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U. S. Securities and Exchange Commission
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
iBIZ Technology Corp.
(Name of small business issuer in its charter)
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<S> <C> <C>
Florida 3571 86-0933890
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or Classification Code Number) Identification No.)
organization)
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1919 West Lone Cactus Drive, Phoenix, Arizona 85021,
(623) 492-9200 (Address and telephone number of
principal executive offices)
1919 West Lone Cactus Drive, Phoenix, Arizona
85021 (Address of principal place of business or intended
principal place of business)
Robert L. Lane, Lane & Ehrlich, Ltd
4001 N. Third St., Suite 400, Phoenix, Arizona 85012-2065 (602) 264-4442
(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: October 10, 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(6)
per share
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Common stock, $.001 par value 954,489(2) $0.734(4) $ 700,594.93(4) $184.96(4)
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Common stock, $.001 par value 3,720,918(3) $0.734(4) $2,731,153.81(4) $721.02(4)
-------------------------------------- ------------------ ---------------- ------------------- --------------
Common stock, $.001 par value 2,500,000(5) $0.734(4) $1,835,000.00(4) $484.44(4)
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1. Represents the shares of common stock being registered for resale by
the selling securityholders.
2. Issuable upon conversion of Warrants.
3. Represents Shares Issued pursuant to Subscription Agreements.
4. Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Securities Act, based on the average
($0.734) of the bid ($0.688) and asked ($0.781) price on the NASD OTC
Bulletin Board on September 22, 2000.
5. Pursuant to a registration rights agreement between us and a selling
securityholder, we were required to register a sufficient number of
shares so that upon conversion of one of our seven percent convertible
debentures the selling securityholder could resell all registered
securities. Because at the time of conversion the number of shares of
common stock was greater than anticipated by our previous Form SB-2
Registration Statement, we are now registering an additional amount we
believe sufficient to cover all of the shares of common stock this
selling securityholder will ultimately receive upon conversion.
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.
6. With the filing of the Form SB-2 Registration Statement on July 27,
2000, a fee of $161 was paid. That fee has been credited against the
total fees owed.
The registrant hereby amends this registration statement on
such date or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission, acting pursuant to
Section 8(a), may determine.
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CROSS REFERENCE SHEET
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CAPTION IN FORM SB-2 CAPTION IN PROSPECTUS
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1. Front of Registration Statement and outside front of Front cover
cover of Prospectus
2. Inside front and outside back cover of Prospectus Inside front cover of Prospectus
3. Summary information and Risk Factors Summary; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Plan of Distribution
6. Dilution Not Applicable
7. Selling Security Holders Selling Securityholders
8. Plan of Distribution Plan of Distribution
9. Legal Proceedings Business
10. Directors, Executive Officers, Promoters and Control Directors and Executive Officers
Persons
11. Security Ownership of Certain Beneficial Owners and Security Ownership of Certain Beneficial Owners
Management and Management
12. Description of Securities Description of Securities
13. Interest of Named Experts and Counsel Not Applicable
14. Disclosure of Commission Position of Indemnification Indemnification for Securities Act Liabilities
for Securities Act Liabilities
15. Organization in last five years Not Applicable
16. Description of business Business
17. Management's Discussion and Analysis or Plan of Management's Discussion and Analysis
Operations
18. Description of Property Business
19. Certain Relationships and Related Transactions Certain Relationships and Related Transactions
20. Market for Common Equity and Related Stockholder Market for Common Equity and Related Shareholder
Matters Matters
21. Executive Compensation Executive Compensation
22. Financial Statements Financial Statements
23. Changes in and Disagreements with Accountants on Not Applicable
Accounting and Financial Disclosure
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<PAGE> 4
iBIZ TECHNOLOGY CORP.
1919 WEST LONE CACTUS DRIVE
PHOENIX, ARIZONA 85021
(623) 492-9200
www.ibizcorp.com
7,175,407 SHARES
COMMON STOCK
7,175,407 shares of common stock are being offered by our
securityholders named under the heading "Selling Securityholders" appearing on
page 13. 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 warrants.
The Company has agreed to pay all of the expenses related to
this offering, but the 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
September 21, 2000, the price for our common stock was $.781 per share.
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS, SEE
"RISK FACTORS" ON PAGE 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 5
TABLE OF CONTENTS
PAGE
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PROSPECTUS SUMMARY....................................................... 3
RISK FACTORS............................................................. 6
SELLING SECURITYHOLDERS.................................................. 13
USE OF PROCEEDS.......................................................... 14
PLAN OF DISTRIBUTION..................................................... 15
MANAGEMENT'S DISCUSSION AND ANALYSIS..................................... 16
DESCRIPTION OF BUSINESS.................................................. 20
DIRECTORS AND EXECUTIVE OFFICERS......................................... 35
EXECUTIVE COMPENSATION................................................... 36
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........... 38
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................... 40
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS................. 40
DESCRIPTION OF SECURITIES................................................ 41
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES........................... 44
EXPERTS.................................................................. 44
LEGAL MATTERS............................................................ 44
FINANCIAL STATEMENTS..................................................... F-47
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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, digital subscriber line high-speed Internet connection
services, the business-to-business sale of software and a co-location and
computer data center. The Company completed construction of a server co-location
facility in August and began offering its services to customers on September 14,
2000.
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:
- 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
market the "KeySync," specifically designed for use
with hand-held personal organizers such as 3COM's
Palm Pilot.
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- Displays and Monitors. We sell a line of
space-saving, zero-emission LCD flat panel displays.
We believe our LCD panels take up less than one-tenth
of the space needed for an equivalent cathode ray
tube monitor and are some of the thinnest available
on the market. We also offer a line of traditional
monitors.
- Notebook Computers. We market a complete line of
competitively priced, build-to-order notebook
computers. Currently, we sell three models, the
Roadrunner, the Apache and the Phoenix.
- Printers and Peripherals. We are an authorized
distributor of Epson printers and peripherals and
currently offer two transactional printers. We
recently began offering Tektronix color printers.
- Third-Party Hardware, Software, and Related Supplies.
In an effort to provide our customers a wider range
of products, we recently began reselling third-party
hardware, software, and related supplies.
SERVICES
We recently began offering the following services:
- Network Integration Services. We now have contracts
with Intel and Motorola.
- Digital Subscriber Line Services. We offer high-speed
Internet connection services marketed to commercial
customers.
- Colocation Facility. We offer the outsourcing of
computer server and data management for companies
which no longer desire to manage those systems
internally.
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.
<PAGE> 8
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
Total shares registered in this prospectus............... 7,175,407
Shares outstanding after the offering.................... 39,908,141 (1)
OTC Bulletin Board symbol................................ iBIZ
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(1) Assumes (1) the conversion 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 exercise of options and
warrants not registered in this prospectus.
RISK FACTORS
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Investing in the common stock involves certain risks. You
should review these "Risk Factors" beginning on page 9.
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.
<PAGE> 10
We Have A History Of Losses And Anticipate Future Losses
For the fiscal year ended October 31, 1999, we sustained a net
loss of approximately $1,053,563 and for the nine-month period ended July 31,
2000, we sustained a net loss of $2,322,540. Future losses are anticipated to
occur. Our success in obtaining additional funding will determine our ability to
continue operations. We have insufficient cash flow to sustain or grow
operations. We cannot assure you that we will be successful in reaching or
maintaining profitable operations.
We Will Require Additional Capital In the Future
We have spent, and will continue to spend, substantial funds
on product research and development and expansion of our sales and marketing
efforts. As a result, we will need to raise short-term capital to maintain our
ongoing business. We are actively seeking to obtain a significant capital
infusion to avoid continuing reliance on short-term capital sources.
Since December 1, 1999, the Company has raised approximately
$3,956,000 through the sale of convertible debentures, common stock and warrants
to various individuals. The Company relied upon either Section 4(2) or
Regulation D, Rule 506 promulgated under the Securities Act of 1933 with respect
to these sales of common stock.
We currently anticipate the proceeds will be sufficient to
maintain our ongoing business until January 1, 2001. However, we cannot assure
you that unforeseen events will not result in the need for additional capital
sooner than we currently anticipate. If at any time we are unable to raise
additional financing, we may be forced into insolvency.
If we do raise additional funds, your stock ownership may be
diluted. Further, new securities may have rights, preferences or privileges
senior to yours. Additionally, debt financing may include restrictive covenants,
such as restrictions on incurring additional debt. Furthermore, as all of the
assets of the Company are secured, the Company cannot obtain receivables or
other debt financing. If we are unable to raise additional funds when necessary,
we may have to reduce planned expenditures,
<PAGE> 11
scale back our product developments, sales or other operations, lay-off
employees and enter into financing arrangements on terms that we would not
otherwise accept or be forced into insolvency.
The Market is Highly Competitive
The market for our products is intensely competitive. We
expect to experience significant and increasing levels of competition. We
compete principally in the following areas:
- Product Quality and Reliability
- Product Performance
- Level of Customer Service
- Ability to Meet Customer Requirements
- Brand Awareness
- Price
In many of our markets, traditional computer hardware
manufacturing companies provide the most significant competition. Our
competitors include a substantial number of large public companies, including
IBM, Compaq Computer Corporation, Dell Computer Corporation, Toshiba, Gateway
2000 and NEC. As a reseller, we compete against well established companies such
as Comp USA, Computer Discount Warehouse and Insight Enterprises.
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 local (with
respect to our new co-location facility and digital service) and a national or
international level with respect to our products. 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,
digital subscriber line or DSL high-speed Internet communications services and a
co-location and data warehousing hosting facility. 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 or not become
obsolete in the future. Our service lines of business require increasing
attention by management and do not provide much synergy or economies of scale
with our existing products. Heightened focus of management on our service
business may cause a decline in the revenues or margins of our products
business.
<PAGE> 12
Our Network Integration, DSL Services, and Co-location
Facility Face Intense Competition.
We recently began offering network integration services, DSL
high-speed Internet communications services and a co-location and data warehouse
hosting facility. The market for these services 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 Qwest Communications (formerly
U.S. West Communications), COX Communications, Covad Communications and Rhythms
NetConnections, as well as numerous local and national traditional Internet
service providers. Co-location and warehouse data center competitors include
large, public companies such as Exodus Communications, GST, Above.Net and Global
Center. Many DSL and co-location service providers have much greater capital and
can deploy a significant amount of their employees to assist customers obtain
their services and respond to issues arising related to their services. Many of
our competitors have substantial advertising and marketing budgets giving them
the ability to capture market share quickly. While we believe that the quality
of our service and the location and completion of our co-location facility
before many of our competitors will give us a competitive advantage, we don't
know how long we will maintain our lead over the competition. Although many DSL
and co-location providers are more established, we believe their greater
resources may increase market awareness and acceptance of DSL and co-location
services. This, in turn, may make it easier for us to sell DSL and co-location
services. We cannot assure you, however, that our new DSL and co-location
services will enable us to expand our customer base and generate greater
revenues.
We Need to Expand our Product Range
To effectively compete, we need to continue to expand our
business and generate greater revenues so that we have the resources to timely
develop new products. We must continue to market our products and services
through our direct sales force and expand our e-commerce distribution channels.
We cannot assure you that we will be able to grow sufficiently to provide the
range and quality of products and services required to compete.
We Must Keep Pace with Rapid Technological Change to Remain
Competitive
The computer industry is characterized by rapidly changing
technology, evolving industry standards, frequent new product introductions and
enhancements and changing customer demands. We must develop and introduce new
products that keep pace with technological developments. If we fail to introduce
progressive new products in a timely and cost-effective manner, our financial
performance may be negatively affected.
<PAGE> 13
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 recently introduced computers
targeted to consumers requiring less desk space. We compete in the thin client
market segment with well established companies such as Wyse Technology. We
believe that Wyse may hold over 45% of the world-wide general purpose terminal
market. We cannot guarantee you that small footprint products will gain or even
sustain current market share or that our thin client products will achieve
market acceptance. In addition, our products could be rendered obsolete and
unmarketable if our competitors introduce new technology or new industry
standards emerge.
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.
<PAGE> 14
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.
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, the Company is authorized by industry-leading software developers,
such as Citrix Systems and Microsoft to incorporate their software in our
products. Without such authorization, we would be unable to provide the same
range of products currently offered. We cannot assure you that manufacturers
will continue to authorize use of their software in our computers and
peripherals.
We 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. A significant portion of revenues is 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.
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.
<PAGE> 15
Although we believe that our products do not infringe on any
third party's intellectual property rights, we cannot be certain that we will
not become involved in litigation involving proprietary rights. Intellectual
property rights litigation entails substantial legal and other costs. We do not
know if we will have the necessary financial resources to defend or prosecute
our rights in connection with any litigation.
There Is A Limited Market For Our Common Stock
Currently only a limited trading market exists for our common
stock. Our common stock trades on the OTC Bulletin Board under the symbol
"iBIZ." The Bulletin Board is a limited market and subject to substantial
restrictions and limitations in comparison to the NASDAQ system. Any
broker/dealer that makes a market in our stock or other person that buys or
sells our stock could have a significant influence over its price at any given
time. We cannot assure you that the market in our common stock will be
sustained. As a result, holders of our common stock may be unable to readily
sell the stock they hold or may not be able to sell it at all.
Our Stock Price has Been Volatile
The history relating to the prices of newly public companies
indicates that there may be significant volatility in the market price of our
common stock. More particularly, since trading began in July 1998, the market
price of our common stock has fluctuated between a low of $0.375 per share and a
high of $3.06 per share. 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 four
executive officers and other key employees. A loss of one or more of our current
officers or key employees could negatively impact our operations. However, we
have entered into employment agreements with our executive officers and other
key employees. We currently do not carry key-man life insurance policies for our
executive officers. We cannot assure you that we will not suffer the loss of key
human resources.
