary from the
estimates that were used.
REVENUE RECOGNITION
The company recognizes revenue from product sales when the
goods are shipped and title passes to customers.
SALES OF MAINTENANCE AGREEMENTS
The revenue received for the maintenance agreements is being
reported evenly over the life of the contracts. Such unearned
portion is recorded as deferred income.
INCOME TAXES
Provisions for income taxes are based on taxes payable or
refundable for the current year and deferred taxes on
temporary differences between the amount of taxable income and
pretax financial income and between the tax bases of assets
and liabilities and their reported amounts in the financial
statements. Deferred tax assets and liabilities are included
in the financial statements at currently enacted income tax
rates applicable to the period in which the deferred tax
assets and liabilities are expected to be realized or settled
as prescribed in FASB Statement No., 109, Accounting for
Income Taxes. As changes in tax laws or rates are enacted,
deferred tax assets and liabilities are adjusted through the
provision for income taxes.
See Accompanying Notes and Independent Accountants' Review Report.
F-58
<PAGE> 107
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000
(UNAUDITED)
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. 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.
UNAUDITED FINANCIAL INFORMATION
The financial statements are unaudited. In management's opinion, such
information includes all normal recurring entries necessary to make the
financial information not misleading.
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 January 31, 2000, as defined in FASB 107, does
not differ materially from the aggregate carrying values of its
financial instruments recorded in the accompanying balance sheet. The
estimated fair value amounts have been determined by the company using
available market information and appropriate valuation methodologies.
Considerable judgement is required in interpreting market data to
develop the estimates of fair value, and accordingly, the estimates are
not necessarily indicative of the amounts that the company could
realize in a current market exchange.
NOTE 3 ACCOUNTS RECEIVABLE
A summary of accounts receivable and allowance for doubtful accounts is
as follows:
<TABLE>
<S> <C>
Accounts receivable $407,637
Allowance for doubtful accounts 25,000
--------
$382,637
========
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
F-59
<PAGE> 108
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000
(UNAUDITED)
NOTE 4 INVENTORIES
<TABLE>
<S> <C>
Inventories are comprised of the following:
Computer and components:
Finished products $185,497
Demonstration and loaner units 6,003
Depot units 13,521
Office 31,467
Evaluation units 1,252
Parts 319
--------
Total inventories $238,059
========
NOTE 5 PROPERTY AND EQUIPMENT
Property and equipment and accumulated depreciation consists of:
Tooling $ 68,100
Machinery and equipment 44,628
Software 22,305
Office furniture and equipment 108,986
Vehicles 39,141
Location equipment 41,919
Leasehold improvements 14,467
--------
339,546
Less accumulated depreciation 154,364
--------
Total property and equipment $185,182
========
The depreciation expenses for the three months ended January 31, 2000
is $ 10,179.
NOTE 6 CUSTOMER LIST
The customer list and accumulated amortization consists of:
Cost $ 11,900
Less accumulated amortization 595
--------
Total customer list $ 11,305
========
</TABLE>
The amortization for the three months ended January 31, 2000 is $595.
See Accompanying Notes and Independent Accountants' Review Report.
F-60
<PAGE> 109
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000
(UNAUDITED)
<TABLE>
<S> <C>
NOTE 7 NOTE RECEIVABLE, RELATED PARTY
The related note is secured by 500,000 shares of common stock in
the company, payable on demand and accrues interest at 6%. At
January 31, 2000, management believed the notes would not be
collected within the current operating cycle and classified the
asset as a long-term asset. $ 412,162
==================
NOTE 8 CUSTOMER DEPOSITS
It is the company's policy to obtain a portion of the sales
price when orders are received. These funds are recorded as
customer deposits and are applied to the customer invoices when
the merchandise is shipped.
NOTE 9 INCOME TAXES
(Loss) from continuing operations
before income taxes $ ( 710,120)
------------------
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 (refund) at U.S. Federal Statutory
income tax rates $ ( 140,886)
Less change in valuation allowance 140,886
------------------
Net tax $ 0
==================
Deferred income tax assets and liabilities reflect the impact of
temporary differences between amounts of assets and
liabilities for financial reporting purposes and the basis of
such assets and liabilities as measured by tax
laws. The net deferred tax assets is: $ 0
------------------
</TABLE>
Temporary differences and carry forwards that gave rise to
deferred tax assets and liabilities included the following:
See Accompanying Notes and Independent Accountants' Review Report.
F-61
<PAGE> 110
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000
(UNAUDITED)
NOTE 9 INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
DEFERRED TAX
------------
ASSETS LIABILITIES
------ -----------
<S> <C> <C>
Net operating loss $ 451,000 $ 0
Accrued expenses and miscellaneous 8,100 0
Tax credit carryforward 38,424 0
Depreciation 0 6,199
--------- ---------
Subtotals 497,524 6,199
Valuation allowance (497,524) (6,199)
--------- ---------
Total deferred taxes $ 0 $ 0
========= =========
</TABLE>
As discussed in Note 22, there is substantial doubt about the company's
ability to continue as a going concern. Consequently, the company must
maintain a 100% valuation allowance for the deferred taxes as there is
doubt that the company will generate profits which will be absorbed by
the tax differences.
A reconciliation of the valuation allowance is as follows:
<TABLE>
<S> <C>
Balance, November 1, 1999 $ 356,638
Addition to allowance for three months ended
January 31, 2000 140,886
--------------------
Balance, January 31, 2000 $ 497,524
====================
</TABLE>
NOTE 10 TAX CARRYFORWARD
The company has the following tax carryforwards at January 31, 2000:
<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>
See Accompanying Notes and Independent Accountants' Review Report.
F-62
<PAGE> 111
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000
(UNAUDITED)
NOTE 11 NOTES PAYABLE
<TABLE>
<S> <C>
Note payable to Community First National Bank due in monthly
payments of interest of approximately $3,100. Interest is
computed at national prime as stated in the Wall Street Journal
plus 3 percent. The principal amount is due July 31, 2000. This
note is secured by accounts receivable, general intangibles and
all equipment and leasehold improvements. The shareholder has
personally guaranteed the loan and the bank is the beneficiary
of an insurance policy on the life of the shareholder. $ 0
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. 23,545
------------------
23,545
Less: current portion 6,540
------------------
Net long-term debt $ 17,005
==================
Maturities of long-term debt are as follows:
Year ended January 31,
2001 $ 6,540
2002 6,540
2003 3,925
------------------
$ 17,005
==================
</TABLE>
NOTE 12 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>
See Accompanying Notes and Independent Accountants' Review Report.
F-63
<PAGE> 112
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000
(UNAUDITED)
NOTE 13 CONVERTIBLE DEBENTURES
<TABLE>
<CAPTION>
CURRENT
$200,000 DEBENTURE TOTAL PORTION
------------------ ----- -------
<S> <C> <C>
On June 30, 1999, the company issued $200,000 of $ 200,000 $ 200,000
convertible debentures. The debentures bear interest
at 8%, are unsecured and are due on June 21, 2000.
On February 24, 2000, the debentures were converted into 300,00
shares of common stock
$1,000,000 DEBENTURE
In December 1999, the company issued an additional 1,000,000 0
$1,000,000 of 7% convertible debentures under the
following terms and conditions:
</TABLE>
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 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.
See Accompanying Notes and Independent Accountants' Review Report.
F-64
<PAGE> 113
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000
(UNAUDITED)
NOTE 13 CONVERTIBLE DEBENTURES (CONTINUED)
<TABLE>
<CAPTION>
CURRENT
$1,000,000 DEBENTURE (CONTINUED) TOTAL PORTION
<S> <C> <C>
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.
</TABLE>
On March 2, 2000, the company converted the $1,000,000
debentures into 1,292,481 shares of common stock.
<TABLE>
<S> <C> <C>
$600,000 DEBENTURE
------------------
In November 1999, the company issued $600,000 of 7% $ 400,000 $ 0
convertible debentures under the following amended
terms and conditions:
</TABLE>
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.
See Accompanying Notes and Independent Accountants' Review Report.
F-65
<PAGE> 114
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000
(UNAUDITED)
NOTE 13 CONVERTIBLE DEBENTURES (CONTINUED)
<TABLE>
<CAPTION>
CURRENT
$600,000 DEBENTURE (CONTINUED) TOTAL PORTION
------------------------------ ----- -------
<S> <C> <C>
7. Redemption by company - If there is a change in control of
the company, the holder of the debenture can request that
the debenture be redeemed at a price equal to 125% of the
aggregate principal and accrued interest outstanding under
this debenture.
8. The debentures are unsecured.
9. Any further issuance of common stock or debentures must be
approved by debenture holders.
10. Debenture holders have a eighteen month right of first
refusal on future disposition of stock by the company.
11. Restriction on payment of dividends, retirement of stock
or issuance of new securities.
On November 9, 1999, the company converted $200,000
of debentures into 300,962 shares of common stock.
------------------ ------------------
Total $ 1,600,000 $ 200,000
================== ==================
</TABLE>
NOTE 14 NET (LOSS) PER COMMON SHARE
<TABLE>
<S> <C>
Computation of net (loss) per common share
Net (loss) to common stockholders $ 710,120
---------------------------------------------------- ------------------
Weighted average number of common shares outstanding 26,721,059
Net (loss) per share ( $0.03)
</TABLE>
The weighted average shares from converting stock options, warrants and
debentures are not presented as the amounts are anti-dilutive.
NOTE 15 REAL ESTATE LEASE
On June 1, 1999, the company leased a new facility from a related
entity. The lease commenced on July 1, 1999, requires initial annual
rentals of $153,600 (with annual increases) plus taxes and operating
costs and expires on December 31, 2024. The company has also guaranteed
the mortgage on the premises.
Future minimum lease payments, (based upon fiscal years ending October
31) excluding taxes and expenses, are as follows:
See Accompanying Notes and Independent Accountants' Review Report.
F-66
<PAGE> 115
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000
(UNAUDITED)
NOTE 15 REAL ESTATE LEASE (CONTINUED)
<TABLE>
<S> <C>
October 31, 2000 $ 156,160
October 31, 2001 163,968
October 31, 2002 172,168
October 31, 2003 180,780
October 31, 2004 189,820
November 1, 2004 - December 31, 2024 6,676,000
</TABLE>
Rent expense for the three months ended January 31, 2000 is $38,400.
NOTE 16 ADVERTISING
The company expenses all advertising as incurred. For the three months
ended January 31, 2000, the company charged to operations $9,110 in
advertising costs.
NOTE 17 INTEREST
The company incurred interest expenses for the three months ended
January 31, 2000 of $20,481.
NOTE 18 WARRANTY RESERVE
The company established a warranty reserve of $35,568 to cover any
potential warranty costs on computer equipment that are not covered by
the computer manufacturer's warranty.
NOTE 19 ECONOMIC DEPENDENCY
The company purchases the majority of its computer equipment from three
suppliers.
NOTE 20 OFFICERS' COMPENSATION
The company has four employment agreements with the following officers:
<TABLE>
<CAPTION>
PRESIDENT VICE
AND CHIEF VICE PRESIDENT CHIEF
EXECUTIVE PRESIDENT/ OF OPERATING
OFFICER COMPTROLLER OPERATIONS OFFICER
------- ----------- ---------- -------
<S> <C> <C> <C> <C>
Annual compensation $ 200,000 $ 88,000 $ 88,000 $ 96,200
============= =============== ================== ==================
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
F-67
<PAGE> 116
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000
(UNAUDITED)
NOTE 21 STOCK OPTIONS
On January 31, 1999, the corporation adopted a stock option plan
for the purpose of providing an incentive based form of
compensation to the directors, key employees and service
providers of the corporation.
The stock subject to the plan and issuable upon exercise of
options granted under the plan are shares of the corporation's
common stock, $.001 par value, which may be either unissued or
treasury shares. The aggregate number of shares of common stock
covered by the plan and issuable upon exercise of all options
granted shall be 5,000,000 shares, which shares shall be
reserved for use upon the exercise of options to be granted from
time to time.
The company issued the following options:
<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
January 28, 2000 125,000 Officer Immediately 10 years
January 28, 2000 500,000 Officer One year - 10 years
------- performance
based
2,975,000
=========
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
F-68
<PAGE> 117
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000
(UNAUDITED)
NOTE 21 STOCK OPTIONS (CONTINUED)
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(cent) to $1.06 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.
A summary of the stock options is as follows:
<TABLE>
<CAPTION>
SHARES
------
<S> <C>
Outstanding at November 1, 1999 2,350,000
Granted during the three months ended January 31, 2000 625,000
----------
Outstanding at January 31, 2000 2,975,000
==========
</TABLE>
Information regarding stock options outstanding as of January 31, 2000 is as
follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------
WEIGHTED
WEIGHTED AVERAGE
AVERAGE REMAINING
PRICE EXERCISE CONTRACTUAL
RANGE SHARES PRICE LIFE
----- ------ ----- ----
<S> <C> <C> <C>
$ .75(cent)- $1.06 2,975,000 $ .75 9 years, 3 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.
See Accompanying Notes and Independent Accountants' Review Report.
F-69
<PAGE> 118
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000
(UNAUDITED)
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 the company has incurred net losses of $710,120,
has a deficit working capital of $13,668 and a stockholders' deficit of
$805,612. In February and March 2000, the company converted $1,200,000
of debentures into common stock. These conversions increased working
capital and stockholders' equity. In addition, sales have increased
from the purchase of the customer lists.
NOTE 23 INVESTOR COMMUNICATION AGREEMENT
In December 1999, the company entered into an agreement with an
investment company for the purpose of providing investor communications
and enhancing shareholder values.
The agreement is for one year and requires the following payments by
the company:
1. Non-refundable retainer of $50,000.
2. $10,000 per month advisory fee commencing June 1,
2000.
3. Warrants to purchase 75,000 shares of the company's
common stock at 120% of the last trade price as of
the execution of the agreement and the warrants must
be exercised within three years from date of
issuance.
NOTE 24 FINANCIAL PROJECT MANAGEMENT AGREEMENT
In December 1999, the company entered into a six month agreement with
Equinet, Inc., the project manager, to promote the growth of, or
increase in the shareholder value of the company.
The project manager will be compensated as follows:
1. A monthly fee of $3,500 for the first 6 months of the
agreement payable in cash or stock.
2. A fee of 1% - 10% based upon the funding received
from the project manager's recommendations.
3. In connection with the first $5,000,000 raised by the
project manager, the company will issue to the
project manager warrants to purchase three shares of
common stock for each $20 raised, up to a maximum of
750,000 shares. In the event the first $1,875,000 is
received by January 10, 2000, the company will
provide Equinet, Inc. a discounted exercise price of
$0.99 per share in connection with the warrants
issued for these funds.
See Accompanying Notes and Independent Accountants' Review Report.
F-70
<PAGE> 119
IBIZ TECHNOLOGY CORP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31, 2000 JANUARY 31,1999
(REVIEWED) (UNREVIEWED)
<S> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents $ 450,757 $ 296,310
Accounts Receivable, Trade 382,637 237,643
Inventories 238,059 274,264
Prepaid Expenses, Other Assets 28,246 20,876
---------- ----------
Total Current Assets 1,099,699 829,093
Property and Equipment, Net of Accumulated Depreciation 185,182 65,183
Other Assets
Note Receivable, Related Party 412,162 544,791
Deposits 16,412 0
Customer List, Net of Accumulated Amortization 11,305 0
---------- ----------
Total Other Assets 439,879 544,791
TOTAL ASSETS $1,724,760 $1,439,067
========== ==========
</TABLE>
F-71
<PAGE> 120
IBIZ TECHNOLOGY CORP
CONSOLIDATED BALANCE SHEETS
CONTINUED
<TABLE>
<CAPTION>
JANUARY 31, 2000 JANUARY 31,1999
(REVIEWED) (UNREVIEWED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable, Trade $ 521,941 $ 826,433
Customer Deposits 30,014 243,655
Notes Payable, Current 6,540 19,580
Accrued Liability 131,890 59,596
Sales and Payroll Taxes Payable 117,606 301,786
Corporation and Income Tax Payable 19,078 17,841
Deferred Income 86,298 80,831
Convertible Debentures Payable 200,000 0
---------- ----------
Total Current Liabilities 1,113,367 1,549,722
Long-Term Liabilities
Convertible Debentures Payable 1,400,000 0
Notes Payable 17,005 339,526
---------- ----------
Total Long-Term Liabilities 1,417,005 339,526
Stockholders' Deficit
Common Stock
Authorized - 100,000,000 shares
Par value $.001 per share
Issued and Outstanding 27,021 24,540
Paid in Capital in Excess of Par Value 1,443,650 179,742
Advances on Stock Subscriptions 75,000 105,000
Retained Earnings (Deficit) (2,351,283) (759,463)
---------- ----------
Total Stockholders' Deficit (805,612) (450,181)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $1,724,760 $1,439,067
========== ==========
</TABLE>
F-72
<PAGE> 121
IBIZ TECHNOLOGY CORP
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTH PERIODS
ENDED JANUARY 31, 2000 AND 1999
<TABLE>
<CAPTION>
JANUARY 31, 2000 JANUARY 31,1999
(REVIEWED) (UNREVIEWED)
<S> <C> <C>
Sales $ 628,853 $ 833,519
Cost of Sales 550,795 721,661
------------ ------------
Gross Profit 78,058 111,858
Selling, General & Administrative Expense (773,095) 131,007
------------ ------------
(Loss) Before Other Income (695,037) (19,149)
Other Income
Interest Income 5,398 0
Interest Expense (20,481) (15,884)
Total Other Income, Net (15,083) (15,884)
------------ ------------
(Loss) Before Income Taxes (710,120) (35,033)
Income Taxes 0 0
------------ ------------
Net (Loss) ($ 710,120) ($ 35,033)
============ ============
Net (Loss) per Common Share Outstanding
Basic and Diluted (0.03) (0.001)
Weighted Average Number of Common Shares Outstanding
Basic and Diluted 26,721,059 24,143,201
============ ============
</TABLE>
F-73
<PAGE> 122
IBIZ TECHNOLOGY CORP
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTH PERIODS
ENDED JANUARY 31, 2000 AND 1999
<TABLE>
<CAPTION>
January 31, 1999 January 31, 1999
(reviewed) (unreviewed)
------------------------------------
<S> <C> <C>
CASH FLOW STATEMENTS
Cash Flows from Operating Activities:
Net (Loss) ($710,120) ($ 35,033)
Adjustments to Reconcile Net (loss) to
Net Cash (used) by Operating Activities
Depreciation 10,774 11,353
Deferred Tax 0 (73,085)
Interest on Convertible Debentures 1,036 0
Changes in Operating Assets and Liabilities
Accounts Receivable, Trade (170,337) (84,107)
Inventories 30,028 49,133
Prepaid Expenses and Other Assets 10,738 27,779
Deposits 347 0
Accounts Payable, Trade (241,024) 45,618
Customer Deposits (85,394) (151,609)
Accrued Liabilities and Taxes 12,523 42,729
Deferred Income 31,336 9,800
------------------------------------
Net Cash Flows (Used) by Operating Activities ($1,110,093) ($ 157,422)
Cash Flows from Investing Activities:
Purchases of Property and Equipment (70,615) 0
Loan to Related Party (55,352) 361,829
Purchase of Customer List (11,900) 0
------------------------------------
Net Cash Flows (Used) by Investing Activities ($ 137,867) $ 361,829
Cash Flows from Financing Activities:
Bank Overdraft 0 (13,700)
Net Proceeds from Issuance of Common Stock 137,000 35,000
Proceeds from Issuance of Convertible Debentures 1,600,000 0
Advances on Stock Subscriptions 0 105,000
Decrease in Notes Payable (63,626) (34,597)
------------------------------------
Net Cash Flows Provided by Financing Activities $ 1,673,374 $ 91,703
Net Increase in Cash 425,414 296,110
Cash Balance, November 1, Prior Year 25,343 200
------------------------------------
------------------------------------
Cash Balance, January 31, Current Year $ 450,757 $ 296,310
====================================
</TABLE>
F-74
<PAGE> 123
IBIZ TECHNOLOGY CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS
ENDED JANUARY 31, 2000 AND 1999
CONTINUED
<TABLE>
<CAPTION>
JANUARY 31, 1999 JANUARY 31, 1999
(REVIEWED) (UNREVIEWED)
------------------------------------
<S> <C> <C>
Supplemental Disclosure of Cash
Flow Information
Cash Paid During Year for:
Interest $3,787 $15,884
Taxes 0 0
======================================
Non-cash Investing and Financing Activities
Issuance of Common Stock for Investment in
INVNSYS Technology Corporation 0 16,000
Issuance of Common Stock for
Convertible Debentures 200,000 0
</TABLE>
F-75
<PAGE> 124
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>
<S> <C>
SEC Registration Fee $ 1,251.51
Legal Fees and Expenses $22,000
Printing Expenses $5,000
Blue Sky Fees and Expenses $6,000
TOTAL(1) $34,251.51
</TABLE>
1. Except for the SEC registration fee, all fees and expenses are
estimates.
