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U. S. Securities and Exchange Commission
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
IBIZ TECHNOLOGY CORP.
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(Name of small business issuer in its charter)
Florida 3571 86-0933890
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(State or jurisdiction (Primary Standard (I.R.S. Identification No.)
of incorporation or Industrial Employer
organization) Classification Code
Number)
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.
Gammage & Burnham, PLC
Two North Central Avenue, 18th Floor, Phoenix, Arizona 85004
(602) 256-0566
Approximate date of proposed sale to the public: December 11,2000.
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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Proposed
maximum Proposed maximum AMOUNT OF
Title of each class of securities to Amount to be offering price aggregate REGISTRATION
be registered registered(1) per share(3) offering price(3) FEE(3)
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Common stock, $0.001 par value 50,000,000(2) $0.325 $16,250,000.00 $4,290.00
Common stock, $0.001 par value 223,000(4) $0.325 $ 72,475.00 $ 19.14
Common stock, $0.001 par value 278,750(5) $0.325 $ 90,593.75 $ 33.92
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(1) Represents the shares of common stock being registered for resale by the
selling securityholders.
(2) Pursuant to a registration rights agreement between us and certain selling
securityholders, we were required to register a sufficient number of
shares so that upon conversion of certain of our eight percent convertible
notes and certain warrants issued in connection therewith, the selling
securityholder could resell all registered securities. 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 securityholders upon conversion of the notes. That number of
shares is subject to adjustment under anti-dilution provisions included in
the notes 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 notes.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Securities Act, based on the average
($0.325) of the bid ($0.300) and asked ($0.350) price on the NASD OTC
Bulletin Board on November 20, 2000.
(4) Represents Shares Issued pursuant to Subscription
Agreements.
(5) Represents Warrants Issued pursuant to Subscription
Agreements.
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 Front cover
and outside front of cover of
Prospectus
2. Inside front and outside back Inside front cover of
cover of Prospectus Prospectus
3. Summary information and Risk
Factors Summary; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Plan of Distribution
6. Dilution Not Applicable
7. Selling Security Holders Selling Securityholders
8. Plan of Distribution Plan of Distribution
9. Legal Proceedings Business
10. Directors, Executive Officers, Directors and Executive Officers
Promoters and Control Persons
11. Security Ownership of Certain Security Ownership of Certain
Beneficial Owners and Management Beneficial Owners and Management
12. Description of Securities Description of Securities
13. Interest of Named Experts and
Counsel Not Applicable
14. Disclosure of Commission
Position of Indemnification for Indemnification for Securities
Securities Act Liabilities Act Liabilities
15. Organization in last five years Not Applicable
16. Description of business Business
17. Management's Discussion and Management's Discussion and
Analysis or Plan of Operations Analysis
18. Description of Property Business
19. Certain Relationships and Certain Relationships and
Related Transactions Related Transactions
20. Market for Common Equity and Market for Common Equity and
Related Stockholder Matters Related Shareholder Matters
21. Executive Compensation Executive Compensation
22. Financial Statements Financial Statements
23. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure Not Applicable
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iBIZ TECHNOLOGY CORP.
1919 West Lone Cactus Drive
Phoenix, Arizona 85021
(623) 492-9200
www.ibizcorp.com
50,501,750 SHARES
COMMON STOCK
50,501,750 shares of common stock are being offered by our securityholders
named under the heading "Selling Securityholders." 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 November 20, 2000,
the price for our common stock was $0.32 per share.
Investing in the common stock involves certain risks, see "Risk Factors."
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.
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TABLE OF CONTENTS
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PROSPECTUS SUMMARY.................................................... 3
RISK FACTORS.......................................................... 5
SELLING SECURITYHOLDERS............................................... 13
USE OF PROCEEDS....................................................... 14
PLAN OF DISTRIBUTION.................................................. 14
MANAGEMENT'S DISCUSSION AND ANALYSIS.................................. 15
DESCRIPTION OF BUSINESS............................................... 20
DIRECTORS AND EXECUTIVE OFFICERS...................................... 31
EXECUTIVE COMPENSATION................................................ 32
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........ 33
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................ 35
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.............. 35
DESCRIPTION OF SECURITIES............................................. 36
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES........................ 41
EXPERTS............................................................... 41
LEGAL MATTERS......................................................... 41
PART F/S.............................................................. F-1
PART II............................................................... 43
SIGNATURES............................................................ 49
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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, keyboards,
displays and monitors, notebook computers, printers and peripherals, and
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 that 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
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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.
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
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Total shares registered in this prospectus ........... 50,501,750
Shares outstanding after the offering ................ 88,314,174(1)
OTC Bulletin Board symbol ............................ iBIZ
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(1) Assumes (1) the conversion of all of the notes and warrants at 100% of the
maximum number of shares issuable and (2) the sale of all shares
registered. However, this amount excludes shares issuable upon exercise of
options and warrants not registered in this prospectus.
RISK FACTORS
Investing in the common stock involves certain risks. You should review
these "Risk Factors."
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 that 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.
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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 CONVERTIBLE NOTES, 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.
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 continue to have insufficient cash flow to grow operations. We
cannot assure you that we will be successful in reaching or maintaining
profitable operations.
We May Require Additional Capital In The Future
We have spent substantial funds on product research and development,
construction and installation of our new co-location facility, and expansion of
our sales and marketing efforts. As a result, we have needed to raise short-term
capital to maintain our ongoing business.
Since December 1, 1999, the Company has raised approximately $5,000,000
through the sale of convertible debentures, convertible notes, 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. The Company currently has commitments for an
additional $4,000,000, subject to meeting certain representations, warranties,
covenants, and conditions.
We believe that the amounts committed (assuming the Company meets the
representations, warranties, covenants, and conditions to receive those amounts)
should be sufficient to finance the Company's business plans through the
Company's fiscal year ended October 31, 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 are unable to raise additional funds when necessary, we may have to
reduce planned expenditures, scale back our product developments, sales or other
operations,
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lay-off employees and enter into financing arrangements on terms that we would
not otherwise accept or be forced into insolvency.
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.
We Have A Limited Operating History On Which You May Judge Our
Performance.
While our operating subsidiary, INVNSYS, has been in operation since 1979,
iBIZ has only commenced operations in the Internet access business only since
September 2000. Consequently, the Company has a limited combined operating
history upon which an evaluation of the Company's performance and prospects can
be made. The Company's prospects must be considered in light of the numerous
risks, liquidity, shortages, expenses, delays, problems and difficulties
frequently encountered in the establishment of a new business in an industry
characterized by intense competition and high cost utilization.
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 in
obtaining 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,
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however, that our new DSL and co-location services will enable us to expand our
customer base and generate greater revenues.
We Face Intense Pricing Pressure.
Our Internet access business competes or expects to compete directly or
indirectly with the following categories of companies: (i) national and regional
commercial Internet Service Providers; (ii) established online services that
offer Internet access, such as America On-Line and Earthlink; (iii) national
long distance telecommunication carriers, such as AT&T, MCI Worldcom and Sprint,
which offer electronic messaging services; (iv) regional Bell operating
companies, such as Pacific Bell; (v) cable operators, such as Cox Cable Systems;
and (vi) nonprofit or educational Internet service providers and other service
providers currently in the market or who may enter the market in the future.
We Depend On Our Telecommunication Carriers And Other Suppliers.
We are dependent on telecommunication carriers for access to high speed
Internet communications. We currently operate pursuant to agreements with UUNet
(MCI Worldcom), ELI (Electric Lightways), Cox, and Genuity. In the event of
termination or nonrenewal of any agreement, there can be no assurance that we
will be able to provide continued access to high-speed Internet connections at a
reasonable price. In such case, our operations may have to be curtailed.
We Must Rely On Our Strategic Partners To Keep Pace With Rapid
Technological Change And Evolving Industry Standards.
The markets for telecommunication services are characterized by rapidly
changing technology, evolving industry standards, merging competition and
frequent new services, software and other product introductions. Because we are
primarily a marketer and reseller of Internet services and technological
products, we must rely on our strategic partners to keep pace with technological
change. There can be no assurance that our strategic partners can successfully
identify new service opportunities or products and develop and bring new
products and services, if any, to market in a timely and cost effective manner.
We also cannot assure that software, services, products or technologies
developed by others will not render the services, technologies or products of
our strategic partners less competitive or obsolete. In addition, there can be
no assurance that any product or service developments, or [enhanced or] that are
introduced by strategic partners, will achieve or sustain market acceptance or
be able to effectively address the compatibility and operability issues raised
by technological changes or new industry standards.
We Face The Risk Of System Failure.
Our success is largely dependent upon our ability to deliver high quality,
high speed uninterrupted access to the Internet. System failures could have an
adverse effect on our operations and business. As we attempt to expand our
network and daily traffic grows, there will be increased stress on network
hardware and traffic management systems. We have little technical control over
the Northpoint network and there can be no assurance that our customers will not
experience failures relating to that network. Our operations are also dependent
on our ability to successfully expand our network and to integrate new and
emerging technologies and equipment into the network, which is likely to
increase the risk of system failure and cause unforeseen strains on the network.
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Significant or prolonged systems failures, or difficulties for subscribers in
accessing and maintaining connection with the Internet could damage our
reputation and result in the loss of subscribers.
We Face Security Risks.
Despite the implementation of network security measures, such as limiting
physical and network access to its routers, our Internet infrastructure is
potentially vulnerable to computer viruses, break-ins and similar disruptive
problems caused by customers or other Internet users. Computer viruses,
break-ins or other problems caused by third parties could lead to interruption,
delays or cessation of service to customers. Furthermore, such inappropriate use
of the Internet by third-parties could also potentially jeopardize the security
of confidential information stored in the computer systems of our customers and
other parties connected to the Internet, which may deter potential customers
from using our services.
Highly Competitive Market For Products
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, and, in
the thin-client computer terminal market, with Wyse Technology, a private
company we believe may have as much as 45% of the total thin-client terminal
market. 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.
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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.
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 decreases during
consolidation, many banking and financial institutions upgrade their computer
networks. We cannot assure you that the demand for our products by banking and
financial institutions will not decrease as a result of the consolidation.
Our Products Must Be Compatible With Third-Party Software
Although we market computer hardware and peripherals, we currently do not
develop software. Consequently, we are dependent upon third-parties to develop
software applications that operate on our hardware platforms. If software
providers do not continue to provide software acceptable to our customers, our
sales may suffer.
We cannot guarantee that all available software will be compatible with
our products or that we will have the technical personnel necessary to evaluate
and fix software compatibility problems that may arise. If we do not have
technical personnel available, our sales may decline.
We Are Dependent On Our Manufacturers And Suppliers
Our business depends upon obtaining adequate quantities of products from
our manufacturers and suppliers. Consequently, our results of operations are
dependent, in part, upon our manufacturers' and suppliers' ability to produce
reasonably priced products in adequate amounts to meet our demands.