Our Officers and Directors Can Exercise Control Over All
Matters Submitted to a Vote of Shareholders
As of September 22, 2000, our executive officers and directors
beneficially owned an aggregate of approximately 38.9% of our outstanding common
stock. These officers, acting together, will be able to effectively control
matters requiring approval by our shareholders, including election of members to
our board of directors. As a practical matter, current management will continue
to control iBIZ for the foreseeable future.
No Additional Proceeds
We will not receive the proceeds from the sale of shares by
the selling securityholders and therefore have no additional proceeds to assist
us with our need for capital.
<PAGE> 16
However, we will receive funds upon the exercise of options and warrants to
purchase our common stock. We intend to use the proceeds principally for working
capital and general corporate purposes, including marketing and product
development. Our management and board of directors have broad discretion with
respect to the application of the proceeds.
Sales of Common Stock Currently Registered for Resale Could
Cause a Decline in Our Stock Price
If all the shares registered in this offering are sold and
antidilution provisions do not trigger issuance of additional shares, this
offering will increase our outstanding shares by a substantial amount. 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.
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
<PAGE> 17
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.
- Form 10-QSB filed September 14, 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.
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 After Owned After
Name Prospectus Offering(1) Offering(2) Offering(3)
---- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Anthony Sklar 80,000 -0- 80,000 *
Kirojoba, Inc. 37,500 37,500 37,500 *
Jack Naventi 37,500 37,500 37,500 *
Blaine Ruzycki 1,550,000(4) 650,000 1,550,000 3.9%
Silverman Heller, Assoc. 125,000(4) -0- 125,000 *
Equinet, Inc. 34,125(4) -0- 34,125 *
Robert Landford 220,000 220,000 220,000 *
Riviera Systems, Inc. 110,000 110,000 110,000 *
Lanny Flessas 100,000 100,000 100,000 *
Steven Waldman 333,333 333,333 333,333 *
Richard J. Schiff 100,000 100,000 100,000 *
Frederic A. Stelzer 333,333 333,333 333,333 *
Marc Nissenbaum 333,333 333,333 333,333 *
Scott Bishins 666,667 666,667 666,667 1.7%
Michael Spitzer 92,000(4) 46,000 92,000 *
Ousher Lerner 72,728(4) 36,364 72,728 *
Cong. Neir Baruch 126,000(4) 63,000 126,000 *
Westek Builders 22,222 22,222 22,222 *
James R. Petrie 11,111 11,111 11,111 *
Anthony Sharkey 11,111 11,111 11,111 *
Charles Reed 4,444 4,444 4,444 *
Jeffery Slosky 50,000 50,000 50,000 *
Lites Trading Co. 2,500,000(5) 1,631,447 3,635,772 9.1%
Travis Morgan Securities 225,000(4) 75,000 225,000 *
</TABLE>
(1) Consists of all shares owned by the selling securityholders as of
September 22, 2000.
(2) Assumes the sale by iBIZ to the warrant or convertible debenture
holders of all shares registered in this offering.
(3) * represents less than one percent.
(4) Consisting in whole or in part of shares issuable upon conversion of
options and warrants.
(5) Issuable upon conversion of convertible debentures.
<PAGE> 18
USE OF PROCEEDS
The Company is solely responsible for the expenses of this
Offering, which are estimated at $32,000. iBIZ will not receive any proceeds
from the sale of the common stock by the selling securityholders. iBIZ will,
however, receive up to $817,941 upon the exercise of warrants. iBIZ intends to
use the net proceeds from exercise of options or warrants primarily for working
capital needs and general corporate purposes, including payment of contractors
for the work they did to complete the co-location facility. There can be no
assurance that any options or warrants will be exercised.
PLAN OF DISTRIBUTION
iBIZ is registering the shares on behalf of the selling
securityholders. As used herein, "selling securityholders" includes donees and
pledgees selling shares received from a named selling securityholder after the
date of this prospectus. All costs, expenses and fees in connection with the
registration of the shares offered hereby will be borne by some of the selling
securityholders. Brokerage commissions and similar selling expenses, if any,
attributable to the sale of shares will be borne by each selling securityholder.
Sales of shares may be effected by selling securityholders
from time to time in one or more types of transactions (which may include block
transactions) in the over-the-counter market, in negotiated transactions,
through put or call options transactions relating to the shares, through short
sales of shares, or a combination of such methods of sale, at market prices
prevailing at the time of sale, or at negotiated prices. Such transactions may
or may not involve brokers or dealers. The selling securityholders have advised
iBIZ that they have not entered into any agreements, understandings or
arrangements with any underwriters or broker-dealers regarding the sale of their
securities, nor is there an underwriter or coordinating broker acting in
connection with the proposed sale of shares by the selling securityholders.
The selling securityholders may effect such transactions by
selling shares directly to purchasers or to or through broker-dealers, which may
act as agents or principals. Such broker-dealers may receive compensation in the
form of discounts, concessions, or commissions from the selling securityholders
or the purchasers of shares for whom such broker-dealers may act as agents or to
whom they sell as principal, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions).
The selling securityholders and any broker-dealers that act in
connection with the sale of shares might be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, and any commissions received
by such broker-dealers and any profit on the resale of the shares sold by them
while acting as principals might be deemed to be underwriting
<PAGE> 19
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 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, a co-location server facility 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>
<PAGE> 20
<TABLE>
<CAPTION>
10/31/97 10/31/98
-------- --------
Balance Sheet Data
------------------
<S> <C> <C>
Total assets $ 1,309,954 $ 1,653,998
Total liabilities $ 1,821,151 $ 1,999,231
Stockholders' equity (deficit) $ (511,197) $ (345,233)
</TABLE>
<TABLE>
<CAPTION>
Year Ended
----------
10/31/98 10/31/99
-------- --------
Statement of Operations Data
----------------------------
<S> <C> <C>
Net sales $ 3,402,681 $ 2,082,515
Gross profit $ 1,182,885 $ 399,610
Operating income (loss) $ 37,600 $(1,074,180)
Net earnings (loss) after tax $ 7,863 $(1,053,563)
Net earnings (loss) per share $ 0.79 $ (.04)
Balance Sheet Data
------------------
Total assets $ 1,653,998 $ 1,043,030
Total liabilities $ 1,999,231 $ 1,476,557
Stockholders' equity (deficit) $ (345,233) $ (433,527)
</TABLE>
<TABLE>
<CAPTION>
Nine-Month Period Ended
-----------------------
7/31/99 7/31/00
------- -------
Statement of Operations Data
----------------------------
<S> <C> <C>
Net sales $ 1,804,064 $ 3,207,019
Gross profit $ 270,247 $ 517,084
Operating income (loss) $ (897,975) $ (2,266,955)
Net earnings (loss) after tax $ (749,040) $ (2,322,540)
Net earnings (loss) per share $ (.03) $ (.08)
</TABLE>
<TABLE>
<CAPTION>
Nine-Month Period Ended
-----------------------
7/31/99 7/31/00
------- -------
Balance Sheet Data
------------------
<S> <C> <C>
Total assets $ 818,169 $ 3,715,708
Total liabilities $ 1,241,036 $ 3,597,604
Stockholders' Equity (deficit) $ (422,867) $ 118,104
</TABLE>
<PAGE> 21
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 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.
<PAGE> 22
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.
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.
Nine-Month Period Ended July 31, 2000 Compared to Nine-Month Period Ended
July 31, 1999.
Revenues. Sales increased to $3,207,019 for the nine-month
period ended July 31, 2000, which is approximately 178% of the $1,804,064 for
the nine-month period ended July 31, 1999. The increase was mainly as a result
of the contribution to revenue from the Company's business-to-business software
sales, network services, and enhanced hardware sales resulting from the
business-to-business software sales.
Cost of Sales. The cost of sales increased by approximately
175% from $1,533,817 in the nine-month period ended July 31, 1999, to
$2,689,935 for the nine-month period ended July 31, 2000. The increase in cost
of sales is attributable to a similar percentage increase in sales and also
reflects higher labor and marketing expenses associated with the increase in
work force necessary to sell and support the co-location facility recently
completed, Internet connection services and software.
Gross Profit. Gross profit increased from approximately
$270,247 for the nine-month period ended July 31, 1999, to $517,084 for the
nine-month period ended July 31, 2000. Although the increase was insignificant,
it failed to match the significant increase in revenues because of the higher
costs associated with the introduction of the new lines of business.
Selling, General and Administrative Expenses. Selling, general
and administrative expenses increased approximately 238% from $1,168,222 for
the nine-month period ended July 31, 1999 to $2,784,039 for the nine-month
period ended July 31, 2000. The increase was primarily due to business
expansion into the Internet, software, broadband and business-to-business
sectors, increased staffing costs and salaries for technical personnel in
support of the new server co-location facility, costs of fees paid for capital
raising and investor relations, and legal and accounting fees related to
registration of the Company's common stock.
<PAGE> 23
Interest Expense. Interest expense of $73,645 for the
nine-month period ended July 31, 2000, and of $35,357 for the nine-month period
ended July 31, 1999, was accrued primarily on notes payable to Community First
National Bank (primarily extended for working capital purposes).
Net Earnings. Net losses increased from $749,040 for the
nine-month period ended July 31, 1999, to $2,322,540 for the nine-month period
ended July 31, 2000. The increase in losses resulted primarily from a
significant increase in selling, general and administrative expenses and higher
operating costs associated with the Company's new lines of business.
LIQUIDITY AND CAPITAL RESOURCES.
During the quarter ended July 31, 2000, the Company had not
engaged in capital-raising activities. However, in August, 2000 the Company
raised approximately $441,000 through sales of unregistered shares of common
stock at prices ranging from $.35 per share to $.55 per share. In September,
Globe United Holdings, Inc. converted debentures totaling $350,000 and received
1,163,432 shares of common stock and Lites Trading, Inc. converted debentures
totaling 320,961 and received 1,036,475 shares of common stock, including stock
paid for interest due. The company still needs to raise additional capital to
remain in business beyond January 1, 2001. If the Company cannot raise
financing, downsizing and modification to planned growth initiatives may be
necessary. Historically, iBIZ has had problems with liquidity. The Company has
been unable to generate sufficient internal cash flow to fund all of its
obligations.
The server co-location facility, which was completed in
August, opened on September 14, 2000. If the consumer demand that the Company
anticipates for the server co-location facility fails to materialize, the
Company will need significant additional funding. There is no assurance that
iBIZ will raise the necessary capital to remain in business beyond January 31,
2001. If at any time iBIZ is unable to raise financing through additional sales
of common stock or alternate financing sources, it may be required to delay or
modify planned growth initiatives.
Management believes that its recent diversification into
broadband connectivity services, third-party software sales, and its server
co-location facility should improve its liquidity and cash flow. iBIZ recently
expanded its distribution of certain hardware into certain retail stores.
Beginning in June and continuing through August, 2000, the Company received
orders from Comp USA totaling $400,000 and from another retailer totaling
$600,000 for PDA accessories. To fill orders, the Company must pay required
manufacturing costs to its Taiwanese suppliers prior to shipment. A continuing
increase in orders from various PDA retail outlets will require greater capital
than is presently available to the Company. As the Company gave a security
interest in all of its assets to Sonoma Bank in conjunction with its move to a
new facility in July, 1999, it does not have any unencumbered assets necessary
to obtain receivables or other debt financing. The Company is presently seeking
a receivables financing source but must remove the existing lien on its
receivables to obtain this financing. There is no assurance that it will obtain
the necessary receivables financing or that it will raise the capital through
the sale of additional equity necessary to meet the increase in demand for its
PDA accessories.
Third-party software sales currently generate approximately
$200,000 per month in sales revenues. There is no assurance, however, that its
favorable relationship with its third-party suppliers will continue or that its
customers will continue to purchase the broadband connectivity services,
hardware and the software packages and upgrades necessary to generate the
revenue experienced since January 2000. There is no assurance that the high
margins currently anticipated from the co-location facility will materialize.
Entry of additional competitors with substantially greater resources than those
of the Company could put additional downward pressure on the anticipated digital
subscriber line high-speed Internet connection service margins.
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
<PAGE> 24
combination with a private operating company. To facilitate the acquisition of a
private company doing business outside of its initial purpose upon
incorporation, the Company changed its name to EVC Ventures, Inc. in May 1998
and to INVNSYS Holding Corporation in October 1998.
Effective January 1, 1999, the Company entered into a Plan of
Reorganization and Stock Exchange Agreement with INVNSYS Technology Corporation
("INVNSYS") and various shareholders of INVNSYS (the "Reorganization"). As a
result of the Reorganization, INVNSYS became a wholly-owned subsidiary of the
Company. On February 1, 1999, the Company changed its name to iBIZ Technology
Corp.
While operating as a development stage company, the Company's
officers and directors were not compensated for their services. From
incorporation through December 31, 1994, Mr. Julio A. Padilla served as
President and sole Director. Mr. Eric P. Littman served as President and sole
Director from January 1, 1995 through July 9, 1998. Thereafter, Mr. John Xinos
served as President, Secretary, and Treasurer from July 10, 1998 through
December 31, 1998. Messrs. Padilla, Littman and Xinos are no longer involved in
the management of iBIZ and are believed not to be shareholders.
BUSINESS HISTORY OF INVNSYS
The Company conducts business solely through its operating
subsidiary INVNSYS. For your convenience, this prospectus will refer to the
parent company as the Company or iBIZ and the wholly-owned operating company as
INVNSYS.