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<PAGE> 125
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 March 9, 2000, iBIZ issued options
or warrants to purchase an aggregate of 4,375,000 shares of common stock, $.001
par value to employees and various consultants. The exercise price of the
options or warrants is the fair market value on the date of grant, which ranged
from $0.75 to $2.00 per share. iBIZ relied upon either Rule 701 or Section 4(2)
with respect to the granting of these options and warrants.
On June 30, 1999, iBIZ issued Two Hundred Thousand Dollars
($200,000.00) of 8% Convertible Debentures. Upon the effectiveness of iBIZ's
registration statement on Form SB-2, File No. 333-94409, dated January 11, 2000,
as
II-2
<PAGE> 126
amended January 31, 2000, the 8% Debentures automatically converted to 300,000
fully paid and nonassessable shares of common stock, $.001 par value.
Between November 1999 and March 2000 iBIZ issued a series of
three 7% Debentures totaling an aggregate of $3.2 million. In November 1999,
iBIZ issued Six Hundred Thousand Dollars ($600,000.00) of 7% Debentures (the
"$600k 7% Debentures") to Globe United Holdings, Inc. 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 March 27, 2000, iBIZ issued One
Million Six Hundred Thousand Dollars ($1,600,000.00) of 7% Debentures (the
"$1600k 7% Debentures) to Lites Trading, Co.
On December 6, 1999, Globe converted $200,000 of the $600k 7%
Debentures, plus accrued interest to date, on March 2, 2000, Globe converted
$1,000,000 of the $1000k 7% Debentures, plus accrued interest to date and on
April 14, 2000, Globe converted $50,000 of the $600k 7% Debentures, plus accrued
interest to date. Pursuant to the applicable conversion formula, iBIZ issued
300,962 shares of common stock, 1,292,481 shares of common stock and 88,938
shares of common stock, respectively. Accordingly, as of the date of this
registration statement, Globe's remaining $600k 7% Debentures totaled $350,000,
plus accrued interest.
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
In connection with the issuance of the $1600k 7% Debentures,
iBIZ issued a warrant to purchase 375,000 shares of common stock at a purchase
price of $1.45 per share. The warrant is immediately exercisable and expires
March 27, 2004 (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 December 14, 2000, iBIZ issued a warrant to purchase an
aggregate of 75,000 shares of common stock at a purchase price of $1.66 per
share. The warrant is immediately exercisable and expires December 14, 2004.
iBIZ relied upon either Section 4(2) or Regulation D, Rule 506 promulgated under
the Securities Act with respect this warrant.
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.
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<PAGE> 127
On January 10, 2000, iBIZ issued a warrant to purchase an
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.
iBIZ relied upon either Section 4(2) or Regulation D, Rule 506 promulgated under
the Securities Act with respect this warrant.
On March 27, 2000, iBIZ issued a warrant to purchase an
aggregate of 240,000 shares of common stock at a purchase price of $2.05 per
share. The warrant is immediately exercisable and expires March 27, 2005. iBIZ
relied upon either Section 4(2) or Regulation D, Rule 506 promulgated under the
Securities Act with respect this warrant.
II-4
<PAGE> 128
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
5.04(6) 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>
II-5
<PAGE> 129
<TABLE>
<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.
10.24(5) Letter Agreement dated December 14, 1999, between iBIZ and Josephthal & Co., Inc.
10.25(5) Financial Project Management Agreement dated January 20, 2000, between iBIZ and
Equinet, Inc.
10.26(6) Securities Purchase Agreement dated March 27, 2000, between iBIZ and Lites Trading, Co.
10.27(6) 7% Convertible Debenture Due March 27, 2000, between iBIZ and Lites Trading, Co.
10.28(6) Warrant dated March 27, 2000
10.29(6) Registration Rights Agreement dated March 27, 2000, between iBIZ and Lites Trading, Co.
10.306 Letter Agreement dated March 27, 2000, from Globe United Holdings to iBIZ
21.01(1) Subsidiaries of Registrant
23.02(6) Consent of Moffitt & Company
27.02(4,5) 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.
5. Incorporated by reference from iBIZ's Form 10-QSB, File No. 027619,
filed with the SEC on March 16, 2000.
6. Filed herewith.
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.
II-6
<PAGE> 130
(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 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.
II-7
<PAGE> 131
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 April 17, 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
II-8
<PAGE> 132
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
5.04(6) 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
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.
</TABLE>
II-9
<PAGE> 133
<TABLE>
<S> <C>
10.23(4) Master Distribution Agreement dated January 12, 2000, between iBIZ and Harsper Co. Ltd.
10.24(5) Letter Agreement dated December 14, 1999, between iBIZ and Josephthal & Co., Inc.
10.25(5) Financial Project Management Agreement dated January 20, 2000, between iBIZ and
Equinet, Inc.
10.26(6) Securities Purchase Agreement dated March 27,2000, between iBIZ and
Lites Trading, Co.
10.27(6) 7% Convertible Debenture Due Mach 27, 2000, between iBIZ and Lites Trading, Co.
10.28(6) Warrant dated March 27, 2000
10.29(6) Registration Rights Agreement dated March 27, 2000, between iBIZ and Lites Trading, Co.
10.30(6) Letter Agreement dated March 27, 2000 from Globe United Holdings to iBIZ
21.01(1) Subsidiaries of Registrant
23.02(6) Consent of Moffitt & Company
27.02(4,5) 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.
5. Incorporated by reference from iBIZ's Form 10-QSB, File No. 027619,
filed with the SEC on March 16, 2000.
6. Filed herewith.
II-10
<PAGE> 1
Exhibit 5.04
[GAMMAGE & BURNHAM LETTERHEAD]
April 14, 2000
Board of Directors
iBIZ Technology Corp.
1919 West Lone Cactus
Phoenix, Arizona 85027
Re: Registration Statement on Form SB-2
Gentlemen:
In connection with the registration by iBIZ Technology Corp. (the
"Company"), on Form SB-2 (the "Registration Statement") providing registration
under the Securities Act of 1933, as amended, of not to exceed 3,907,866 shares
of Common Stock issuable upon exercise of Warrants and upon conversion of
Debentures, we are furnishing the following opinion as counsel to the Company.
We have examined such corporate records, certificates of public
officials and officers of the Company, and other documents and records as we
have considered necessary or proper for the purpose of this opinion.
Based upon the foregoing, and having regard to legal considerations
that we deem relevant, we are of the opinion that the shares of Common Stock of
the Company issuable upon exercise of the Warrants and upon conversion of the
Debentures when issued and sold in accordance with the transactions described
in the Registration Statement, and in accordance with the federal securities
laws and the securities laws of the various states in which the Common Stock
may be issued, will be validly issued, fully paid and nonassessable.
As counsel to the Company, we hereby consent to the reference to this
firm under the caption "Legal Matters" contained in the Prospectus which is
part of the Registration Statement and to the filing of this opinion as Exhibit
5.04 to the Registration Statement.
Very truly yours,
GAMMAGE & BURNHAM P.L.C.
By:
Stephen R. Boatwright
<PAGE> 1
Exhibit 10.26
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of March 27, 2000
(this "Agreement"), is entered into by and between iBIZ TECHNOLOGY CORP., a
Florida corporation (the "Company"), and LITES TRADING CO. (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Company and the Purchaser are executing and
delivering this Agreement in reliance upon the exemptions from registration
provided by Regulation D ("Regulation D") promulgated by the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), and/or Section 4(2) of the Securities Act;
WHEREAS, the Purchaser wishes to purchase, and the Company
wishes to issue and sell, for an aggregate purchase price of $1,600,000 upon the
terms and conditions of this Agreement, $1,600,000 aggregate principal amount
(the "Debentures") of the Company's 7% Convertible Debentures which Debentures
shall be in the form attached as Exhibit A, and warrants (the "Warrants") to
purchase 375,000 shares of the Company's Common Stock, par value $.001 per share
(the "Common Stock"); and
WHEREAS, the Debentures are convertible into shares of the
Company's Common Stock on the terms set forth therein, and the Warrants (which
shall be in substantially the form attached as Exhibit B) may be exercised for
the purchase of Common Stock, on the terms set forth therein.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE
a. PURCHASE OF DEBENTURES. Purchaser hereby agrees to purchase from the
Company, and the Company hereby agrees to issue and sell to the Purchaser, the
Debentures and the Warrants for an aggregate purchase price of $1,600,000 which
shall be payable on the date hereof in next day funds.
b. CLOSINGS. The Debentures and Warrants to be purchased by Purchaser
hereunder,
<PAGE> 2
in definitive form, and in such denominations as Purchaser or its
representative, if any, may request upon at least forty-eight hours' prior
notice to the Company, shall be delivered by or on behalf of the Company for the
account of Purchaser, against payment by the Purchaser of the aggregate purchase
price of $1,600,000 therefor by wire transfer to an account of the Company, all
at the offices of Laufer, Halberstam & Karish, 39 Broadway, 14th floor, New
York, New York 10006, New York time on the date hereof, or at such other time
and date as Purchasers or their representative, if any, and the Company may
agree upon in writing, such date being referred to herein as the "Closing Date."
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION
The Purchaser represents and warrants to, and covenants and
agrees with, the Company as follows:
a. The Purchaser is (i) experienced in making investments of the kind
described in this Agreement and the related documents, (ii) able, by reason of
the business and financial experience of its management, to protect its own
interests in connection with the transactions described in this Agreement and
the related documents, and (iii) able to afford the entire loss of its
investment in the Debentures and Warrants.
b. All subsequent offers and sales of the Debentures and Warrants and
the Common Stock issuable upon conversion or exercise of, or in lieu of interest
payments on, the Debentures and Warrants, it shall have purchased shall be made
pursuant to an effective registration statement under the Securities Act or
pursuant to an applicable exemption from such registration.
c. The Purchaser understands that the Debentures and the Warrants are
being offered and sold to it in reliance upon exemptions from the registration
requirements of the United States federal securities laws, and that the Company
is relying upon the truth and accuracy of the Purchaser's representations and
warranties, and the Purchaser's compliance with its agreements, each as set
forth herein, in order to determine the availability of such exemptions and the
eligibility of the Purchaser to acquire the Debentures and the Warrants.
d. The Purchaser: (A) has been provided with sufficient information
with respect to the business of the Company and such documents relating to the
Company as the Purchaser has requested and Purchaser has carefully reviewed the
same including, without limitation, the Company's (i) Form SB-2 filed with the
Securities and Exchange Commission (the "Commission") on January 11, 2000, as
amended by Amendment No. 1 filed with the Commission on January 31, 2000, (ii)
Annual Report on Form 10KSB40 filed with the Commission on January 27, 2000 (the
"Annual Report"), and (iii) Registration Statement on Form S-8 filed with the
Commission on January 27, 2000, an (iv) Quarterly Report on Form
2
<PAGE> 3
10-QSB filed with the Commission on March 16, 2000, (B) has been provided with
such additional information with respect to the Company and its business and
financial condition as the Purchaser, or the Purchaser's agent or attorney, has
requested, and (C) has had access to management of the Company and the
opportunity to discuss the information provided by management of the Company and
any questions that the Purchaser had with respect thereto have been answered to
the full satisfaction of the Purchaser.
e. The Purchaser has the requisite corporate power and authority to
enter into this Agreement and the registration rights agreement, dated as of the
date hereof, between the Company and the Purchaser (the "Registration Rights
Agreement").
f. This Agreement and the Registration Rights Agreement and the
transactions contemplated hereby and thereby, have been duly and validly
authorized by the Purchaser; and such agreements, when executed and delivered by
each of the Purchaser and the Company will each be a valid and binding agreement
of the Purchaser, enforceable in accordance with their respective terms, except
to the extent that enforcement of each such agreement may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws now or hereafter in effect relating to creditors' rights
generally and to general principles of equity.
3. REPRESENTATIONS OF THE COMPANY
The Company represents and warrants to the Purchaser that:
a. ORGANIZATION. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida. Each of
the Company's subsidiaries, if any, is a corporation duly organized, validly
existing and in good standing under the laws of its respective jurisdiction.
Each of the Company and its subsidiaries, if any, is duly qualified as a foreign
corporation in all jurisdictions in which the failure to so qualify would have a
material adverse effect on the Company and its subsidiaries taken as a whole.
Schedule 3a lists all subsidiaries of the Company and, except as noted therein,
all of the outstanding capital stock of all such subsidiaries is owned of record
and beneficially by the Company.
b. CAPITALIZATION. On the date hereof, the authorized capital of the
Company consists of 100,000,000 shares of Common Stock, par value $.001 per
share, of which 28,943,861 shares are issued and outstanding. Schedule 3b sets
forth all of the options, warrants and convertible securities of the Company,
and any other rights to acquire securities of the Company (collectively the
"Derivative Securities") which are outstanding on the date hereof, including in
each case (i) the name and class of such Derivative Securities, (ii) the issue
date of such Derivative Securities, (iii) the number of shares of Common Stock
of the Company into which such Derivative Securities are convertible as of the
date hereof, (iv) the conversion or exercise price or prices of such Derivative
Securities as of the date hereof, (v) the expiration
3
<PAGE> 4
date of any conversion or exercise rights held by the owners of such Derivative
Securities and (vi) any registration rights associated with such Derivative
Securities. Schedule 3b also sets forth all registration rights associated with
the Common Stock.
c. CONCERNING THE DEBENTURES AND THE WARRANTS. The Debentures and
Warrants, and Common Stock issuable upon conversion of, or in lieu of interest
payments on, the Debentures, and upon exercise of the Warrants so issued, when
issued, shall be duly and validly issued, fully paid and non-assessable, will
not be subject to preemptive rights and will not subject the holder thereof to
personal liability by reason of being such a holder. There are currently no
preemptive rights of any stockholder of the Company, as such, to acquire the
Debentures or the Warrants, or the Common Stock issuable to the Purchaser
pursuant to the terms of the Debentures or the Warrants.
d. REPORTING COMPANY STATUS. The Company's Common Stock is registered
under Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Company files reports with the Commission pursuant to
Section 12 and/or 15(d) of the Exchange Act. The Company has duly filed all
materials and documents required to be filed pursuant to all reporting
obligations under either Section 13(a) or 15(d) of the Exchange Act. The Common
Stock is listed and traded on the OTC Bulletin Board ("OTC"), and, except as
described in Schedule 3m, the Company is not aware of any pending or
contemplated action or proceeding of any kind to suspend the trading of the
Common Stock.
e. AUTHORIZED SHARES. The Company has available a sufficient number of
authorized and unissued shares of Common Stock as may be necessary to effect the
conversion of the Debentures and the exercise of the Warrants. The Company
understands and acknowledges the potentially dilutive effect to the Common Stock
of the issuance of shares of Common Stock upon the conversion of the Debentures
and the exercise of the Warrants. The Company further acknowledges that its
obligation to issue shares of Common Stock upon conversion of the Debentures and
upon exercise of the Warrants is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company and notwithstanding the commencement of any case
under 11 U.S.C. Section 101 et seq. (the "Bankruptcy Code"). In the event the
Company becomes a debtor under the Bankruptcy Code, the Company hereby waives to
the fullest extent permitted any rights to relief it may have under 11 U.S.C.
Section 362 in respect of the conversion of the Debentures and the exercise of
the Warrants. At the direction of Purchaser, the Company agrees, without cost or
expense to the Purchaser, to take or consent to any and all action necessary to
effectuate relief under 11 U.S.C. Section 362.
f. LEGALITY. The Company has the requisite corporate power and
authority to enter into this Agreement and the Registration Rights Agreement,
and to issue and deliver the Debentures, the Warrants and the Common Stock
issuable upon conversion of, or in lieu of interest payments on the Debentures
and the exercise of the Warrants.
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g. TRANSACTION AGREEMENTS. This Agreement, the Registration Rights
Agreement, the Debentures and the Warrants (collectively, the "Primary
Documents"), and the transactions contemplated hereby and thereby, have been
duly and validly authorized by the Company; this Agreement has been duly
executed and delivered by the Company and this Agreement is, and the other
Primary Documents, when executed and delivered by the Company, will each be, a
valid and binding agreement of the Company, enforceable in accordance with their
respective terms, except to the extent that enforcement of each of the Primary
Documents may be limited by bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws now or hereafter in effect relating
to creditors' rights generally and to general principles of equity.
h. NON-CONTRAVENTION. The execution and delivery of this Agreement and
each of the other Primary Documents, and the consummation by the Company of the
transactions contemplated by this Agreement and each of the other Primary
Documents, does not and will not conflict with or result in a breach by the
Company of any of the terms or provisions of, or constitute a default under, the
Articles of Incorporation or By-laws of the Company, or any indenture, mortgage,
deed of trust or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which they or any of their properties or
assets are bound, or any existing applicable law, rule, or regulation or any
applicable decree, judgment or order of any court or United States or foreign
federal or state regulatory body, administrative agency, or any other
governmental body having jurisdiction over the Company, its subsidiaries, or any
of their properties or assets. Except as set forth on Schedule 3(h), neither the
filing of the registration statement required to be filed by the Company
pursuant to the Registration Rights Agreement nor the offering or sale of the
Debentures or the Warrants as contemplated by this Agreement gives rise to any
rights, other than those which have been waived or satisfied on or prior to the
date hereof, for or relating to the registration of any shares of the Common
Stock. Schedule 3(h)(1) hereto lists all material agreements and instruments to
which the Company or any of its subsidiaries is a party or by which any of their
properties or assets are bound.
i. APPROVALS. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, stock
exchange or market or the stockholders of the Company is required to be obtained
by the Company for the entry into or the performance of this Agreement and the
other Primary Documents.
j. SEC FILINGS. None of the reports or documents filed by the Company
with the Commission contained, at the time they were filed, any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein, or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
k. STABILIZATION. Neither the Company, nor, to the knowledge of the
Company, any
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of its affiliates, has taken or may take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the shares of Common Stock.
l. ABSENCE OF CERTAIN CHANGES. Except as disclosed in the Company's
public filings with the Commission, since October 31, 1999 there has been no
material adverse change nor any material adverse development in the business,
properties, operations, financial condition, prospects, outstanding securities
or results of operations of the Company.
m. FULL DISCLOSURE. Other than as set forth in Schedule 3m, there is no
fact known to the Company that has not been disclosed in writing to the
Purchaser (i) that could reasonably be expected to have an adverse effect upon
the condition (financial or otherwise) or the earnings, business affairs,
properties or assets of the Company or (ii) that could reasonably be expected to
materially and adversely affect the ability of the Company to perform the
obligations set forth in the Primary Documents.
n. TITLE TO PROPERTIES; LIENS AND ENCUMBRANCES. The Company has good
and marketable title to all of its material properties and assets, both real and
personal, and has good title to all its leasehold interests, in each case
subject only to mortgages, pledges, liens, security interests, conditional sale
agreements, encumbrances or charges created in the ordinary course of business.
o. PROPRIETARY RIGHTS. The Company has sufficient title and ownership
of all trademarks, service marks, trade names, internet domain names,
copyrights, trade secrets, information, proprietary rights and processes
necessary for the conduct of its business as now conducted and as proposed to be
conducted, and, to the knowledge of the Company, such business does not conflict
with or constitute an infringement on the rights of others.
p. PERMITS. The Company has all franchises, permits, licenses and any
similar authority necessary for the conduct of its business as now conducted,
the lack of which would materially and adversely affect the business or
financial condition of the Company. The Company is not in default in any respect
under any of such franchises, permits, licenses or similar authority.
q. ABSENCE OF LITIGATION. Except as disclosed in the Company's public
filings with the Commission, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board or body pending or, to the
knowledge of the Company or any of its subsidiaries, threatened against or
affecting the Company or any of its subsidiaries, in which an unfavorable
decision, ruling or finding would have a material adverse effect on the
properties, business, condition (financial or other) or results of operations of
the Company and its subsidiaries, taken as a whole, or the transactions
contemplated by the Primary Documents, or which would adversely affect the
validity or enforceability of, or the authority or ability of
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the Company to perform its obligations under, the Primary Documents.
r. NO DEFAULT. Each of the Company and its subsidiaries is not in
default in the performance or observance of any obligation, covenant or
condition contained in any indenture, mortgage, deed of trust or other
instrument or agreement to which it is a party or by which it or its property
may be bound which default could result in a material adverse effect on the
Company.
s. TRANSACTIONS WITH AFFILIATES. Except as disclosed in the Company's
public filings with the Commission, there are no agreements, understandings or
proposed transactions between the Company and any of its officers, directors or
affiliates that, had they existed on October 31, 2000, would have been required
to be disclosed in the Company's Annual Report or an amendment thereto.
t. EMPLOYMENT MATTERS. The Company is in compliance in all respects
with all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for
which the Company would have any liability; the Company has not incurred and
does not expect to incur liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or
4971 of the Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each "pension plan"
for which the Company would have any liability that is intended to be qualified
under Section 401(a) of the Code is so qualified in all material respects and
nothing has occurred, whether by action or by failure to act, which would cause
the loss of such qualification.
u. INSURANCE. The Company maintains property and casualty, general
liability, personal injury and other similar types of insurance that is
adequate, consistent with industry standards and the Company's historical claims
experience. The Company has not received notice from, and has no knowledge of
any threat by, any insurer (that has issued any insurance policy to the Company)
that such insurer intends to deny coverage under or cancel, discontinue or not
renew any insurance policy covering the Company or any of its Subsidiaries
presently in force.
v. TAXES. All applicable tax returns required to be filed by the
Company and each of its subsidiaries have been prepared and filed in compliance
with all applicable laws, or if not yet filed have been granted extensions of
the filing dates which extensions have not expired, and all taxes, assessments,
fees and other governmental charges upon the Company, its subsidiaries, or upon
any of their respective properties, income or franchises, shown in such returns
and on assessments received by the Company or its subsidiaries to be due and
payable have been paid, or adequate reserves therefor have been set up if any of
such taxes are being contested in good faith; or if any of such tax returns have
not been filed or if any such taxes
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have not been paid or so reserved for, the failure to so file or to pay would
not in the aggregate have a material adverse effect on the business or financial
condition of the Company and its subsidiaries, taken as a whole. The Company is
disputing certain tax penalties and interest thereon as set forth on Schedule 3v
hereto.
w. FOREIGN CORRUPT PRACTICES ACT. Neither the Company nor any of its
directors, officers or other employees has (i) used any Company funds for any
unlawful contribution, endorsement, gift, entertainment or other unlawful
expense relating to any political activity; (ii) made any direct or indirect
unlawful payment of Company funds to any foreign or domestic government official
or employee; (iii) violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977, as amended; or (iv) made any bribe, rebate,
payoff, influence payment, kickback or other similar payment to any person.
x. INTERNAL CONTROLS. The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
y. INVESTMENT COMPANY ACT. The Company is not conducting, and will not
conduct, its business in a manner which would cause it to become, an "investment
company," as defined in Section 3(a) of the Investment Company Act of 1940, as
amended.
z. BROKERAGE FEES. Other than an amount equal to $160,000 payable by
the Company as a placement fee, the Company has not incurred any liability for
any consulting fees or agent's commissions in connection with the offer and sale
of the transactions contemplated by this Agreement.
aa. PRIVATE OFFERING. Subject to the accuracy of the Purchaser's
representations and warranties set forth in Section 2 hereof, (i) the offer,
sale and issuance of the Debentures and the Warrants, (ii) the issuance of
Common Stock in lieu of interest payments on the Debentures and the Warrants and
(iii) the conversion and/or exercise of such securities into shares of Common
Stock, each as contemplated by this Agreement, are exempt from the registration
requirements of the Securities Act. The Company agrees that neither the Company
nor anyone acting on its behalf will offer any of the Debentures and the
Warrants, or any similar securities for issuance or sale, or solicit any offer
to acquire any of the same from anyone so as to render the issuance and sale of
such securities subject to the registration requirements of the Securities Act.