Currently, our computers and peripherals are engineered and manufactured
by various entities in Taiwan and South Korea. Although we have not experienced
significant problems with our manufacturers and suppliers in the past, we may
experience such problems in the future. We are also subject to risks of
fluctuations in our component prices. If prices charged by our vendors increase,
our cost of goods sold and net income would be adversely affected.
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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 recently 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.
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
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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 $0.32 per share and a high of
$3.19 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 November 20, 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. However, we will receive funds upon the exercise of warrants
to purchase our common stock. We intend to use the proceeds principally for
working capital and general corporate purposes, including marketing and product
development. Our management and board of directors have broad discretion with
respect to the application of the proceeds.
Sales Of Common Stock Currently Registered For Resale Could Cause A
Decline In Our Stock Price
If all the shares registered in this offering are sold and even if
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.
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<PAGE> 15
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.
We Are Subject To Government Regulation And Changes In Laws That Could
Adversely Effect Our Business.
We provide Internet services, in part, through data transmission over
public telephone lines as well as through the private Northpoint network. These
transmissions are governed by State and Federal regulatory policies establishing
charges and terms for wireline communications. While we are not currently
subject to direct regulation by the Federal Communication Commission (the
"FCC"), we could become subject to regulation by the FCC or another regulatory
agency as a provider of basic telecommunication services. Such a regulation, if
enacted, would create substantial barriers to our entry into the Internet
telephone market. Moreover, we are subject to a variety of risks that could
materially effect our business due to the rapidly changing legal and regulatory
landscape governing the Internet access providers. For example, the FCC
currently exempts Internet access providers from having to pay permanent access
charges that long distance telecommunication providers may charge local
telephone companies for the use of the local telephone network. In addition,
Internet access providers are currently exempt from having to pay a percentage
of their gross revenues as a contribution to the Federal Universal Service Fund.
Should the FCC eliminate these exemptions and impose such charges on Internet
access providers, this would increase our cost for providing dial-up Internet
access service and could have a material adverse effect on our business,
financial condition and results of operations.
We Face Risk Due To Possible Changes In The Way Our Competitors Are
Regulated Which Would Have An Adverse Effect On Our Business.
For example, the FCC is considering measures that could stimulate the
development of high speed telecommunication facilities to make it easier for
operators of these facilities to obtain access to customers. Such favorable
regulatory measures could enhance the viability of our competitors in the
Internet access marketplace. In addition, changes in the regulatory environment
may provide competing Internet service providers the right of access to the
cable systems of local franchise cable operators. The adoption of local access
cable systems by Internet service providers could harm our business.
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
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registration statement. For further information with respect to us and our
common stock, you should refer to the registration statement and to the exhibits
and schedules filed as part of the registration statement, as well as the
documents discussed below.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update or supersede this information.
This prospectus may contain summaries of contracts or other documents.
Because they are summaries, they will not contain all of the information that
may be important to you. If you would like complete information about a contract
or other document, you should read the copy filed as an exhibit to the
registration statement or incorporated in the registration statement by
reference.
We incorporate by reference the documents listed below and any future
filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 until all of the shares are sold:
- Form 10-SB, filed October 13, 1999, File No. 027619, including the
amendments filed on November 30, 1999 and December 15, 1999.
- Form SB-2, filed January 11, 2000, File No. 027619, including the
amendment filed on January 31, 2000.
- Annual Report on Form 10-KSB filed January 27, 2000, File No.
027619.
- Quarterly Report on Form 10-QSB filed March 16, 2000, File No.
027619.
- Form SB-2, filed April 17, 2000, File No. 027619.
- Quarterly Report on Form 10-QSB filed June 14, 2000, File No.
027619.
- Form SB-2, filed July 28, 2000, File No. 027619, including the
amendment filed on September 25, 2000.
- Quarterly Report on 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
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<PAGE> 17
prospectus are issuable to the selling securityholders upon conversion of the
notes or the exercise of options or warrants.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
PERCENTAGE OF
Shares of Common COMMON STOCK
Stock Included in Ownership Before Ownership After OWNED AFTER
Name Prospectus(4)(6) the Offering(1) the Offering(2) OFFERING(3)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Celeste Trust Reg. 5,500,000(5) 0.0 5,000,000 6%
Esquire Trade & Finance, Inc. 8,000,000(5) 0.0 8,000,000 9%
The Keshet Fund L.P. 5,000,000(5) 0.0 5,000,000 6%
Keshet, L.P. 20,500,000(5) 0.0 20,500,000 23%
Talbiya B. Investments Ltd. 9,000,000(5) 0.0 9,000,000 10%
Libra Finance S.A. 1,500,000 0.0 1,500,000 2%
Cong. Sharith Hapleton 501,750 0.0 501,750 *
------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Consists of all shares owned by the selling securityholders as of
November 20, 2000.
(2) Assumes the sale by iBIZ to the warrant or convertible note holders
of all shares registered in this offering.
(3) Notwithstanding the figures in the chart, the Subscription Agreement
provides that no Subscriber may own more than 4.99% of the stock at any one
time. "*" means less than one percent.
(4) Consisting in whole or in part of shares issuable upon conversion of
options and exercise of the warrants.
(5) Issuable upon conversion of convertible notes.
(6) A presently indeterminate amount of shares will be allocated pro
rata from the shares registered in this Registration Statement to issue certain
warrants to the Finders, equal to 12% of the shares to be issued upon conversion
of the final $2 million of Notes.
USE OF PROCEEDS
The Company is solely responsible for the expenses of this Offering, which
are estimated at $32,333.06. iBIZ will not receive any proceeds from the sale of
the common stock by the selling securityholders. iBIZ may, however, receive
proceeds upon the exercise of the 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 and marketing expenses related to
developing the customer base of the co-location facility. There can be no
assurance that any warrants will be exercised.
PLAN OF DISTRIBUTION
iBIZ is registering the shares on behalf of the selling securityholders.
As used herein, "selling securityholders" includes donees and pledgees selling
shares received from a named selling securityholder after the date of this
prospectus. All costs, expenses and fees in connection with the registration of
the shares offered hereby will be borne by the Company. 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.
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<PAGE> 18
Such broker-dealers may receive compensation in the form of discounts,
concessions, or commissions from the selling securityholders or the purchasers
of shares for whom such broker-dealers may act as agents or to whom they sell as
principal, or both (which compensation as to a particular broker-dealer might be
in excess of customary commissions).
The selling securityholders and any broker-dealers that act in connection
with the sale of shares might be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act, and any commissions received by such
broker-dealers and any profit on the resale of the shares sold by them while
acting as principals might be deemed to be underwriting discounts or commissions
under the Securities Act. iBIZ has agreed to indemnify some of the selling
securityholders against certain liabilities, including liabilities arising under
the Securities Act. The selling securityholders may agree to indemnify any
agent, dealer or broker-dealer that participates in transactions involving sales
of the shares against certain liabilities, including liabilities arising under
the Securities Act.
Because selling shareholders may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, the selling securityholders will
be subject to the prospectus delivery requirements of the Securities Act. iBIZ
has informed the selling securityholders that the anti-manipulative provisions
of Regulation M promulgated under the Exchange Act may apply to their sales in
the market.
Upon the Company being notified by a selling securityholder that any
material arrangement has been entered into with a broker-dealer for the sale of
shares through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, a supplement to this
prospectus will be filed, if required, pursuant to Rule 424(b) under the
Securities Act, disclosing (i) the name of each such selling shareholder and of
the participating broker-dealer(s); (ii) the number of shares involved; (iii)
the price at which such shares were sold; (iv) the commissions paid or discounts
or concessions allowed to such broker-dealer(s), where applicable; (v) that such
broker-dealer(s) did not conduct any investigation to verify the information set
out or incorporated by reference in this prospectus; and (vi) other facts
material to the transaction. In addition, upon iBIZ being notified by a selling
securityholder that a donee or pledgee intends to sell more than 500 shares, a
supplement to this prospectus will be filed.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Through its operating subsidiary, INVNSYS, iBIZ designs, manufactures, and
distributes small footprint desktop computers, transaction printers, general
purpose financial 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.
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<PAGE> 19
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
YEAR ENDED
--------------------------------------------------------------------------------------------------------------
10/31/97 10/31/98
-------- --------
<S> <C> <C>
Statement of Operations Data
Net sales $ 2,350,459 $ 3,402,681
Gross profit $ 771,019 $ 1,182,885
Operating income (loss) $ (403,889) $ 112,882
Net earnings (loss) after tax $ (501,258) $ 51,182
Net earnings (loss) per share $ (50.13) $ 5.12
Balance Sheet Data
Total assets $ 1,105,198 $ 1,508,944
Total liabilities $ 1,796,544 $ 1,991,007
Stockholders' equity (deficit) $ (691,346) $ (482,063)
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
YEAR ENDED
--------------------------------------------------------------------------------------------------------------
10/31/98 10/31/99
-------- --------
<S> <C> <C>
Statement of Operations Data
Net sales $ 3,402,681 $ 2,082,515
Gross profit $ 1,182,885 $ 399,610
Operating income (loss) $ 112,882 $ (1,074,180)
Net earnings (loss) after tax $ 51,182 $ (1,053,563)
Net earnings (loss) per share $ 5.12 $ (.04)
Balance Sheet Data
Total assets $ 1,508,944 $ 1,043,030
Total liabilities $ 1,991,007 $ 1,476,557
Stockholders' equity (deficit) $ (482,063) $ (433,527)
</TABLE>
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<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
NINE-MONTH PERIOD ENDED 7/31
--------------------------------------------------------------------------------------------------------------
7/31/99 7/31/00
------- -------
<S> <C> <C>
Statement of Operations Data
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 $ (0.03) $ (0.08)
Balance Sheet Data
Total assets $ 818,169 $ 3,715,708
Total liabilities $ 1,241,036 $ 3,597,604
Retained earnings (deficit) $ (1,401,810) $ (3,963,703)
</TABLE>
RESULTS OF OPERATIONS.
Fiscal year ended October 31, 1998 compared to fiscal year ended October 31,
1997.
Revenues. Sales increased by approximately 45% from $2,350,459 for the
fiscal year ended October 1997 to $3,402,681 for the fiscal year ended October
1998. The increase was mainly as a result of greater demand for INVNSYS' iT
business application products and new product introductions and shipments for
its keyboards.
Cost of Sales. The cost of sales increased by approximately 41% from
$1,579,440 in the fiscal year ended October 1997 to $2,219,796 in the fiscal
year ended October 1998. The increase in cost of sales is attributable to a
similar percentage increase in sales and reflects hardware costs that 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
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<PAGE> 21
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 $501,258 increased to
a profit of $51,182 for fiscal year ended October 1998. Profitability resulted
primarily from a dramatic increase in sales and a decrease in selling, general
and administrative expenses.
Fiscal year ended October 31, 1999 compared to fiscal year ended October
31, 1998.