INVNSYS (formerly known as SouthWest Financial Systems, Inc.)
was founded in 1979. Under the direction of INVNSYS' founder, Kenneth Schilling,
the company initially focused on distributing front-end bank branch automation
computer systems for networking applications. INVNSYS acted as a regional
distributor for SHARP Electronics ("SHARP"), a privately held Japanese
manufacturer of computers and electronic devices. In addition, INVNSYS also
distributed the products of Billcon Company, Ltd., and Glory, manufacturers of
bank automation and money processing systems.
In 1985, INVNSYS became a master distributor of SHARP products
and acquired the exclusive rights to distribute SHARP products to financial
institutions in the western United States. Between 1987 and 1990, INVNSYS won
various awards from SHARP for outstanding sales performance. Also during this
time, INVNSYS began to participate in the design of 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
<PAGE> 25
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 a 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 AND SERVICES
INVNSYS engages in the business of designing, manufacturing
and distributing small-footprint desktop computers, transaction printers,
general purpose financial application keyboards, numeric keypads, cathode ray
tube ("CRT") and liquid crystal display ("LCD") monitors and related products.
INVNSYS also markets a line of original equipment manufacturer ("OEM") notebook
computers and distributes transactional and color printers. In addition to
hardware, in December 1999, INVNSYS began reselling third-party hardware,
software, and related supplies. INVNSYS provides DSL service to commercial
consumers through an agreement with Northpoint Communications, Inc. and began
offering co-location services on September 14, 2000.
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 seven-person product design and development
staff which is managed directly by Kenneth Schilling. 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
<PAGE> 26
been successful to date in accomplishing that goal, there can be no assurance
that it will continue to do so in the future.
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.
<PAGE> 27
The KeySync's dimensions are 10" x 4-1/2" x 1-1/4" (LxWxH),
and it offers a sixty-two (62) key keyboard, six (6) programmable function keys
and uses three (3) "AAA" batteries to minimize draining the Palm's battery. In
addition to Palm products, the KeySync is currently compatible with Microsoft CE
handheld organizers.
Palm Pilot Accessories
In December 1999, INVNSYS began selling a foldable cradle to
hold the various Palm Pilot products. Management believes this cradle is easier
to use than the products offered 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 also offers a range of conventional CRT monitors in
sizes 14 to 21 inches with digital controls.
Planned Product Introductions
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.
<PAGE> 28
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.
IT-9000. INVNSYS was developing a new small footprint Pentium
II/III computer with attachable LCD monitor call the iT-9000. Management has
decided to focus on its other business sectors and has discontinued development
of the iT-9000.
OEM Notebook Computers
In addition to designing its own products, INVNSYS also offers
a complete line of competitively priced, build-to-order notebook computers
manufactured by Twinhead Corporation ("Twinhead") and marketed under the name
"iBook." Currently, INVNSYS offers three notebook models, the Apache, Phoenix
and RoadRunner.
RoadRunner. INVNSYS believes the RoadRunner offers powerful
computing power in a lightweight design. At only 1.28" high and 4.4 pounds,
INVNSYS believes the RoadRunner is half the weight of most competing notebooks.
The RoadRunner offers Intel Pentium II processors with up to
366Mhz, as well as Pentium III processors, a built in 56k fax/modem, external
FDD/24X CD-ROM module or 2X/4X DVD drive, a full size keyboard and a full 12.1"
TFT screen offering resolution as high as 800 x 600 pixels. The RoadRunner
offers 64 MB of memory, which can be upgraded to 192 MB. Utilizing Twinhead's
patented (pending) battery auto calibration system and the notebook's Advanced
Configuration and Power Interface ("ACPI") power management standard, which
automatically monitors and optimizes battery use, the RoadRunner provides up to
2.5 hours of full battery usage.
Apache. The Apache offers high performance in an ultra-slim
(1.54" high), compact unit. Models have a range of central processing units
("CPU's") from the Celeron MMC1 366Mhz to Intel Pentium II 400Mhz. The Apache
has a 16-bit stereo sound system with built-in stereo speakers and microphone
supporting full-duplex sound, a 3D graphics system with 2 MB of video RAM
operating over a 64-bit memory bus and a built-in 24X CD-ROM, which is
interchangeable with a 2X DVD-ROM drive. The Apache offers resolution as high as
1024 x 768 pixels with its 13.3" (XGA) or 12.1" (SVGA) built-in TFT screen.
The Apache can be installed with up to 256 MB of memory using
industry-standard Synchronous Dual in-line Memory Modules ("SO DIMM"). To
improve slow input/output, the Apache also features up to 6.4 MB hard disk
drive, an optional built-in 56 Kbps modem and a 32-bit CardBus PC card drive.
The Apache also offers an infrared port which allows wireless file transfer and
printing to other infrared-enabled systems.
INVNSYS believes power saving is a major concern for notebook
users. To address this issue, the Apache offers a processor which as of the date
of this prospectus consumes up to forty percent (40%) less energy than a
comparable desktop processor. In addition, the
<PAGE> 29
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 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 may be configured with a 1024 x 768 pixel built-in
13.3" or 14.1"(XGA) FTF screen and may be connected to an external monitor or
television via built-in ports.
For sound applications, the Phoenix offers the ESS Maestro-2M
PCI, which is the latest industry standard, is compatible with the 16-bit Sound
Blaster Pro, and supported by Microsoft DirectAudio and Direct 3D for use in
Windows NT 5.0 or Windows 98 systems. It features integrated 3D audio effects as
well as dual channel full duplex operation.
The Phoenix comes with an Intel MMC2 CPU module, which allows
for easy upgrades. In addition, the notebook's modular design allows for several
configurations. The notebook may be configured with anywhere from 32 to 256 MB
of RAM. The modular hard disk drive may be removed and replaced with an
alternate drive. 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.
<PAGE> 30
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.
INVNSYS offers color printers manufactured by Tektronix, Inc.
Printers include the Phaser 840 solid ink color printer.
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 $200,000 per month in revenues from
third-party software and hardware sales.
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. INVNSYS now has a contract with Intel as
well.
<PAGE> 31
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.
INVNSYS completed a co-location facility in August, 2000 and
opened it for service on September 14, 2000. The facility will accommodate
content providers' needs and outsource the management of web servers and
bandwith "traffic congestion" while providing the desired content security and
hardware configurations. There can be no assurance that INVNSYS will develop the
economics of scale or obtain the customer base necessary to achieve long term
profitability.
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 nine employees, directed by Mr. Schilling, who market INVNSYS' products
to financial institutions.
In addition to direct sales, INVNSYS also sells its full range
of products directly to retail customers through its website at
www.ibizcorp.com. The website is linked to an Online Consumer site on Yahoo!
Recently, INVNSYS entered into an agreement with Cyberian Outpost, Inc. to
market INVNSYS' products on its website www.outpost.com. To date, iBIZ has
recognized only nominal revenues from Internet retail sales. Management believes
that direct sales to end users should allow INVNSYS to more efficiently and
effectively meet customer needs by providing products which are tailored for the
customer's individual requirements at a more economical price.
INVNSYS distributes a line of Epson transactional printers.
INVNSYS participates in Epson's MasterVar program which provides INVNSYS a
non-exclusive right to sell, support and service Epson computer peripherals in
the United States and Canada.
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
<PAGE> 32
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 and to retail stores such as Comp
USA, Inc., and Frys Electronics.
INVNSYS has 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' 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 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.
<PAGE> 33
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 allows INVNSYS to install genuine Microsoft operating systems
in selected applications with full support from Microsoft. In addition, this
agreement entitles INVNSYS to pre-production versions of Microsoft products and
enables INVNSYS to provide input into development and design of new products.
KeyLink Software License. iBIZ has an exclusive, perpetual
license to use, distribute and offer for sale with associated hardware, the
software which facilitates the connection between the KeySync keyboard and the
3COM Palm devices.
PATENTS AND TRADEMARKS
INVNSYS holds no United States or foreign patents for its
products. However, iBIZ has filed a patent application for its Lapboard
keyboard. In general, INVNSYS believes that its continued success will depend
primarily upon the technical expertise, creative skills, and management
abilities of its officers, directors, and key employees rather than on patent
ownership.
iBIZ has filed an application with the United States Patent
and Trademark Office for the use of the names "iBIZ" and "KeySync" and is
currently investigating various other product trademarks.
YEAR 2000 ISSUES
Management believes that all of INVNSYS' current products are
Year 2000 compliant. In December 1999, INVNSYS completed a conversion of its
internal systems, such as accounting programs and management believes all
internal systems are Year 2000 compliant. 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
<PAGE> 34
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 20 technical and customer support
representatives who respond to telephone inquiries.
Also available on iBIZ's website are links to files for
software patches and drivers used for software updates.
INVNSYS' products have either a one year or three year limited
warranty covering parts and service. In addition, INVNSYS offers extended
service agreements, which may extend warranty coverage for up to two additional
years. Under the Virtual Spare program, INVNSYS provides replacement units by
next-day shipment in the event a customer's unit fails. Under this program,
customers have, at no additional expense, the option to have their existing
hard-drive configuration installed on the replacement unit. The customer's units
are then returned to INVNSYS' Phoenix facility for service. Under INVNSYS'
On-Site program, customers have the ability to have a Company-owned spare
on-site for immediate availability in the event of a failure. Failed units are
then returned to INVNSYS' facility for service and returned to replace the spare
for future needs. INVNSYS believes its Virtual Spare and On-Site programs
eliminate the need for on-site technical support for the replacement units and
reduce set-up time at customer facilities.
COMPETITION
Personal Computers
The personal computer industry is highly competitive. INVNSYS
competes at the product level with various other personal computer manufacturers
and at the distribution level primarily with computer retailers, on-line
marketers and the direct sales forces of large personal computer manufacturers.
At the product level, the personal computer industry is
characterized by rapid technological advances in both hardware and software
development and by the frequent introduction of new and innovative products.
There are approximately 100 manufacturers of personal computers, the majority of
which have greater financial, marketing and technological resources than
INVNSYS. Competitors at this level include IBM, Compaq, Dell, NEC, and Gateway
2000. Gateway 2000 and NEC, among other competitors, have recently introduced
smaller desk top computers than have been manufactured in the past. However,
those computers are targeted for the consumer and not for the corporate customer
and are more expensive than the computers offered by INVNSYS. INVNSYS' main
competitors for its line of thin-client computer systems include specialty
manufacturers such as WYSE Technology.
<PAGE> 35
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 a technology manager 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 of network integration
services.
Similarly, the market for Internet connection services is
highly competitive. INVNSYS' agreement with Northpoint Communications enables it
to offer DSL high-speed Internet connection services. DSL is an emerging
technology which allows for higher speed connections over existing copper phone
lines. Currently, large established companies such as U.S. West Communications,
COX Communications and Rhythms NetConnections, Inc. offer DSL services.
Co-location and data warehousing competitors include large public companies such
as Exodus Communications, GST, Above-Net, and Global Center. Management believes
that these companies' greater resources may increase market awareness and
acceptance of DSL and co-location services. However, as 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. There can be no assurance that the
changes in technology will not make co-location services obsolete or that
INVNSYS will achieve the necessary market penetration in its geographic region
necessary to achieve profitability in its co-location facility.
<PAGE> 36
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 software has generated sales of
approximately $200,000 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 FOR PRODUCTS
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' product revenues.
EMPLOYEES; LABOR RELATIONS
As of September 22, 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.
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.
<PAGE> 37
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. The lease is also
secured by all of the assets of the Company. Management believes this new
facility provides adequate space to accommodate the iBIZ's current plan of
growth and expansion.
LITIGATION
Invnsys Technology Corporation, dba iBIZ Technology
Corporation ("iBIZ"), is the defendant in a civil matter filed by Epson America,
Inc. ("Epson"), in the Superior Court of the State of Arizona. The complaint
alleges that over the past three (3) years, iBIZ became indebted to Epson in the
amount of $151,665.96. Since February 2, 2000, no payment has been made to
Epson, leaving an unpaid balance of $102,636.05 plus interest. Epson seeks to
recover $102,636.05 plus interest accruing at a rate of ten percent (10%) from
February 2, 1999, attorneys fees, incurred costs and expenses, together with
accruing costs. iBIZ is seeking to recover additional commissions that it
believes Epson owes it and has filed a counterclaim in the amount of $500,000.
There is no assurance that a settlement will be reached and the parties have
failed to reach an amicable agreement. For accounting purposes, the full amount
that Epson is seeking to recover has already been accrued as a liability in
iBIZ's financial records.
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.
<PAGE> 38
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Kenneth W. Schilling 48 President, Chief Executive Officer,
Director
Terry S. Ratliff 42 Vice President, Chief Financial
Officer, Director
Mark H. Perkins 37 Vice President of Operations, Director
James A. Ratliff(1) 43 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 was appointed Chief Financial Officer on
July 1, 2000. Ms. Ratliff was appointed to iBIZ's Board of Directors on March 5,
1999. Ms. Ratliff studied accounting at Nicholls State University in Thibodaux,
Louisiana.
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.
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.
<PAGE> 39
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>
Kenneth W. Schilling, 1998 $200,000 ----
President, Chief Executive 1999 $200,000 250,000
Officer
</TABLE>
(1) Includes 50,000 options granted for service as a director of the
Company.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
PERCENT OF TOTAL OPTIONS/SARS
NUMBER OF SECURITIES GRANTED TO EXERCISE OF
UNDERLYING OPTIONS/SARS EMPLOYEES BASE PRICE
NAME GRANTED(1) IN FISCAL YEAR ($/SH) EXPIRATION DATE
(a) (b) (c) (d) (e)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kenneth W. Schilling 250,000 -----% $0.75 4/21/09
</TABLE>
(1) Includes 50,000 options granted for service as a director of the
Company. 200,000 options vested upon granting on April 22, 1999, and
25,000 vested on April 22, 2000. An additional 25,000 will vest on
April 22, 2001.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES ACQUIRED ON VALUE FISCAL YEAR END AT FISCAL YEAR END
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE(1)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kenneth W. Schilling -0- -0- 250,000/200,000 $227,500/$182,000
</TABLE>
(1) Based on closing price of the Common Stock on October 29, 1999 of
$0.91.