The Company has not offered or sold the Debentures or the Warrants by any form
of general solicitation or general advertising, as such terms are used in Rule
502(c) under the
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Securities Act.
bb. FULL DISCLOSURE. The representations and warranties of the Company
set forth in this Agreement (and the schedules thereto) do not contain any
untrue statement of a material fact or omit any material fact necessary to make
the statements contained herein, in light of the circumstances under which they
were made, not misleading.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS
a. TRANSFER RESTRICTIONS. The Purchaser acknowledges that, except as
provided in the Registration Rights Agreement, (1) none of the Debentures, the
Warrants or the Common Stock issuable upon conversion of, or in lieu of interest
payments on, the Debentures or upon exercise of the Warrants, have been, or are
being, registered under the Securities Act, and such securities may not be
transferred unless (A) subsequently registered thereunder or (B) they are
transferred pursuant to an exemption from such registration; and (2) any sale of
the Debentures, the Warrants or the Common Stock issuable upon conversion or
exchange thereof (the "Securities") made in reliance upon Rule 144 under the
Securities Act may be made only in accordance with the terms of said Rule. The
provisions of Section 4(a) and 4(b) hereof, together with the rights of the
Purchaser under this Agreement and the other Primary Documents, shall be binding
upon any subsequent transferee of the Debentures and the Warrants.
b. RESTRICTIVE LEGEND. The Purchaser acknowledges and agrees that,
until such time as the Securities shall have been registered under the
Securities Act or the Purchaser demonstrates to the reasonable satisfaction of
the Company that such registration shall no longer be required, such Securities
shall bear a restrictive legend in substantially the following form:
THESE SECURITIES (INCLUDING ANY UNDERLYING SECURITIES) HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT OR AN OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION SHALL NO
LONGER BE REQUIRED.
c. FILINGS. The Company undertakes and agrees that it will make all
required filings in connection with the sale of the Securities to the Purchaser
as required by United States laws and regulations, or by any domestic securities
exchange or trading market, and if applicable, the filing of a notice on Form D
(at such time and in such manner as required by the Rules and
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Regulations of the Commission), and to provide copies thereof to the Purchaser
promptly after such filing or filings.
d. NASDAQ LISTING. The Company undertakes and agrees that it will file
an application with the NASDAQ market within 30 days after meeting the criteria
required by the NASD Bylaws for listing to list the Company's Common Stock
(including, but not limited to, all of the shares of Common Stock issuable upon
conversion of, or in lieu of interest payments on, the Debentures, and upon
exercise of the Warrants) on the NASDAQ Small-Cap Market. The Company further
agrees and covenants that, once the Company's Common Stock becomes listed on the
NASDAQ Small-Cap Market it will not seek to have the trading of its Common Stock
through the NASDAQ Small-Cap Market suspended or terminated, will use its best
efforts to maintain its eligibility for trading on the NASDAQ Small-Cap Market
(including, the filing of a listing application with NASDAQ to list all of the
shares of Common Stock issuable upon conversion of, or in lieu of interest
payments on, the Debentures and upon the exercise of the Warrants) and, if such
trading of its Common Stock is suspended or terminated, will use its best
efforts to requalify its Common Stock or otherwise cause such trading to resume.
e. REPORTING STATUS. So long as the Purchaser beneficially owns any of
the Securities or any Debentures and any shares of Common Stock issuable upon
conversion thereof (collectively with the Securities, the "Collective
Securities"), the Company shall timely file all reports required to be filed
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act and
shall not terminate its status as an issuer required to file reports under the
Exchange Act even if the Exchange Act or the rules and regulations thereunder
would permit such termination.
f. STATE SECURITIES FILINGS. The Company shall from time to time
promptly take such action as the Purchaser or any of its representatives, if
applicable, may request to qualify the Collective Securities for offering and
sale under the securities laws (other than United States federal securities
laws) of the jurisdictions in the United States as shall be so identified to the
Company, and to comply with such laws so as to permit the continuance of sales
therein.
g. USE OF PROCEEDS. The Company will use all of the net proceeds from
the issuance of the Debentures and the Warrants to make investments in the
Company's subsidiaries and for working capital.
h. RESERVATION OF COMMON STOCK. The Company will at all times have
authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the conversion of the Debentures and the
exercise of the Warrants. The Company will use its best efforts at all times to
maintain a number of shares of Common Stock so reserved for issuance that is no
less than two (2) times the maximum number that could be issuable upon the
conversion of the Debentures and the exercise in full of the Warrants.
i. SALES OF ADDITIONAL SHARES. The Company shall not, directly or
indirectly, without
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the prior written consent of the Purchaser, offer, sell, offer to sell, contract
to sell or otherwise dispose of any shares of its capital stock or any security
or other instrument convertible into or exchangeable for shares of Common Stock,
in each case for a period commencing on the date hereof and ending on the
earlier of (i) one hundred eighty (180) days after the date on which a
registration statement relating to Common Stock issuable upon conversion of any
of the Warrants and the Debentures, is declared effective by the Securities and
Exchange Commission or (ii) the date on which Purchaser shall have converted all
of the Debentures into Common Stock (the "Lock-Up Period"), except that the
Company (i) may issue securities for the aggregate consideration of at least
$7.5 million in connection with a bona fide, firm commitment, underwritten
public offering under the Securities Act; and (ii) may issue shares of Common
Stock upon the exercise or conversion of currently outstanding options, warrants
and other convertible securities; (iii) may issue options to purchase up to
1,000,000 shares of its Common Stock to its directors, officers and employees in
connection with its existing stock option plans. In addition, the Company agrees
that it will not cause any shares of its capital stock that are issued in
connection with a transaction of the type contemplated by such clause (or upon
the conversion or exercise of other securities that are issued in connection
with such transaction) or that were issued in connection with any financing,
acquisition or other transaction that occurred prior to the date of this
agreement to be covered by a registration statement that is declared effective
by the Commission until the later to occur of (A) the expiration of the Lock-Up
Period or (B) the registration statement filed by the Company pursuant to its
obligations under the Registration Rights Agreement has been effective under the
Securities Act for a period of at least one-hundred and eighty (180) days.
j. RIGHT OF FIRST REFUSAL. Subject to Section 4(i), if during the 18
month period following the Lock-Up Period the Company shall desire to sell,
offer to sell, contract to sell or otherwise dispose of any shares of its
capital stock or any security or other instrument convertible into or
exchangeable for shares of Common Stock (collectively, the "Offered Securities")
to a prospective investor (the "Prospective Investor"), the Company shall notify
(the "Offer Notice") the Purchasers in accordance with Section 11 hereof of the
terms (the "Third Party Terms") on which the Company proposes to sell, contract
to sell or otherwise dispose of the Offered Securities to the Prospective
Investor. If, within the 5 business day period following the Purchaser's receipt
of the Offer Notice, the Purchaser desires to purchase all and not less than all
of the Offered Securities on the Third Party Terms, the Company shall be
required to sell the Offered Securities (or any portion thereof so desired by
the Purchasers) to the Purchaser and the Company shall not be permitted to sell
such Offered Securities to the Prospective Investor.
k. ADDITIONAL REGISTRATION STATEMENTS. At any time during the period
ending on the first date that follows a period of 180 consecutive days following
the effectiveness of the Registration Statement (as defined in the Registration
Rights Agreement) during which there has been no Blackout Event (as defined in
the Registration Rights Agreement) relating to such Registration Statement, the
Company agrees that, unless waived in writing by the Purchaser, it will not
cause any registration statement (other than the Registration Statement) to be
declared
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effective by the Commission.
l. STOCKHOLDER APPROVAL. The Company agrees to use its best efforts
(including obtaining any vote of its stockholders required by applicable law or
Nasdaq Bylaws) to authorize and approve the issuance of the Common Stock
issuable upon conversion of the Debentures and upon exercise of the Warrants, to
the extent that such conversion or issuance results in the issuance of 20% or
more of the Company's outstanding Common Stock; provided, however, that the
failure to obtain any such stockholder approval shall not limit any of
Purchaser's rights hereunder or pursuant to any Primary Document.
m. OWNERSHIP. At no time shall the Purchaser (including its officers,
directors and affiliates) maintain in the aggregate beneficial ownership (as
defined for purposes of Section 16 of the Securities Exchange Act of 1934, as
amended) of shares of Common Stock in excess of 4.9% of the Company's
outstanding Common Stock unless the Purchaser gives the Company at least
sixty-one days notice that it intends to increase its ownership percentage.
n. RETURN OF DEBENTURES ON CONVERSION AND WARRANTS ON EXERCISE. (i)
Upon any conversion by Purchaser of less than all of the aggregate principal
amount of Debentures then outstanding, the Company shall issue and deliver to
Purchaser within three (3) days of the Conversion Date (as defined herein), a
new certificate or certificates for, as applicable, the total principal amount
of Debentures which Purchaser has not yet elected to convert (with the number of
and denomination of such new certificate(s) designated by Purchaser).
(ii) Upon any partial exercise by Purchaser of Warrants, the
Company shall issue and deliver to Purchaser within three (3) days of the date
on which such Warrants are exercised, a new Warrant or Warrants representing the
number of adjusted shares of Common Stock covered thereby, in accordance with
the terms thereof.
o. REPLACEMENT DEBENTURES AND STOCK PURCHASE WARRANTS. (i) The
certificate(s) representing the Debentures held by Purchaser shall be
exchangeable, at the option of Purchaser, at any time and from time to time at
the office of Company, for certificates with different denominations
representing, as applicable, an equal aggregate principal amount of Debentures,
as requested by Purchaser upon surrendering the same. No service charge will be
made for such registration or transfer or exchange.
(ii) The Warrants will be exchangeable, at the option of
Purchaser, at any time and from time to time at the office of the Company, for
other Warrants of different denominations entitling the holder thereof to
purchase in the aggregate the same number of shares of Common Stock as are
purchasable under such Warrants. No service charge will be made for such
transfer or exchange.
p. DIVIDENDS OR DISTRIBUTIONS; PURCHASES OF EQUITY SECURITIES. So long
as any portion of the Warrants or the Debentures remain outstanding, the Company
agrees that it shall
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not (a) declare or pay any dividends or make any distributions to any holder or
holders of Common Stock, or (b) purchase or otherwise acquire for value,
directly or indirectly, any shares of Common Stock or equity security of the
Company.
q. NO SENIOR INDEBTEDNESS. Other than indebtedness relating to a credit
line in the aggregate principal amount not in excess of $1,000,000, until the
expiration of the Lock-up Period, the Company agrees that neither the Company
nor any direct or indirect subsidiary of the Company shall create, incur,
assume, guarantee, secure or in any manner become liable in respect of any
indebtedness, or permit any liens, claims or encumbrances to exist against the
Company or any direct or indirect subsidiary of the Company or any of their
assets, unless junior to the Debentures in all respects.
r. NO AMENDMENT OF CURRENTLY OUTSTANDING DEBENTURES. So long as any
portion of the Debentures or the Warrants remain outstanding, the Company
covenants and agrees that the Company shall not, without the consent of the
Purchaser, amend any of the terms of any currently outstanding debentures.
5. TRANSFER AGENT INSTRUCTIONS
a. The Company warrants that no instruction, other than the
instructions referred to in this Section 5 hereof prior to the registration and
sale under the Securities Act of the Common Stock issuable upon conversion of
the Debentures or upon exercise of the Warrants, will be given by the Company to
the transfer agent and that the shares of Common Stock issuable upon conversion
of, or in lieu of interest payments on, the Debentures or upon exercise of the
Warrants, shall otherwise be freely transferable on the books and records of the
Company as and to the extent provided in this Agreement, the Registration Rights
Agreement and applicable law. Nothing in this Section shall affect in any way
the Purchaser's obligations and agreement to comply with all applicable
securities laws upon resale of the Collective Securities. If the Purchaser
provides the Company with an opinion of counsel that registration of a resale by
the Purchaser of any of the Collective Securities in accordance with Section
4(a) of this Agreement is not required under the Securities Act, the Company
shall permit the transfer of the Collective Securities and, in the case of the
Common Stock, promptly instruct the Company's transfer agent to issue one or
more certificates for Common Stock without legend in such names and in such
denominations as specified by the Purchaser.
b. Purchaser shall exercise its right to convert the Debentures or to
exercise the Warrants, by faxing an executed and completed Notice of Conversion
or Form of Election to Purchase, as applicable, to the Company, and delivering
within three (3) business days thereafter, the original Notice of Conversion
(and the related original certificates representing the Debentures) or Form of
Election to Purchase (and the related original Warrants) to the Company by hand
delivery or by express courier, duly endorsed. Each date on which a Notice
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of Conversion or Form of Election to Purchase is faxed in accordance with the
provisions hereof shall be deemed a "Conversion Date." The Company will transmit
the certificates representing the Common Stock issuable upon conversion of any
Debentures or upon exercise of any Warrants (together with the certificates
representing the Debentures not so converted or the Warrants not so exercised)
to the Purchaser via express courier as soon as practicable, but in all events
no later than three (3) business days of the Conversion Date relating to
Debentures or Warrants (each such delivery date, together with the Interest
Delivery Date referred to in paragraph c below, is referred to herein as a
"Delivery Date"). For purposes of this Agreement, any conversion of the
Debentures or the exercise of the Warrants shall be deemed to have been made
immediately prior to the close of business on the Conversion Date.
c. The Company will transmit the certificates representing the Common
Stock issuable in lieu of any dividends payable on any Debentures, to the
Purchaser via express courier as soon as practicable, but in all events no later
than three (3) business days after the interest (or dividend) payment date
applicable to which such Common Stock is delivered (the "Interest Delivery
Date").
d. In lieu of delivering physical certificates representing the Common
Stock issuable upon the conversion of, or in lieu of interest payments (or
dividends) on, the Debentures, or upon the exercise of the Warrants, provided
the Company's transfer agent is participating in the Depositary Trust Company
("DTC") Fast Automated Securities Transfer program, on the written request of
the Purchaser, who shall have previously instructed the Purchaser's prime broker
to confirm such request to the Company's transfer agent, the Company shall cause
its transfer agent to electronically transmit such Common Stock to the Purchaser
by crediting the account of the Purchaser's prime broker with DTC through its
Deposit Withdrawal Agent Commission ("DWAC") system no later than the applicable
Delivery Date.
e. The Company understands that a delay in the issuance of Common Stock
beyond the applicable Delivery Date could result in an economic loss to the
Purchaser. As compensation to the Purchaser for such loss, the Company agrees to
pay to the Purchaser for late issuance of Common Stock upon conversion of, or in
lieu of interest payments (or dividend payments) on, the Debentures, or upon
exercise of the Warrants, the sum of $1,000 per day for each (i) 10,000 shares
of Common Stock purchased upon the exercise of Warrants, or (ii) 10,000 shares
of Common Stock purchased upon conversion of Debentures. The Company shall pay
any payments that are payable to the Purchaser pursuant to this Section 5 in
immediately available funds upon demand. Nothing herein shall limit the
Purchaser's right to pursue actual damages for the Company's failure to so issue
and deliver Common Stock to the Purchaser. Furthermore, in addition to any other
remedies which may be available to the Purchaser, in the event that the Company
fails for any reason to effect delivery of such Common Stock within five (5)
business days after the relevant Delivery Date, the Purchaser will be entitled
to revoke the relevant Notice of Conversion or Form of Election to Purchase by
delivering a notice to such effect to the Company, whereupon the Company and the
Purchaser shall each be restored
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to their respective positions immediately prior to delivery of such Notice of
Conversion or Form of Election to Purchase. For purposes of this Section 5,
"business day" shall mean any day in which the financial markets of New York are
officially open for the conduct of business therein.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO
ISSUE THE DEBENTURES AND WARRANTS
The Purchaser understands that the Company's obligation to
issue the Debentures and the Warrants on the Closing Date to the Purchaser
pursuant to this Agreement is conditioned upon:
a. The accuracy on the Closing Date of the representations and
warranties of the Purchaser contained in this Agreement as if made on the
Closing Date and the performance by the Purchasers on or before the Closing Date
of all covenants and agreements of the Purchasers required to be performed on or
before the Closing Date.
b. The absence or inapplicability of any and all laws, rules or
regulations prohibiting or restricting the transactions contemplated hereby, or
requiring any consent or approval which shall not have been obtained.
7. CONDITIONS TO THE PURCHASERS' OBLIGATION TO
PURCHASE THE DEBENTURES AND THE WARRANTS
The Company understands that the Purchaser's obligation to
purchase the Debentures and the Warrants on the Closing Date is conditioned
upon:
a. The accuracy on the Closing Date of the representations and
warranties of the Company contained in this Agreement as if made on the Closing
Date, and the performance by the Company on or before the Closing Date of all
covenants and agreements of the Company required to be performed on or before
the Closing Date.
b. On the Closing Date, the Purchaser shall have received an opinion of
counsel for the Company, dated the Closing Date, in substantially the form as
attached in Exhibit D.
c. The Company shall have executed and delivered to the Purchaser (i) a
signed counterpart to the Registration Rights Agreement, (ii) the Debentures and
(iii) the Warrants.
d. On the Closing Date, the Purchaser shall have received a certificate
executed by the President or the Chairman of the Company and by the Chief
Financial Officer of the Company, stating that all of the representations and
warranties of the Company set forth in this Agreement are accurate as of the
Closing Date and that the Company has performed all of its covenants and
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<PAGE> 16
agreements required to be performed under this Agreement on or before the
Closing Date.
e. On the Closing Date, the Purchaser shall have received from the
Company such other certificates and documents as it or its representatives, if
applicable, shall reasonably request, and all proceedings taken by the Company
in connection with the Primary Documents contemplated by this Agreement and the
other Primary Documents and all documents and papers relating to such Primary
Documents shall be satisfactory to the Purchaser.
f. On or prior to the Closing Date, there shall not have occurred any
of the following: (i) a suspension or material limitation in the trading of
securities generally on the New York Stock Exchange, NASDAQ or the NASDAQ
Bulletin Board; (ii) a general moratorium on commercial banking activities in
New York declared by the applicable banking authorities; (iii) the outbreak or
escalation of hostilities involving the United States, or the declaration by the
United States of a national emergency or war; or (iv) a change in international,
political, financial or economic conditions, if the effect of any such event, in
the judgment of the Purchasers, makes it impracticable or inadvisable to proceed
with the purchase of the Debentures and the Warrants on the terms and in the
manner contemplated in this Agreement and in the other Primary Documents.
g. The Company shall have delivered to the Purchaser reimbursement of
the Purchaser's out-of-pocket costs and expenses incurred in connection with the
transactions contemplated by this Agreement (including fees and disbursements of
the Purchaser's legal counsel in an amount not to exceed $17,500).