Revenues. Sales decreased by approximately 63% from $3,402,681 in the
fiscal year ended October 1998 to $2,082,515 in the fiscal year ended October
1999. The decrease was mainly as a result of the focus by management on raising
financing for iBIZ and a transition to a new line of products. INVNSYS
experiences short product life cycles and the declining revenues reflect
declining sales volumes for existing products which were not replaced by any
significant sales of new products, and which management estimates did not exceed
$10,000.
Cost of Sales. The cost of sales of $2,219,796 in the fiscal year ended
October 1998 declined to $1,682,905 in the fiscal year ended October 1999, or an
approximate 32% decrease. This decline reflects a coinciding decrease in the
sale of products resulting in the purchase of less hardware from INVNSYS'
overseas suppliers.
Gross Profit. Gross profit decreased by approximately 66% from $1,182,885
in the fiscal year ended October 1998 to $399,610 in the fiscal year ended
October 1999. The significant decrease resulted primarily from the decrease in
revenues coupled with the cost of sales that 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 $51,182 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 that was not in proportion to
the significant decrease in revenues, and a substantial decrease in revenues for
the fiscal year ended October 1999.
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<PAGE> 22
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 an 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.
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 $0.35 per share to $0.55 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. If the Company receives all of the
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<PAGE> 23
capital presently committed, Management believes that it can remain in business
until October 31, 2001. There is no assurance, however, that the Company's
capital needs will be met, particularly if the Company's co-location facility
fails to generate anticipated revenues. 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. The server co-location facility has so far generated only nominal
revenues.
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 October, 2000, the Company received orders from CompUSA
totaling approximately $800,000 and from another retailer totaling approximately
$600,000 for PDA accessories. To fill orders, the Company may pay certain
manufacturing costs to its Taiwanese suppliers prior to shipment. The security
interest that the Company gave in all of its assets to Sonoma Bank in
conjunction with its move to a new facility in July, 1999, has been released, so
the Company now has unencumbered assets available to obtain receivables or other
debt financing.
Third-party software sales currently generate approximately $100,000 per
month in sales revenues. There is no assurance, however, that its favorable
relationship with its third-party suppliers will continue or that its customers
will continue to purchase the broadband connectivity 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 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.
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<PAGE> 24
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 that enabled Epson transactional printers to produce
cashier's checks, an industry innovation. In addition, in cooperation with
Epson, INVNSYS designed and marketed a stackable computer system for financial
institutions. In 1996, INVNSYS produced its first entry into the market for
complete computer systems with its Vision 2000 Multimedia Notestation, an Intel
Pentium-based computer/printer combination. In October 1998, INVNSYS began to
market a line of business transaction computers, the iT series.
In January 2000, the Company began offering network integration services.
In March 2000, the Company began offering digital subscriber line (DSL)
services.
On September 18, 2000, the Company announced the opening of its new data
center/Web-hosting server co-location facility, located in Phoenix. The data
center allows clients to run their Web-based activities over the Internet
without having to
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<PAGE> 25
maintain internal IT and other systems-related staffing and equipment. Through
this facility, iBIZ provides Web-hosting services, including hardware
connections, scalable bandwidth, and back-up, or redundant, servers to ensure
clients of continuous data traffic and Internet-based operations with
uninterrupted connectivity. iBIZ also provides high levels of physical and
systems security and around-the-clock maintenance, monitoring and technical
support. The facility has an extensive raised floor, with secured cabinet space
for up to 390 clients, 11 full-size, individually secured data suites, and a
mezzanine level with rack space for 1200 leased computer servers. Additionally,
the facility has space available for client oriented, custom built enclosures.
The iBIZ-designed infrastructure includes 3 primary environmental control
systems, uninterruptible power systems with battery and generator back-up
functions. The facility is connected by 3 diverse optical fiber routes, and by 4
major access providers, delivering Internet traffic directly to the Internet
backbone.
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.
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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 services 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
that 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.
Because of the rapid pace of technological advances in the personal
computer industry, INVNSYS must be prepared to design, develop, manufacture and
market new and more powerful hardware products in a relatively short time span.
While INVNSYS believes that it has been successful to date in accomplishing that
goal, there can be no assurance that it will continue to do so in the future.
- 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.
- 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.
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- 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
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.
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 that 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 recognized
approximately $170,000 in revenue 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 bandwidth "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.
"Co-location" is providing network connections, such as Internet leased
lines, to several servers housed together in a server room. Typically, we
provide a server, usually a Web server, located at our dedicated facility
designed with resources which include a secured cage or cabinet, regulated
power, dedicated internet connection, security and support.
Our co-location facility offers our customers a secure place to physically
house their hardware and equipment as opposed to locating it in their offices or
warehouse where the potential for fire, theft, or vandalism is much greater.
Our co-location facility also offers high-security, including cameras,
fire detection and extinguishing devices, multiple connection feeds, filtered
power, backup power generators and other items to ensure high-availability,
which is mandatory for all Web-based, virtual businesses.
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Our customers prefer co-location because the server owner wants their
machine to be on a high-speed Internet connection and/or they do not want the
security risks of having the server on their own network.
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
point-of-sale ("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 that 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 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
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company. The Harsper LCD panels are manufactured in South Korea. First
International Computer in Taiwan currently manufactures INVNSYS' Sahara desktop
computers.
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.
LICENSES
Citrix Systems, Inc. On December 30, 1998, INVNSYS entered into 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 that
facilitates the connection between the KeySync keyboard and the 3COM Palm
devices.
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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 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
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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.
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
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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
that 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.
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 COMPUSA, 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 $100,000 per month. However, there is no assurance that iBIZ's
relationship with its third-party suppliers will continue, that such revenue
levels will be sustained or that the Company will be able to effectively compete
in the third-party reselling market segment.
CUSTOMERS FOR PRODUCTS
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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 November 20, 2000, INVNSYS had approximately 53 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.
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. Mr. Schilling and his
wife, Diane, personally guarantee the Lease. 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, d.b.a. 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 intends to file a counterclaim in the amount of $480,100.
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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.
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Name Age POSITION
-------------------------------------------------------------------------------
<S> <C> <C>
Kenneth W. Schilling 49 President, Chief Executive Officer, Director
Terry S. Ratliff 43 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 has served as
Vice President since March 1999, 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.
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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>
-------------------------------------------------------------------------------------------------------------------------------
Restricted
Other Annual Stock LTIP ALL OTHER
Salary Bonus Compensation Award(s) Options(1) Payout COMPENSATION
Name and Principal Position Year ($) ($) ($) ($) (#) ($) ($)
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kenneth W. Schilling,
President, Chief Executive 1998 $200,000
Officer 1999 $200,000 250,000
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 50,000 options granted for service as a director of the Company.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------------------------------------------------------------------
Percent of Total
Number of Securities Options/SARs Granted
Underlying Options /SARs to Employees In Fiscal Exercise of Base Expiration
Name (a) Granted (1) (b) Year (c) Price ($/Sh) (d) Date (e)
<S> <C> <C> <C> <C>
Kenneth W. Schilling 250,000 ___% $0.75 4/21/09
</TABLE>
(1) Includes 50,000 options granted for service as a director of the Company.
200,000 options vested upon granting on April 22, 1999, and 25,000 vested
on April 22, 2000. An additional 25,000 will vest on April 22, 2001.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
VALUE OF UNEXERCISED
Number of Unexercised IN-THE-MONEY OPTIONS AT
Shares Options at Fiscal FISCAL YEAR END
Acquired on Value Year End Exercisable/ EXERCISABLE/ UNEXERCISABLE
Name Exercise (#) Realized ($) 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.
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
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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.
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 November 20, 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 that the individual has the right to acquire
within sixty (60) days of November 20, 2000, through
33
<PAGE> 37
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 Beneficial Owner Shares Vested Options (1) Total (1) PERCENT (1)
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kenneth W. Schilling(2)
1919 W. Lone Cactus Drive, Phoenix, AZ 85021 -- 225,000 225,000 *
Moorea Trust(2)
1919 W. Lone Cactus Drive, Phoenix, AZ 85021 9,710,480 -- 9,710,480 11%
Terry S. Ratliff
1919 W. Lone Cactus Drive, Phoenix, AZ 85021 1,771,200 325,000 2,096,200 2%
Mark H. Perkins
1919 W. Lone Cactus Drive, Phoenix, AZ 85021 1,771,200 325,000 2,096,200 2%
James A. Ratliff
1919 W. Lone Cactus Drive, Phoenix, AZ 85021 -- 500,000 500,000 *
All directors and officers as group (6 persons) 13,252,880 1,150,000 14,627,879 17%
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes options vested on September 25, 2000 and options which will
become vested on or before January 1, 2001. "*" means less than one
percent.
(2) Kenneth and Diane Schilling are husband and wife and hold the shares as
trustees under the Moorea Trust dated December 18, 1991.
iBIZ Technology Corp. Stock Option Plan
The iBIZ Technology Corp. Stock Option Plan (the "Stock Option Plan")
provides for the grant of stock options to purchase common stock to eligible
directors, officers, key employees, and service providers of iBIZ. The Stock
Option Plan covers an aggregate maximum of five million (5,000,000) shares of
common stock and provides for the granting of both incentive stock options (as
defined in Section 422 of the Internal Revenue Code of 1986, as 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 November 20, 2000, 3,385,000 options ("the Options") had been
granted (net of cancelled and exercised) under the plan at exercise prices of
$0.53 and $5.00. The Options are granted for a period of one (1) 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
34
<PAGE> 38
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 that 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
November 20, 2000, the balance of the loans payable by Mr. Schilling to INVNSYS
totaled Four Hundred Thirty-Two Thousand Two Hundred Sixty-Three Dollars and
Ninety-One Cents ($432,263.91). 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 that loaned Mr. Schilling the money to purchase the
facility. 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 October 1,
1999, and September 2000.
1998 - 2000 Common Stock Prices
EVCV - iBIZ
<TABLE>
<CAPTION>
---------------------------------------
Price
Quarter Ended High LOW
---------------------------------------
<S> <C> <C>
Dec 99 $2.06 $0.94
Mar 00 $3.19 $0.94
Jun 00 $1.94 $0.75
Sep 00 $1.22 $0.38
---------------------------------------
</TABLE>
As of November 20, 2000, management believes there to be 160 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.
35
<PAGE> 39
DESCRIPTION OF SECURITIES
General. iBIZ's Articles of Incorporation authorize the issuance of
100,000,000 shares of common stock, $0.001 par value. As of November 20, 2000,
there were 37,812,424 shares of common stock outstanding and an aggregate of
6,169,489 options and warrants to purchase common stock, net of cancelled and
exercised.
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 ("$1000k 7% Debentures"). On March 27, 2000,
iBIZ issued One Million Six Hundred Thousand Dollars ($1,600,000.00) of 7%
Debentures (the "$1600k 7% Debentures") to Lites Trading, Co. ("Lites Trading").