Compensation of Directors
Pursuant to the terms of their employment agreements,
effective April 22, 1999, Messrs. Schilling, Perkins and Ms. Ratliff each
received fifty thousand (50,000) options to purchase fifty thousand (50,000)
shares of common stock in consideration for their services as directors of iBIZ.
Each director holds office until the next annual meeting of shareholders or
until their successors are elected and qualified.
<PAGE> 40
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 vested on April 22, 2000.
An additional 25,000 will vest on April 22, 2001.
The Agreement provides that upon total and permanent
disability, as defined in the Agreement, iBIZ shall pay Mr. Schilling such
benefits as may be provided to officers of iBIZ under any Company provided
disability insurance or similar policy or under any iBIZ adopted disability
plan. In the absence of such policy or plan, iBIZ shall continue to pay Mr.
Schilling for a period of not less than six months the compensation then in
effect as of the effective date of his termination.
Mr. Schilling may terminate the Agreement upon written notice,
within thirty (30) days following the occurrence of an event constituting "Good
Reason," as defined below. Upon the termination by Mr. Schilling for Good
Reason, Mr. Shilling will be entitled to receive a payment equal to the lesser
of: (1) an amount equal to one-half of his annual base salary in effect at the
time of termination; or (2) the remaining compensation due to Mr. Schilling
under the terms of the Agreement. If Mr. Schilling fails to exercise his rights
to terminate the Agreement for Good Reason within thirty (30) days following an
event constituting Good Reason, such rights shall expire and be of no further
force or effect.
"Good Reason" is defined to mean the occurrence of any of the
following events without Mr. Schilling's consent: (1) assignment of Mr.
Schilling to any duty substantially inconsistent with his position or duties
contemplated by the Agreement or a substantial reduction of his duties
contemplated by the Agreement; (2) the removal of any titles bestowed under the
Agreement; (3) any material breach or failure of iBIZ to carry out the
provisions of the Agreement after notice and an opportunity to cure; and (4) the
relocation of Mr. Schilling, his corporate office facilities, or personnel
outside the Phoenix metropolitan area.
138562 v3 38 9/22/00
<PAGE> 41
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 September 22, 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 September 22, 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 0.6%
1919 W. Lone Cactus Drive, Phoenix, AZ 85021
Moorea Trust(2) 9,920,000 -- 9,920,000 24.9%
1919 W. Lone Cactus Drive, Phoenix, AZ 85021
Terry S. Ratliff 1,771,200 325,000 2,096,200 5.3%
1919 W. Lone Cactus Drive, Phoenix, AZ 85021
Mark H. Perkins 1,771,200 325,000 2,096,200 5.3%
1919 W. Lone Cactus Drive, Phoenix, AZ 85021
James A. Ratliff -- 500,000 500,000 1.3%
1919 W. Lone Cactus Drive, Phoenix, AZ 85021
---------- --------- ----------
All directors and officers as group 13,462,400 1,375,000 14,837,400 37.2%
(6 persons)
</TABLE>
(1) Includes options vested on September 25, 2000 and options which will
become vested on or before January 1, 2001.
(2) Kenneth and Diane Schilling are husband and wife and hold the shares as
trustees under the Moorea Trust dated December 18, 1991.
iBIZ Technology Corp. Stock Option Plan
The iBIZ Technology Corp. Stock Option Plan (the "Stock Option
Plan") provides for the grant of stock options to purchase common stock to
eligible directors, officers, key employees, and service providers of iBIZ. The
Stock Option Plan covers an aggregate maximum of five million (5,000,000) shares
of common stock and provides for the granting of both
<PAGE> 42
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 September 22, 2000, Three Million Three
Hundred Eighty Thousand (3,380,000) options ("the Options") had been granted
under the plan at exercise prices of $.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 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 September 22, 2000, the balance of the loans payable by Mr.
Schilling to INVNSYS totaled Four Hundred Twenty Five Thousand Eight Hundred
Seventy Six Dollars ($425,876). 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 secured all of its assets with a lender which loaned Mr. Schilling the
money to purchase the facility. The Company is actively seeking to remove the
lien on its assets to obtain additional financing for working capital but there
is no assurance that it will be successful. iBIZ believes the terms of the
lease are at an arms-length fair market rate.
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's common stock is currently traded on the OTC
Bulletin Board. The common stock was initially listed under the symbol "EVCV" on
June 3, 1998, and trading began on July 16, 1998. On October 26, 1998, the
Company changed its trading symbol to "IBIZ." The following charts indicate the
high and low sales price for the Company's common stock for each fiscal quarter
between September 30, 1998 and June, 2000.
<PAGE> 43
1998 - 2000 Common Stock Prices
EVCV - iBIZ
[BAR CHART]
<TABLE>
<CAPTION>
Stock Price
--------------------------
Quarter Ended High Low
------------- ---- ---
<S> <C> <C>
Sep 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 $3.00 $1.00
Jun 00 $1.94 $0.75
</TABLE>
<PAGE> 44
As of September 22, 2000, management believes there to be 169
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 September
22, 2000, there were 37,589,424 shares of common stock outstanding and an
aggregate of 6,140,739 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.
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").
<PAGE> 45
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.
Globe has now converted all of its 7% Debentures into shares
of Common Stock. Lites Trading has converted all but $750,000 of its
outstanding Debentures.
The remaining 7% Debentures accrue interest at seven percent
per annum and are due March 27, 2005. iBIZ is obligated to make payments of
accrued interest semi-annually and interest 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 (as defined in the Debentures).
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.
<PAGE> 46
In connection with the sale of the $1600k 7% Debentures, iBIZ
filed a second registration statement to cover the resale of the common stock
issuable upon conversion of the 7% Debentures and the exercise of the warrants
on Form SB-2, File No. 333-34936, which was declared effective May 1, 2000 and
has remained continuously effective through the date hereof.
iBIZ may not, without the prior written consent of Lites,
offer or sell, shares of its capital stock or any security or other instrument
convertible into or exchangeable for shares of common stock, for the period
ending on the earlier of (i) one hundred eighty (180) days after the date on
which this registration statement is declared effective by the SEC or (ii) the
date on which Lites 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 Lites 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.
Lites has a right of first refusal on purchases of additional
securities for a period of eighteen (18) months from the date of execution of
the 1600k 7% Debentures. So long as the 7% Debentures or warrants issued to
Lites are outstanding, iBIZ may not (i) declare or pay any dividends or make
distributions to any holder of common stock or (ii) acquire any common stock of
iBIZ.
Options and Warrants Included in Prospectus. Of the total
7,175,407 shares registered for sale by the selling securityholders, 150,000
shares are issuable upon exercise of options and warrants issued to consultants.
These consultants warrants and options are immediately exercisable, have an
exercise price of between $1.50 and $2.25 per share and have terms from three to
five years.
Underlying shares of common stock to be received upon the
exercise of options and warrants which are included in this Prospectus are as
follows:
<PAGE> 47
<TABLE>
<CAPTION>
Shares Exercise Price Vesting Expiration
------ -------------- ------- ----------
<S> <C> <C> <C>
50,000 1.50 Immed 1 Year
50,000 2.00 Immed 1 Year
50,000 2.50 Immed 1 Year
75,000 1.04 Immed 5 Years
50,000 5.00 Immed 5 Years
34,125 0.94 Immed 5 Years
250,000 0.50 Immed 3 Years
250,000 0.75 Immed 3 Years
46,000 1.00 Immed 3 Years
36,364 1.00 Immed 3 Years
63,000 1.00 Immed 3 Years
</TABLE>
Options and Warrants Not Included in Prospectus. In addition
to the shares issuable upon exercise of options and warrants included in this
prospectus, iBIZ has issued 3,025,000 options to employees under the Stock
Option Plan. The shares underlying these options have been registered on a
registration statement on Form S-8, File No. 333-95475, filed on January 27,
2000. In connection with the 7% Debentures, as of the date of this prospectus,
iBIZ has issued to Equinet warrants to purchase 281,250 shares of common stock.
The warrants issued to Equinet have an exercise price of $0.99 per share, have a
term of five years and are immediately exercisable.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
iBIZ's Articles of Incorporation, as amended, provide to the
fullest extent permitted by Florida law, a director or officer of iBIZ shall not
be personally liable to iBIZ or its shareholders for damages for breach of such
director's or officer's fiduciary duty. The effect of this provision of iBIZ's
Articles of Incorporation, as amended, is to eliminate the right of iBIZ and its
shareholders (through shareholders' derivative suits on behalf of iBIZ) to
recover damages against a director or officer for breach of the fiduciary duty
of care as a director or officer (including breaches resulting from negligent or
grossly negligent behavior), except under certain situations defined by statute.
iBIZ believes that the indemnification provisions in its Articles of
Incorporation, as amended, are necessary to attract and retain qualified persons
as directors and officers.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to its directors, officers and controlling
persons pursuant to the foregoing provisions or otherwise, iBIZ has been advised
that in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
<PAGE> 48
EXPERTS
The financial statements for iBIZ as of October 31, 1997, 1998
and 1999 included in this prospectus have been audited by Moffitt & Company,
P.C., independent public accountants. As indicated in their reports with respect
thereto, such statements are herein included in reliance upon the authority of
such firm as experts in accounting and auditing in rendering the reports.
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.
<PAGE> 49
FINANCIAL STATEMENTS
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
FINANCIAL STATEMENTS
OCTOBER 31, 1998 AND 1997
<PAGE> 50
TABLE OF CONTENTS
PAGE NO.
--------
<TABLE>
<CAPTION>
<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>
<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)
<PAGE> 52
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
BALANCE SHEETS
OCTOBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS
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>
<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>
<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>
<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
FROM IBIZ
COMMON STOCK TECHNOLOGY RETAINED
SHARES AMOUNT CORP. EARNINGS
------ -------- --------- ----------
<S> <C> <C> <C> <C>
BALANCE, NOVEMBER 1, 1996 10,000 $ 10,000 $ 0 $ (200,088)
NET (LOSS) FOR THE YEAR
ENDED OCTOBER 31, 1997 0 0 0 (501,258)
------ -------- --------- ----------
BALANCE, OCTOBER 31, 1997 10,000 10,000 0 (701,346)
ADVANCE FROM IBIZ
TECHNOLOGY CORP 0 0 158,101 0
NET INCOME FOR THE YEAR
ENDED OCTOBER 31, 1998 0 0 0 51,182
------ -------- --------- ----------
BALANCE, OCTOBER 31, 1998 10,000 $ 10,000 $158,101 $(650,164)
====== ======== ======== =========
</TABLE>
<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>
<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>
<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:
<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.
<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>
<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>
<PAGE> 62
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998 AND 1997
NOTE 6 CUSTOMER DEPOSITS
It is the company's policy to obtain a portion of the sales price when
orders are received. These funds are recorded as customer deposits and
are applied to the customer invoices when the merchandise is shipped.
NOTE 7 INCOME TAXES
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Income (loss) from continuing operations
before income taxes $ 83,235 $(471,130)
--------- ---------
The provision for income taxes were estimated as follows:
Currently payable $ 0 $ 0
Deferred 32,053 (30,128)
--------- ---------
A reconciliation of the provision for income taxes compared with the
amounts at the U.S. Federal Statutory rate was as follows:
Tax at U.S. Federal Statutory income tax rates $ 32,053 $ (30,128)
--------- ---------
Deferred income tax assets and liabilities reflect the impact of
temporary differences between amounts of assets and liabilities for
financial reporting purposes and the basis of such assets and
liabilities as measured by tax laws. The net deferred tax assets is $ 136,830 $180,139
--------- ---------
</TABLE>
Temporary differences and carry forwards that gave rise to deferred tax
assets and liabilities included the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
Deferred Tax Deferred Tax
------------ ------------
Assets Liabilities Assets Liabilities
------ ----------- -------- -----------
<S> <C> <C> <C> <C>
Net operating loss $116,382 $ 0 $176,591 $ 0
Accrued expenses and miscellaneous 8,497 0 7,990 0
Tax credit carryforward 20,175 0 20,175 0
Depreciation 0 8,224 0 24,607
-------- -------- -------- --------
</TABLE>
<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.
<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>
<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>
<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.