8. INDEMNIFICATION
A. Indemnification of Purchaser by the Company.
The Company hereby agrees to indemnify and hold harmless the
Purchaser, its affiliates and their respective officers, directors, partners,
shareholders, employees and members (collectively, the "Buyer Indemnitees"),
from and against any and all losses, claims, damages, judgments, penalties,
liabilities and deficiencies (collectively, "Losses"), and agrees to reimburse
the Buyer Indemnitees for all out-of-pocket expenses (including the fees and
expenses of legal counsel), in each case promptly as incurred by the Buyer
Indemnitees and to the extent arising out of or in connection with:
1. any misrepresentation, omission of fact or breach of any of
the Company's representations or warranties contained in this Agreement, the
annexes, schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Company pursuant to this Agreement;
or
2. any failure by the Company to perform any of its covenants,
agreements, undertakings or obligations set forth in this Agreement, the
annexes, schedules or exhibits hereto
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<PAGE> 17
or any instrument, agreement or certificate entered into or delivered by the
Company pursuant to this Agreement.
B. Indemnification of the Company by Purchaser.
Purchaser hereby agrees to indemnify and hold harmless the
Company, its affiliates and their respective officers, directors, partners and
members (collectively, the "Company Indemnitees"), from and against any and all
Losses, and agrees to reimburse the Company Indemnitees for all out-of-pocket
expenses (including the fees and expenses of legal counsel), to the extent
arising out of or in connection with any breach of any of Purchaser's
representations or warranties contained in this Agreement, the annexes,
schedules or exhibits hereto or any instrument, agreement or certificate entered
into or delivered by Purchaser pursuant to this Agreement.
C. Third Party Claims. Promptly after receipt by either
party hereto seeking indemnification pursuant to this Section 8 (an "Indemnified
Party") of written notice of any investigation, claim, proceeding or other
action in respect of which indemnification is being sought (each, a "Claim"),
the Indemnified Party promptly shall notify the party against whom
indemnification pursuant to this Section 8 is being sought (the "Indemnifying
Party") of the commencement thereof; but the omission to so notify the
Indemnifying Party shall not relieve it from any liability that it otherwise may
have to the Indemnified Party, except to the extent that the Indemnifying Party
is materially prejudiced and forfeits substantive rights and defenses by reason
of such failure. In connection with any Claim as to which both the Indemnifying
Party and the Indemnified Party are parties, the Indemnifying Party shall be
entitled to assume the defense thereof. Notwithstanding the assumption of the
defense of any Claim by the Indemnifying Party, the Indemnified Party shall have
the right to employ separate legal counsel and to participate in the defense of
such Claim, and the Indemnifying Party shall bear the reasonable fees,
out-of-pocket costs and expenses of such separate legal counsel to the
Indemnified Party if (and only if): (x) the Indemnifying Party shall have agreed
to pay such fees, out-of-pocket costs and expenses, (y) the Indemnified Party
and the Indemnifying Party reasonably shall have concluded that representation
of the Indemnified Party by the Indemnifying Party by the same legal counsel
would not be appropriate due to actual or, as reasonably determined by legal
counsel to the Indemnified Party, potentially differing interests between such
parties in the conduct of the defense of such Claim, or if there may be legal
defenses available to the Indemnified Party that are in addition to or disparate
from those available to the Indemnifying Party, or (z) the Indemnifying Party
shall have failed to employ legal counsel reasonably satisfactory to the
Indemnified Party within a reasonable period of time after notice of the
commencement of such Claim. If the Indemnified Party employs separate legal
counsel in circumstances other than as described in clauses (x), (y) or (z)
above, the fees, costs and expenses of such legal counsel shall be borne
exclusively by the Indemnified Party. Except as provided above, the Indemnifying
Party shall not, in connection with any Claim in the same jurisdiction, be
liable for the fees and expenses of more than one firm of legal counsel for
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<PAGE> 18
the Indemnified Party (together with appropriate local counsel). The
Indemnifying Party shall not, without the prior written consent of the
Indemnified Party (which consent shall not unreasonably be withheld), settle or
compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
D. Other Claims.
In the event one party hereunder should have a claim for
indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association. Judgment upon any
award rendered by any arbitrators may be entered in any court having competent
jurisdiction thereof.
9. EXPENSES
The Company covenants and agrees with the Purchaser that the
Company will pay or cause to be paid the following: (a) the fees, disbursements
and expenses of the Purchaser's counsel in connection with the issuance of the
Collective Securities payable on the Closing Date (not to exceed $17,500), (b)
all expenses in connection with registration or qualification of the Collective
Securities for offering and sale under state securities laws as provided in
Section 4(f) hereof, and (c) all other costs and expenses incident to the
performance of its obligations hereunder which are not otherwise specifically
provided for in this Section, including the fees and disbursements of the
Company's counsel, accountants and other professional advisors, if any. If the
Company fails to satisfy its obligations or to satisfy any condition set forth
in this Agreement, as a result of which the Collective Securities are not
delivered to the Purchaser on the terms and conditions set forth herein, the
Company shall reimburse the Purchaser for any out-of-pocket expenses incurred in
making preparations for the purchase, sale and delivery of the Collective
Securities not so delivered.
10. GOVERNING LAW; MISCELLANEOUS
This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York, without regard to principles
of conflict of laws. Each of the parties consents to the jurisdiction of the
federal courts whose districts encompass any part of the City of New York or the
state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement or any of the
transactions contemplated hereby, and hereby waives, to the maximum extent
permitted by law, any objection, including any objections based on forum non
conveniens, to the bringing of any such
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<PAGE> 19
proceeding in such jurisdictions. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original. The headings of this
Agreement are for convenience of reference only and shall not form part of, or
affect the interpretation of this Agreement. This Agreement and each of the
Primary Documents have been entered into freely by each of the parties,
following consultation with their respective counsel, and shall be interpreted
fairly in accordance with its respective terms, without any construction in
favor of or against either party. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or unenforceability of this
Agreement in any other jurisdiction. This Agreement shall inure to the benefit
of, and be binding upon the successors and assigns of each of the parties
hereto, including any transferees of the Warrants and the Debentures. This
Agreement may be amended only by an instrument in writing signed by the party to
be charged with enforcement. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
11. NOTICES
Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be effective upon personal
delivery, via facsimile (upon receipt of confirmation of error-free
transmission) or two business days following deposit of such notice with an
internationally recognized courier service, with postage prepaid and addressed
to each of the other parties thereunto entitled at the following addresses, or
at such other addresses as a party may designate by five days advance written
notice to each of the other parties hereto.
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<PAGE> 20
COMPANY: IBiz Technology Corp
1919 West Lone Cactus
Phoenix, Arizona 85021
Att.: Kenneth W. Schilling, President
Tel.: 623-492-9200
Fax: 623-492-9921
WITH A COPY TO:
Gammage & Burnham
Two North Central Avenue, Suite 1800
Phoenix, AZ 85004
Att: Stephen Boatwright, Esq.
Tel.: 602-256-4439
Fax: 602-256-4475
PURCHASER: Lites Trading Co.
c/o Laufer & Halberstam
39 Broadway
NY, NY 10006
Att: Michael J. Halberstam
Tel.: 212-422-8500
Fax: 212-422-9038
WITH A COPY TO:
Laufer Halberstam & Karish
39 Broadway, 14th Floor
New York, New York 10006
Attn: Michael J. Halberstam, Esq.
Tel: (212) 422-8500
Fax: (212) 422-9038
12. SURVIVAL
The agreements, covenants representations and warranties of
the Company and the Purchaser shall survive the execution and delivery of this
Agreement and the delivery of the Securities hereunder.
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<PAGE> 21
IN WITNESS WHEREOF, this Securities Purchase Agreement has
been duly executed by each of the undersigned.
Dated: March 27, 2000
iBIZ TECHNOLOGY CORP
By:
-------------------------
Kenneth Schilling
President
LITES TRADING CO.
By:
-------------------------
Name:
Title: Authorized Person
21
<PAGE> 1
Exhibit 10.27
THESE SECURITIES (INCLUDING ANY UNDERLYING SECURITIES) HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN
OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION SHALL NO LONGER BE REQUIRED.
7% CONVERTIBLE DEBENTURE DUE MARCH 27, 2005
$1,600,000 MARCH 27, 2000
NEW YORK, NEW YORK
1. CONSIDERATION. FOR VALUE RECEIVED, IBIZ TECHNOLOGY CORP., a
Florida corporation (the "undersigned" or the "Company"), hereby promises to pay
to the order of Lites Trading Co. at its offices located at c/o Laufer &
Halberstam, 39 Broadway, 14th Floor, NY, NY 10006 or at such other place as the
holder hereof (the "holder" or the "Registered Holder") shall designate to the
undersigned in writing, in lawful money of the United States of America or in
New York Clearing House Funds, the principal amount of One Million Six Hundred
Thousand Dollars, and to pay interest (computed on the basis of a 360-day year
and the actual number of days elapsed) on the unpaid principal amount hereof at
the rate of seven (7%) percent per annum. The undersigned promises to pay the
said principal sum and interest in accordance with the terms of this Debenture.
2. PAYMENT. Until this Debenture is completely retired the
undersigned shall make payments of accrued interest on this Debenture on the
first day of May and December in each year (commencing with May 1, 2000),
computed at the rate of 7% per annum on the unpaid principal balance of this
Debenture for the period from the date of this Debenture until the date of such
interest payment. On March 25, 2005 (the "Maturity Date") the undersigned shall
pay the holder all unpaid principal and interest on this Debenture.
Principal and interest shall be payable at the most recent
address as the Registered Holder shall have designated to the Company in
writing. No payment of the principal of the Debenture may be made prior to the
Maturity Date by the Company without the consent of the Registered Holder,
except as otherwise provided herein. At the Registered Holder's option, any
interest payments on this Debenture may be made in the form of the issuance to
the holder of the Company's common stock, par value $.001 per share (the "Common
Stock"), with the number of shares of such Common Stock to be payable in respect
of such interest payments to be determined in accordance with the provisions of
Section 6, as if such interest payment were a
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<PAGE> 2
portion of the principal amount of the Debenture to be converted into Common
Stock.
3. OVERDUE INTEREST PAYMENTS. Interest on the indebtedness
evidenced by this Debenture after default or maturity accelerated or otherwise
shall be due and payable at the rate of eighteen (18%) percent per annum,
subject to the limitations of applicable law.
4. HOLIDAYS. If this Debenture or any installment hereof
becomes due and payable on a Saturday, Sunday or public holiday under the laws
of the State of New York, the due date hereof shall be extended to the next
succeeding business day and interest shall be payable at the rate of seven (7%)
percent per annum during such extension. All payments received by the holder
shall be applied first to the payment of all accrued interest payable hereunder.
5. ISSUANCE OF DEBENTURES. This Debenture has been issued by
the Company pursuant to the authorization of the Board of Directors of the
Company (the "Board") and issued pursuant to a Securities Purchase Agreement,
dated as of the date hereof, by and between the Company and the Purchasers
identified therein (the "Securities Purchase Agreement"). Pursuant to the
Securities Purchase Agreement, the Company issued an aggregate of $1,600,000
principal amount of the Debentures and warrants to purchase 300,000 shares of
Common Stock (the "Warrants"). The Securities Purchase Agreement contains
certain additional terms that are binding upon the Company and each Registered
Holder of the Debentures. A copy of the Securities Purchase Agreement may be
obtained by any registered holder of the Debentures from the Company upon
written request. Capitalized terms used but not defined herein shall have the
meanings set forth in the Securities Purchase Agreement. The Debentures,
together with any debentures from time to time issued in replacement thereof,
whether pursuant to transfer and assignment, partial conversion thereof or
otherwise, are collectively referred to herein as the "Debentures."
6. CONVERSION. (a) Subject to and in compliance with the
provisions hereof, the holder shall have the right to convert all or a portion
of the outstanding principal amount of this Debenture together with any accrued
but unpaid interest thereon into such number of shares of Common Stock (the
shares of Common Stock issuable upon conversion of, and issuable in respect of
interest payments on, this Debenture are hereinafter referred to as the
"Conversion Shares") as shall equal the quotient obtained by dividing (x) the
principal amount of this Debenture to be converted by (y) the Applicable
Conversion Price (as hereinafter defined) and by surrender of this Debenture,
such surrender to be made in the manner provided herein.
(b) For purposes hereof the term "Applicable Conversion Price"
shall mean the lesser of (i) $1.45 (the "Fixed Price") or (ii) the product
obtained by multiplying (x) the Average Closing Price (as hereinafter defined)
by (y) .80.
For purposes hereof the "Average Closing Price" with respect
to any conversion elected to be made by the holder shall be the average of the
daily closing bid prices (each such price is referred to individually as a
"Floating Reference Price" and, collectively, as the "Floating Reference
Prices") for any three trading days, as selected by the holder, out of the
twenty trading
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<PAGE> 3
days immediately preceding the date on which the holder gives the Company a
written notice of the holder's election to convert outstanding principal of this
Debenture. The closing bid price on any trading day shall be (a) if the Common
Stock is then listed or quoted on either the NASD Bulletin Board, the NASDAQ
SmallCap Market or the NASDAQ National Market, the reported closing bid price
for the Common Stock as reported by Bloomberg, L.P. ("Bloomberg") or The Wall
Street Journal (the "Journal") on such day (or, if not so reported, as otherwise
reported by The Nasdaq Small Cap Market), (b) if the Common Stock is listed on
either the American Stock Exchange or New York Stock Exchange, the last reported
sales price for the Common Stock on such exchange on such day as reported by
Bloomberg or the Journal or (c) if no such prices are reported for the Common
Stock by Bloomberg or the Journal, then the average of such prices of any market
makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the prices of the Common Stock cannot be calculated on
such date on any of the foregoing bases, such prices on such date shall be the
fair market value as determined by an unaffiliated investment bank selected by
Registered Holder for which the calculation is required in order to determine
the Applicable Conversion Price. "Trading day" shall mean any day on which the
Company's Common Stock is traded for any period on the principal securities
exchange or other securities market on which the Common Stock is then being
traded.
(c) If, during any period following the issuance of this
Debenture, as a result of the occurrence of any of the events set forth in
Section 3(f) or 3(g) of the Registration Rights Agreement, dated as of the date
hereof, by and between the Company and the purchasers set forth therein (the
"Registration Rights Agreement"), the Purchasers set forth therein are not able
to sell shares of Common Stock issuable upon conversion of, or in lieu of
interest payments on, this Debenture pursuant to a registration statement filed
pursuant to such agreement, the Registered Holder shall have the right, for any
purpose under this Debenture during such period and thereafter, to designate as
the Applicable Conversion Price any Conversion Price that would have been
applicable during such period had the Registered Holder delivered a Notice of
Conversion with respect to any portion of this Debenture. "Conversion Date"
shall have the meaning given such term in Section 5(b) of the Securities
Purchase Agreement.
(d) The Registered Holder shall convert this Debenture in
accordance with Section 5 of the Securities Purchase Agreement. If the Company
fails to deliver to the holder a certificate or certificates for shares of
Common Stock in the period set forth in the Securities Purchase Agreement, the
Company shall pay a penalty to the Registered Holder as set forth in Section
5(e) of the Securities Purchase Agreement.
(e) If the entire outstanding principal amount of this
Debenture is not converted, the Company shall also issue and deliver to such
holder a new Debenture of like tenor in the principal amount equal to the
principal which was not converted and dated the effective date of conversion.
Each conversion shall be deemed to have been effected immediately prior to the
close of business on the date on which a Notice of Conversion shall have been
delivered as aforesaid, and the person or persons in whose name or names any
certificate of certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
of the shares represented thereby at such time on such date.
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<PAGE> 4
(f) All shares of Common Stock delivered upon conversion of
this Debenture will, upon delivery, be duly authorized, validly issued and fully
paid and nonassessable.
(g) No fractional shares of Common Stock shall be issued upon
conversion of this Debenture. Instead of any fractional share of Common Stock
which would otherwise be deliverable upon the conversion of a principal of this
Debenture the Company shall pay to the holder an amount in cash (computed to the
nearest cent) equal to the Average Closing Price multiplied by the fraction of a
share of Common Stock represented by such fractional interest.
(h) The issuance of certificates for shares of Common Stock
upon any conversion of this Debenture shall be made without charge to the payee
hereof for any tax or other expense in respect to the issuance of such
certificates, all of which taxes and expenses shall be paid by the Company, and
such certificates shall be issued only in the name of the registered holder of
this Debenture.
7. REDEMPTION BY COMPANY. (a) If while this Debenture is
outstanding there shall occur a Change in Control of the Company (as defined
below), then, at the option of the Registered Holder, the Company shall, on the
effective date of and subject to the consummation of such Change in Control,
redeem this Debenture for cash from the Registered Holder at a redemption price
equal to 125% of the aggregate principal and accrued interest outstanding under
this Debenture. Nothing in this subsection shall limit the Registered Holder's
right to convert this Debenture on or prior to such Change in Control. For
purposes hereof, a "Change in Control" shall be deemed to have occurred if (A)
any person or group (as defined for purposes of Regulation 13D of the Securities
Exchange Act of 1934, as amended) (excluding persons who on the date hereof are
beneficial owners of shares of the Company's voting stock and affiliates of such
persons) shall have become the beneficial owner or owners of more than 50% of
the outstanding voting stock of the Company; (B) there shall have occurred a
merger or consolidation in which the Company or an affiliate of the Company is
not the survivor or in which holders of the Common Stock of the Company shall
have become entitled to receive cash, securities of the Company other than
voting common stock or securities of any other person; (C) at any time persons
constituting the Existing Board of Directors cease for any reason whatsoever to
constitute at least a majority of the members of the Board of Directors of the
Company; or (D) there shall have occurred a sale of all or substantially all the
assets of the Company. For purposes hereof, the term "Existing Board of
Directors" shall mean the persons constituting the Board of Directors of the
Company on the date hereof, together with each new director whose election, or
nomination for election by the Company's stockholders is approved by a vote of
the majority of the members of the Existing Board of Directors who are in office
immediately prior to the election or nomination of such director.
(b) At any time that the number of shares of Common Stock
issued upon conversion of the Debentures and in respect of interest payments on
the Debentures, shall equal 4,750,000 (a "Redemption Event"), the Corporation
shall, at its election, either (x) redeem all of the principal amount then
outstanding under this Debenture for cash in an amount equal to (A) the
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<PAGE> 5
quotient of (i) the aggregate principal and accrued interest outstanding under
this Debenture and (ii) the Applicable Conversion Price as if this Debenture had
been converted on the Debenture Redemption Date multiplied by (B) the Average
Closing Price of shares of Common Stock for the five (5) trading days
immediately preceding the Debenture Redemption Date, or (y) if required, call a
special meeting of its stockholders for the purpose of approving the
transactions contemplated by the Securities Purchase Agreement, including the
issuance of the Debenture on the terms set forth therein, together with any
other approvals that shall be required so as to cause the transactions
contemplated by the Securities Purchase Agreement to remain in compliance with
the Rules and Regulations of The Nasdaq Stock Market (including Rules 4300 and
4310 of Nasdaq's Non-Qualitative Designation Criteria in connection with
conversions of Debentures; such approvals are referred to herein as the
"Required Approvals"). The Corporation shall determine within five (5) business
days following the receipt of a Notice of Conversion which of such actions it
shall take, and shall promptly furnish notice to each of the holders of
Debenture as to such determination, including, if applicable, a notice of
redemption.
(c) If the Corporation elects to call a special meeting of its
stockholders pursuant to Subsection 7(b) of this Debenture to obtain the
Required Approvals, the Corporation shall use its best efforts to obtain such
Required Approvals within forty five (45) days (or 75 days if the information
statement is reviewed by the Commission) of the Initial Closing Date (such forty
five (45) day (or seventy five (75) day) period is referred to herein as an
"Approval Period"). If the Corporation does not obtain the Required Approvals
within the Approval Period and the Corporation receives a Notice of Conversion
after the termination of the Approval Period, the Corporation must redeem, in
accordance with this Section 7 of this Debenture, any principal amount of
Debentures outstanding after the Corporation has issued in excess of 4,750,000
shares of Common Stock in connection with conversions of this Debenture.
(d) If the Corporation elects, pursuant to this Section 7, to
redeem this Debenture on the occurrence of a Debenture Redemption Event, it
shall redeem such Debenture at the price determined in accordance with
Subsection 7(b) of this Debenture. If the Corporation shall have elected,
pursuant to this Subsection 7(b), to obtain the Required Approvals but shall not
have done so by the later of the occurrence of the Debenture Redemption Event or
the expiration of the Approval Period, it shall furnish a redemption notice to
the Purchasers within three (3) business days after the expiration of the
Approval Period.
(e) If the Company elects to redeem the Debentures pursuant to
any of the terms or conditions set forth in this Section 7, the Company shall
remit the redemption price to the Registered Holder thereof immediately upon
such redemption.