The material terms of all the 7% Debentures are the same, except for
purchase amounts, certain relevant dates and time periods and related warrants.
Where the rights of Globe and Lites Trading conflict, Globe has agreed to waive
its rights in favor of Lites Trading.
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 into Common Stock. On June 1 and on June 21, 2000, Lites Trading
converted an aggregate of $200,000 of principal and of debentures into a total
of 362,653 shares of Common Stock.
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
36
<PAGE> 40
conversion of the 7% Debentures and the exercise of the warrants (described
below). This Registration Statement on Form SB-2, File No. 333-94409, was
declared effective February 1, 2000 and has remained continuously effective
through the date hereof.
In connection with the sale of the $1600k 7% Debentures, iBIZ 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. Lites
has waived certain of these rights so that the most recent financing could be
accomplished.
Securities Included in this Prospectus.
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE ACTUAL
SUBSCRIPTION AGREEMENT ATTACHED HERETO AS EXHIBIT 10.35.
General Terms
Various individuals and institutions have agreed to purchase an aggregate
of $5 million of 8% Convertible Notes (the "Notes"). Of the Notes, the Company
has already raised $1 million in principal amount. The remaining $4 million of
Notes will be executed and funds received if the Company exercises Puts as
described below. The $1 million Note matures on October 30, 2002 and interest
only payments are due quarterly commencing January 1, 2001, and the
37
<PAGE> 41
principal is due in one lump sum on October 30, 2002. Commencing on October 27,
2000, the initial $1 million was subscribed (the "Initial Offering").
The Company also issued warrants to purchase 1,750,000 shares of Common
Stock at an exercise price as calculated below in connection with the financing.
The warrants will give the holder the right to purchase common stock for 105% of
the average of the three lowest closing bid prices of the Common Stock for the
ten (10) trading days preceding the date of the Initial Offering.
Other warrants will be issued in connection with the later financings,
which will give the holder the right to purchase common stock for 105% of the
average of the three lowest closing bid prices of the Common Stock for the ten
(10) trading days preceding the date on which the later financings are
subscribed (the "Put Purchase"). Subject to meeting certain representations and
warranties, an additional $2 million will be received within 30 days after the
effective date of this registration statement. The final $2 million will only be
received if the Company meets certain minimum trading volume requirements (as
described below) in addition to compliance with various representations and
warranties. The Conversion Price for all of the Notes is the lesser of (i) 80%
of the average of the three lowest closing bid prices of the Common Stock on the
Principal Market for the twenty-two (22) trading days prior to the Closing Date,
or (ii) 80% of the average of the five lowest closing bid prices of the Common
Stock on the Principal Market for the sixty (60) trading days prior to the
Conversion Date, as defined in the Note. The maximum share of the Company that
any Subscriber may own after conversion at any given time is 4.99%, unless the
Subscriber gives 75 days prior notice. A presently indeterminate amount of
shares will be allocated pro rata from the shares registered in this
Registration Statement to issue certain warrants to the Finders, equal to 12% of
the shares to be issued upon conversion of the final $2 million of Notes.
The parties have made mutually agreeable standard representations and
warranties. The Company has also entered into certain covenants including, but
not limited to, the following: (i) the Company may not redeem the Notes without
the consent of the holder of the Notes; (ii) the Company will pay to certain
finders a cash fee of ten percent (10%) of the principal amount of the Notes for
location of the financings; (iii) the Company has agreed to incur certain
penalties for untimely delivery of the shares. If the Company cannot deliver the
shares for any reason, then the Company must pay in cash 130% of the principal
of the Notes which the Subscribers are seeking to convert, with unpaid interest,
and the debt will be extinguished.
The Company and the Subscriber have mutually agreed to indemnify the other
for damages from any misrepresentation, breach of any warranty, and any
uncorrected breach of the Subscription Agreement. As compensation to
Subscribers for delays in the delivery of shares, the Company will pay late
payments to Subscribers in the amount of $100 per business day after the
Delivery Date or Mandatory Redemption Payment Date, as the case may be, for
each $10,000 of Note principal amount being converted or redeemed.
If the Company requests an injunction forbidding conversion, it must post
a surety bond for 130% of the amount of the Note until the dispute is resolved.
If the Company does not deliver the shares, the Subscriber may buy them on the
open market and be reimbursed by the Company.
Registration Rights. On or before December 14, 2000, the Company must file
a registration statement, which must be effective within 90 days, registering
twice as many shares as can reasonably be expected to be issued upon conversion
of all the Subscribers'
38
<PAGE> 42
securities assuming all of the Notes are converted. The Company must reserve
these registered shares for distribution to Subscribers only, and shares for
other purchasers (with one exception) may not be registered on the same filing.
The filing of this Registration Statement in intended to comply with this
covenant. After 120 days, a majority of those holding conversion shares may
demand that the Company register any or all conversions shares (including those
who did not demand at first, if they later request), at which time the Company
must register them. At any time, if the Company is registering other shares,
those holding conversion shares have a right to have their shares registered
too. If the Company misses the deadlines for filing or effectiveness, or
effectiveness significantly lapses, the Subscribers will receive penalty cash
payments.
Obligation To Purchase; Puts. If the Company so demands, the Subscribers
must collectively purchase $4 million worth of additional convertible securities
("Put notes") after the registration statement for the securities has gone
effective, if the Company meets the same representations and warranties as
required for the initial $1 million Note.
The conversion value of first $2 million in Put notes will be computed in
the same way as the notes, above, and will mature 2 years from the date of
issue. The conversion value of the second $2 million will be 86% of the average
of the three lowest closing bid prices of the Common Stock on the principal
market on which the shares trade for the 10 trading days prior to the conversion
date. The put demand must be made pro rata to the Subscribers as a whole.
The Company cannot demand that a Subscriber own more than 4.99% of the
Company, purchase more than $4 million in Put notes, or exercise its put rights
for more than $1.5 million in any calendar month. During any calendar month, the
Company may not exercise Put notes in principal amount of more than 10% of the
cash value of the average trading volume in the Company's traded shares that
month, EXCEPT DURING THE FIRST 30 DAYS FOLLOWING THE EFFECTIVENESS OF THE
REGISTRATION STATEMENT, DURING WHICH TIME THE COMPANY MAY DEMAND SUBSCRIBERS TO
PURCHASE THE 2 MILLION OF THE 4 MILLION PUT NOTES.
In the event [for any reason except for Subscriber's unwillingness to
purchase greater amounts of Put Notes because of the beneficial ownership
limitations of Section 11.2(e)(i)] Puts in the aggregate amount of at least
$1,000,000 of the Put Note Purchase Prices set forth on the signature pages to
the Subscription Agreement entered into in connection with the Initial Offering
("Initial Put Amount") has not been exercised as of the first anniversary of the
Effective Date, then the Company will issue Put Warrants to the Warrant
Recipients in an amount determined by: subtracting the actual amount of Put Note
Principal for which Put Notices have been validly given from the Initial Put
Amount (the result being the "Unexercised Put") and issuing Put Warrants to
purchase the amount of Common Shares which would have been issued had the
Unexercised Put been exercised, the corresponding Put Notes issued, and such Put
Notes converted as of the first anniversary of the Closing Date with such date
being the Conversion Date of such Put Notes.
In the event [for any reason except for Subscriber's unwillingness to
purchase greater amounts of Put Notes because of the beneficial ownership
limitations of Section 11.2(e)(i)] Puts in the aggregate amount of at least
$2,000,000 of the Put Note Purchase
39
<PAGE> 43
Prices set forth on the signature pages to the Subscription Agreement entered
into in connection with the Initial Offering ("Interim Put Amount") has not been
exercised as of the second anniversary of the Effective Date, then the Company
will issue Put Warrants to the Warrant Recipients in an amount determined by:
subtracting the actual amount of Put Note Principal for which Put Notices have
been validly given from the Interim Put Amount (the result being the "Interim
Unexercised Put") and issuing Put Warrants to purchase the amount of Common
Shares which would have been issued had the Interim Unexercised Put been
exercised, the corresponding Put Notes issued, and such Put Notes converted as
of the second anniversary of the Closing Date with such being the Conversion
Date of such Put Notes.
In the event [for any reason except for Subscriber's unwillingness to
purchase greater amounts of Put Notes because of the beneficial ownership
limitations of Section 11.2(e)(i)] Puts in the aggregate amount of $3,000,000 of
the Put Note Purchase Prices set forth on the signature pages to the
Subscription Agreement entered into in connection with the Initial Offering
("Final Put Amount") has not been exercised as of the third anniversary of the
Effective Date, then the Company will issue Put Warrants to the Warrant
Recipients in an amount determined by: subtracting the actual amount of Put Note
Principal for which Put Notices have been validly given and the amount of Put
Note Principal deemed converted pursuant to the preceding two paragraphs from
the Final Put Amount (the result being the "Final Unexercised Put") and issuing
Put Warrants to purchase the amount of Common Shares which would have been
issued had the Final Unexercised Put been exercised, the corresponding Put Notes
issued, such Put Notes converted as of the third anniversary of the Closing Date
with such date being the Conversion Date of such Put Notes.
The put obligation is assignable, within reason.
Except for existing obligations, the Subscribers will have a right of
first refusal to purchase Company securities until 180 days after this
registration has gone effective or a year (whichever is later). The Company may
not sell its securities at any discount below their publicly traded value until
at least 180 days from the effective date of this registration statement.
Underlying shares of common stock to be received upon the exercise of
warrants that are included in this Prospectus are as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
Shares(1) Exercise Price Vesting EXPIRATION
-------------------------------------------------------------------------
<S> <C> <C>
500,000 $0.4755 Immediate 5 years
1,500,000 $0.4755 Immediate 5 years
278,750 $0.90 Immediate 3 years
</TABLE>
(1) A presently indeterminate amount of shares will be allocated pro rata from
the shares registered in this Registration Statement to issue certain
warrants to the Finders, equal to 12% of the shares to be issued upon
conversion of the final $2 million of Notes.
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, net of cancelled or exercised, 3,385,000 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
40
<PAGE> 44
have an exercise price of $0.99 per share, have a term of five years and are
immediately exercisable.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
iBIZ's Articles of Incorporation, as amended, provide to the fullest
extent permitted by Florida law, a director or officer of iBIZ shall not be
personally liable to iBIZ or its shareholders for damages for breach of such
director's or officer's fiduciary duty. The effect of this provision of iBIZ's
Articles of Incorporation, as amended, is to eliminate the right of iBIZ and its
shareholders (through shareholders' derivative suits on behalf of iBIZ) to
recover damages against a director or officer for breach of the fiduciary duty
of care as a director or officer (including breaches resulting from negligent or
grossly negligent behavior), except under certain situations defined by statute.
iBIZ believes that the indemnification provisions in its Articles of
Incorporation, as amended, are necessary to attract and retain qualified persons
as directors and officers.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to its directors, officers and controlling persons pursuant
to the foregoing provisions or otherwise, iBIZ has been advised that in the
opinion of the SEC such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.