<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>
<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>
<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>
<PAGE> 70
FINANCIAL STATEMENTS
IBIZ TECHNOLOGY CORP. AND
CONSOLIDATED SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999
<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>
<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
<PAGE> 73
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED BALANCE SHEET
OCTOBER 31, 1999
ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 25,343
Accounts receivable, trade 212,300
Inventories 268,087
Prepaid expenses 38,984
----------
TOTAL CURRENT ASSETS $ 544,714
PROPERTY AND EQUIPMENT 124,747
OTHER ASSETS
Note receivable, related party 356,810
Deposits 16,759
----------
TOTAL OTHER ASSETS 373,569
----------
TOTAL ASSETS $1,043,030
==========
</TABLE>
<PAGE> 74
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable, trade $ 762,965
Customer deposits 115,408
Notes payable, current 67,497
Accrued liabilities 138,199
Sales and payroll taxes payable 98,774
Corporation income taxes payable 19,078
Deferred income 54,962
Convertible debentures payable 200,000
-----------
TOTAL CURRENT LIABILITIES $ 1,456,883
LONG - TERM LIABILITIES
Notes payable 19,674
-----------
TOTAL LONG - TERM LIABILITIES 19,674
STOCKHOLDERS' DEFICIT
Common stock
Authorized - 100,000,000 shares, par
value $.001 per shares
Issued and outstanding - 26,370,418 shares 26,370
Paid in capital in excess of par value of stock 1,106,266
Advance on stock subscription 75,000
Retained earnings (deficit) (1,641,163)
-----------
TOTAL STOCKHOLDERS' DEFICIT (433,527)
-----------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 1,043,030
===========
</TABLE>
<PAGE> 75
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
SALES $ 2,082,515
COST OF SALES 1,682,905
------------
GROSS PROFIT 399,610
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 1,473,790
------------
(LOSS) BEFORE OTHER INCOME (1,074,180)
OTHER INCOME (EXPENSE)
Cancellation of debt $ 154,933
Other income 32,339
Interest income 28,260
Interest expense (58,085)
------------
TOTAL OTHER INCOME, NET 157,447
------------
(LOSS) BEFORE INCOME TAXES (916,733)
INCOME TAXES 136,830
------------
NET (LOSS) $ (1,053,563)
============
NET (LOSS) PER COMMON SHARE
Basic and Diluted $ (0.04)
============
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING
Basic and diluted 25,116,013
============
</TABLE>
<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 .35 CENTS PER SHARE 640,318 640
AT .50 CENTS PER SHARE 1,730,100 1,730
FEES AND COSTS FOR ISSUANCE
OF STOCK 0 0
ADVANCES ON STOCK SUBSCRIPTION 0 0
NET (LOSS) FOR THE YEAR ENDED
OCTOBER 31, 1999 0 0
---------- ----------
BALANCE, OCTOBER 31, 1999 26,370,418 $ 26,370
========== ==========
</TABLE>
<PAGE> 77
<TABLE>
<CAPTION>
PAID IN
CAPITAL IN
EXCESS OF ADVANCES RETAINED
PAR VALUE ON STOCK EARNINGS
OF STOCK SUBSCRIPTIONS (DEFICIT)
-------------- ------------ -----------
<S> <C> <C> <C>
BALANCE, NOVEMBER 1, 1998 $ 145,282 $ 154,111 $ (74,266)
ISSUANCE OF COMMON STOCK
FOR ACQUISITION OF INVNSYS
TECHNOLOGY CORPORATION
AND TRANSFER OF NET ASSETS
AT BOOK VALUE PER REVERSE
ACQUISITION 0 0 (513,334)
ISSUANCE OF COMMON STOCK
FOR CASH
AT .35 CENTS PER SHARE 223,471 0 0
AT .50 CENTS PER SHARE 863,320 (154,111) 0
FEES AND COSTS FOR ISSUANCE
OF STOCK (125,807) 0 0
ADVANCES ON STOCK SUBSCRIPTION 0 75,000 0
NET (LOSS) FOR THE YEAR ENDED
OCTOBER 31, 1999 0 0 (1,053,563)
----------- ----------- -----------
BALANCE, OCTOBER 31, 1999 $ 1,106,266 $ 75,000 $(1,641,163)
</TABLE>
<PAGE> 78
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 31, 1999
<TABLE>
<CAPTION>
<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>
<PAGE> 79
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED OCTOBER 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft $ (13,700)
Net proceeds from issuance of common stock 806,873
Advances on stock subscription 75,000
Proceeds from issuance of convertible debentures 200,000
Decrease in notes payable (306,532)
---------
NET CASH FLOWS PROVIDED
BY FINANCING ACTIVITIES $ 761,641
---------
NET INCREASE IN CASH 25,143
CASH BALANCE, NOVEMBER 1, 1998 200
---------
CASH BALANCE, OCTOBER 31, 1999 $ 25,343
=========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during year:
Interest $ 56,766
=========
Taxes $ 0
=========
NON CASH INVESTING AND FINANCING
ACTIVITIES
Issuance of company stock for investment in
Invnsys Technology Corporation $ 16,000
=========
</TABLE>
<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.
<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.
<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>
<PAGE> 83
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 4 INVENTORIES
Inventories are comprised of the following:
<TABLE>
<S> <C>
Computer and components:
Finished products $ 217,236
Demonstration and loaner units 5,731
Depot units 20,089
Office 24,712
Parts 319
---------
Total inventories $ 268,087
=========
</TABLE>
NOTE 5 PROPERTY AND EQUIPMENT
Property and equipment and accumulated depreciation consisted
of:
<TABLE>
<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>
<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
-----------
Temporary differences and carry forwards that gave rise to
deferred tax assets and liabilities included the following:
</TABLE>
<TABLE>
<CAPTION>
DEFERRED TAX
------------
ASSETS LIABILITIES
------ -----------
<S> <C> <C>
Net operating loss $ 294,800 $ 0
Accrued expenses and miscellaneous 23,414 0
Tax credit carryforward 38,424 0
Depreciation 0 6,199
--------- --------
</TABLE>
<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>
<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
========
</TABLE>
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year ended October 31,
<S> <C>
2000 $ 67,497
2001 5,336
2002 5,721
2003 6,135
2004 2,482
--------
$ 87,171
========
</TABLE>
<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.
<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:
<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 .75 cents per share.
The company applied APB Opinion 25 and related interpretations
in accounting for this stock option plan. Had compensation costs
for the company's plan been determined based on the fair value
at the grant date consistent with the method of FASB Statement
123, the company's net income and earnings per share would not
have changed.
The fair value of the option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the
following assumptions: (1) dividend yield of 0%, (2) expected
volatility of 30%, (3) risk-free interest rate of 6.40%, and (4)
expected life of 10 years.
<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:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------
WEIGHTED
WEIGHTED AVERAGE
AVERAGE REMAINING
PRICE EXERCISE CONTRACTUAL
RANGE SHARES PRICE LIFE
----- ------ ----- ----
<S> <C> <C> <C>
$.75 cents 2,350,000 $ .75 9 years, 6 months
</TABLE>
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
-------------------
WEIGHTED
AVERAGE
PRICE EXERCISE
RANGE SHARES PRICE
----- ------ -----
<S> <C> <C>
$ 0 0 N/A
</TABLE>
Since the exercise price and the fair market value of the stock
were the same, there is no compensation costs to report and
required pro-forma net income and earnings per share are the
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.
<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.
<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.
<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:
<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>
<PAGE> 95
August 25, 2000
Mr. Kenneth Schilling
IBIZ Technology Corp. and Consolidated Subsidiary
1919 W. Lone Cactus Drive
Phoenix, AZ 85027
Dear Ken:
Enclosed are five copies of the financial statements of IBIZ Technology Corp.
and Consolidated Subsidiary for the nine months ended July 31, 2000. We will be
pleased to discuss any questions relative to this report at your convenience.
If you intend to reproduce or publish additional copies of this report, or any
portion thereof, with which our name is to be associated, we request that copies
of the reproduction of all such materials be submitted to us so that we may
consent to the use of our name before distribution.
We appreciate the opportunity to be of service to you.
Sincerely,
MOFFITT & COMPANY, P. C.
/nm
Enclosure
<PAGE> 96
IBIZ TECHNOLOGY CORP. AND
CONSOLIDATED SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2000 AND 1999
<PAGE> 97
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT..................................... 1
FINANCIAL STATEMENTS
Consolidated Balance Sheets............................................ 2
Consolidated Statements of Operations.................................. 3
Consolidated Statement of Changes in Stockholders' Equity.............. 4 - 5
Consolidated Statements of Cash Flows.................................. 6 - 7
Notes to Consolidated Financial Statements............................. 8 - 22
</TABLE>
<PAGE> 98
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To The Board of Directors and Stockholders
IBIZ Technology Corp. and Consolidated Subsidiary
Phoenix, Arizona
We have reviewed the accompanying balance sheets of IBIZ Technology Corp. and
Consolidated Subsidiary as of July 31, 2000 and 1999, and the related statements
of operations for the three and nine months then ended, statement of
stockholders' equity as of July 31, 2000 and statements of cash flows for the
nine months ended July 31, 2000 and 1999, in accordance with Statements on
Standards for Accounting and Review Services issued by the American Institute of
Certified Public Accountants. All information included in these financial
statements is the representation of the management of IBIZ Technology Corp. and
Consolidated Subsidiary.
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
As discussed in Note 21, certain conditions indicate that the company may be
unable to continue as a going concern. The accompanying financial statements do
not include any adjustments to the financial statements that might be necessary
should the company be unable to continue as a going concern.
MOFFITT & COMPANY, P. C.
SCOTTSDALE, ARIZONA
<PAGE> 99
August 25, 2000
<PAGE> 100
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JULY 31, 2000 AND 1999
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 142,461 $ 23,884
Accounts receivable 656,847 187,987
Loan receivable, officer 38,980 0
Inventories 263,036 139,383
Prepaid expenses 492,978 24,122
----------- ---------
TOTAL CURRENT ASSETS 1,594,302 375,376
----------- ---------
PROPERTY AND EQUIPMENT, NET OF
ACCUMULATED DEPRECIATION 1,626,205 85,920
----------- ---------
OTHER ASSETS
Note receivable, related party 425,876 339,111
Deposits 60,401 17,762
Customer list, net of accumulated amortization 8,924 0
----------- ---------
TOTAL OTHER ASSETS 495,201 356,873
----------- ---------
TOTAL ASSETS $ 3,715,708 $ 818,169
=========== =========
</TABLE>
<PAGE> 101
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable, trade $ 1,382,594 $ 583,492
Customer deposits 0 109,618
Notes payable, current 4,911 79,668
Accrued liabilities 94,829 29,155
Sales and payroll taxes payable 211,049 107,267
Corporation income taxes payable 19,078 18,666
Deferred income 118,984 91,914
----------- -----------
TOTAL CURRENT LIABILITIES 1,831,445 1,019,780
----------- -----------
LONG - TERM LIABILITIES
Convertible debentures payable 1,750,000 200,000
Notes payable 16,159 21,256
----------- -----------
TOTAL LONG-TERM LIABILITIES 1,766,159 221,256
----------- -----------
STOCKHOLDERS' EQUITY
Common stock
Authorized - 100,000,000 shares, par
value $.001 per shares
Issued and outstanding -
31,092,828 shares in 2000 31,093 0
26,571,000 shares in 1999 0 26,571
Paid in capital in excess of par value of stock 4,050,714 952,372
Retained earnings (deficit) ( 3,963,703) ( 1,401,810)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 118,104 ( 422,867)
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 3,715,708 $ 818,169
=========== ===========
</TABLE>
<PAGE> 102
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000
-----------------------------------
THREE MONTHS NINE MONTHS
ENDED ENDED
JULY 31, 2000 JULY 31, 2000
------------- --------------
<S> <C> <C>
SALES $1,142,040 $3,207,019
COST OF SALES 914,814 2,689,935
------------ ------------
GROSS PROFIT 277,226 517,084
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 955,483 2,784,039
------------ ------------
(LOSS) BEFORE OTHER INCOME (EXPENSE) (728,257) (2,266,955)
------------ ------------
OTHER INCOME (EXPENSE)
Interest income 13,187 30,160
Interest expense (44,424) (73,645)
Miscellaneous income 0 0
Cancellation of debt (12,100) (12,100)
------------ ------------
TOTAL OTHER INCOME (EXPENSE) (43,337) (55,585)
------------ ------------
(LOSS) BEFORE INCOME TAXES (771,594) (2,322,540)
INCOME TAXES 0 0
------------ ------------
NET (LOSS) $(771,594) $(2,322,540)
============ ============
NET (LOSS) PER COMMON SHARE
Basic and Diluted $(.03) $(.08)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Basic and diluted 28,741,267 28,741,267
============ ============
</TABLE>
<PAGE> 103
<TABLE>
<CAPTION>
1999
-------------------------------
THREE MONTHS NINE MONTHS
ENDED ENDED
JULY 31, 1999 JULY 31, 1999
------------ --------------
<S> <C> <C>
SALES $ 382,495 $ 1,804,064
COST OF SALES 398,937 1,533,817
------------ ------------
GROSS PROFIT (16,442) 270,247
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 375,401 1,168,222
------------ ------------
(LOSS) BEFORE OTHER INCOME (EXPENSE) (391,843) (897,975)
------------ ------------
OTHER INCOME (EXPENSE)
Interest income 5,012 15,768