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8. COVENANTS.
(a) The Company will pay all taxes, assessments and
governmental charges lawfully levied or assessed upon it, its property and any
part thereof, and upon its income for profits, and any part thereof, before the
same shall become delinquent; and will duly observe, and conform to, all lawful
requirements of any governmental authority relative to any of its property, and
all covenants, terms and conditions upon or under which any of its property is
held; provided that nothing in this Section shall require the Company to observe
or conform to any requirement of governmental authority or to pay any such tax,
assessment or governmental charges so long as the validity thereof shall be
contested in good faith.
(b) Subject to the other provisions of this Debenture, the
Company at all times will maintain its corporate existence and right to carry on
its business and will duly procure all necessary renewals and extensions thereof
and use its best efforts to maintain, preserve and renew all of its rights,
powers, privileges and franchises; provided, however, that nothing herein
contained shall be construed to prevent the Company from ceasing or omitting to
exercise any rights, powers, privileges or franchises which, in the judgment of
the Board, can no longer be profitably exercised, nor to prevent the
consolidation, merger or liquidation of any subsidiary or subsidiaries of the
Company with or into the Company.
(c) The Company will at no time close its stock transfer books
against the transfer of any shares of Common Stock issued or issuable upon the
conversion of, or in lieu of payments on, the Debentures, in any manner which
interferes with the timely conversion of such Debentures.
(d) As used in this Debenture, the term "Common Stock" shall
mean the Company's authorized common stock, par value $0.001 per share. The
Company shall not, without the prior written consent of the Registered Holder of
this Debenture, issue any shares of its capital stock, other than as permitted
by the Securities Purchase Agreement or in exchange for Debentures as provided
hereunder. The term "Common Stock" includes all stock of any class or classes
(however designated) of the Company, authorized on or after the date hereof, the
holders of which shall have the right, without limitation as to amount, either
to all or to a share of the balance of current dividends and liquidating
dividends after the payment of dividends and distributions on any shares
entitled to preference, and the holders of which shall ordinarily be entitled to
vote for the election of the directors of the Company.
(e) As used in this Debenture, the term "Primary Documents"
shall have the meaning set forth in the Securities Purchase Agreement. The
Company will not, by amendment of its Articles of Incorporation or By-laws or
through any reorganization, recapitalization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder or pursuant to any of the Primary Documents by
the Company, and will at all times assist in good faith in the carrying out of
all the provisions of this Debenture and the Primary Documents and in the taking
of all such action as may be necessary or appropriate in order to protect the
conversion rights of the Registered Holders of the Debentures against
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<PAGE> 7
impairment.
(f) In the event of any taking by the Company of a record of
the holders of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividend (other than a cash
dividend) or other distribution, any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, the Company shall mail to each
Registered Holder of the Debentures, at least ten (10) days prior to the date
specified therein, a notice specifying the date on which any such record is to
be taken for the purpose of such dividend, distribution or right, and the amount
and character of such dividend, distribution or right.
9. LIMITATION ON CERTAIN CORPORATE ACTS. The Company hereby
covenants and agrees that upon any consolidation or merger or upon the transfer
of all or substantially all of the property or assets of the Company, the due
and punctual payment of the principal and interest on all the Debentures
according to their tenor and the due and punctual performance and observance of
all the terms, covenants and conditions of the Debentures and the Primary
Documents to be kept and performed by the Company shall be expressly assumed by
the corporation formed by such consolidation, or into which the Company shall
have merged or by the purchaser of such property or assets; and such assumption
shall be an express condition of such merger or consolidation agreement or
agreement for the transfer of property or assets.
10. EVENTS OF DEFAULT. In case one or more of the following
events of default shall have occurred:
(a) default in the due and punctual payment of interest upon
or principal of any of the Debentures as and when the same becomes due and
payable either at maturity or otherwise; or
(b) failure to deliver the shares of Common Stock required to
be delivered upon conversion of Debentures or exercise of the Warrants in the
manner and at the time required by Section 5 of the Securities Purchase
Agreement; or
(c) failure of the Company to have authorized the number of
shares of Common Stock issuable upon conversion of the Debentures or exercise of
the Warrants; or
(d) failure on the part of the Company to duly observe or
perform any of its other covenants or agreements contained in the Debentures or
in the Primary Documents, or to cure any material breach in a material
representation or covenant contained in the Primary Documents for a period of
ten (10) days after the date on which written notice of such failure or breach
requiring the same to be remedied has been given by a Registered Holder to the
Company; or
(e) a decree or order by a court having jurisdiction has been
entered adjudging the Company (or any Material Subsidiary)a bankrupt or
insolvent, or approving a petition seeking reorganization of the Company (or any
Material Subsidiary) under any applicable bankruptcy law
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<PAGE> 8
and such decree or order has continued undischarged or unstayed for a period of
thirty (30) days; or a decree or order of a court having jurisdiction for the
appointment of a receiver or liquidator or trustee or assignee in bankruptcy or
insolvency of the Company (or any Material Subsidiary) or of all or
substantially all of its property, or for the winding-up or liquidation of its
affairs, has been entered, and has remained in force undischarged or unstayed
for a period of thirty (30) days; or
(f) the Company (or any Material Subsidiary) institutes
proceedings to be adjudicated a voluntary bankrupt, or consents to the filing of
a bankruptcy proceeding against it, or files a petition or answer or consent
seeking reorganization under applicable law, or consents to the filing of any
such petition or to the appointment of a receiver or liquidator or trustee or
assignee in bankruptcy or insolvency of it or of all or substantially all of its
property, or makes an assignment for the benefit of creditors, or admits in
writing its inability to pay its debts generally as they become due; or if the
Company (or any Material Subsidiary) shall suffer any writ of attachment or
execution or any similar process to be issued or levied against it or any
significant part of its property which is not released, stayed, bonded or
vacated within thirty (30) days after its issue or levy; or if the Company (or
any Material Subsidiary) takes corporate action in furtherance of any of the
aforesaid purposes or conditions; or
(g) if any default shall occur under any indenture, mortgage,
agreement, instrument or commitment evidencing or under which there is at the
time outstanding any indebtedness of the Company (or a Material Subsidiary, as
hereinafter defined), in excess of $25,000, or which results in such
indebtedness, in an aggregate amount (with other defaulted indebtedness) in
excess of $25,000 becoming due and payable prior to its due date and if such
indenture or instrument so requires, the holder or holders thereof (or a trustee
on their behalf) shall have declared such indebtedness due and payable; or
(h) if any of the Company or its subsidiaries shall default in
the observance or performance of any material term or provision of a material
agreement to which it is a party or by which it is bound, and such default is
not waived or cured within the applicable grace period; or
(i) if a final judgment which, either alone or together with
other outstanding final judgments against the Company and its subsidiaries,
exceeds an aggregate of $25,000 shall be rendered against the Company (or any
Material Subsidiary) and such judgment shall have continued undischarged or
unstayed for thirty (30) days after entry thereof;
then, and in each and every such case, so long as such event
of default has not been remedied and unless the principal of all the Debentures
has already become due and payable, the holders of not less than fifty-one
percent (51%) in principal amount of the Debentures then outstanding, by notice
in writing to the Company, may declare the principal of all the Debentures then
outstanding and the interest accrued thereof, if not already due and payable, to
be due and payable immediately, and upon any such declaration the same shall
become and shall be immediately due and payable, anything herein contained to
the contrary notwithstanding.
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For purposes of this Section 10, "Material Subsidiary" means
any subsidiary with respect to which the Company has directly or indirectly
invested, loaned, advanced or guaranteed the obligations of, an aggregate amount
exceeding fifteen percent (15%) of the Company's gross assets, or the Company's
proportionate share of the assets or net income of which (based on the
subsidiary's most recent financial statements) exceed fifteen percent (15%) of
the Company's gross assets or net income, respectively, or the gross revenues of
which exceed fifteen percent (15%) of the gross revenues of the Company based
upon the most recent financial statements of such subsidiary and the Company.
11. TRANSFERABILITY. This Debenture is transferable, in whole
or in part, only in accordance with the terms of the Securities Purchase
Agreement. The Registered Holder may submit a written request, in person or by
his duly authorized attorney, for a transfer of the Debenture on the register of
the Company maintained at its principal offices. The Company may deem and treat
the person in whose name this Debenture is registered as the absolute owner
hereof, for the purpose of receiving payment of the principal thereof and
interest hereon, whether or not the same shall be overdue, and for all other
purposes whatsoever, including but without limitation, the giving of any written
notices required hereunder, and the Company shall not be affected by any notice
to the contrary.
12. STOCK SPLITS; DIVIDENDS; ADJUSTMENTS; REORGANIZATIONS.
(a) If the Company, at any time while the Debentures are
outstanding, (i) shall pay a stock dividend or otherwise make a distribution or
distributions on any equity securities (including investments or securities
convertible into or exchangeable for such equity securities) in shares of Common
Stock, (ii) issue any securities payable in shares of Common Stock, (iii)
subdivide the outstanding shares of Common Stock into a larger number of shares,
(iv) combine outstanding shares of Common Stock into a smaller number of shares,
the Fixed Price and each Floating Reference Price prior to the date of any such
occurrence (collectively, the "Reference Prices") shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
outstanding before such event and of which the denominator shall be the number
of shares of Common Stock outstanding after such event. Any adjustment made
pursuant to this Section 12(a) shall become effective immediately after the
record date for the determination of shareholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of an issuance, a subdivision or a combination.
(b) In the event that the Company issues or sells any Common
Stock or securities which are convertible into or exchangeable for its Common
Stock or any convertible or exchangeable securities, or any warrants or other
rights to subscribe for or to purchase or any options for the purchase of its
Common Stock or any such convertible or exchangeable securities (other than
shares or options issued pursuant to the Company's employee or director option
plans or shares issued upon exercise of options, warrants or rights outstanding
on the date of the Securities Purchase Agreement and listed in the Company's
most recent periodic report filed under
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<PAGE> 10
the Exchange Act) at an effective purchase price per share which is less than
the Fixed Price then in effect, then the Fixed Price in effect immediately prior
to such issue or sale shall be reduced effective concurrently with such issue or
sale to an amount determined by multiplying such Fixed Price then in effect by a
fraction, (x) the numerator of which shall be the sum of (1) the number of
shares of Common Stock outstanding immediately prior to such issue or sale, plus
(2) the number of shares of Common Stock which the aggregate consideration
received by the Company for such additional shares would purchase at such Fixed
Price then in effect; and (y) the denominator of which shall be the number of
shares of Common Stock of the Company outstanding immediately after such issue
or sale.
For the purposes of the foregoing adjustment, in the case of
the issuance of any convertible or exchangeable securities, warrants, options or
other rights to subscribe for or to purchase or exchange for, shares of Common
Stock ("Exchangeable Securities"), the maximum number of shares of Common Stock
issuable upon exercise, conversion or exchange of such Exchangeable Securities
shall be deemed to be outstanding, provided that no further adjustment shall be
made upon the actual issuance of Common Stock upon exercise, exchange or
conversion of such Exchangeable Securities.
(c) If the Company, at any time while the Debentures are
outstanding, shall distribute to all holders of Shares of Common Stock evidences
of its indebtedness or assets or rights or warrants to subscribe for or purchase
any security (excluding those referred to in Section 12(b) above) then in each
such case the Fixed Price thereafter shall be determined by multiplying the
Fixed Price in effect immediately prior to the record date fixed for
determination of shareholders entitled to receive such distribution by a
fraction of which the denominator shall be the Market Price for Shares of Common
Stock (as defined below) determined as of the record date mentioned above, and
of which the numerator shall be such Market Price for Shares of Common Stock on
such record date less the then fair market value at such record date of the
portion of such assets or evidences of indebtedness so distributed applicable to
one outstanding share of Common Stock as determined by the Board in good faith;
provided, however that in the event of a distribution exceeding 25% of the net
assets of the Company, such fair market value shall be determined by a
nationally recognized investment banking firm or firm of independent chartered
accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) (an "Appraiser") selected in
good faith by the Board and holders of a majority in interest of the Debentures.
In either case the adjustments shall be described in a statement provided to all
holders of Debentures of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one outstanding share of
Common Stock. Such adjustment shall be made whenever any such distribution is
made and shall become effective immediately after the record date mentioned
above.
"Market Price for Shares of Common Stock" shall mean the price
of one share of Common Stock determined as follows:
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(i) If the Common Stock is listed on NASDAQ, the
closing bid price on the date of valuation;
(ii) If the Common Stock is listed on the New York
Stock Exchange or the American Stock Exchange, the closing bid price on such
exchange on the date of valuation;
(iii) If neither (i) nor (ii) apply but the Common
Stock is quoted in the over-the-counter market, another recognized exchange, on
the pink sheets or the OTC Bulletin Board, the lesser of (A) the lowest sales
price or (B) the mean between the last reported "bid" and "asked" prices thereof
on the date of valuation; and
(iv) If neither clause (i), (ii) or (iii) above
applies, the market value as determined by a nationally recognized investment
banking firm or other nationally recognized financial advisor retained by the
Company for such purpose, taking into consideration, among other factors, the
earnings history, book value and prospects for the Company, and the prices at
which shares of Common Stock recently have been traded. Such determination shall
be conclusive and binding on all persons.
(d) (1) In the event that at any time or from time to time
after the Closing Date, the Common Stock issuable upon the conversion of the
Debentures is changed into the same or a different number of shares of any class
or classes of stock, whether by merger, consolidation, recapitalization,
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend or reorganization provided for elsewhere in this Paragraph
12), then and as a condition to each such event provision shall be made in a
manner reasonably acceptable to the holders of Debentures so that each holder of
Debentures shall have the right thereafter to convert such Debenture into the
kind of stock receivable upon such recapitalization, reclassification or other
change by holders of shares of Common Stock, all subject to further adjustment
as provided herein. In such event, the formulae set forth herein for conversion
and redemption shall be equitably adjusted to reflect such change in number of
shares or, if shares of a new class of stock are issued, to reflect the market
price of the class or classes of stock (applying the same factors used in
determining the Fixed Price) issued in connection with the above described
transaction.
(2) If at any time or from time to time after the Closing Date
there is a capital reorganization of the Common Stock, including by way of a
sale of all or substantially all of the assets of the Company (other than a
recapitalization, subdivision, combination, reclassification or exchange of
shares provided for elsewhere in this Paragraph 12), then, as a part of and a
condition to such reorganization, provision shall be made in a manner reasonably
acceptable to the holders of the Debentures so that the holders of the
Debentures shall thereafter be entitled to receive upon conversion of the
Debentures the number of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock deliverable upon
conversion would have been entitled on such capital reorganization. In any such
case,
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<PAGE> 12
appropriate adjustment shall be made in the application of the provisions of
this Paragraph 12 with respect to the rights of the holders of the Debentures
after the reorganization to the end that the provisions of this Paragraph 12
shall be applicable after that event and be as nearly equivalent as may be
practicable, including, by way of illustration and not limitation, by equitably
adjusting the formulae set forth herein for conversion and redemption to reflect
the market price of the securities or property (applying the same factors used
in determining the Market Price for Shares of Common Stock) issued in connection
with the above described transaction.
(e) If at any time during the period ending twelve (12) months
after the Closing Date, the Company sells or agrees to sell (including pursuant
to a letter of intent, term sheet, or similar means) shares of Common Stock or
securities or options convertible into, exercisable for, or exchangeable for,
shares of Common Stock (other than (i) a sale pursuant to a bona fide registered
public offering of shares of Common Stock by the Company conducted on the basis
of a firm commitment underwriting raising at least $10,000,000 or (ii) shares or
options issued pursuant to the Company's employee, director or consultant stock
option plans) then, if the effective or maximum sales price of the shares of
Common Stock with respect to such transaction (including the effective or
maximum conversion exercise or exchange price) ("Other Price") is less than the
Fixed Price of the Debentures at such time, the Company, at the option of a
holder exercised by written notice to the Company, shall adjust the Fixed Price
applicable to the Debentures of such holder not yet converted in form and
substance reasonably satisfactory to such holder of Debentures so that the
conversion price applicable to those Debentures shall, in no event, be greater,
after giving effect to all other adjustments contained therein, than the Other
Price.
(f) Whenever any element of the Applicable Conversion Price is
adjusted pursuant to Section 12(a), (b), (c), (d) or (e), the Company shall
promptly mail to each holder of the Debentures, a notice setting forth the
Applicable Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
(g) In the event of any taking by the Company of a record date
of the holders of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividend or other distribution,
any security or right convertible or exchangeable into or entitling the holder
thereof to receive additional shares of Common Stock, or any right to subscribe
for, purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, the Company, shall
deliver to each holder of Debentures at least 20 days prior to the date
specified therein, a notice specifying the date on which any such record is to
be taken for the purpose of such dividend, distribution, security or right and
the amount and character of such dividend, distribution, security or right.
13. REMEDIES CUMULATIVE. The rights, powers and remedies given
to the payee under this Debenture shall be in addition to all rights, powers and
remedies given to it by virtue of the Purchase Agreement, any document or
instrument executed in connection therewith,
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<PAGE> 13
or any statute or rule of law.
14. NON-WAIVER. Any forbearance, failure or delay by the payee
in exercising any right, power or remedy under this Debenture, the Primary
Documents, any documents or instruments executed in connection therewith or
otherwise available to the payee shall not be deemed to be a waiver of such
right, power or remedy, nor shall any single or partial exercise of any right,
power or remedy preclude the further exercise thereof.
15. MODIFICATIONS AND WAIVERS. No modification or waiver of
any provision of this Debenture, the Primary Documents or any documents or
instruments executed in connection therewith shall be effective unless it shall
be in writing and signed by the payee, and any such modification or waiver shall
apply only in the specific instance for which given.
16. ATTORNEY'S FEES. If this Debenture shall not be paid when
due and shall be placed by the Registered Holder hereof in the hands of an
attorney for collection, through legal proceedings or otherwise, or if this
Debenture shall not be converted into shares of Common Stock on the Conversion
Date, and an action is brought by the Registered Holder with respect thereto,
the Company shall pay attorney's fees to the Registered Holder hereof, together
with reasonable costs and expenses of collection or enforcement incurred in
connection with any such action.
17. ENFORCEMENT; SPECIFIC PERFORMANCE. (a) In case any one or
more Events of Default shall occur and be continuing, a Registered Holder of a
Debenture then outstanding may proceed to protect and enforce the rights of such
holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or for an
injunction against a violation of any of the terms hereof or thereof, or in aid
of the exercise of any power granted hereby or thereby or by law.
(b) The Company expressly agrees that each Registered
Holder may not have adequate remedies at law if the Company does not perform its
obligations under this Debenture. Upon a breach of the terms or covenants of
this Debenture by the Company, the Registered Holder shall, each in addition to
all other remedies, be entitled to obtain injunctive relief, and an order for
specific performance of the Company's obligations hereunder
18. This Debenture and the rights and obligations of the
parties hereto, shall be governed, construed and interpreted according to the
laws of the State of New York. The Company agrees that any final judgment after
exhaustion of all appeals or the expiration of time to appeal in any such action
or proceeding shall be conclusive and binding, and may be enforced in any
federal or state court in the United States by suit on the judgment or in any
other manner provided by law. Nothing contained in this Debenture shall affect
or limit the right of the Registered Holder to serve any process or notice or
motion or other application in any other manner permitted by law, or limit or
affect the right of the Registered Holder to bring any action
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<PAGE> 14
or proceeding against the Company or any of its property in the courts of any
other jurisdiction. The Company hereby consents to the jurisdiction of the
federal courts whose districts encompass any part of the City of New York or the
state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Debenture, and hereby waives, to
the maximum extent permitted by law, any objection, including any objections
based on forum non conveniens, to the bringing of any such proceeding in such
jurisdictions.
19. PAYEE DEFINED. The term "payee" as used herein shall be
deemed to include the payee and its successors, endorsees and assigns.
20. WAIVER OF PRESENTMENT, ETC. The undersigned hereby waives
presentment, demand for payment, protest, notice of protest and notice of
non-payment hereof.
21. HEADINGS. The headings contained in this Debenture are for
reference purposes only and shall not affect the meaning of interpretation of
this Debenture.
IN WITNESS WHEREOF, the Company has caused this Debenture to
be executed as of the date first written above.
By:
-----------------------------------------------------
Name: Kenneth W. Schilling
Title: President and Chief Executive Officer
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NOTICE OF CONVERSION
The conversion form appearing below should only be executed by
the Registered Holder desiring to convert all or part of the principal amount of
the Debenture attached hereto.
CONVERSION FORM
Date: ____________________________________________
TO: iBIZ TECHNOLOGY CORP.
1919 West Cactus Lane
Phoenix, Arizona 85027
The undersigned hereby exercises the conversion privilege upon
the terms and conditions set forth in the attached Debenture, to the extent of
the maximum number of shares of Common Stock issuable pursuant to the terms of
Section 6 of the Debenture, and accordingly, authorizes the Company to apply
$__________ principal amount of the attached Debenture to payment in full for
such shares of Common Stock. Please register such shares and make delivery
thereof as follows:
Registered in the Name of (Giving First or Middle Name in Full)
Name _________________________________________________________
(Please Print)
Address_______________________________________________________
DELIVERY INSTRUCTIONS
To be completed ONLY if Certificates are to be mailed to persons other
than the Registered Holder.