EXPERTS
The financial statements for iBIZ as of October 31, 1997, 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.
The unaudited financial estimates were prepared by the Management of the
Company, and have not been examined or compiled by independent certified public
accountants or counsel. The accountants and legal counsel have not participated
in the preparation or review of the financial estimates. Accordingly, the
Company's counsel and accountants cannot provide any level of assurance thereon.
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.
41
<PAGE> 45
FINANCIAL STATEMENTS
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
FINANCIAL STATEMENTS
OCTOBER 31, 1998 AND 1997
F-1
<PAGE> 46
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
INDEPENDENT AUDITORS' REPORT ..................................... F-3
FINANCIAL STATEMENTS
Balance Sheets............................................. F-4
Statements of Income....................................... F-6
Statement of Changes in Stockholders' Equity............... F-7
Statements of Cash Flows................................... F-8
Notes to Financial Statements.............................. F-10
</TABLE>
F-2
<PAGE> 47
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders
Invnsys Technology Corporation
Formerly known as Southwest Financial Systems, Inc.
Phoenix, Arizona
We have audited the accompanying balance sheets of Invnsys Technology
Corporation formerly known as Southwest Financial Systems, Inc., as of October
31, 1998 and 1997, and the related statements of income, changes in
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on the financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly, in all
material respects, the financial position of Invnsys Technology Corporation as
of October 31, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
MOFFITT & COMPANY, P. C.
SCOTTSDALE, ARIZONA
June 14, 1999 (original issuance date)
November 22, 1999 (reissue date)
F-3
<PAGE> 48
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
BALANCE SHEETS
OCTOBER 31, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 200 $ 412
Accounts receivable, trade 153,536 91,073
Other receivables 1,500 1,000
Corporation income tax refund 0 19,919
Inventories 323,397 202,320
Prepaid expenses, current 24,577 3,882
---------- ----------
TOTAL CURRENT ASSETS 503,210 318,606
---------- ----------
PROPERTY AND EQUIPMENT 76,536 97,069
---------- ----------
OTHER ASSETS
Note receivable, related party 906,620 666,103
Deposits 20,155 17,765
Prepaid expenses, long term 2,423 5,655
---------- ----------
TOTAL OTHER ASSETS 929,198 689,523
---------- ----------
TOTAL ASSETS $1,508,994 $1,105,195
========== ==========
</TABLE>
F-4
<PAGE> 49
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Bank overdraft $ 13,700 $ 14,545
Accounts payable, trade 780,815 691,944
Customer deposits 395,264 267,630
Notes payable, current 28,378 215,976
Accrued liabilities 63,243 30,713
Sales and payroll taxes payable 255,410 61,840
Corporation income taxes payable,
Current 17,841 13,741
Deferred income 71,031 110,797
----------- -----------
TOTAL CURRENT LIABILITIES 1,625,682 1,407,186
----------- -----------
LONG - TERM LIABILITIES
Notes payable 365,325 389,358
----------- -----------
TOTAL LONG - TERM LIABILITIES 365,325 389,358
----------- -----------
STOCKHOLDER'S EQUITY
Common stock, $1.00 par value,
100,000 shares authorized,
10,000 shares issued and outstanding 10,000 10,000
Advance from IBIZ Technology Corp. 158,101 0
Retained earnings (deficit) (650,164) (701,346)
----------- -----------
TOTAL STOCKHOLDER'S EQUITY
(DEFICIT) (482,063) (691,346)
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY (DEFICIT) $ 1,508,944 $ 1,105,198
=========== ===========
</TABLE>
F-5
<PAGE> 50
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED OCTOBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
SALES $ 3,402,681 $ 2,350,459
COST OF SALES 2,219,796 1,579,440
----------- -----------
GROSS PROFIT 1,182,885 771,019
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 1,070,003 1,174,908
----------- -----------
INCOME (LOSS) FROM OPERATIONS 112,882 (403,889)
----------- -----------
OTHER INCOME (EXPENSES)
Interest expense (75,282) (74,147)
Interest income 40,320 27,848
Miscellaneous income 3,815 10,835
Gain/loss on disposition of assets 1,500 (6,177)
Loss on Investment property 0 (25,600)
----------- -----------
TOTAL OTHER INCOME (EXPENSE) (29,647) (67,241)
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES
(REFUND) 83,235 (471,130)
INCOME TAXES (REFUND) 32,053 (30,128)
----------- -----------
NET INCOME (LOSS) $ 51,182 $ (501,258)
=========== ===========
NET INCOME (LOSS) PER COMMON SHARE
Basic and Diluted $ 5.12 $ (50.13)
=========== ===========
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 10,000 10,000
=========== ===========
</TABLE>
F-6
<PAGE> 51
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ADVANCE
COMMON STOCK FROM IBIZ
------------------------ TECHNOLOGY RETAINED
SHARES AMOUNT CORP. EARNINGS
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE, NOVEMBER 1, 1996 10,000 $ 10,000 $ 0 $(200,088)
NET (LOSS) FOR THE YEAR
ENDED OCTOBER 31, 1997 0 0 0 (501,258)
-------- -------- --------- ---------
BALANCE, OCTOBER 31, 1997 10,000 10,000 0 (701,346)
ADVANCE FROM IBIZ
TECHNOLOGY CORP 0 0 158,101 0
NET INCOME FOR THE YEAR
ENDED OCTOBER 31, 1998 0 0 0 51,182
-------- -------- --------- ---------
BALANCE, OCTOBER 31, 1998 10,000 $ 10,000 $ 158,101 $(650,164)
======== ======== ========= =========
</TABLE>
F-7
<PAGE> 52
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 51,182 $(501,258)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities
Depreciation 38,604 92,407
Gain/loss on disposition of equipment and
investment properties (1,500) 31,777
Increase (decrease) in
Accounts receivable, trade (62,463) 29,242
Other receivables (500) 3,000
Income tax refunds 19,919 56,146
Inventories (121,077) 98,263
Prepaid expenses (17,463) 8,794
Deferred tax asset 16,383 (24,607)
Deposits (2,390) 73
Accounts payable 88,871 (32,201)
Customer deposits 127,634 267,630
Accrued liabilities and taxes 226,100 (32,104)
Corporation income taxes payable (12,283) 12,469
Deferred income (39,766) 30,136
--------- ---------
NET CASH FLOWS PROVIDED
BY OPERATING ACTIVITIES 311,251 39,767
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (18,071) (97,923)
Loans to related party (240,517) (35,000)
Proceeds from sale of property and equipment 1,500 0
--------- ---------
NET CASH FLOWS (USED) BY
INVESTING ACTIVITIES (257,088) (132,923)
--------- ---------
</TABLE>
F-8
<PAGE> 53
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft $ ( 845) $ 0
Advance from IBIZ Technology Corp. 158,101 0
Proceeds from notes payable 0 138,000
Repayments of notes payable (211,631) (32,364)
--------- ---------
NET CASH FLOWS PROVIDED (USED)
BY FINANCING ACTIVITIES (54,375) 105,636
--------- ---------
NET INCREASE (DECREASE) IN CASH (212) 12,480
CASH BALANCE (OVERDRAFT), BEGINNING
OF YEAR 412 (26,613)
--------- ---------
CASH BALANCE, END OF YEAR $ 200 $ 412
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during year:
Interest $ 61,117 $ 74,108
========= =========
Taxes $ 850 $ 50,913
========= =========
</TABLE>
F-9
<PAGE> 54
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998 AND 1997
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Invnsys Technology Corporation, formerly known as Southwest Financial
Systems, Inc., was incorporated in the State of Arizona on July 30, 1980
and is in the business of selling retail and wholesale financial,
computing and communication equipment. They also provide repair services
and sell maintenance contracts. The corporation currently operates a
service center in Phoenix, Arizona.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Uncollectible accounts receivable are written off at the time management
specifically determines them to be uncollectible. In addition, the
allowance for doubtful accounts is provided at an amount determined by
management.
A summary of accounts receivable and the allowance for doubtful accounts
is as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Accounts receivable $156,036 $ 98,073
Allowance for doubtful accounts 2,500 7,000
-------- --------
Net accounts receivable $153,536 $ 91,073
======== ========
</TABLE>
INVENTORIES
Inventories are stated at the lower of cost (determined principally by
the first-in, first-out method) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Major renewals and
improvements are charged to the asset accounts while replacement,
maintenance and repairs, which do not improve or extend the lives of the
respective assets, are expensed. At the time property and equipment are
retired or otherwise disposed of, the asset and related accumulated
depreciation accounts are relieved of the applicable amounts. Gains or
losses from retirements or sales are credited or charged to income.
The company depreciates its property and equipment for financial
reporting purposes using the straight-line method based upon the
following useful lives of the assets:
F-10
<PAGE> 55
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998 AND 1997
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT (CONTINUED)
Tooling 3 Years
Machinery and equipment 5-10 Years
Office furniture and equipment 5-10 Years
Vehicles 5 Years
Leasehold improvements 5 Years
ACCOUNTING ESTIMATES
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting principles.
Those estimates and assumptions affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities,
and the reported revenues and expenses. Actual results could vary from
the estimates that were used.
REVENUE RECOGNITION
The company recognizes revenue from product sales when the goods are
shipped and title passes to customers.
SALES OF MAINTENANCE AGREEMENTS
The revenue received for the maintenance agreements is being reported
evenly over the life of the contracts. Such unearned portion is recorded
as deferred income.
INCOME TAXES
Provisions for income taxes are based on taxes payable or refundable for
the current year and deferred taxes on temporary differences between the
amount of taxable income and pretax financial income and between the tax
bases of assets and liabilities and their reported amounts in the
financial statements. Deferred tax assets and liabilities are included
in the financial statements at currently enacted income tax rates
applicable to the period in which the deferred tax assets and
liabilities are expected to be realized or settled as prescribed in FASB
Statement No. 109, Accounting for Income Taxes. As changes in tax laws
or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
F-11
<PAGE> 56
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998 AND 1997
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET EARNINGS PER SHARE
The company adopted Statement of Financial Accounting Standards No. 128
that requires the reporting of both basic and diluted earnings per
share. Basic earnings per share is computed by dividing net income
available to common shareowners by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflects
the potential dilution that could occur if securities or other contracts
to issue common stock were exercised or converted into common stock.
RISKS AND UNCERTAINTIES
The company is in the computer and computer technology industry. The
company's products are subject to rapid obsolescence and management must
authorize funds for research and development costs in order to stay
competitive.
NOTE 2 DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The company has financial instruments, none of which are held for
trading purposes. The company estimates that the fair value of all
financial instruments at October 31, 1998 and 1997, as defined in FASB
107, does not differ materially from the aggregate carrying values of
its financial instruments recorded in the accompanying balance sheet.