Interest expense (10,738) (35,357)
Miscellaneous income 20,491 20,491
Cancellation of debt 148,033 148,033
------------ ------------
TOTAL OTHER INCOME (EXPENSE) 162,798 148,935
------------ ------------
(LOSS) BEFORE INCOME TAXES (229,045) (749,040)
INCOME TAXES 0 0
------------ ------------
NET (LOSS) $ (229,045) $ (749,040)
============ ============
NET (LOSS) PER COMMON SHARE
Basic and Diluted $ (.01) $ (.03)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Basic and diluted 26,571,000 26,571,000
============ ============
</TABLE>
<PAGE> 104
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
JULY 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------
SHARES AMOUNT
------------ ------------
<S> <C> <C>
BALANCE, NOVEMBER 1, 1999 26,370,418 $ 26,370
NOVEMBER, 1999 - CONVERSION OF DEBENTURES
FOR COMMON STOCK 300,962 301
NOVEMBER, 1999 - ISSUANCE OF COMMON STOCK
FOR CASH 100,000 100
JANUARY, 2000 - ISSUANCE OF COMMON STOCK
FOR CASH 250,000 250
NOVEMBER, 1999 TO JANUARY, 2000 - FEES AND
COSTS FOR ISSUANCE OF STOCK 0 0
FEBRUARY, 2000 - ISSUANCE OF COMMON STOCK
FOR ADVANCES ON STOCK SUBSCRIPTIONS 100,000 100
FEBRUARY, 2000 - CONVERSION OF DEBENTURES
FOR COMMON STOCK 300,000 300
MARCH, 2000 - CONVERSION OF DEBENTURES FOR
COMMON STOCK 1,292,482 1,293
APRIL, 2000 - CONVERSION OF DEBENTURES FOR
COMMON STOCK 88,938 89
APRIL, 2000 - ISSUANCE OF COMMON STOCK FOR
CASH FROM WARRANTS 420,000 420
APRIL, 2000 - ISSUANCE OF COMMON STOCK FOR
CASH FROM STOCK OPTIONS 70,000 70
APRIL, 2000 - ISSUANCE OF COMMON STOCK FOR
ACCOUNT PAYABLE 100,000 100
APRIL, 2000 - ISSUANCE OF COMMON STOCK FOR
SERVICES 250,000 250
APRIL, 2000 - ISSUANCE OF COMMON STOCK FOR
PAYROLL BONUSES 50,000 50
APRIL, 2000 - ISSUANCE OF COMMON STOCK FOR
FEES AND COSTS FOR ISSUANCE OF STOCK 407,375 407
FEBRUARY, 2000 TO APRIL, 2000 - FEES AND COSTS
FOR ISSUANCE OF STOCK 0 0
</TABLE>
<PAGE> 105
<TABLE>
<CAPTION>
PAID IN
CAPITAL IN
EXCESS OF ADVANCES RETAINED
PAR VALUE ON STOCK EARNINGS
OF STOCK SUBSCRIPTIONS (DEFICIT)
----------- ------------- -------------
<S> <S> <C> <C>
BALANCE, NOVEMBER 1, 1999 $ 1,106,266 $ 75,000 $(1,641,163)
NOVEMBER, 1999 - CONVERSION OF DEBENTURES
FOR COMMON STOCK 200,734 0 0
NOVEMBER, 1999 - ISSUANCE OF COMMON STOCK
FOR CASH 49,900 0 0
JANUARY, 2000 - ISSUANCE OF COMMON STOCK
FOR CASH 274,750 0 0
NOVEMBER, 1999 TO JANUARY, 2000 - FEES AND
COSTS FOR ISSUANCE OF STOCK (188,000) 0 0
FEBRUARY, 2000 - ISSUANCE OF COMMON STOCK
FOR ADVANCES ON STOCK SUBSCRIPTIONS 74,900 (75,000) 0
FEBRUARY, 2000 - CONVERSION OF DEBENTURES
FOR COMMON STOCK 199,700 0 0
MARCH, 2000 - CONVERSION OF DEBENTURES FOR
COMMON STOCK 1,039,585 0 0
APRIL, 2000 - CONVERSION OF DEBENTURES FOR
COMMON STOCK 59,944 0 0
APRIL, 2000 - ISSUANCE OF COMMON STOCK FOR
CASH FROM WARRANTS 314,580 0 0
APRIL, 2000 - ISSUANCE OF COMMON STOCK FOR
CASH FROM STOCK OPTIONS 52,430 0 0
APRIL, 2000 - ISSUANCE OF COMMON STOCK FOR
ACCOUNT PAYABLE 49,900 0 0
APRIL, 2000 - ISSUANCE OF COMMON STOCK FOR
SERVICES 210,500 0 0
APRIL, 2000 - ISSUANCE OF COMMON STOCK FOR
PAYROLL BONUSES 50,450 0 0
APRIL, 2000 - ISSUANCE OF COMMON STOCK FOR
FEES AND COSTS FOR ISSUANCE OF STOCK 483,147 0 0
FEBRUARY, 2000 TO APRIL, 2000 - FEES AND COSTS
FOR ISSUANCE OF STOCK (668,987) 0 0
</TABLE>
<PAGE> 106
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY(CONTINUED)
JULY 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------
SHARES AMOUNT
--------- -----------
<S> <C> <C>
JUNE, 2000 - ISSUANCE OF COMMON STOCK FOR
SERVICES 150,000 $ 150
JUNE, 2000 - ISSUANCE OF COMMON STOCK FOR
SERVICES 362,653 363
JULY, 2000 - ISSUANCE OF COMMON STOCK FOR
SERVICES 480,000 480
NET (LOSS) FOR THE NINE MONTHS
ENDED JULY 31, 2000 0 0
---------- ----------
BALANCE, JULY 31, 2000 31,092,828 $ 31,093
========== ==========
</TABLE>
<PAGE> 107
<TABLE>
<CAPTION>
PAID IN
CAPITAL IN
EXCESS OF ADVANCES RETAINED
PAR VALUE ON STOCK EARNINGS
OF STOCK SUBSCRIPTIONS (DEFICIT)
----------- ----------- -----------
<S> <C> <C> <C>
JUNE, 2000 - ISSUANCE OF COMMON STOCK FOR
SERVICES $ 131,100 $ 0 $ 0
JUNE, 2000 - ISSUANCE OF COMMON STOCK FOR
SERVICES 226,295 0 0
JULY, 2000 - ISSUANCE OF COMMON STOCK FOR
SERVICES 383,520 0 0
NET (LOSS) FOR THE NINE MONTHS
ENDED JULY 31, 2000 0 0 (2,322,540)
----------- ----------- -----------
BALANCE, JULY 31, 2000 $ 4,050,714 $ 0 $(3,963,703)
=========== =========== ===========
</TABLE>
<PAGE> 108
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(2,322,540) $ (749,040)
Adjustments to reconcile net (loss) to
net cash (used) by operating activities
Depreciation and amortization 38,643 30,956
Issuance of common stock for interest, services
and payroll bonuses 349,532 0
Changes in operating assets and liabilities
Accounts receivable (444,547) (32,951)
Inventories 5,051 184,014
Prepaid expenses (3,545) 2,878
Deposits 358 2,393
Accounts payable 619,629 (197,323)
Customer deposits (115,408) (285,646)
Accrued liabilities and taxes 68,905 (44,576)
Deferred income 64,022 20,883
----------- -----------
NET CASH FLOWS (USED)
BY OPERATING ACTIVITIES (1,739,900) (1,068,412)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,507,284) (40,340)
Loans to related parties (108,046) 567,509
Purchase of customer list (11,900) 0
Deposits on property and equipment (44,000) 0
----------- -----------
NET CASH FLOWS (USED) PROVIDED
BY INVESTING ACTIVITIES (1,671,230) 527,169
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft 0 (13,700)
Net proceeds from issuance of common stock 394,349 671,406
Proceeds from issuance of convertible debentures 3,200,000 200,000
Changes in notes payable (66,101) (292,779)
----------- -----------
NET CASH FLOWS PROVIDED
BY FINANCING ACTIVITIES 3,528,248 564,927
----------- -----------
</TABLE>
<PAGE> 109
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE NINE MONTHS ENDED JULY 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
NET INCREASE IN CASH AND
CASH EQUIVALENTS $ 117,118 $ 23,684
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 25,343 200
---------- ----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 142,461 $ 23,884
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during year for:
Interest $ 78,623 $ 25,109
========== ==========
Taxes $ 50 $ 50
========== ==========
NON CASH INVESTING AND FINANCING
ACTIVITIES
Issuance of common stock for convertible debentures $1,501,946 $ 0
========== ==========
Issuance of common stock for fees, services and payroll $1,486,712 $ 0
========== ==========
Issuance of common stock for advances on stock
subscriptions $ 75,000 $ 0
========== ==========
Issuance of common stock for accounts payable $ 50,000 $ 0
========== ==========
</TABLE>
<PAGE> 110
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2000
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
IBIZ Technology Corp. was organized on April 6, 1994, under the
laws of the State of Florida. The company is a holding company
and owns 100% of Invnsys Technology Corporation.
Invnsys Technology Corporation is in the business of selling
retail and wholesale, financial, computing and communication
equipment and offering network integration services, digital
subscriber line high speed internet connection services and
business-to-business software sales. They also provide repair
services and sell maintenance contracts. The corporation
operates a service center in Phoenix, Arizona.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
IBIZ Technology Corp. and its wholly owned subsidiary, Invnsys
Technology Corporation.
All material inter-company accounts and transactions have been
eliminated.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Uncollectible accounts receivable are written off at the time
management specifically determines them to be uncollectible. In
addition, the allowance for doubtful accounts is provided at an
amount determined by management.
INVENTORIES
At July 31, 2000, inventories are stated at the lower of cost
(determined principally by first-in, first-out method) or cost.
At July 31, 1999, the inventories were computed by using the
gross profit method for determining cost.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Major renewals and
improvements are charged to the asset accounts while
replacement, maintenance and repairs, which do not improve or
extend the lives of the respective assets, are expensed. At the
time property and equipment are retired or otherwise disposed
of, the asset and related accumulated depreciation accounts are
relieved of the applicable amounts. Gains or losses from
retirements or sales are credited or charged to income.
The company depreciates its property and equipment for financial
reporting purposes using the straight-line method based upon the
following useful lives of the assets:
<PAGE> 111
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT (CONTINUED)
<TABLE>
<S> <C>
Tooling 3 Years
Machinery and equipment 5-10 Years
Office furniture and equipment 5-10 Years
Vehicles 5 Years
Leasehold improvements 5 Years
Computer software 3 Years
</TABLE>
The construction in progress equipment and co-location assets
will be depreciated when they are completed and placed in
service.
CUSTOMER LISTS
The customer list is recorded at cost and is being amortized on
a straight-line basis over three years.
ACCOUNTING ESTIMATES
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent
assets and liabilities, and the reported revenues and expenses.
Actual results could vary from the estimates that were used.
REVENUE RECOGNITION
The company recognizes revenue from product sales when the goods
are shipped and title passes to customers.
SALES OF MAINTENANCE AGREEMENTS
The revenue received for the maintenance agreements is being
reported evenly over the life of the contracts. The unearned
portion is recorded as deferred income.
INCOME TAXES
Provisions for income taxes are based on taxes payable or
refundable for the current year and deferred taxes on temporary
differences between the amount of taxable income and pretax
financial income and between the tax basis of assets and
liabilities and their reported amounts in the financial
statements. Deferred tax assets and liabilities are included in
the financial statements at currently enacted income tax rates
applicable to the period in which the deferred tax assets and
liabilities are
<PAGE> 112
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES (CONTINUED)
expected to be realized or settled as prescribed in FASB Statement No.
109, Accounting for Income Taxes. As changes in tax laws or rates are
enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes.
NET (LOSS) PER SHARE
The company adopted Statement of Financial Accounting Standards No. 128
that requires the reporting of both basic and diluted (loss) per share.
Basic (loss) per share is computed by dividing net (loss) available to
common shareowners by the weighted average number of common shares
outstanding for the period. Diluted (loss) per share reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock. In
accordance with FASB 128, any anti-dilutive effects on net (loss) per
share are excluded.
RISKS AND UNCERTAINTIES
The company is in the computer and computer technology industry. The
company's products are subject to rapid obsolescence and management
must authorize funds for research and development costs in order to
stay competitive.
NOTE 2 DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The company has financial instruments, none of which are held for
trading purposes. The company estimates that the fair value of all
financial instruments at July 31, 2000 and 1999, as defined in FASB
107, does not differ materially from the aggregate carrying values of
its financial instruments recorded in the accompanying balance sheets.
The estimated fair value amounts have been determined by the company
using available market information and appropriate valuation
methodologies. Considerable judgement is required in interpreting
market data to develop the estimates of fair value, and accordingly,
the estimates are not necessarily indicative of the amounts that the
company could realize in a current market exchange.
NOTE 3 ACCOUNTS RECEIVABLE
A summary of accounts receivable and allowance for doubtful accounts is
as follows:
<TABLE>
<CAPTION>
2000 1999
----------------- ------------------
<S> <C> <C>
Accounts receivable $ 756,847 $ 190,487
Allowance for doubtful accounts 100,000 2,500
----------------- ------------------
$ 656,847 $ 187,987
================= ==================
</TABLE>
<PAGE> 113
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
(UNAUDITED)
NOTE 4 INVENTORIES
The inventories at July 31, 2000 are comprised of the following:
<TABLE>
<CAPTION>
<S> <C>
Finished products $ 183,266
Depot units 15,412
Office 50,855
Parts 319
Demo 11,241
Car stock 1,943
------------------
Total inventories $ 263,036
==================
</TABLE>
The inventories at July 31, 1999 were computed, in total, by using the
gross profit method for determining costs.
NOTE 5 PROPERTY AND EQUIPMENT
Property and equipment and accumulated depreciation consists of:
<TABLE>
<CAPTION>
2000 1999
----------------- ------------------
<S> <C> <C>
Tooling $ 68,100 $ 68,100
Machinery and equipment 52,266 54,473
Software 117,463 0
Office furniture and equipment 124,452 72,926
Vehicles 39,141 39,141
Construction in progress co-location equipment 469,276 0
Construction in progress co-location
(improvements) 882,338 0
Leasehold improvements 23,179 22,047
----------------- ------------------
1,776,215 256,687
Less accumulated depreciation ( 150,010) 170,767
----------------- ------------------
Total property and equipment $ 1,626,205 $ 85,920
================= ==================
</TABLE>
The depreciation expense for the nine months ended July 31, 2000 and
1999 was $35,667 and $30,956, respectively.