Name _________________________________________________________
(Please Print)
Address_______________________________________________________
Signature_____________________________________________________
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfer unto ___________________ ____________________________________ the
within Debenture and all rights thereunder, hereby irrevocably authorizing the
Company to transfer said Debenture on the books of the Company, with full power
of substitution in the premises.
Dated:________________________________________________________
Signature:____________________________________________________
Print Name:___________________________________________________
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<PAGE> 1
Exhibit 10.28
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE, AND MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND
REGULATIONS THEREUNDER OR ANY STATE SECURITIES LAWS OR THE PROVISIONS OF
THIS WARRANT.
No. of Shares of Common Stock: 375,000
WARRANT
To Purchase Common Stock of
IBiz Technology Corp.
THIS IS TO CERTIFY THAT Lites Trading, Co., or registered
assigns, is entitled, at any time from the Warrant Issuance Date (as hereinafter
defined) to the Expiration Date (as hereinafter defined), to purchase from IBiz
Technology Corp., a Florida corporation (the "Company"), 375,000 shares of
Common Stock (as hereinafter defined and subject to adjustment as provided
herein), in whole or in part, including fractional parts, at a purchase price
per share equal to $1.45 (subject to any adjustments made to such amount
pursuant to Section 4 hereto) on the terms and conditions and pursuant to the
provisions hereinafter set forth.
1. DEFINITIONS
As used in this Warrant, the following terms have the
respective meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Company after the Closing Date, other than Warrant
Stock.
"Book Value" shall mean, in respect of any share of Common
Stock on any date herein specified, the consolidated book value of the Company
as of the last day of any month immediately preceding such date, divided by the
number of Fully Diluted Outstanding shares of Common Stock as determined in
accordance with GAAP (assuming the payment of the exercise prices for such
shares) by a firm of independent certified public accountants of recognized
national standing selected by the Company and reasonably acceptable to the
Holder.
"Business Day" shall mean any day that is not a Saturday or
Sunday or a day on which banks are required or permitted to be closed in the
State of New York.
"Closing Date" shall have the meaning set forth in the
Securities Purchase Agreement.
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency then administering the Securities Act and other
federal securities laws.
"Common Stock" shall mean (except where the context otherwise
indicates) the Common Stock, $.001 par value, of the Company as constituted on
the Closing Date, and any capital stock into which such Common Stock may
thereafter be changed, and shall also include
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(i) capital stock of the Company of any other class (regardless of how
denominated) issued to the holders of shares of Common Stock upon any
reclassification thereof which is also not preferred as to dividends or assets
over any other class of stock of the Company and which is not subject to
redemption and (ii) shares of common stock of any successor or acquiring
corporation received by or distributed to the holders of Common Stock of the
Company in the circumstances contemplated by Section 4.4.
"Convertible Securities" shall mean evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable,
with or without payment of additional consideration in cash or property, for
shares of Common Stock, either immediately or upon the occurrence of a specified
date or a specified event.
"Current Warrant Price" shall mean, $1.45 subject to any
adjustments to such amount made in accordance with Section 4 hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any successor federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect from time to time.
"Exercise Period" shall mean the period during which this
Warrant is exercisable pursuant to Section 2.1.
"Expiration Date" shall mean March 27, 2005.
"Fully Diluted Outstanding" shall mean, when used with
reference to Common Stock, at any date as of which the number of shares thereof
is to be determined, all shares of Common Stock Outstanding at such date and all
shares of Common Stock issuable in respect of this Warrant, outstanding on such
date, and other options or warrants to purchase, or securities convertible into,
shares of Common Stock outstanding on such date which would be deemed
outstanding in accordance with GAAP for purposes of determining book value or
net income per share.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as from time to time in effect.
"Holder" shall mean the Person in whose name the Warrant or
Warrant Stock set forth herein is registered on the books of the Company
maintained for such purpose.
"Market Price" per Common Share means the average of the
closing bid prices of the Common Shares as reported on the National Association
of Securities Dealers Automated Quotation System for the National Market,
("NASDAQ") or, if such security is not listed or admitted to trading on the
NASDAQ, on the principal national security exchange or quotation system on which
such security is quoted or listed or admitted to trading, or, if not quoted or
listed or admitted to trading on any national securities exchange or quotation
system, the closing bid price of such security on the over-the-counter market on
the day in question as reported by the National Association of Security Dealers,
Inc., or a similar generally accepted reporting service, as the case may be, for
the five (5) trading days immediately preceding the date of determination.
"Other Property" shall have the meaning set forth in Section
4.4.
"Outstanding" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be determined,
all issued shares of Common Stock, except shares then owned or held by or for
the account of the Company or any subsidiary
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<PAGE> 3
thereof, and shall include all shares issuable in respect of outstanding scrip
or any certificates representing fractional interests in shares of Common Stock.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, incorporated organization, association,
corporation, institution, public benefit corporation, entity or government
(whether federal, state, county, city, municipal or otherwise, including,
without limitation, any instrumentality, division, agency, body or department
thereof).
"Registration Rights Agreement" shall mean the Registration
Rights Agreement dated a date even herewith by and between the Company and Lites
Trading Co., as it may be amended from time to time.
"Restricted Common Stock" shall mean shares of Common Stock
which are, or which upon their issuance on the exercise of this Warrant would
be, evidenced by a certificate bearing the restrictive legend set forth in
Section 9.1(a).
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Securities Purchase Agreement" shall mean the Securities
Purchase Agreement dated as of a date even herewith by and between the Company
and Lites Trading Co., as it may be amended from time to time.
"Transfer" shall mean any disposition of any Warrant or
Warrant Stock or of any interest in either thereof, which would constitute a
sale thereof within the meaning of the Securities Act.
"Transfer Notice" shall have the meaning set forth in Section
9.2.
"Warrant Issuance Date" shall mean any date on which Warrants
are issued pursuant to the Securities Purchase Agreement.
"Warrants" shall mean this Warrant and all warrants issued
upon transfer, division or combination of, or in substitution for, any thereof.
All Warrants shall at all times be identical as to terms and conditions and
date, except as to the number of shares of Common Stock for which they may be
exercised.
"Warrant Price" shall mean an amount equal to (i) the number
of shares of Common Stock being purchased upon exercise of this Warrant pursuant
to Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of
such exercise.
"Warrant Stock" shall mean the shares of Common Stock
purchased by the holders of the Warrants upon the exercise thereof.
2. EXERCISE OF WARRANT
2.1. Manner of Exercise. From and after the Warrant Issuance
Date and until 5:00 P.M., New York City time, on the Expiration Date, Holder may
exercise this Warrant, on any Business Day, for all or any part of the number of
shares of Common Stock purchasable hereunder.
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In order to exercise this Warrant, in whole or in part, Holder
shall deliver to the Company at the office or agency designated by the Company
pursuant to Section 12, (i) a written notice of Holder's election to exercise
this Warrant, which notice shall specify the number of shares of Common Stock to
be purchased, (ii) payment by cash, check or bank draft payable to the Company
of the Warrant Price in cash or by wire transfer or cashier's check drawn on a
United States bank or by the Holder's surrender of Warrant Stock (or the right
to receive such number of shares) having an aggregate Market Price equal to the
Warrant Price for all shares then being purchased and (iii) this Warrant. Such
notice shall be substantially in the form of the subscription form appearing at
the end of this Warrant as Exhibit A, duly executed by Holder or its agent or
attorney. Upon receipt of the items referred to in clauses (i), (ii) and (iii)
above, the Company shall, as promptly as practicable, and in any event within
three (3) Business Days thereafter, execute or cause to be executed and deliver
or cause to be delivered to Holder a certificate or certificates representing
the aggregate number of full shares of Common Stock issuable upon such exercise,
together with cash in lieu of any fraction of a share, as hereinafter provided.
The stock certificate or certificates so delivered shall be, to the extent
possible, in such denomination or denominations as Holder shall request in the
notice and shall be registered in the name of Holder or, subject to Section 9,
such other name as shall be designated in the notice. This Warrant shall be
deemed to have been exercised and such certificate or certificates shall be
deemed to have been issued, and Holder or any other Person so designated to be
named therein shall be deemed to have become a holder of record of such shares
for all purposes, as of the date the Warrant has been exercised by payment to
the Company of the Warrant Price. If this Warrant shall have been exercised in
part, the Company shall, at the time of delivery of the certificate or
certificates representing Warrant Stock, deliver to Holder a new Warrant
evidencing the rights of Holder to purchase the unpurchased shares of Common
Stock called for by this Warrant, which new Warrant shall in all other respects
be identical with this Warrant.
The Holder shall be entitled to exercise the Warrant
notwithstanding the commencement of any case under 11 U.S.C. Section 101 et seq.
(the "Bankruptcy Code"). In the event the Company is a debtor under the
Bankruptcy Code, the Company hereby waives to the fullest extent permitted any
rights to relief it may have under 11 U.S.C. Section 362 in respect of the
Holder's exercise right. The Company hereby waives to the fullest extent
permitted any rights to relief it may have under 11 U.S.C. Section 362 in
respect of the exercise of the Warrant. The Company agrees, without cost or
expense to the Holder, to take or consent to any and all action necessary to
effectuate relief under 11 U.S.C. Section 362.
2.2. Payment of Taxes and Charges. All shares of Common Stock
issuable upon the exercise of this Warrant pursuant to the terms hereof shall be
validly issued, fully paid and nonassessable, and without any preemptive rights.
The Company shall pay all expenses in connection with, and all taxes and other
governmental charges that may be imposed with respect to, the issue or delivery
thereof.
Fractional Shares. The Company shall not be required to issue
a fractional share of Common Stock upon exercise of any Warrant. As to any
fraction of a share which Holder would otherwise be entitled to purchase upon
such exercise, the Company shall pay a cash adjustment in respect of such final
fraction in an amount equal to the same fraction of the Market Price per share
of Common Stock on the relevant exercise date.
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Continued Validity. A holder of shares of Common Stock issued
upon the exercise of this Warrant, in whole or in part (other than a holder who
acquires such shares after the same have been publicly sold pursuant to a
Registration Statement under the Securities Act or sold pursuant to Rule 144
thereunder), shall continue to be entitled with respect to such shares to all
rights to which it would have been entitled as Holder under Sections 9, 10 and
14 of this Warrant. The Company will, at the time of exercise of this Warrant,
in whole or in part, upon the request of Holder, acknowledge in writing, in form
reasonably satisfactory to Holder, its continuing obligation to afford Holder
all such rights; provided, however, that if Holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to Holder all such rights.
3. TRANSFER, DIVISION AND COMBINATION
3.1 Transfer. Subject to compliance with Sections 9, transfer
of this Warrant and all rights hereunder, in whole or in part, shall be
registered on the books of the Company to be maintained for such purpose, upon
surrender of this Warrant at the principal office of the Company referred to in
Section 2.1 or the office or agency designated by the Company pursuant to
Section 12, together with a written assignment of this Warrant substantially in
the form of Exhibit B hereto duly executed by Holder or its agent or attorney.
Upon such surrender, the Company shall, subject to Section 9, execute and
deliver a new Warrant or Warrants in the name of the assignee or assignees and
in the denomination specified in such instrument of assignment, and shall issue
to the assignor a new Warrant evidencing the portion of this Warrant not so
assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly
assigned in compliance with Section 9, may be exercised by a new Holder for the
purchase of shares of Common Stock without having a new Warrant issued.
3.2 Division and Combination. Subject to Section 9, this
Warrant may be divided or combined with other Warrants upon presentation hereof
at the aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by Holder or its agent or attorney. Subject to compliance with Section
3.1 and with Section 9, as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
3.3 Expenses. The Company shall prepare, issue and deliver at
its own expense the new Warrant or Warrants under this Section 3.
3.4 Maintenance of Books. The Company agrees to maintain, at
its aforesaid office or agency, books for the registration and the registration
of transfer of the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise of
this Warrant, shall be subject to adjustment from time to time as set forth in
this Section 4. The Company shall give Holder notice of any event described
below which requires an adjustment pursuant to this Section 4 at the time of
such event.
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4.1. Stock Dividends, Subdivisions and Combinations. If at any
time the Company shall:
(a) take a record of the holders of its Common Stock for
the purpose of entitling them to receive a dividend payable in, or other
distribution of, Additional Shares of Common Stock,
(b) subdivide its outstanding shares of Common Stock into
a larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Current Warrant Price
shall be adjusted to equal (A) the Current Warrant Price multiplied by the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such adjustment.
4.2. Certain Other Distributions.
(a) If at any time prior to the Expiration Date the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive any dividend or other distribution of:
(i) cash,
(ii) any evidences of its indebtedness, any
shares of its stock or any other securities or property of any
nature whatsoever (other than cash, Convertible Securities or
Additional Shares of Common Stock), or
(iii) any warrants or other rights to subscribe
for or purchase any evidences of its indebtedness, any shares
of its stock or any other securities or property of any nature
whatsoever (other than cash, Convertible Securities or
Additional Shares of Common Stock),
then Holder shall be entitled to receive such dividend or distribution as if
Holder had exercised the Warrant. A reclassification of the Common Stock (other
than a change in par value, or from par value to no par value or from no par
value to par value) into shares of Common Stock and shares of any other class of
stock shall be deemed a distribution by the Company to the holders of its Common
Stock of such shares of such other class of stock within the meaning of this
Section 4.2 and, if the outstanding shares of Common Stock shall be changed into
a larger or smaller number of shares of Common Stock as a part of such
reclassification, such change shall
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be deemed a subdivision or combination, as the case may be, of the outstanding
shares of Common Stock within the meaning of Section 4.1.
(b) In case the Company shall issue any Common Stock or any
rights, options or warrants to all holders of record of its Common Stock
entitling all holders to subscribe for or purchase shares of Common Stock at a
price per share less than the Market Price per share of the Common Stock on the
date fixed for such issue, the Current Warrant Price in effect immediately prior
to the close of business on the date fixed for such determination shall be
reduced to the amount determined by multiplying such Current Warrant Price by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to the close of business on the date fixed for
such determination plus the number of shares of Common Stock which the aggregate
of the offering price of the total number of shares of Common Stock so offered
for subscription or purchase would purchase at such Market Price and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to the close of business on the date fixed for such
determination plus the number of shares of Common Stock so offered for
subscription or purchase, such reduced amount to become effective immediately
after the close of business on the date fixed for such determination. For the
purposes of this clause (b), (i) the number of shares of Common Stock at any
time outstanding shall not include shares held in the treasury of the Company
and (ii) in the case of any rights, options or warrants which expire by their
terms not more than 60 days after the date of issue, sale, grant or assumption
thereof, no adjustment of the Current Warrant Price shall be made until the
expiration or exercise of all rights, options or warrants, whereupon such
adjustment shall be made in the manner provided in this clause (b), but only
with respect to the shares of Common Stock actually issued pursuant thereto.
Such adjustment shall be made successively whenever any event specified above
shall occur. In the event that any or all rights, options or warrants covered by
this clause (b) are not so issued or expire or terminate before being exercised,
the Current Warrant Price then in effect shall be appropriately readjusted.
4.3. Other Provisions Applicable to Adjustments under this Section. The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for which this Warrant is exercisable and the
Current Warrant Price provided for in this Section 4:
(a) When Adjustments to Be Made. The adjustments required by this
Section 4 shall be made whenever and as often as any specified event requiring
an adjustment shall occur. For the purpose of any adjustment, any specified
event shall be deemed to have occurred at the close of business on the date of
its occurrence.
(b) Fractional Interests. In computing adjustments under this
Section 4, fractional interests in Common Stock shall be taken into account to
the nearest 1/10th of a share.
(c) When Adjustment Not Required. If the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by reason of the
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taking of such record and any such adjustment previously made in respect thereof
shall be rescinded and annulled.
(d) Challenge to Good Faith Determination. Whenever the Board of
Directors of the Company shall be required to make a determination in good faith
of the fair value of any item under this Section 4, such determination may be
challenged in good faith by the Holder, and any dispute shall be resolved by an
investment banking firm of recognized national standing selected by the Holder.
4.4. Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of all or substantially all its property,
assets or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock
of the Company, then Holder shall have the right thereafter to receive, upon
exercise of the Warrant, the number of shares of common stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and Other Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate, subject to the Holder's consent, in order to provide for
adjustments of shares of Common Stock for which this Warrant is exercisable
which shall be as nearly equivalent as practicable to the adjustments provided
for in this Section 4. For purposes of this Section 4.4, "common stock of the
successor or acquiring corporation" shall include stock of such corporation of
any class which is not preferred as to dividends or assets over any other class
of stock of such corporation and which is not subject to redemption and shall
also include any evidences of indebtedness, shares of stock or other securities
which are convertible into or exchangeable for any such stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event and any warrants or other rights to subscribe for or purchase
any such stock. The foregoing provisions of this Section 4.4 shall similarly
apply to successive reorganizations, reclassifications, mergers, consolidations
or disposition of assets.
4.5. Other Action Affecting Common Stock. In case at any time or from
time to time the Company shall take any action in respect of its Common Stock,
other than any action taken in the ordinary course of the Company's business or
any action described in this Section 4, which would, in the opinion of an
unaffiliated investment bank selected by Holder, have a materially adverse
effect upon the rights of the Holder, the number of shares of Common Stock
and/or the purchase price thereof shall be adjusted in such manner as may be
equitable in the
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circumstances, as determined in good faith by an unaffiliated investment bank
selected by Holder.
4.6. Certain Limitations. Notwithstanding anything herein to the
contrary, the Company agrees not to enter into any transaction which, by reason
of any adjustment hereunder, would cause the Current Warrant Price to be less
than the par value per share of Common Stock.
4.7. No Voting Rights. This Warrant shall not entitle its Holder to
any voting rights or other rights as a shareholder of the Company.
5. NOTICES TO HOLDER
5.1. Notice of Adjustments. Whenever the number of shares of Common
Stock for which this Warrant is exercisable, or whenever the price at which a
share of such Common Stock may be purchased upon exercise of the Warrants, shall
be adjusted pursuant to Section 4, the Company shall forthwith prepare a
certificate to be executed by an executive officer of the Company setting forth,
in reasonable detail, the event requiring the adjustment and the method by which
such adjustment was calculated, specifying the number of shares of Common Stock
for which this Warrant is exercisable and (if such adjustment was made pursuant
to Section 4.4 or 4.5) describing the number and kind of any other shares of
stock or Other Property for which this Warrant is exercisable, and any change in
the purchase price or prices thereof, after giving effect to such adjustment or
change. The Company shall promptly cause a signed copy of such certificate to be
delivered to the Holder in accordance with Section 14.2. The Company shall keep
at its office or agency designated pursuant to Section 12 copies of all such
certificates and cause the same to be available for inspection at said office
during normal business hours by the Holder or any prospective purchaser of a
Warrant designated by the Holder.
5.2. Notice of Corporate Action. If at any time
(a) the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) there shall be any capital reorganization of the Company,
any reclassification or recapitalization of the capital stock of the Company or
any consolidation or merger of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of the
Company to, another corporation, or
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least 30 Business Days' prior written notice of the date on which a record date
shall be selected for such dividend, distribution or right or for determining
rights to vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, and (ii) in the case of any such reorganization, reclassification, merger,
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consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, at least 30 Business Days' prior written notice of the date when the same
shall take place. Such notice in accordance with the foregoing clause also shall
specify (i) the date on which any such record is to be taken for the purpose of
such dividend, distribution or right, the date on which the holders of Common
Stock shall be entitled to any such dividend, distribution or right, and the
amount and character thereof, and (ii) the date on which any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up is to take place and the
time, if any such time is to be fixed, as of which the holders of Common Stock
shall be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently given if addressed to Holder
at the last address of Holder appearing on the books of the Company and
delivered in accordance with Section 14.2.
6. NO IMPAIRMENT
The Company shall not by any action, including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of Holder against impairment. Without limiting the generality of the
foregoing, the Company will (a) not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise immediately prior to such increase in par
value, (b) take all such action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant, and (c) use its best efforts to
obtain all such authorizations, exemptions or consents from any public
regulatory body having jurisdiction thereof as may be necessary to enable the
Company to perform its obligations under this Warrant.
Upon the request of Holder, the Company will at any time
during the period this Warrant is outstanding acknowledge in writing, in form
reasonably satisfactory to Holder, the continuing validity of this Warrant and
the obligations of the Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK
From and after the Closing Date, the Company shall at all
times reserve and keep available for issue upon the exercise of Warrants such
number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding Warrants. All
shares of Common Stock which shall be so issuable, when issued upon exercise of
any Warrant and payment therefor in accordance with the terms of such Warrant,
shall be duly and validly issued and fully paid and nonassessable, and not
subject to preemptive rights.