The estimated fair value amounts have been determined by the company
using available market information and appropriate valuation
methodologies. Considerable judgment is required in interpreting market
data to develop the estimates of fair value, and accordingly, the
estimates are not necessarily indicative of the amounts that the company
could realize in a current market exchange.
NOTE 3 INVENTORIES
At October 31, 1998 and 1997, inventories were comprised of:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Computer equipment $208,725 $161,212
Office equipment 25,693 25,689
Depot 9,343 9,343
Demo units 77,576 4,016
Parts 2,060 2,060
-------- --------
Totals $323,397 $202,320
======== ========
</TABLE>
F-12
<PAGE> 57
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998 AND 1997
NOTE 4 PROPERTY AND EQUIPMENT
At October 31, 1998 and 1997, property and equipment and accumulated
depreciation consisted of:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Tooling $ 68,100 $ 68,100
Machinery and equipment 30,656 75,104
Office furniture and equipment 60,406 45,476
Vehicles 39,141 59,596
Leasehold improvements 18,044 18,044
-------- --------
216,347 266,320
Less accumulated depreciation 139,811 169,251
-------- --------
Total property and equipment $ 76,536 $ 97,069
======== ========
</TABLE>
The depreciation expenses for the years ended October 31, 1998 and 1997
were $38,604 and $92,407, respectively.
NOTE 5 NOTE RECEIVABLE, RELATED PARTY
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
The related note is unsecured, payable on
demand and accrues interest at 6% for 1998 and
8% for 1997. At October 31, 1998 and 1997,
management believed the notes would not be
collected within the current operating cycle and
classified the asset as a long-term asset
$615,250 of the loan was repaid in 1999
Total $906,620 $666,103
======== ========
</TABLE>
F-13
<PAGE> 58
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998 AND 1997
NOTE 6 CUSTOMER DEPOSITS
It is the company's policy to obtain a portion of the sales price when
orders are received. These funds are recorded as customer deposits and
are applied to the customer invoices when the merchandise is shipped.
NOTE 7 INCOME TAXES
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Income (loss) from continuing operations
before income taxes $ 83,235 $(471,130)
--------- ---------
The provision for income taxes were
estimated as follows:
Currently payable $ 0 $ 0
Deferred 32,053 (30,128)
--------- ---------
A reconciliation of the provision for income
taxes compared with the amounts at the
U.S. Federal Statutory rate was as follows:
Tax at U.S. Federal Statutory
income tax rates $ 32,053 $ (30,128)
--------- ---------
Deferred income tax assets and liabilities
reflect the impact of temporary differences
between amounts of assets and liabilities for
financial reporting purposes and the basis of
such assets and liabilities as measured by tax
laws. The net deferred tax assets is $ 136,830 $ 180,139
--------- ---------
</TABLE>
Temporary differences and carry forwards that gave rise to deferred tax
assets and liabilities included the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
Deferred Tax Deferred Tax
------------ ------------
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Net operating loss $116,382 $ 0 $176,591 $ 0
Accrued expenses and miscellaneous 8,497 0 7,990 0
Tax credit carryforward 20,175 0 20,175 0
Depreciation 0 8,224 0 24,607
-------- -------- -------- --------
</TABLE>
F-14
<PAGE> 59
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998 AND 1997
NOTE 7 INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
---- ----
Deferred Tax Deferred Tax
------------ ------------
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Subtotals $ 145,054 $ 8,224 $ 204,756 $ 24,607
Less valuation allowance (145,054) (8,224) (204,756) (24,607)
--------- --------- --------- ---------
Total deferred taxes $ 0 $ 0 $ 0 $ 0
========= ========= ========= =========
</TABLE>
Realization of the net deferred tax assets is dependent on future
reversals of existing taxable temporary differences and adequate future
taxable income, exclusive of reversing temporary differences and
carryforwards. Although realization is not assured, management believes
that is more likely than not that the net deferred tax assets will not
be realized.
NOTE 8 TAX CARRYFORWARD
The company has the following tax carryforwards at October 31, 1998:
<TABLE>
<CAPTION>
EXPIRATION
YEAR AMOUNT DATE
---- ------ ----------
<S> <C> <C>
Net operating loss
October 31, 1997 $342,302 October 31, 2012
Capital loss
October 31, 1997 25,600 October 31, 2002
Contribution
October 31, 1995 1,536 October 31, 2000
October 31, 1996 2,068 October 31, 2001
</TABLE>
NOTE 9 PAYROLL TAXES PAYABLE
At October 31, 1998, the company was delinquent in the payment and
filing of payroll tax returns in the amount of $236,923. The payroll
taxes were paid in 1999.
F-15
<PAGE> 60
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998 AND 1997
NOTE 10 NOTES PAYABLE
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Note payable to Community First National Bank due in monthly payments
of interest of approximately $3,100. Interest is computed at national
prime as stated in the Wall Street Journal plus 3 percent. The
principal amount is due July 31, 2000. This note is secured by
accounts receivable, general intangibles and all equipment and
leasehold improvements. The shareholder has personally guaranteed the
loan and the bank is the beneficiary of an insurance policy on the life
of the shareholder $340,613 $334,890
Note payable to Community First National Bank due in monthly
installments of principal and interest of $3,754 until May 7, 1999
Interest is computed at national prime as stated in the Wall Street
Journal plus 3 percent. This note is secured by accounts receivable,
general intangibles and all equipment and leasehold improvements. The
shareholder has personally guaranteed the loan and the bank is the
beneficiary of an insurance policy on the life of the shareholder
The loan was paid off in 1999 23,737 64,798
Note payable to Community First National Bank due in monthly payments
of principal and interest of $545 with interest at 7 percent until
March 7, 2004. The note is secured by an automobile 29,353 33,646
</TABLE>
F-16
<PAGE> 61
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998 AND 1997
NOTE 10 NOTES PAYABLE (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Note payable to an individual payable in one payment of
$50,000 on February 1, 1998 and a final balance and accrued
interest on May 21, 1998. The note is secured by a houseboat
owned by a stockholder of the company $ 0 $100,000
Unsecured note payable from an individual with interest
computed at 14%. Principal and accrued interest is due
December 5, 1997 0 72,000
-------- --------
393,703 605,334
Less: current portion of long-term debt 28,378 215,976
-------- --------
Net long-term debt $365,325 $389,358
======== ========
</TABLE>
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Year ended October 31,
1998 $ 0 215,976
1999 28,378 29,790
2000 345,588 339,865
2001 5,336 5,336
2002 5,721 5,721
2003 & thereafter 8,680 8,646
-------- --------
$393,703 $605,334
======== ========
</TABLE>
F-17
<PAGE> 62
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998 AND 1997
NOTE 11 OPERATING LEASE - REAL ESTATE
The company leases office space under a non-cancelable operating lease
agreement expiring on July 15, 1999. The lease provides for annual
rentals of approximately $40,000 plus increases due to changes in the
consumer price index and building operating costs. The lease is
guaranteed by the major stockholders of the company.
Future minimum lease payments, excluding taxes and expenses, are as
follows for the years ending October 31:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
1998 $ 0 $ 47,320
1999 35,128 35,128
-------- --------
$ 35,128 $ 82,448
======== ========
</TABLE>
NOTE 12 ADVERTISING
The company expenses all advertising as incurred. For the years ended
October 31, 1998 and 1997, the company charged to operations $89,656 and
$24,721, respectively, in advertising costs.
NOTE 13 INTEREST
The company incurred interest expenses for the years ended October 31,
1998 and 1997 of $75,282 and $74,147, respectively.
NOTE 14 WARRANTY RESERVE
In 1998, the company established a warranty reserve of $10,000 to cover
any potential warranty costs on computer equipment that are not
reimbursed by the computer manufacturer's warranty.
NOTE 15 ECONOMIC DEPENDENCY
The company purchases the majority of its computer equipment from three
suppliers.
NOTE 16 PLAN OF REORGANIZATION AND STOCK EXCHANGE AGREEMENT
On January 1, 1999, the company issued 16,000,000 shares of newly issued
restricted common stock for 100% of the issued and outstanding stock of
Invnsys Technology Corporation. Invnsys Technology Corporation became a
wholly-owned subsidiary of IBIZ Technology Corp. and the acquisition was
accounted for as a reverse acquisition. On the consolidated financial
statements, the reverse acquisition method requires that the net assets
of Invnsys Technology Corporation be transferred to IBIZ Technology
Corp. at book value and the statement of operations include the
operations of both companies from the beginning of their fiscal years
which was November 1, 1998 for both companies.
F-18
<PAGE> 63
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998 AND 1997
NOTE 16 PLAN OF REORGANIZATION AND STOCK EXCHANGE AGREEMENT (CONTINUED)
The following unaudited pro-forma combined financial date as of October
31, 1998, has been derived from the historical financial statements of
IBIZ Technology Corp. and Invnsys Technology Corporation giving effect
to the business combination using the reverse acquisition method of
accounting. This information is for illustration purposes only and is
not necessarily indicative of the consolidated financial position or
results of operations which would have been realized had the acquisition
been considered to occur as of the date for which the pro-forma
financial statements are presented. The pro-forma financial statements
also are not necessarily indicative of the consolidated position or
results of operations in the future.
Pro-Forma Consolidated Balance Sheet
<TABLE>
<CAPTION>
Invnsys IBIZ
Technology Technology Pro-forma Pro-forma
Corporation Corp. Adjustments Consolidated
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Assets
Cash $ 200 $ 0 $ 0 $ 200
Accounts receivable 153,536 0 0 153,536
Inventories 323,397 0 0 323,397
Other 26,077 247,175 (247,175) 26,077
----------- ----------- ----------- -----------
Total current assets 503,210 247,175 (247,175) 503,210
Property and equipment 76,536 0 0 76,536
Other assets 929,198 0 0 929,198
----------- ----------- ----------- -----------
Total $ 1,508,994 $ 247,175 $ (247,175) $ 1,508,994
=========== =========== =========== ===========
Liabilities
Accounts payable $ 780,815 $ 9,048 $ (247,175) $ 542,688
Customer deposits 395,264 0 0 395,264
Other liabilities 449,603 0 0 449,603
----------- ----------- ----------- -----------
Total current
liabilities 1,625,682 9,048 (247,175) 1,387,555
Long-term debt 365,325 0 0 365,325
----------- ----------- ----------- -----------
Total liabilities 1,999,007 9,048 (247,175) 1,752,880
Stockholders' equity (482,063) 238,127 0 (243,936)
----------- ----------- ----------- -----------
Total $ 1,508,944 $ 247,175 $ (247,175) $ 1,508,944
=========== =========== =========== ===========
</TABLE>
F-19
<PAGE> 64
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998 AND 1997
NOTE 16 PLAN OF REORGANIZATION AND STOCK EXCHANGE AGREEMENT (CONTINUED)
Pro-Forma Consolidated Statement of Income
<TABLE>
<CAPTION>
Invnsys IBIZ
Technology Technology Pro-forma Pro-forma
Corporation Corp. Adjustments Consolidated
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Sales $ 3,402,681 $ 0 $ 0 $ 3,402,681
Cost of sales 2,219,796 0 0 2,219,796
----------- ---------- ----------- ------------
Gross Profit 1,182,885 0 0 1,182,885
Selling, general and
administrative expenses $ 1,070,003 $ 71,766 $ 0 $ 1,141,769
----------- ---------- ----------- ------------
Income from operations 112,882 (71,766) 0 41,116
Other income (expense) (29,647) 0 0 (29,647)
----------- ---------- ----------- ------------
Income before income
taxes 83,235 (71,766) 0 11,469
Income taxes 32,053 0 0 32,053
----------- ---------- ----------- ------------
Net income (loss) $ 51,182 $ (71,766) $ 0 $ (20,584)
=========== ========== =========== ============
Loss per common share $ (.001)
============
Weighted average number of shares of common stock 24,000,000
============
</TABLE>
Pro-forma financial information for the year ended October 31, 1997 is
not presented as IBIZ Technology Corp. was an inactive public shell and
had no activity.