NOTE 6 CUSTOMER LIST
The customer list and accumulated amortization consists of:
<TABLE>
<CAPTION>
2000 1999
----------------- ------------------
<S> <C> <C>
Cost $ 11,900 $ 0
Less accumulated amortization 2,976 0
----------------- ------------------
Total customer list $ 8,924 $ 0
================= ==================
</TABLE>
The amortization expense for the nine months ended July 31, 2000 and
1999 was $2,976 and $0, respectively.
<PAGE> 114
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
(UNAUDITED)
NOTE 7 NOTE RECEIVABLE, RELATED PARTY
<TABLE>
<CAPTION>
2000 1999
----------------- ------------------
<S> <C> <C>
At July 31, 2000, the related note is secured by 500,000 $ 425,876 $ 339,111
shares of common stock in the company, payable on demand and ================= ==================
accrues interest at 6%. Management believed the notes would not be
collected within the current operating cycle and classified the asset
as a long-term asset.
At July 31, 1999, the note was not secured.
NOTE 8 CUSTOMER DEPOSITS
It is the company's policy to obtain a portion of the sales price when
orders are received. These funds are recorded as customer deposits and
are applied to the customer invoices when the merchandise is shipped.
NOTE 9 INCOME TAXES
2000 1999
----------------- ------------------
<S> <C> <C>
(Loss) from continuing operations
before income taxes $ (2,322,540) $ ( 749,040)
----------------- ------------------
The provision for income taxes is estimated as follows:
Currently payable $ 0 $ 0
----------------- ------------------
Deferred $ 0 $ 0
----------------- ------------------
A reconciliation of the provision for income taxes compared with
the amounts at the U.S. Federal Statutory rate was as follows:
Tax at U.S. Federal Statutory
income tax rates $ 0 $ 0
----------------- ------------------
Deferred income tax assets and liabilities reflect the impact of
temporary differences between amounts of assets and
liabilities for financial reporting purposes and the basis of
such assets and liabilities as measured by tax laws.
The net deferred liability is: $ 0 $ 0
----------------- ------------------
The net deferred tax assets is: $ 0 $ 0
----------------- ------------------
Temporary differences and carry forwards that gave rise to
deferred tax assets and liabilities included the following:
</TABLE>
<PAGE> 115
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
(UNAUDITED)
NOTE 9 INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
DEFERRED TAX
-----------------------------------------
ASSETS LIABILITIES
----------------- -----------------
<S> <C> <C>
Net operating loss $ 830,000 $ 0
Accrued expenses and miscellaneous 8,100 0
Tax credit carryforward 38,424 0
Depreciation 0 6,199
----------------- -----------------
Subtotals 876,524 6,199
Valuation allowance 876,524 ( 6,199)
----------------- --------------------
Total deferred taxes $ 0 $ 0
================= ====================
</TABLE>
As discussed in Note 21, there is substantial doubt about the company's
ability to continue as a going concern. Consequently, the company must
maintain a 100% valuation allowance for the deferred taxes as there is
doubt that the company will generate profits which will be absorbed by
the tax differences.
A reconciliation of the valuation allowance is as follows:
<TABLE>
<CAPTION>
2000 1999
----------------- --------------------
<S> <C> <C>
Balance, beginning of period $ 356,638 $ 145,054
Addition to allowance for nine months
ended July 31, 2000 and 1999 519,886 176,946
----------------- --------------------
Balance, end of period $ 876,524 $ 322,000
================= ====================
</TABLE>
NOTE 10 TAX CARRYFORWARD
The company has the following tax carryforwards at July 31, 2000:
<TABLE>
<CAPTION>
EXPIRATION
YEAR AMOUNT DATE
---- ------ ----
<S> <C> <C> <C>
Net operating loss
October 31, 1995 $ 2,500 October 31, 2010
October 31, 1996 24,028 October 31, 2011
October 31, 1997 192,370 October 31, 2012
October 31, 1998 71,681 October 31, 2013
October 31, 1999 991,162 October 31, 2019
Capital loss
October 31, 1997 25,600 October 31, 2002
</TABLE>
<PAGE> 116
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
(UNAUDITED)
NOTE 10 TAX CARRYFORWARD (CONTINUED)
<TABLE>
<CAPTION>
EXPIRATION
YEAR AMOUNT DATE
---- ------ ----
<S> <C> <C> <C>
Contribution
October 31, 1997 545 October 31, 2002
October 31, 1999 2,081 October 31, 2004
Research tax credits 38,424
</TABLE>
NOTE 11 NOTES PAYABLE
<TABLE>
<CAPTION>
2000 1999
------------------ ------------------
<S> <C> <C>
Note payable to Community First National
Bank due in monthly payments of interest
of approximately $3,100. Interest is computed
at national prime as stated in the Wall Street
Journal plus 3 percent. The principal amount
is due July 31, 2000. This note is secured by
accounts receivable, general intangibles and
all equipment and leasehold improvements.
The shareholder has personally guaranteed the
loan and the bank is the beneficiary of an insur-
ance policy on the life of the shareholder. The
company canceled this line in the year 2000. $ 0 $ 75,000
Note payable to Community First National Bank due
in monthly payments of principal and interest of
$545 with interest at 7 percent until March 7,
2004. The note is secured by an automobile which
costs $31,141. 21,070 25,924
------------------ ------------------
21,070 100,924
Less: current portion 4,911 79,668
------------------ ------------------
Net long-term debt $ 16,159 $ 21,256
================== ==================
Maturities of long-term debt are as follows:
Year ended July 31
2000 $ 0 $ 6,540
2001 6,540 6,540
2002 6,540 6,540
2003 6,540 6,304
2004 1,450 0
------------ --------------
$ 21,070 $ 25,924
================== ==================
</TABLE>
<PAGE> 117
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
(UNAUDITED)
NOTE 12 COMMON STOCK PURCHASE WARRANTS AND OPTIONS
The company has issued the following common stock purchase warrants at
July 31, 2000:
<TABLE>
<CAPTION>
NUMBER EXERCISE
DATE OF SHARES TERM PRICE
---- --------- ---- -----
<S> <C> <C> <C> <C>
May 13, 1999 100,000 3 years $ 1.00
May 7, 1999 180,000 10 years $ 0.75
May 13, 1999 100,000 10 years $ 1.00
November 9, 1999 100,000 4 years $ .94
December 14, 1999 75,000 3 years $ 1.66
December 28, 1999 200,000 4 years $ .94
January 10, 2000 281,250 5 years $ .99
March 27, 2000 656,250 5 years $1.45 - 2.05
May 17, 2000 125,000 5 years $1.04 - 5.00
June 16, 2000 150,000 1 year $1.50 - 2.00
-------
1,967,500
=========
</TABLE>
NOTE 13 CONVERTIBLE DEBENTURES
<TABLE>
<CAPTION>
CURRENT
$600,000 DEBENTURE TOTAL PORTION
------------------ ----- -------
<S> <C> <C>
In November 1999, the company issued $600,000 of $350,000 $ 0
7% convertible debentures under the following
amended terms and conditions:
</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.
<PAGE> 118
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
(UNAUDITED)
NOTE 13 CONVERTIBLE DEBENTURES (CONTINUED)
<TABLE>
<CAPTION>
CURRENT
$600,000 DEBENTURE TOTAL PORTION
------------------ ----- -------
<S> <C> <C>
7. Redemption by company - If there is a change in control of
the company, the holder of the debenture can request that
the debenture be redeemed at a price equal to 125% of the
aggregate principal and accrued interest outstanding under
this debenture.
8. The debentures are unsecured.
9. Any further issuance of common stock or debentures
must be approved by debenture holders.
10. Debenture holders have a eighteen month right of first
refusal on future disposition of stock by the company.
11. Restriction on payment of dividends, retirement of
stock or issuance of new securities.
$250,000 of debentures were converted into 389,900 shares of
common stock.
$1,600,000 UNSECURED DEBENTURE
On March 27, 2000, the company issued $1,600,000 of $1,400,000 $ 0
7% convertible debentures under the following terms
and conditions:
1. Due date - March 27, 2005.
2. Interest only on May 1 and December 1 of each
year commencing May 1, 2000.
3. Default interest rate - 18%.
4. Warrants to purchase 375,000 shares of common
stock at $1.45 per share.
5 Conversion terms - The debenture holder shall have the
right to convert all or a portion of the outstanding
principal amount of this debenture plus any accrued
interest into such number of shares of common stock as
shall equal the quotient obtained by dividing the
principal amount of this debenture by the applicable
conversion price.
6. Conversion price - Lesser of (i) $1.45 (fixed price) or
(ii) the product obtained by multiplying the average
closing price by .80.
</TABLE>
<PAGE> 119
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
(UNAUDITED)
NOTE 13 CONVERTIBLE DEBENTURES (CONTINUED)
<TABLE>
<CAPTION>
CURRENT
$600,000 DEBENTURE TOTAL PORTION
------------------ ----- -------
<S> <C> <C>
7. Average closing price - The debenture holder shall have
the election to choose any three trading days out of
twenty trading days immediately preceding the date on
which the holder gives the company a written notice of the
holder's election to convert outstanding principal of this
debenture.
8. Redemption by company - If there is a change in control of
the company, the holder of the debenture can request that
the debenture be redeemed at a price equal to 125% of the
aggregate principal and accrued interest outstanding under
this debenture.
9. The debentures are unsecured.
10. Any further issuance of common stock or debentures
must be approved by debenture holders.
11. Debenture holders have a eighteen month right of first
refusal on future disposition of stock by the company.
12. Restriction on payment of dividends, retirement of
stock or issuance of new securities.
------------------ ------------------
Total $ 1,750,000 $ 0
================== ==================
</TABLE>
$200,000 of debentures were converted in to 362,653 shares of
common stock.
NOTE 14 REAL ESTATE LEASE
On June 1, 1999, the company leased a new facility from a
related entity. The lease commenced on July 1, 1999, requires
initial annual rentals of $153,600 (with annual increases) plus
taxes and operating costs and expires on December 31, 2024. The
company has also guaranteed the mortgage on the premises in the
amount of $943,475 and given a security interest in all of the
assets of the company.
Future minimum lease payments excluding taxes and expenses, are
as follows:
<TABLE>
<S> <C> <C>
July 31, 2000 $ 156,160
July 31, 2001 163,968
July 31, 2002 172,168
July 31, 2003 180,780
July 31, 2004 189,820
November 1, 2004 - December 31, 2024 6,638,500
</TABLE>
Rent expense for the nine months ended July 31, 2000 and 1999 is
$116,037 and $38,612, respectively.
<PAGE> 120
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
(UNAUDITED)
NOTE 15 ADVERTISING
The company expenses all advertising as incurred. For the nine
months ended July 31, 2000 and 1999, the company charged to
operations $393,747 and $74,555 in advertising costs.
NOTE 16 INTEREST
The company incurred interest expenses for the nine months ended
July 31, 2000 and 1999 of $73,645 and $35,357, respectively.
NOTE 17 WARRANTY RESERVE
The company established a warranty reserve of $47,921 to cover
any potential warranty costs on computer equipment that are not
covered by the computer manufacturer's warranty.
NOTE 18 RESEARCH AND DEVELOPMENT
The company incurred research and development cost for the nine
months ended July 31, 2000 and 1999 of $5,224 and $4,693,
respectively.
NOTE 19 OFFICERS' COMPENSATION
At July 31, 2000, officers' compensation was as follows:
<TABLE>
<S> <C>
President and Chief Executive officer $ 200,000
Vice President/Comptroller 88,000
Vice President/Operations 88,000
Chief Operating Officer 96,200
Vice President/Marketing 75,000
Vice President/Technology 80,000
</TABLE>
NOTE 20 EMPLOYEE STOCK OPTIONS
On January 31, 1999, the corporation adopted a stock option plan
for the purpose of providing an incentive based form of
compensation to the directors, key employees and service
providers of the corporation.
The stock subject to the plan and issuable upon exercise of
options granted under the plan are shares of the corporation's
common stock, $.001 par value, which may be either unissued or
treasury shares. The aggregate number of shares of common stock
covered by the plan and issuable upon exercise of all options
granted shall be 5,000,000 shares, which shares shall be
reserved for use upon the exercise of options to be granted from
time to time.
Vesting terms of the options range from immediately to five
years and generally expire in ten years.
<PAGE> 121
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
(UNAUDITED)
NOTE 20 EMPLOYEE STOCK OPTIONS (CONTINUED)
A summary of the stock option activity for the nine months ended
July 31, 2000 and 1999, pursuant to the terms of the plan is set
forth below:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
OPTIONS PRICE
------- -----
<S> <C> <C>
Balance at beginning of period 2,350,000 $ .75
Granted 1,310,000 1.15
Exercised (70,000) .75
Canceled (180,000) .75
----------
Balance at end of period 3,410,000
==========
</TABLE>
The weighted average fair value of options granted in 2000 and
1999 was estimated as of the date of grant using the
Black-Scholes stock option pricing model, based on the following
weighted average assumptions: annual expected return of 0%,
annual volatility of 50%, risk-free interest rate ranging from
6.75% and expected option life of 10 years.
The per share weighted-average fair value of stock options
granted during 2000 and 1999 was $.58 and $0.00, respectively.
The per share weighted average remaining life of the options
outstanding at July 31, 2000 and 1999 is 7.2 and 0 years,
respectively.
The company has elected to continue to account for stock-based
compensation under APB Opinion No. 25, under which no
compensation expense has been recognized for stock options
granted to employees at fair market value. There is no
additional compensation costs to report and required pro-forma
net income and earnings per share are the same as the historical
financial statement presentations.
NOTE 21 GOING CONCERN
These financial statements are presented on the basis that the
company is a going concern. Going concern contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business over a reasonable length of time. The
accompanying financial statements show that the company incurred
a net losses of $2,322,540 for the nine months ended July 31,
2000.