Before taking any action which would cause an adjustment
reducing the Current Warrant Price below the then par value, if any, of the
shares of Common Stock issuable upon
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exercise of the Warrants, the Company shall take any corporate action which may
be necessary in order that the Company may validly and legally issue fully paid
and non-assessable shares of such Common Stock at such adjusted Current Warrant
Price.
Before taking any action which would result in an adjustment
in the number of shares of Common Stock for which this Warrant is exercisable or
in the Current Warrant Price, the Company shall obtain all such authorizations
or exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the
Company to the holders of its Common Stock with respect to which any provision
of Section 4 refers to the taking of a record of such holders, the Company will
in each such case take such a record and will take such record as of the close
of business on a Business Day. The Company will not at any time close its stock
transfer books or Warrant transfer books so as to result in preventing or
delaying the exercise or transfer of any Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in this
Section 9, which conditions are intended to ensure compliance with the
provisions of the Securities Act with respect to the Transfer of any Warrant or
any Warrant Stock. Holder, by acceptance of this Warrant, agrees to be bound by
the provisions of this Section 9.
9.1. Restrictive Legend. The Holder by accepting this Warrant
and any Warrant Stock agrees that this Warrant and the Warrant Stock issuable
upon exercise hereof may not be assigned or otherwise transferred unless and
until (i) the Company has received an opinion of counsel for the Holder that
such securities may be sold pursuant to an exemption from registration under the
Securities Act or (ii) a registration statement relating to such securities has
been filed by the Company and declared effective by the Commission.
Each certificate for Warrant Stock issuable hereunder shall
bear a legend substantially worded as follows unless such securities have been
sold pursuant to an effective registration statement under the Securities Act:
"The securities represented by this
certificate have not been registered under the
Securities Act of 1933, as amended (the "Act") or any
state securities laws. The securities may not be
offered for sale, sold, assigned, offered,
transferred or otherwise distributed for value except
(i) pursuant to an effective registration statement
under the Act or any state securities laws or (ii)
pursuant to an exemption from registration or
prospectus delivery
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requirements under the Act or any state securities
laws in respect of which the Company has received an
opinion of counsel satisfactory to the Company to
such effect. Copies of the agreement covering both
the purchase of the securities and restricting their
transfer may be obtained at no cost by written
request made by the holder of record of this
certificate to the Secretary of the Company at the
principal executive offices of the Company."
a) Except as otherwise provided in this Section 9,
the Warrant shall be stamped or otherwise imprinted with a
legend in substantially the following form:
"This Warrant and the securities represented
hereby have not been registered under the Securities
Act of 1933, as amended, or any state securities laws
and may not be transferred in violation of such Act,
the rules and regulations thereunder or any state
securities laws or the provisions of this Warrant."
9.2. Notice of Proposed Transfers. Prior to any Transfer or
attempted Transfer of any Warrants or any shares of Restricted Common Stock, the
Holder shall give five days' prior written notice (a "Transfer Notice") to the
Company of Holder's intention to effect such Transfer, describing the manner and
circumstances of the proposed Transfer, and obtain from counsel to Holder an
opinion that the proposed Transfer of such Warrants or such Restricted Common
Stock may be effected without registration under the Securities Act or state
securities laws. After the Company's receipt of the Transfer Notice and opinion,
such Holder shall thereupon be entitled to Transfer such Warrants or such
Restricted Common Stock, in accordance with the terms of the Transfer Notice.
Each certificate, if any, evidencing such shares of Restricted Common Stock
issued upon such Transfer and the Warrant issued upon such Transfer shall bear
the restrictive legends set forth in Section 9.1, unless in the opinion of such
counsel such legend is not required in order to ensure compliance with the
Securities Act.
9.3. Required Registration. Pursuant to the terms and
conditions set forth in the Registration Rights Agreement, the Company shall
prepare and file with the Commission not later than the 20th day after the
Closing Date, a Registration Statement relating to the offer and sale of the
Common Stock issuable upon exercise of the Warrants and shall cause the
Commission to declare such Registration Statement effective under the Securities
Act as promptly as practicable but no later than 90 days after the Closing Date.
9.4. Termination of Restrictions. Notwithstanding the foregoing
provisions of Section 9, the restrictions imposed by this Section upon the
transferability of the Warrants, the Warrant Stock and the Restricted Common
Stock (or Common Stock issuable upon the exercise of the Warrants) and the
legend requirements of Section 9.1 shall terminate as to any particular Warrant
or share of Warrant Stock or Restricted Common Stock (or Common Stock issuable
upon the exercise of the Warrants) (i) when and so long as such security shall
have been effectively registered under the Securities Act and applicable state
securities laws and disposed of pursuant thereto or (ii) when the Company shall
have received an opinion of counsel that such
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shares may be transferred without registration thereof under the Securities Act
and applicable state securities laws.
All Warrants issued upon registration of transfer, division or combination of,
or in substitution for, any Warrant or Warrants entitled to bear such legend
shall have a similar legend endorsed thereon. Whenever the restrictions imposed
by this Section shall terminate as to any share of Restricted Common Stock, as
hereinabove provided, the holder thereof shall be entitled to receive from the
Company, at the Company's expense, a new certificate representing such Common
Stock not bearing the restrictive legends set forth in Section 9.1.
9.5. Listing on Securities Exchange. If the Company shall list
any shares of Common Stock on any securities exchange, it will, at its expense,
list thereon, maintain and, when necessary, increase such listing of, all shares
of Common Stock issued or, to the extent permissible under the applicable
securities exchange rules, issuable upon the exercise of this Warrant so long as
any shares of Common Stock shall be so listed during any such Exercise Period.
10. SUPPLYING INFORMATION
The Company shall cooperate with Holder in supplying such
information as may be reasonably necessary for Holder to complete and file any
information reporting forms presently or hereafter required by the Commission as
a condition to the availability of an exemption from the Securities Act for the
sale of any Warrant or Restricted Common Stock.
11. LOSS OR MUTILATION
Upon receipt by the Company from Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it (it being
understood that the written agreement of the Holder shall be sufficient
indemnity), and in case of mutilation upon surrender and cancellation hereof,
the Company will execute and deliver in lieu hereof a new Warrant of like tenor
to Holder; provided, in the case of mutilation, no indemnity shall be required
if this Warrant in identifiable form is surrendered to the Company for
cancellation.
12. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company
shall maintain an office or agency (which may be the principal executive offices
of the Company) where the Warrants may be presented for exercise, registration
of transfer, division or combination as provided in this Warrant, such office to
be initially located at 1919 West Lone Cactus, Phoenix, Arizona 85021, fax:
623-492-9921, provided, however, that the Company shall provide prior written
notice to Holder of a change in address no less than 30 days prior to such
change.
13. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by
Holder to purchase shares of Common Stock, and no enumeration herein of the
rights or privileges of Holder hereof, shall give rise to any liability of
Holder for the purchase price of any Common Stock or as a
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stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.
14. MISCELLANEOUS
14.1. Nonwaiver and Expenses. No course of dealing or any delay
or failure to exercise any right hereunder on the part of Holder shall operate
as a waiver of such right or otherwise prejudice Holder's rights, powers or
remedies, notwithstanding all rights hereunder terminate on the Expiration Date.
If the Company fails to make, when due, any payments provided for hereunder, or
fails to comply with any other provision of this Warrant, the Company shall pay
to Holder such amounts as shall be sufficient to cover any direct and indirect
losses, damages, costs and expenses including, but not limited to, reasonable
attorneys' fees, including those of appellate proceedings, incurred by Holder in
collecting any amounts due pursuant hereto or in otherwise enforcing any of its
rights, powers or remedies hereunder.
14.2. Notice Generally. Except as may be otherwise provided
herein, any notice or other communication or delivery required or permitted
hereunder shall be in writing and shall be delivered personally or sent by
certified mail, postage prepaid, or by a nationally recognized overnight courier
service, and shall be deemed given when so delivered personally or by overnight
courier service, or, if mailed, three (3) days after the date of deposit in the
United States mails, as follows:
(1) if to the Company, to:
IBiz Technology Corp.
1919 West Lone Cactus
Phoenix, Arizona 85021
Fax: 623-492-9921
Attention: Kenneth Schilling, President
(2) if to the Holder, to:
Lites Trading Co.
c/o Laufer & Haberstam
39 Broadway
14th Floor
NY, NY 10006
Attention: Michael J. Halberstam, Esq.
With a copy to:
Laufer Halberstam & Karish, LLP
39 Broadway
14th Floor
New York, New York 10006
Attention: Michael J. Halberstam, Esq.
Tel: (212) 422-8500
Fax: (212) 422-9038
14
<PAGE> 15
The Company or the Holder may change the foregoing address by notice given
pursuant to this Section 14.2.
14.3. Indemnification. The Company agrees to indemnify and hold
harmless Holder from and against any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses
and disbursements of any kind which may be imposed upon, incurred by or asserted
against Holder in any manner relating to or arising out of any failure by the
Company to perform or observe in any respect any of its covenants, agreements,
undertakings or obligations set forth in this Warrant.
14.4. Remedies. Holder in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. The Company agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of the provisions of this Warrant and hereby agrees to
waive the defense in any action for specific performance that a remedy at law
would be adequate.
14.5. Successors and Assigns. Subject to the provisions of Sections
3.1 and 9, this Warrant and the rights evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and assigns of Holder. The provisions of this Warrant are intended to be for the
benefit of all Holders from time to time of this Warrant and, with respect to
Section 9 hereof, holders of Warrant Stock, and shall be enforceable by any such
Holder or holder of Warrant Stock.
14.6. Amendment. This Warrant and all other Warrants may be modified
or amended or the provisions hereof waived only with the prior written consent
of the Company and the Holder.
14.7. Severability. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
14.8. Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
14.9. Governing Law. This Warrant shall be governed by the laws of
the State of New York, without regard to the provisions thereof relating to
conflict of laws.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
15
<PAGE> 16
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed and its corporate seal to be impressed hereon and attested by its
Secretary or an Assistant Secretary.
Dated: March 27, 2000
IBIZ TECHNOLOGY CORP.
By:________________________
Name:
Title:
Attest:
By:______________________
Name:
Title:
16
<PAGE> 17
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of ______ Shares of Common Stock of IBiz
Technology Corp. and herewith makes payment therefor in cash or by check or bank
draft made payable to the Company, all at the price and on the terms and
conditions specified in this Warrant and requests that certificates for the
shares of Common Stock hereby purchased (and any securities or other property
issuable upon such exercise) be issued in the name of and delivered to
_____________ whose address is _________________ and, if such shares of Common
Stock shall not include all of the shares of Common Stock issuable as provided
in this Warrant, that a new Warrant of like tenor and date for the balance of
the shares of Common Stock issuable hereunder be delivered to the undersigned.
-------------------------------
(Name of Registered Owner)
-------------------------------
(Signature of Registered Owner)
-------------------------------
(Street Address)
-------------------------------
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with
the name as written upon the face of the within Warrant in
every particular, without alteration or enlargement or any
change whatsoever.
<PAGE> 18
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
Name and Address of Assignee No. of Shares of
Common Stock
and does hereby irrevocably constitute and appoint _______ ________________
attorney-in-fact to register such transfer on the books of IBiz Technology
Corp. maintained for the purpose, with full power of substitution in the
premises.
Dated:__________________ Print Name:___________________
Signature:____________________
Witness:______________________
NOTICE: The signature on this assignment must correspond with the
name as written upon the face of the within Warrant in
every particular, without alteration or enlargement or any
change whatsoever.
<PAGE> 1
Exhibit 10.29
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of March 27, 2000 (this
"Agreement"), is made by and between IBIZ TECHNOLOGY CORP., a Florida
corporation, with headquarters located at 1919 West Lone Cactus, Phoenix,
Arizona 85027 (the "Company") and LITES TRADING CO. (the "Purchaser").
W I T N E S S E T H:
WHEREAS, pursuant to a Securities Purchase Agreement, dated as of the
date hereof, among the Purchaser and the Company (the "Securities Purchase
Agreement"), the Company has agreed to issue and sell to the Purchaser, (i)
$1,600,000 aggregate principal amount of the Company's 7% Convertible Debentures
(the "Debentures") and (ii) warrants (the "Warrants") to purchase 375,000 shares
of the Company's Common Stock, par value $.001 per share (the "Common Stock");
WHEREAS, pursuant to the terms of the Debentures and the Warrants, (i)
upon the conversion of the Debentures, (ii) in lieu of dividend payments on the
Debentures and (iii) upon exercise of the Warrants, the Company will, in each
case, issue to the Purchaser shares of Common Stock (such shares of Common Stock
are collectively referred to herein as the "Shares"); and
WHEREAS, to induce the Purchasers to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended (the "Securities Act"), and
applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Purchaser hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
(a) "Effectiveness Deadline" shall have the meaning
set forth in section 2(a)(i) hereof.
(b) "Filing Deadline" shall have the meaning set
forth in Section 2(a)(i) hereof.
<PAGE> 2
(c) "Registration Statement" means a registration
statement or registration statements of the Company filed under the Securities
Act covering Registrable Securities relating to the Debentures and Warrants.
(d) "Register," "Registered," and "Registration"
refer to a registration effected by preparing and filing a Registration
Statement or Statements in compliance with the Securities Act and pursuant to
Rule 415 under the Securities Act or any successor rule providing for offering
securities on a continuous basis ("Rule 415"), and the declaration or ordering
of effectiveness of such Registration Statement by the United States Securities
and Exchange Commission (the "Commission").
(e) "Registrable Securities" means the Shares.
Capitalized terms used herein and not otherwise defined herein shall
have the meanings set-forth in the Securities Purchase Agreement.
2. REGISTRATION.
(a) MANDATORY REGISTRATIONS.
(i) Registration Statement. The Company shall
prepare, as soon as practicable, but in no event later than 20 days after the
Closing Date (as defined in the Securities Purchase Agreement) (the "Filing
Deadline"), file with the Commission a Registration Statement or Registration
Statements (as necessary) on Form SB-2 or Form S-3, as appropriate, covering the
resale of all of the Registrable Securities. In the event that Form SB-2 or Form
S-3, as appropriate, is unavailable and/or inappropriate for such a
registration, the Company shall use such other form as is available and
appropriate for such a registration. Any Registration Statement prepared
pursuant hereto shall register for resale at least that number of shares of
Common Stock equal to the product of (x) 2.0 and, (y) the sum of (i) the maximum
number of Shares that are issuable upon conversion of the Debentures, on the
date of filing, and (ii) the maximum number of Shares issuable upon exercise of
the Warrants, in each case, without regard to any limitation on any holder's
ability to convert any of the Warrants or the Debentures. Such Registration
Statement shall state that, in accordance with Rule 416 under the Securities
Act, it also covers such indeterminate number of additional Shares as may become
issuable upon conversion of such Debentures or exercise of such Warrants (i)
resulting from any adjustment in the applicable Conversion Price of such
Debentures or the Exercise Price of such Warrants or (ii) to prevent dilution
resulting from stock splits or stock dividends. If at any time two (2.0) times
the sum of (i) the maximum number of Shares into which the Debentures may be
converted and (ii) the maximum number of Shares issuable upon exercise of the
Warrants, exceeds the total number of Shares so registered, the Company shall,
within five (5) business days after receipt of a written notice from the
Purchaser, either (i) amend the Registration Statement or Registration
Statements filed by the Company pursuant to this section, if such Registration
Statement has not been declared effective by the Commission at that time, to
register all of the Shares into which the Debentures and the Warrants may be
converted, or (ii) if such Registration Statement has been declared effective by
the Commission at that time, file with the Commission an additional Registration
Statement on Form SB-2 or Form S-3, as appropriate, or such other appropriate
2
<PAGE> 3
form, to register the number of Shares into which the Debentures may be
converted that exceed the number of Shares already registered. The Company shall
use its best efforts to have the Registration Statement declared effective
within the earliest to occur of (i) ninety (90) days following the Closing Date
(ii) if the Commission elects not to conduct a review of the Registration
Statement, the date which is three (3) business days after the date upon which
either the Company or its counsel is so notified, whether orally or in writing
that the Commission will not conduct a review of such Registration Statement; or
(iii) if the Registration Statement is reviewed by the Commission, the date
which is three (3) business days after the date upon which the Company or its
counsel is notified by the Commission, whether orally or in writing, that the
Commission has no further comments with respect to the Registration Statement or
that the Registration Statement may be declared effective (the earliest of such
dates is referred to herein as the "Effectiveness Deadline.") Notwithstanding
anything to the contrary contained herein or in any of the Securities Purchase
Agreement, the Debentures or the Warrants (collectively, the "Primary
Documents"), the Company shall take all action necessary to ensure that the
Registration Statement includes only the Registrable Securities and those
securities set forth on Schedule 1 hereto.
(ii) The Company shall keep each Registration
Statement effective pursuant to Rule 415 at all times until such date as is the
earlier of (i) the date on which all of the Registrable Securities have been
sold and (ii) the date on which the Registrable Securities (in the opinion of
counsel to the Purchaser) may be immediately sold without restriction (including
without limitation as to volume by each holder thereof) without registration
under the Securities Act (the "Registration Period").
(b) PAYMENTS BY THE COMPANY.
(i) (A) If the Registration Statement covering the
Registrable Securities is not filed with the Commission on or prior to the
Filing Deadline, (B) if the Registration Statement covering the Registrable
Securities is not effective on or prior to the Effectiveness Deadline, (C) if
the number of Shares listed for trading on the OTC Bulletin Board or reserved by
the Company for issuance shall be insufficient, for any period of five (5)
consecutive days at any time after the Effectiveness Deadline, for issuance upon
the conversion of the Debentures and the exercise of the Warrants, or (D) upon
the occurrence of a Blackout Event (as described in Section 3(f) or Section 3(g)
below), for any period of five (5) consecutive days at any time after the
Effectiveness Deadline (each of the events described in clauses (A) through (D)
of this paragraph are referred to herein as a "Registration Default"), the
Company will make payments to the Purchaser in such amounts and at such times as
shall be determined pursuant to this Section 2(b).
(ii) The amount (the "Periodic Amount") to be paid by
the Company to the Purchaser as of each thirty (30) day period during which a
Registration Default shall be in effect (each such period, a "Default Period")
shall be equal to two percent of the purchase price paid by such Purchaser for
all of the Debentures and Warrants (the "Purchase Price"); provided that, with
respect to any Default Period during which the relevant Registration Defaults
shall have been cured, the Periodic Amount shall be pro rated for the number of
days during such
3
<PAGE> 4
period during which the Registration Defaults were pending; and provided,
further, that the payment of such Periodic Amounts shall not relieve the Company
from its continuing obligations to register the Warrants and Shares pursuant to
Section 2(a).
(iii) Each Periodic Amount shall be payable by the
Company in cash or other immediately available funds to the Purchaser monthly,
without demand therefor by the Purchaser.
(iv) The parties acknowledge that the damages which
may be incurred by the Purchaser if the Registration Statement is not filed by
the Filing Deadline, if the Registration Statement has not been declared
effective by the Effectiveness Deadline, or if the provisions of Section 3(e) or
3(f) become applicable, may be difficult to ascertain. The parties agree that
the Periodic Amount represents a reasonable estimate on the part of the parties,
as of the date of this Agreement, of the amount of such damages.
(c) PIGGYBACK REGISTRATION. (i) If at any time or from time to
time, the Company shall determine to register any of its securities, for its own
account or the account of any of its shareholders, other than a Registration
relating solely to employee share option plans or pursuant to an acquisition
transaction on Form S-4, the Company will:
(A) provide to the Purchaser written notice
thereof as soon as practicable prior to filing the Registration Statement; and
(B) include in such Registration Statement
and in any underwriting involved therein, all of the Registrable Securities
specified in a written request by the Purchaser made within fifteen (15) days
after receipt of such written notice from the Company.
(ii) If the Registration is for a registered public
offering involving an underwriting, the Company shall so advise the Purchaser as
a part of the written notice given pursuant to this Section. In such event, the
rights of the Purchaser hereunder shall include participation in such
underwriting and the inclusion of the Registrable Securities in the underwriting
to the extent provided herein. To the extent that the Purchaser proposes to
distribute its securities through such underwriting, the Purchaser shall
(together with the Company and any other security holders of the Company
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding any other
provision of this Section, if the managing underwriter of such underwriting
determines that marketing factors require a limitation of the number of shares
to be offered in connection with such underwriting, the managing underwriter may
limit the number of Registrable Securities to be included in the Registration
and underwriting (provided, however, (a) the Registrable Securities shall not be
excluded from such underwritten offering prior to any securities held by
officers and directors of the Company or their affiliates, (b)the Registrable
Securities shall be entitled to at least the same priority in an underwritten
offering as any of the Company's existing security holders, and (c) the Company
shall not enter into any agreement that would provide any security holder with
priority in connection with an underwritten offering greater than the priority
4
<PAGE> 5
granted to the Purchaser hereunder). The Company shall so advise any of its
other security holders who are distributing their securities through such
underwriting pursuant to their respective piggyback registration rights, and the
number of shares of Registrable Securities and other securities that may be
included in the registration and underwriting shall be allocated among the
Purchaser and all other security holders of the Company in proportion, as nearly
as practicable, to the respective amounts of Registrable Securities held by the
Purchaser and such other security holders at the time of the filing of the
registration statement. If the Purchaser disapproves of the terms of any such
underwriting, it may elect to withdraw therefrom by written notice to the
Company. Any Registrable Securities so excluded or withdrawn from such
underwriting shall be withdrawn from such Registration.