NOTE 17 OFFICERS' COMPENSATION
On March 5, 1999, the company entered into three employment agreements
with the following officers:
<TABLE>
<CAPTION>
PRESIDENT VICE
AND CHIEF VICE PRESIDENT
EXECUTIVE PRESIDENT/ OF
OFFICER COMPTROLLER OPERATIONS
--------- ----------- ----------
<S> <C> <C> <C>
Annual compensation $200,000 $ 88,000 $ 88,000
</TABLE>
F-20
<PAGE> 65
INVNSYS TECHNOLOGY CORPORATION
FORMERLY KNOWN AS
SOUTHWEST FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998 AND 1997
NOTE 17 OFFICERS' COMPENSATION (CONTINUED)
<TABLE>
<CAPTION>
PRESIDENT VICE
AND CHIEF VICE PRESIDENT
EXECUTIVE PRESIDENT/ OF
OFFICER COMPTROLLER OPERATIONS
--------- ----------- ----------
<S> <C> <C> <C>
Options for IBIZ Technology Corp. stock 250,000 350,000 350,000
shares shares shares
Exercise price per share $ 0.75 $ 0.75 $ 0.75
</TABLE>
NOTE 18 INCOME TAXES FOR YEAR ENDED OCTOBER 31, 1998
The net income before taxes was $83,235 and the corporation income taxes
was $75,372. The large tax was due to the fact that the following
expenses were incurred but not deductible for income tax purposes:
<TABLE>
<S> <C>
Penalties $ 70,661
Travel and entertainment 5,184
Country club dues 8,920
Warranty reserves 10,000
Other (64)
--------
Total $ 94,701
========
</TABLE>
F-21
<PAGE> 66
FINANCIAL STATEMENTS
IBIZ TECHNOLOGY CORP. AND
CONSOLIDATED SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999
F-22
<PAGE> 67
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
INDEPENDENT AUDITORS' REPORT ..................................... F-24
FINANCIAL STATEMENTS
Consolidated Balance Sheet................................. F-25
Consolidated Statement of Operations....................... F-26
Consolidated Statement of Changes in Stockholders' Deficit. F-28
Consolidated Statement of Cash Flows....................... F-30
Notes to Consolidated Financial Statements................. F-32
</TABLE>
F-23
<PAGE> 68
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders
IBIZ Technology Corp. and Consolidated Subsidiary
Phoenix, Arizona
We have audited the accompanying balance sheet of IBIZ Technology Corp. and
Consolidated Subsidiary as of October 31, 1999, and the related statements of
operations, changes in stockholders' deficit, and cash flows for the year then
ended. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on the financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly, in all
material respects, the financial position of IBIZ Technology Corp. and
Consolidated Subsidiary as of October 31, 1999, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. As shown in the financial statements,
the company incurred a net loss of $1,053,563 during the year ended October 31,
1999, and, as of that date had a working capital deficit of $912,169 and a
shareholders' deficit of $433,527. In addition sales have declined significantly
from prior years. As discussed in note 22 to the financial statements, the
company's significant operating losses and capital needs raise substantial doubt
about its ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.
MOFFITT & COMPANY, P. C.
SCOTTSDALE, ARIZONA
January 10, 2000
F-24
<PAGE> 69
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED BALANCE SHEET
OCTOBER 31, 1999
ASSETS
<TABLE>
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 25,343
Accounts receivable, trade 212,300
Inventories 268,087
Prepaid expenses 38,984
---------
TOTAL CURRENT ASSETS $ 544,714
PROPERTY AND EQUIPMENT 124,747
OTHER ASSETS
Note receivable, related party 356,810
Deposits 16,759
---------
TOTAL OTHER ASSETS 373,569
----------
TOTAL ASSETS $1,043,030
==========
</TABLE>
F-25
<PAGE> 70
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable, trade $ 762,965
Customer deposits 115,408
Notes payable, current 67,497
Accrued liabilities 138,199
Sales and payroll taxes payable 98,774
Corporation income taxes payable 19,078
Deferred income 54,962
Convertible debentures payable 200,000
-----------
TOTAL CURRENT LIABILITIES $ 1,456,883
LONG - TERM LIABILITIES
Notes payable 19,674
TOTAL LONG - TERM LIABILITIES 19,674
STOCKHOLDERS' DEFICIT
Common stock
Authorized - 100,000,000 shares, par
value $.001 per shares
Issued and outstanding - 26,370,418 shares 26,370
Paid in capital in excess of par value of stock 1,106,266
Advance on stock subscription 75,000
Retained earnings (deficit) (1,641,163)
-----------
TOTAL STOCKHOLDERS' DEFICIT (433,527)
-----------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 1,043,030
===========
</TABLE>
F-26
<PAGE> 71
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1999
<TABLE>
<S> <C> <C>
SALES $ 2,082,515
COST OF SALES 1,682,905
------------
GROSS PROFIT 399,610
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 1,473,790
------------
(LOSS) BEFORE OTHER INCOME (1,074,180)
OTHER INCOME (EXPENSE)
Cancellation of debt $ 154,933
Other income 32,339
Interest income 28,260
Interest expense (58,085)
------------
TOTAL OTHER INCOME, NET 157,447
------------
(LOSS) BEFORE INCOME TAXES (916,733)
INCOME TAXES 136,830
------------
NET (LOSS) $ (1,053,563)
============
NET (LOSS) PER COMMON SHARE
Basic and Diluted $ (0.04)
============
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING
Basic and diluted 25,116,013
============
</TABLE>
F-27
<PAGE> 72
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEAR ENDED OCTOBER 31, 1999
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------
SHARES AMOUNT
---------- ----------
<S> <C> <C>
BALANCE, NOVEMBER 1, 1998 8,000,000 $ 8,000
ISSUANCE OF COMMON STOCK
FOR ACQUISITION OF INVNSYS
TECHNOLOGY CORPORATION
AND TRANSFER OF NET ASSETS
AT BOOK VALUE PER REVERSE
ACQUISITION 16,000,000 16,000
ISSUANCE OF COMMON STOCK
FOR CASH
AT .354 PER SHARE 640,318 640
AT .504 PER SHARE 1,730,100 1,730
FEES AND COSTS FOR ISSUANCE
OF STOCK 0 0
ADVANCES ON STOCK SUBSCRIPTION 0 0
NET (LOSS) FOR THE YEAR ENDED
OCTOBER 31, 1999 0 0
---------- ----------
BALANCE, OCTOBER 31, 1999 26,370,418 $ 26,370
========== ==========
</TABLE>
F-28
<PAGE> 73
<TABLE>
<CAPTION>
PAID IN
CAPITAL IN
EXCESS OF ADVANCES RETAINED
PAR VALUE ON STOCK EARNINGS
OF STOCK SUBSCRIPTIONS (DEFICIT)
---------- ------------- -----------
<S> <C> <C> <C>
$ 145,282 $ 154,111 $ (74,266)
0 0 (513,334)
223,471 0 0
863,320 (154,111) 0
(125,807) 0 0
0 75,000 0
0 0 (1,053,563)
----------- ----------- -----------
$ 1,106,266 $ 75,000 $(1,641,163)
=========== =========== ===========
</TABLE>
F-29
<PAGE> 74
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 31, 1999
<TABLE>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(1,053,563)
Adjustments to reconcile net (loss) to
net cash (used) by operating activities
Depreciation 42,104
Increase (decrease) in
Accounts receivable, trade (58,764)
Other receivables 1,500
Inventories 55,310
Prepaid expenses (11,984)
Deferred tax asset 145,054
Deposits 3,396
Accounts payable (26,898)
Customer deposits (279,856)
Accrued liabilities and taxes (80,443)
Deferred income (16,069)
-----------
NET CASH FLOWS (USED)
BY OPERATING ACTIVITIES $(1,280,213)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (90,315)
Repayment of related party loans 634,030
NET CASH FLOWS PROVIDED BY
INVESTING ACTIVITIES 543,715
</TABLE>
F-30
<PAGE> 75
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED OCTOBER 31, 1999
<TABLE>
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft $ (13,700)
Net proceeds from issuance of common stock 806,873
Advances on stock subscription 75,000
Proceeds from issuance of convertible debentures 200,000
Decrease in notes payable (306,532)
---------
NET CASH FLOWS PROVIDED
BY FINANCING ACTIVITIES $ 761,641
---------
NET INCREASE IN CASH 25,143
CASH BALANCE, NOVEMBER 1, 1998 200
---------
CASH BALANCE, OCTOBER 31, 1999 $ 25,343
=========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during year:
Interest $ 56,766
=========
Taxes $ 0
=========
NON CASH INVESTING AND FINANCING
ACTIVITIES
Issuance of company stock for investment in
Invnsys Technology Corporation $ 16,000
=========
</TABLE>
F-31
<PAGE> 76
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The company was organized on April 6, 1994, under the laws of the State
of Florida. In January, 1999, the company acquired Invnsys Technology
Corporation, an Arizona corporation. Per the acquisition agreement, the
company issued 16,000,000 shares of newly issued restricted common stock
for 100% of the issued and outstanding stock of Invnsys Technology
Corporation.
Invnsys Technology Corporation is in the business of selling retail and
wholesale, financial, computing and communication equipment and offering
network integration services, digital subscriber line high speed
internet connection services and business-to-business software sales.
They also provide repair services and sell maintenance contracts. The
corporation currently operates a service center in Phoenix, Arizona.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of IBIZ
Technology Corp. and its wholly owned subsidiary, Invnsys Technology
Corporation.
All material inter-company accounts and transactions have been
eliminated.
CORPORATION NAME CHANGES
The corporation has changed its name as follows:
1. At date of incorporation - Exotic Video City, Inc.
2. May 28, 1998 - EVC Ventures, Inc.
3. October 10, 1998 - Invnsys Holding Corporation
4. January 21, 1999 - IBIZ Technology Corp.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Uncollectible accounts receivable are written off at the time management
specifically determines them to be uncollectible. In addition, the
allowance for doubtful accounts is provided at an amount determined by
management.