NOTE 22 FINANCIAL PROJECT MANAGEMENT AGREEMENTS
In December 1999, the company entered into a six month agreement
with Equinet, Inc., the project manager, to promote the growth
of, or increase in the shareholder value of the company.
<PAGE> 122
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
(UNAUDITED)
NOTE 22 FINANCIAL PROJECT MANAGEMENT AGREEMENTS (CONTINUED)
The project manager will be compensated as follows:
1. A monthly fee of $3,500 for the first 6 months of
the agreement payable in cash or stock.
2. A fee of 1% - 10% based upon the funding received
from the project manager's recommendations.
3. In connection with the first $5,000,000 raised by
the project manager, the company will issue to the
project manager warrants to purchase three shares
of common stock for each $20 raised, up to a
maximum of 750,000 shares. In the event the first
$1,875,000 is received by January 10, 2000, the
company will provide Equinet, Inc. a discounted
exercise price of $0.99 per share in connection
with the warrants issued for these funds.
In May 2000, the company entered into a fourteen month agreement
with Silverman Heller Associates, to promote financial and
corporate communication activities.
The project manager will be compensated as follows:
1. A monthly fee of $5,500 beginning on May 17, 2000.
2. In connection with the services the project manager
will provide, warrants to purchase 75,000 shares of
common stock at the closing price on May 17, 2000
and an additional 50,000 shares at $5.00 per share.
These warrants and the shares to be issued upon the
exercise of the warrants will vest and be
exercisable as of May 17, 2000 and expire five
years from the issue date. The warrants will be
granted registration rights on the next stock
registration within the five-year term.
In June 2000, the company entered into a one year agreement with
Travis Morgan Securities, to provide financial consulting to
facilitate long-range strategic planning and to advise the
company on business and or financial matters.
The project manager will be compensated as follows:
1. Certificates representing an aggregate of 150,000
shares of common stock.
2. An option for free trading stock with respect to
the following quantities and strike prices.
The term of the option shall be one year from the
contract date. The option is executable after
reaching the execution price for 10 days.
<TABLE>
<S> <C> <C> <C>
50,000 shares $1.50 exercise price $3.00 execution price
50,000 shares $2.00 exercise price $4.00 execution price
50,000 shares $2.50 exercise price $5.00 execution price
</TABLE>
3. The project manager will be granted the first right
of refusal to participate in any subsequent mergers
or acquisitions, registrations, IPOS or secondary
offerings.
In July 2000, the company entered into an agreement with two
individuals, to provide computerized CD-Rom presentations,
website services and construction, brochures, trade shows and
webcasts on bNet-TV.
<PAGE> 123
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
(UNAUDITED)
NOTE 22 FINANCIAL PROJECT MANAGEMENT AGREEMENTS (CONTINUED)
The individuals will be compensated as follows:
1. 80,000 shares of common stock valued at $.80 per
share on or before June 15, 2000.
2. 400,000 shares of common stock valued at $.80 per
share on or before June 15, 2000.
NOTE 23 LITIGATION
Epson America, Inc. vs, Invnsys Technology Corporation. Civil
Cause # CV 2000-008155 - Superior Court of Arizona.
Epson America, Inc. is suing the corporation for $114,785 to
collect past due accounts payable. The company is disputing the
$114,785 as it believes that Epson has not offset the debt by
commissions earned and due by Invnsys Technology Corporation.
However, the company has accrued $102,619 in the accounts
payable.
NOTE 24 PLAN OF REORGANIZATION AND STOCK EXCHANGE AGREEMENT
On January 1, 1999, the company issued 16,000,000 shares of
newly issued restricted common stock for 100% of the issued and
outstanding stock of Invnsys Technology Corporation. Invnsys
Technology Corporation became a wholly-owned subsidiary of IBIZ
Technology Corp. and the acquisition was accounted for as a
reverse acquisition.
The details of the results of operation (unaudited) for each
separate company, prior to the date of combination, that are
included in the current net income are:
<TABLE>
<CAPTION>
INVNSYS IBIZ
TECHNOLOGY TECHNOLOGY
CORPORATION CORP.
---------------------- ------------------------
<S> <C> <C>
Sales $ 402,127 $ 0
Cost of sales 239,704 0
---------------------- ------------------------
Gross profit 162,423 0
Selling, general and administrative
expenses 243,094 27,742
---------------------- ------------------------
(Loss) before income taxes (refund (80,671) (27,742)
Income taxes (refund) (20,150) 0
---------------------- ------------------------
Net (loss) $ (60,521) $ (27,742)
====================== ========================
</TABLE>
There were no adjustments in the net assets of the combining
companies to adopt the same accounting policies.
Each of the companies had an October 31 fiscal year so no
accounting adjustments were necessary.
<PAGE> 124
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
(UNAUDITED)
NOTE 24 PLAN OF REORGANIZATION AND STOCK EXCHANGE AGREEMENT (CONTINUED)
An (unaudited) reconciliation of revenues and earnings
reconciled with the amounts shown in the combined financial
statements is as follows:
<TABLE>
<S> <C>
Net (loss) of IBIZ Technology Corp. at December 31, 1998 $ (27,742)
Add Invnsys Technology Corporation (loss)
for November 1, 1998 to December 31, 1998 (60,521)
Additional net (loss) from January 1, 1999 to July 31, 1999 (431,732)
---------
Net (loss) for the nine months ended July 31, 1999 $(519,995)
==========
</TABLE>
NOTE 25 UNAUDITED FINANCIAL INFORMATION
The accompanying financial information as of July 31, 2000 and
1999 is unaudited. In management's opinion, such information
includes all normal recurring entries necessary to make the
financial information not misleading.
<PAGE> 125
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 $1,391.00
Legal Fees and Expenses $20,000.00
Accounting Fees and Expenses $5,000.00
Printing Expenses $5,000.00
Blue Sky Fees and Expenses $1,000.00
TOTAL(1) $32,391.00
</TABLE>
-------------------------
(1) Except for the SEC registration fee, all fees and expenses are
estimates.
<PAGE> 126
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 May 13, 1999, iBIZ issued options
to purchase 2,850,000 shares of common stock, $.001 par value to employees and
various consultants. The exercise price of the options is the fair market value
on the date of grant, which ranged from $0.75 to $1.00 per share. iBIZ relied
upon either Rule 701 or Section 4(2) with respect to the granting of the
options.
On June 30, 1999, iBIZ issued Two Hundred Thousand Dollars
($200,000.00) of 8% Debentures. The 8% Debentures are due on June 21, 2000, bear
interest at eight percent (8%) per annum, and are unsecured. Under the terms of
the 8% Debentures, iBIZ is obligated to include the shares issuable upon
conversion of the 8% Debentures in this registration statement. Upon the
effectiveness of this registration statement, the 8%
<PAGE> 127
Debentures shall automatically convert to 300,000 fully paid and nonassessable
shares of common stock, $.001 par value.
Effective May 1999, iBIZ issued a warrant entitling the holder
to acquire 400,000 shares of common stock, $.001 par value, at an exercise price
of $0.75 per share for the first 300,000 shares and $1.00 per share for the
remaining 100,000 shares.
In November 1999, iBIZ issued Six Hundred Thousand Dollars
($600,000.00) of 7% Debentures (the "$600k 7% Debentures") to Globe United
Holdings, Inc. ("Globe"). Thereafter, in December 1999, iBIZ issued to Globe an
additional One Million Dollars ($1,000,000.00) of 7% Debentures (the "$1000k 7%
Debentures). On December 6, 1999, Globe converted $200,000 of the $600k 7%
Debentures, plus accrued interest to date. Pursuant to the applicable conversion
formula, iBIZ issued 300,962 shares of common stock.
In connection with the issuance of the $600k 7% Debentures,
iBIZ issued a warrant to purchase 100,000 shares of common stock at a purchase
price of $0.94 per share. The warrant is immediately exercisable and expires
November 9, 2004.
In connection with the issuance of the $1000k 7% Debentures,
iBIZ issued a warrant to purchase 200,000 shares of common stock at a purchase
price of $0.94 per share. The warrant is immediately exercisable and expires
December 28, 2004 (collectively the "Warrants).
iBIZ relied upon Regulation D, Rule 506 promulgated under the
Securities Act with respect to the issuance of the 7% Debentures and the
Warrants.
On January 7, 2000, iBIZ issued 250,000 shares of common
stock, $.001 par value, at a sales price of $1.10 per share for a total amount
of $275,000. iBIZ relied upon Regulation D, Rule 506 promulgated under the
Securities Act with respect this sale.
On January 10, 2000, iBIZ issued warrants to purchase 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. The
warrants have terms of five years and are immediately exercisable. iBIZ relied
upon either Section 4(2) or Regulation D, Rule 506 promulgated under the
Securities Act with respect to these warrants.
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.
On May 31, 2000 and June 21, 2000, the $1,600,000 debenture
holder converted $200,000 of debentures into 362,653 common shares. On
September 6, 2000, $300,000 and on September 13, 2000, $_______ of the
principal amount of the Debentures was converted into 967,742 shares and
________ shares, of common stock, respectfully. iBIZ relied upon either
Section 4(2) or Regulation D, Rule 506 promulgated under the Securities Act
with respect to the issuance of these shares.
In April of 2000, 1,297,375 shares of common stock were
issued in lieu of payment of payroll bonuses, in lieu of payment for services
rendered, for fees and costs for issuance of stock, for an account payable, and
for cash from warrants and stock options. iBIZ relied upon either Section 4(2)
or Regulation D, Rule 506 promulgated under the Securities Act with respect to
the issuance of these shares.
On June 16, 2000, a Financial Consulting Services Agreement
was entered into between iBIZ Technology Corp., and Travis Morgan Securities.
The consultant was initially paid with 150,000 shares of iBIZ common stock,
with a right of first refusal to participate in any subsequent offerings or
mergers. An option for an additional 150,000 shares was also granted to the
consultant, with a term of one year. These options are exercisable in 50,000
increments at certain strike prices.
On July 6, 2000, an Agreement was entered into between iBIZ
Corporation, Anthony Sklar and Blaine Ruzycki. Both Sklar's and Ruzycki's
compensation is in the form of iBIZ common stock. Sklar received 80,000 shares
valued at $0.80 per share, and Ruzycki received 400,000 shares valued at $0.80
per share.
Between August 1, 2000 and September 25, 2000, the Company
issued 3,040,918 shares of Common Stock to 18 different parties at sales prices
ranging from $.30 to $.55 cents per share for a total amount of approximately
$1,050,000. The Company also issued warrants to purchase approximately 805,000
shares of common stock at exercise prices ranging from $.50 to $5.00. iBIZ
relied on either Regulation D, Rule 506 or Section 4(2) under the Securities Act
with respect to these sales.
ITEM 27. 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
</TABLE>
<PAGE> 128
<TABLE>
<S> <C>
3.02(1) Bylaws
5.05(9) 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.
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.
10.30(6) Letter Agreement dated March 27, 2000 from Globe United Holdings to iBIZ
10.31(8) Financial Consulting Services Agreement dated June 16, 2000 with Travis Morgan Securities
10.32(8) Agreement with the Partnership of Sklar and Ruzycki dated July 6, 2000
10.33(4) Form of Warrant dated August 30, 2000 (six warrants by and between iBIZ Technology Corp., and
various warrant holders)
10.34(3) Form of Warrant dated May 17, 2000 (four warrants by and between iBIZ Technology Corp., and
various warrant holders)
21.01(1) Subsidiaries of Registrant
</TABLE>
<PAGE> 129
<TABLE>
<S> <C>
23.03(9) Consent of Moffitt & Company
27.02(7) 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. Incorporated by reference from iBIZ's Form SB-2, File No. 333-34936,
filed with the SEC on April 17, 2000.
7. Incorporated by reference from iBIZ's Form 10-QSB, File No. 027619,
filed with the SEC on September 14, 2000.
8. Incorporated by reference from iBIZ's Form 10-SB, File No. 027619,
filed with the SEC on July 27, 2000.
9. 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.
(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.
<PAGE> 130
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 September 25, 2000.
iBIZ Technology Corp.,
a Florida Corporation
By:/s/ Kenneth W. Schilling
---------------------------------------
Kenneth W. Schilling, President,
Director
By:/s/ Terry S. Ratliff
--------------------------------------
Terry S. Ratliff, Vice President,
Comptroller, Director
By:/s/ Mark H. Perkins
---------------------------------------
Mark H. Perkins, Vice President of
Operations, Director
<PAGE> 131
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
5.05(9) 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.
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.
10.30(6) Letter Agreement dated March 27, 2000 from Globe United Holdings to iBIZ
10.31(8) Financial Consulting Services Agreement dated June 16, 2000 with Travis Morgan Securities
10.32(8) Agreement with the Partnership of Sklar and Ruzycki dated July 6, 2000
10.33(4) Form of Warrant dated August 30, 2000 (six warrants by and between iBIZ Technology Corp., and
various warrant holders)
10.34(3) Form of Warrant dated May 17, 2000 (four warrants by and between iBIZ Technology Corp., and
various warrant holders)
21.01(1) Subsidiaries of Registrant
23.03(9) Consent of Moffitt & Company
27.02(7) 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. Incorporated by reference from iBIZ's Form SB-2, File No. 333-34936,
filed with the SEC on April 17, 2000.
7. Incorporated by reference from iBIZ's Form 10-QSB, File No. 027619,
filed with the SEC on September 14, 2000.
8. Incorporated by reference from iBIZ's Form 10-SB, File No. 027619,
filed with the SEC on July 27, 2000.
9. Filed herewith.