(d) INTENTIONALLY OMITTED.
(e) PRIORITY IN FILING. Subject to the terms of the Securities
Purchase Agreement, from the date hereof until 180 days following the effective
date of the Registration Statement pursuant to Section 2(a) of this Agreement,
the Company shall not permit the registration of any of its securities under the
Securities Act to become effective, other than those covered by this Agreement,
without the prior written approval of the Purchaser. The foregoing
notwithstanding, the Company may permit a registration statement to become
effective during the foregoing period provided that such registration statement
relates to a firm commitment underwritten offering of the Company's securities
that provides the Company with at least $7.5 million.
3. OBLIGATIONS OF THE COMPANY. In connection with the registration of
the Registrable Securities, the Company shall do each of the following:
(a) Prepare and file with the Commission the registration
statements required by Section 2 of this Agreement and such amendments
(including post-effective amendments) and supplements to the Registration
Statement and the prospectuses used in connection with the Registration
Statement, each in such form as to which the Purchaser and its counsel shall not
have objected, as may be necessary to keep the Registration current at all times
during the Registration Period, and, during the Registration Period, comply with
the provisions of the Securities Act with respect to the disposition of all of
the Registrable Securities until such time as all of such Registrable Securities
have been disposed of in accordance with the intended methods of disposition by
the seller or sellers thereof as set forth in the Registration Statement;
(b) Furnish to the Purchaser, if the Registrable Securities of
the Purchaser are included in the Registration Statement, and its legal counsel
identified to the Company, promptly after the same is prepared and publicly
distributed, filed with the Commission, or received by the Company, a copy of
the Registration Statement, each preliminary prospectus, each final prospectus,
and all amendments and supplements thereto and such other documents, as the
Purchaser may reasonably request in order to facilitate the disposition of its
Registrable Securities;
5
<PAGE> 6
(c) As soon as practicable, furnish to the Purchaser and its
counsel copies of any correspondence between the Company and the Commission with
respect to any registration statement or amendment or supplement thereto filed
pursuant to this Agreement;
(d) Use all best efforts to (i) register and qualify the
Registrable Securities covered by the Registration Statement under such other
securities or blue sky laws of such jurisdictions as the Purchaser may request,
(ii) prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof at all
times during the Registration Period, (iii) take such other actions as may be
necessary to maintain such registrations and qualifications in effect at all
times during the Registration Period and (iv) take all other actions necessary
or advisable to qualify the Registrable Securities for sale in such
jurisdictions;
(e) List such securities on the OTC Bulletin Board and all the
other national securities exchanges on which any securities of the Company are
then listed, and file any filings required by the OTC Bulletin Board and/or such
other exchanges;
(f) As promptly as practicable after becoming aware of such
event, notify each Purchaser of the occurrence of any event of which the Company
has knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading, and to use its best efforts to promptly prepare a
supplement or amendment to the Registration Statement or other appropriate
filing with the Commission to correct such untrue statement of omission, and to
deliver a number of copies of such supplement or amendment to the Purchaser as
the Purchaser may reasonably request;
(g) As promptly as practicable after becoming aware of such
event, notify the Purchaser who holds Registrable Securities being sold (or, in
the event of an underwritten offering, the underwriters) of the issuance by the
Commission or any stop order or other suspension of the effectiveness of the
Registration Statement at the earliest possible time, and to use its best
efforts to promptly obtain the withdrawal of such stop order or other suspension
of effectiveness;
(h) As promptly as practicable after becoming aware of such
event, notify each Purchaser who holds Registrable Securities being sold (or, in
the event of an underwritten offering, the managing underwriters) of the
issuance by the Commission or any stop order or other suspension of the
effectiveness of the Registration Statement at the earliest possible time, and
to use its best efforts to promptly obtain the withdrawal of such stop order or
other suspension of effectiveness (the occurrence of any of the events described
in paragraphs (f) and (g) of this Section 3 is referred to herein as a "Blackout
Event");
(i) During the period commencing upon (i) the Purchaser's
receipt of a notification pursuant to Section 3(f) above, or (ii) the entry of a
stop order or other suspension of effectiveness of the Registration Statement
described in Section 2(a) above, and ending at such
6
<PAGE> 7
time as (y) the Company shall have completed the applicable filings (and if
applicable, such filings shall have been declared effective) and shall have
delivered to the Purchaser the documents required pursuant to Section 3(e)
above, or (z), such stop order or other suspension of the effectiveness of the
Registration Statement shall have been removed, the Company shall be liable to
remit the payments required to be paid pursuant to Section 2(b) above;
(j) If the offering is underwritten, at the request of a
Purchaser, to furnish on the date that Registrable Securities are delivered to
the underwriters for sale pursuant to such registration: (i) an opinion dated
such date of counsel representing the Company for the purposes of such
registration, addressed to the underwriters and to any Purchaser selling
Registrable Securities in connection with such underwriting, stating that such
registration statement has become effective under the Securities Act and that
(A) to the best knowledge of such counsel, no stop order suspending the
effectiveness thereof has been issued and no proceedings for that purpose have
been instituted or are pending or contemplated under the Securities Act and (B)
the registration statement, the related prospectus and each amendment or
supplement thereof comply as to form in all material respects with the
requirements of the Securities Act (except that such counsel need not express
any opinion as to financial statements or other financial data contained
therein) and (ii) a letter dated such date from the Company's independent public
accountants addressed to the underwriters and to such Purchasers, stating that
they are independent public accountants within the meaning of the Securities Act
and that, in the opinion of such accountants, the financial statements of the
Company included in the registration statement or the prospectus, or any
amendment or supplement thereof, comply as to form in all material respects with
the applicable accounting requirements of the Securities Act, and such letter
shall additionally cover such other financial matters (including information as
to the period ending no more than five (5) business days prior to the date of
such letter) with respect to such registration as such underwriters may
reasonably request; and
(k) Cooperate with the Purchaser to facilitate the timely
preparation and delivery of certificates for the Registrable Securities to be
offered pursuant to the Registration Statement and to enable such certificates
for the Registrable Securities to be in such denominations or amounts, as the
case may be, as the Purchaser may reasonably request, and registered in such
names as the Purchaser may request; and, within three (3) business days after a
Registration Statement which includes Registrable Securities is ordered
effective by the Commission, the Company shall deliver, and shall cause legal
counsel selected by the Company to deliver, to the transfer agent for the
Registrable Securities (with copies to the Purchaser) an appropriate instruction
and opinion of such counsel.
4. OBLIGATIONS OF THE PURCHASER. In connection with the registration of
the Registrable Securities, the Purchaser shall furnish to the Company such
information regarding itself, the Warrants and Registrable Securities held by
it, and the intended method of disposition of the Warrants and the Registrable
Securities held by it, as shall be reasonably required to effect the
registration of such Warrants and such Registrable Securities, and the Purchaser
shall execute such documents in connection with such registration as the Company
may reasonably request. At least five (5) days prior to the first anticipated
filing date of the Registration Statement, the
7
<PAGE> 8
Company shall notify the Purchaser of the information the Company included in
the Registration Statement.
5. EXPENSES OF REGISTRATION. All expenses, other than underwriting
discounts and commissions and other fees and expenses of investment bankers and
other than brokerage commissions, incurred in connection with registrations,
filings or qualifications pursuant to Section 3, but including, without
limitation, all registration, listing, and qualification fees, printing and
accounting fees, and the fees and disbursements of counsel for the Company, and
the fees of one counsel to the Purchaser with respect to each Registration
Statement filed pursuant hereto, shall be borne by the Company provided, that
the expenses of such Purchaser's counsel shall not exceed $5,000.
6. INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) The Company will indemnify and hold harmless the
Purchaser, each of its officers, directors and shareholders, and each person, if
any, who controls the Purchaser within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person"), against any losses, claims,
damages, liabilities or expenses (joint or several) incurred (collectively,
"Claims") to which any of them may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such Claims (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon: (i) any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any post-effective amendment thereof
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances in which they were made, not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the
Commission) or the omission to state therein any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state or
foreign securities law or any rule or regulation under the Securities Act, the
Exchange Act or any state or foreign securities law (the matters in foregoing
clauses (i) through (iii) being, collectively, "Violations"). The Company shall,
subject to the provisions of Section 6(b) below, reimburse the Purchaser,
promptly as such expenses are incurred and are due and payable, for any legal
and other costs, expenses and disbursements in giving testimony or furnishing
documents in response to a subpoena or otherwise, including without limitation,
the costs, expenses and disbursements, as and when incurred, of investigating,
preparing or defending any such action, suit, proceeding or investigation
(whether or not in connection with litigation in which the Purchaser is a
party), incurred by it in connection with the investigation or defense of any
such Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a) shall not (i) apply to
any Claim arising out of or based upon a modification which occurs in reliance
upon and in conformity with information furnished in writing to the Company by
or on behalf of any Indemnified Person
8
<PAGE> 9
expressly for use in connection with the preparation of the Registration
Statement or any such amendment thereof or supplement thereto; (ii) with respect
to any preliminary prospectus, inure to the benefit of any such person from whom
the person asserting any such Claim purchased the Registrable Securities that
are the subject thereof (or to the benefit of any person controlling such
person) if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected in the final prospectus, as then amended or
supplemented, if such final prospectus was timely made available by the Company
pursuant to Section 3(b) hereof; (iii) be available to the extent that such
Claim is based upon a failure of the Purchaser to deliver or to cause to be
delivered the prospectus made available by the Company, if such prospectus was
timely made available by the Company pursuant to Section 3(b) hereof; or (iv)
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Person
and shall survive the transfer of the Registrable Securities by the Purchaser
pursuant to Section 9. Each Purchaser will indemnify the Company and its
officers and directors against any Claims arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company, by or on behalf of the Purchaser, expressly
for use in connection with the preparation of the Registration Statement,
subject to such limitations and conditions as are applicable to the
Indemnification provided by the Company in this Section 6.
(b) Promptly after receipt by an Indemnified Person under this
Section 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Person shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and to the
extent that the indemnifying party so desires, jointly with any other
indemnifying party similarly notified, to assume control of the defense thereof
with counsel mutually satisfactory to the indemnifying party and the Indemnified
Person, provided, however, that an Indemnified Person shall have the right to
retain its own counsel with the reasonable fees and expenses to be paid by the
indemnifying party, if, in the reasonable opinion of counsel retained by the
indemnifying party, the representation by such counsel of the Indemnified Person
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person and any other party
represented by such counsel in such proceeding. In such event, the Company shall
pay for only one separate legal counsel for the Purchaser, and such legal
counsel shall be selected by the Purchaser. The failure to deliver written
notice to an indemnifying party within a reasonable time after the commencement
of any such action shall not relieve such indemnifying party of any liability to
the Indemnified Person under this Section 6, except to the extent that the
indemnifying party is materially prejudiced in its ability to such action. The
indemnification required by this Section 6 shall be made by periodic payments of
the amount thereof during the course of the investigation or defense, as such
expense, loss, damage or liability is incurred and is due and payable.
(c) No indemnifying party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or
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enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Person of an
unconditional and irrevocable release from all liability in respect of such
claim or litigation.
(d) Notwithstanding the foregoing, to the extent that any
provisions relating to indemnification or contribution contained in the
underwriting agreements entered into among the Company, the underwriters and the
Purchaser in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in such underwriting agreements
shall be controlling as to the Registrable Securities included in the public
offering; provided, however, that if, as a result of this Section 6(d), the
Purchaser, its officers, directors, partners or any person controlling the
Purchaser is or are held liable with respect to any Claim for which they would
be entitled to indemnification hereunder but for this Section 6(d) in an amount
which exceeds the aggregate proceeds received by the Purchaser from the sale of
Registrable Securities included in a registration pursuant to such underwriting
agreement (the "Excess Liability"), the Company shall reimburse the Purchaser
for such Excess Liability.
7. CONTRIBUTION. To the extent any indemnification by an indemnifying
party is prohibited or limited under applicable law, the indemnifying party
agrees to contribute to the amount paid or payable by such indemnified party as
a result of such loss, claim, damage, liability or expense in such proportion as
is appropriate to reflect the relative fault of the indemnifying party on the
one hand and the Indemnified Person on the other hand in connection with the
statements or omissions which resulted in such Claim, as well as any other
relevant equitable considerations. The relative fault of the indemnifying party
and the Indemnified Person shall be determined by reference to, among other
things, whether the untrue statement of a material fact or the omission to state
a material fact on which such Claim is based relates to information supplied by
the indemnifying party or by the Indemnified Person, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. Notwithstanding the forgoing, (a) no contribution
shall be made under circumstances where the payor would not have been liable for
indemnification under the fault standards set forth in Section 6, (b) no seller
of Registrable Securities guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
such fraudulent misrepresentation and (c) contribution by any seller of
Registrable Securities shall be limited in amount to the net proceeds received
by such seller from the sale of such Registrable Securities. The Company and the
Purchaser agree that it would not be just and equitable if contribution pursuant
to this Section 7 were determined by pro-rata allocation (even if the Purchaser
and any other party were treated as one entity for such purpose) or by any other
method of allocation that does not take account of the equitable considerations
referred to in this Section.
8. REPORTS UNDER EXCHANGE ACT.
With a view to making available to the Purchaser the benefits
of Rule 144 promulgated under the Securities Act or any other similar rule or
regulation of the Commission that may at any time permit the Purchaser to sell
securities of the Company to the public without registration ("Rule 144"), the
Company agrees to:
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<PAGE> 11
(i) make and keep public information available, as
those terms are understood and defined in Rule 144;
(ii) file with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act; and
(iii) furnish to the Purchaser so long as the
Purchaser owns Registrable Securities, Debentures or Warrants promptly upon
request, (i) a written statement by the Company that it has complied with the
reporting requirements of the Securities Act and the Exchange Act, (ii) a copy
of the most recent annual or periodic report of the Company and such other
reports and documents so filed by the Company and (iii) such other information
as may be reasonably requested to permit the Purchaser to sell such securities
pursuant to Rule 144 without registration.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have the
Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by Purchaser to any transferee of all or any portion of
the principal amount of Debentures or the Warrants, or the underlying Common
Stock held by Purchaser (collectively, the "Securities") if: (a) Purchaser
agrees in writing with the transferee or assignee to assign such rights, and a
copy of such agreement is furnished to the Company within a reasonable time
after such assignment; (b) the Company is, within a reasonable time after such
transfer or assignment, furnished with written notice of the name and address of
such transferee or assignee; (c) at or before the time the Company receives the
written notice contemplated by clause (b) of this sentence, the transferee or
assignee agrees in writing with the Company to be bound by all of the provisions
contained herein; and (d) the transfer of the relevant Securities complies with
the restrictions set forth in Section 4 of the Securities Purchase Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Agreement
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Purchaser. Any amendment or waiver
effected in accordance with this Section 10 shall be binding upon Purchaser and
the Company.
11. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Warrants or
Registrable Securities whenever such person or entity owns of record such
Warrants or Registrable Securities. If the Company receives conflicting
instructions, notices or elections from two or more persons or entities with
respect to the same Warrants or Registrable Securities, the Company shall act
upon the basis of the instructions, notice or election received from the
registered owner of such Warrants or Registrable Securities.
(b) Any notice required or permitted hereunder shall be given
in writing (unless otherwise specified herein) and shall be effective upon
personal delivery, via facsimile (upon receipt of confirmation of error-free
transmission) or two business days following deposit of such notice with an
internationally recognized courier service, with postage prepaid and
11
<PAGE> 12
addressed to each of the other parties thereunto entitled at the following
addresses, or at such other addresses as a party may designate by ten (10) days
advance written notice to each of the other parties hereto.
COMPANY: iBIZ TECHNOLOGY CORP.
1919 West Lone Cactus
Phoenix, Arizona 85027
ATTN: Kenneth Schilling
Tel.: 623-492-9200
Fax: 623-492-9921
WITH COPIES TO:
Gammage & Burnham
Two North Central Avenue
Suite 1800
Phoenix, AZ 85004
ATTN: Steven Boatwright, Esq.
Tel.: 602-256-4439
Fax: 602-256-4475
PURCHASER: At the address set forth on the signature page of this
Agreement, as such address may be updated from time to time by
the Purchaser.
Lites Trading Co.
c/o Laufer Halberstam & Karish, P.C.
39 Broadway, 14th Floor
ATTN: Michael J. Halberstam, Esq.
Tel.: (212) 422-8500
Fax: (212) 422-9038
WITH COPIES TO:
Laufer Halberstam & Karish, P.C.
39 Broadway, 14th Floor
New York, New York 10006
ATTN: Michael J. Halberstam, Esq.
Tel.: (212) 422-8500
Fax: (212) 422-9038
(c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
12
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(d) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York, except for provisions with
respect to internal corporate matters of the Company which shall be governed by
the corporate laws of the State of Florida. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original. The headings of this
Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement. If any provision of this Agreement shall
be invalid or unenforceable in any jurisdiction, such validity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction. Subject to the provisions of Section 10 hereof, this
Agreement may be amended only by an instrument in writing signed by the party to
be charged with enforcement. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
(e) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof. This Agreement
supersedes all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this
Agreement shall inure for the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
(h) The Company acknowledges that any failure by the Company
to perform its obligations under Section 2(a), or any delay in such performance
could result in direct damages to the Purchaser, and the Company agrees that, in
addition to any other liability the Company may have by reason of any such
failure or delay, the Company shall be liable for all direct damages caused by
any such failure or delay. Nothing herein shall limit the Purchaser's right to
pursue any claim seeking such direct damages.
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<PAGE> 14
IN WITNESS WHEREOF, this Agreement has been duly executed by the undersigned.
Dated: March 27, 2000
"COMPANY"
iBIZ TECHNOLOGY CORP.
By:
--------------------------------
Name:
Title:
IN WITNESS WHEREOF, this Agreement has been duly executed by the
undersigned.
"PURCHASER"
LITES TRADING CO.
By:
---------------------------------
Name:
Title: Authorized Person
14
<PAGE> 1
Exhibit 10.30
Globe United Holdings, Inc.
c/o Laufer Halberstam & Karish
One Liberty Plaza
165 Broadway, 37th Floor
New York, New York 10006
March 27, 2000
Kenneth Schilling
iBIZ Technology Corp.
1919 West Lone Cactus
Phoenix, Arizona 85021
Re: Letter Agreement
Dear Ken:
This Letter Agreement will serve to document Globe United
Holdings, Inc.'s ("Globe") understanding regarding its rights granted under that
certain Securities Purchase Agreement and Registration Rights Agreement, each
dated November 9, 1999, and the related debenture and warrant, and that certain
Securities Purchase Agreement and Registration Rights Agreement, each dated
December 29, 1999, and the related debenture and warrant (individually the
"Globe SPA's" or the "Globe RRA's"), each with iBIZ Technology Corp. (the
"Company").
Globe hereby gives its consent and approval for the Company to
enter into that certain Securities Purchase Agreement dated March 27, 2000, and
related documents with Lites Trading, Inc. ("Lites Trading"), and to comply with
all terms and obligations set forth therein.
Notwithstanding this inclusive consent and approval, Globe
acknowledges that, as of the date hereof, the Lock-Up Period (as defined in the
Globe SPA's) is currently in effect. In connection with the Lites Trading
transaction, Globe hereby waives its rights under Section 4(i) of the Globe
SPA's related to sales of additional shares, Section 4(q) related to no senior
indebtedness, and Section 4(k) of the Globe SPA's and Section 4(e) of the Globe
RRA's relating to the filing of additional registration statements during the
Lock-Up Period. In addition, in regard to the right of first refusal after the
Lock-Up Period granted in the Globe SPA's, Globe hereby waives its rights in
favor of Lites Trading. In the event that Lites Trading declines to exercise its
right of first refusal, Globe's right shall revert back according to the terms
of the Globe SPA's.
Sincerely,
GLOBE UNITED HOLDINGS, INC., a British Virgin
Islands corporation
By:______________________________
Its:_____________________________
<PAGE> 1
Exhibit 23.02
[MOFFITT & COMPANY, P.C. LETTERHEAD]
April 17, 2000
iBIZ Technology Corp.
1919 West Lone Cactus Drive
Phoenix, AZ 85027
Dear Sir or Madam:
We hereby consent to the incorporation of our audited financial statements for
the fiscal years ended October 31, 1997 and October 31, 1998, dated June 14,
1999, and reissued on November 22, 1999, audited financial statements for the
fiscal year ended October 31, 1999, dated January 10, 2000; and reviewed
financial statements for the fiscal quarter ended January 31, 2000, in the Form
SB-2 Registration Statement, and all amendments thereto filed with the
Securities and Exchange Commission.
Yours Very Truly,
/s/ Stanley M. Moffitt
Stanley M. Moffitt, CPA
Moffitt & Company, P.C.