INVENTORIES
Inventories are stated at the lower of cost (determined principally by
first-in, first-out method) or cost.
F-32
<PAGE> 77
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Major renewals and
improvements are charged to the asset accounts while replacement,
maintenance and repairs, which do not improve or extend the lives of the
respective assets, are expensed. At the time property and equipment are
retired or otherwise disposed of, the asset and related accumulated
depreciation accounts are relieved of the applicable amounts. Gains or
losses from retirements or sales are credited or charged to income.
The company depreciates its property and equipment for financial
reporting purposes using the straight-line method based upon the
following useful lives of the assets:
<TABLE>
<S> <C>
Tooling 3 Years
Machinery and equipment 5-10 Years
Office furniture and equipment 5-10 Years
Vehicles 5 Years
Leasehold improvements 5 Years
</TABLE>
ACCOUNTING ESTIMATES
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting principles.
Those estimates and assumptions affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities,
and the reported revenues and expenses. Actual results could vary from
the estimates that were used.
REVENUE RECOGNITION
The company recognizes revenue from product sales when the goods are
shipped and title passes to customers.
SALES OF MAINTENANCE AGREEMENTS
The revenue received for the maintenance agreements is being reported
evenly over the life of the contracts. Such unearned portion is recorded
as deferred income.
INCOME TAXES
Provisions for income taxes are based on taxes payable or refundable for
the current year and deferred taxes on temporary differences between the
amount of taxable income and pretax financial income and between the tax
bases of assets and liabilities and their reported amounts in the
financial statements. Deferred tax assets and liabilities are included
in the financial statements at currently enacted income.
F-33
<PAGE> 78
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES (CONTINUED)
tax rates applicable to the period in which the deferred tax assets and
liabilities are expected to be realized or settled as prescribed in FASB
Statement No., 109, Accounting for Income Taxes. As changes in tax laws
or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
NET EARNINGS PER SHARE
The company adopted Statement of Financial Accounting Standards No. 128
that requires the reporting of both basic and diluted earnings per
share. Basic earnings per share is computed by dividing net income
available to common shareowners by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflects
the potential dilution that could occur if securities or other contracts
to issue common stock were exercised or converted into common stock. In
accordance with FASB 128, potentially dilutive warrants and options that
would have an anti-dilutive effect on net loss per share are excluded.
RISKS AND UNCERTAINTIES
The company is in the computer and computer technology industry. The
company's products are subject to rapid obsolescence and management must
authorize funds for research and development costs in order to stay
competitive.
NOTE 2 DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The company has financial instruments, none of which are held for
trading purposes. The company estimates that the fair value of all
financial instruments at October 31, 1999, as defined in FASB 107, does
not differ materially from the aggregate carrying values of its
financial instruments recorded in the accompanying balance sheet. The
estimated fair value amounts have been determined by the company using
available market information and appropriate valuation methodologies.
Considerable judgement is required in interpreting market data to
develop the estimates of fair value, and accordingly, the estimates are
not necessarily indicative of the amounts that the company could realize
in a current market exchange.
NOTE 3 ACCOUNTS RECEIVABLE
A summary of accounts receivable and allowance for doubtful accounts is
as follows:
<TABLE>
<S> <C>
Accounts receivable $ 214,800
Allowance for doubtful accounts 2,500
------------
$ 212,300
============
</TABLE>
F-34
<PAGE> 79
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 4 INVENTORIES
Inventories are comprised of the following:
Computer and components:
<TABLE>
<S> <C>
Finished products $217,236
Demonstration and loaner units 5,731
Depot units 20,089
Office 24,712
Parts 319
--------
Total inventories $268,087
========
</TABLE>
NOTE 5 PROPERTY AND EQUIPMENT
Property and equipment and accumulated depreciation consisted of:
<TABLE>
<S> <C>
Tooling $ 68,100
Machinery and equipment 39,032
Office furniture and equipment 105,627
Vehicles 39,141
Leasehold improvements 17,031
268,931
Less accumulated depreciation 144,184
--------
Total property and equipment $124,747
========
</TABLE>
The depreciation expenses for the year ended October 31, 1999 is $
42,104.
NOTE 6 NOTE RECEIVABLE, RELATED PARTY
<TABLE>
<S> <C>
The related note is secured by 500,000 shares of
common stock in the company, payable on demand
and accrues interest at 6%. At October 31, 1999,
management believed the notes would not be collected
within the current operating cycle and classified the
asset as a long-term asset. $ 356,810
============
</TABLE>
F-35
<PAGE> 80
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 7 CUSTOMER DEPOSITS
It is the company's policy to obtain a portion of the sales price when
orders are received. These funds are recorded as customer deposits and
are applied to the customer invoices when the merchandise is shipped.
NOTE 8 INCOME TAXES
<TABLE>
<S> <C>
(Loss) from continuing operations
before income taxes $(916,733)
---------
The provision for income taxes is estimated as follows:
Currently payable $ 0
Deferred 136,830
---------
A reconciliation of the provision for income taxes compared with the
amounts at the U.S. Federal Statutory rate was as follows:
Tax at U.S. Federal Statutory
income tax rates $ 136,830
---------
Deferred income tax assets and liabilities reflect the impact of
temporary differences between amounts of assets and liabilities for
financial reporting purposes and the basis of such assets and
liabilities as measured by tax laws. The net deferred tax
assets is: $ 0
---------
</TABLE>
Temporary differences and carry forwards that gave rise to deferred tax
assets and liabilities included the following:
<TABLE>
<CAPTION>
DEFERRED TAX
----------------------------
ASSETS LIABILITIES
----------- -----------
<S> <C> <C>
Net operating loss $ 294,800 $ 0
Accrued expenses and miscellaneous 23,414 0
Tax credit carryforward 38,424 0
Depreciation 0 6,199
----------- -----------
</TABLE>
F-36
<PAGE> 81
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 8 INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
DEFERRED TAX
-----------------------------
ASSETS LIABILITIES
--------- -----------
<S> <C> <C>
Subtotals $ 356,638 $ 6,199
Valuation allowance (356,638) (6,199)
--------- ---------
Total deferred taxes $ 0 $ 0
========= =========
</TABLE>
As discussed in note 22, there is substantial doubt about the company's
ability to continue as a going concern. Consequently, the company must
maintain a 100% valuation allowance for the deferred taxes as there is
doubt that the company will generate profits which will be absorbed by
the tax differences.
A reconciliation of the valuation allowance is as follows:
<TABLE>
<S> <C>
Balance, November 1, 1998 $ 291,068
Addition to allowance for year ended October 31, 1999 65,570
----------
Balance, October 31, 1999 $ 356,638
==========
</TABLE>
NOTE 9 TAX CARRYFORWARD
The company has the following tax carryforwards at October 31, 1999:
<TABLE>
<CAPTION>
EXPIRATION
YEAR AMOUNT DATE
<S> <C> <C>
Net operating loss
October 31, 1995 $ 2,500 October 31, 2010
October 31, 1996 24,028 October 31, 2011
October 31, 1997 192,370 October 31, 2012
October 31, 1998 71,681 October 31, 2013
October 31, 1999 991,162 October 31, 2019
Capital loss
October 31, 1997 25,600 October 31, 2002
Contribution
October 31, 1997 545 October 31, 2002
October 31, 1999 2,081 October 31, 2004
Research tax credits 38,424
</TABLE>
F-37
<PAGE> 82
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 10 NOTES PAYABLE
<TABLE>
<S> <C>
Note payable to Community First National Bank due in monthly payments
of interest of approximately $3,100. Interest is computed at national
prime as stated in the Wall Street Journal plus 3 percent. The
principal amount is due July 31, 2000. This note is secured by
accounts receivable, general intangibles and all equipment and
leasehold improvements. The shareholder has personally guaranteed the
loan and the bank is the beneficiary of an insurance policy on the life
of the shareholder $62,426
Note payable to Community First National Bank due in monthly payments
of principal and interest of $545 with interest at 7 percent until
March 7, 2004. The note is secured by an automobile 24,745
-------
87,171
Less: current portion 67,497
-------
Net long-term debt $19,674
=======
Maturities of long-term debt are as follows:
Year ended October 31,
2000 $67,497
2001 5,336
2002 5,721
2003 6,135
2004 2,482
-------
$87,171
=======
</TABLE>
F-38
<PAGE> 83
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 11 COMMON STOCK PURCHASE WARRANTS
The company has issued the following common stock purchase warrants:
<TABLE>
<CAPTION>
NUMBER EXERCISE
DATE OF SHARES TERM PRICE
---- --------- ---- -----
<S> <C> <C> <C>
May 7, 1999 100,000 3 years $ 0.75
May 13, 1999 100,000 3 years $ 1.00
May 7, 1999 300,000 3 years $ 0.75
May 7, 1999 300,000 10 years $ 0.75
May 13, 1999 100,000 10 years $ 1.00
</TABLE>
NOTE 12 CONVERTIBLE DEBENTURES
On June 30, 1999, the company authorized $200,000 of convertible
debentures. The debentures bear interest at 8%, are unsecured and are
due on June 21, 2000.
Upon the effectiveness of the required registration statements, the
debentures will automatically convert into 300,000 fully paid and
nonassessable shares of common stock of the company.
NOTE 13 REAL ESTATE LEASE
On June 1, 1999, the company leased a new facility from a related
entity. The lease commenced on July 1, 1999, requires initial annual
rentals of $153,600 (with annual increases) plus taxes and operating
costs and expires on December 31, 2024. The company has also guaranteed
the mortgage on the premises.
Future minimum lease payments, excluding taxes and expenses, are as
follows:
<TABLE>
<S> <C>
October 31, 2000 $ 156,160
October 31, 2001 163,968
October 31, 2002 172,168
October 31, 2003 180,780
October 31, 2004 189,820
November 1, 2004 - December 31, 2024 6,676,000
</TABLE>
NOTE 14 ADVERTISING
The company expenses all advertising as incurred. For the year ended
October 31, 1999, the company charged to operations $15,492 in
advertising costs.
F-39
<PAGE> 84
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 15 INTEREST
The company incurred interest expenses for the year ended October 31,
1999 of $49,537.
NOTE 16 RESEARCH AND DEVELOPMENT COSTS
The company incurred research and development costs for the year ended
October 31, 1999 of $5,014.
NOTE 17 WARRANTY RESERVE
The company established a warranty reserve of $50,000 to cover any
potential warranty costs on computer equipment that are not covered by
the computer manufacturer's warranty.
NOTE 18 ECONOMIC DEPENDENCY
The company purchases the majority of its computer equipment from three
suppliers.
NOTE 19 OFFICERS = COMPENSATION
On March 5, 1999, the company entered into three employment agreements
with the following officers:
<TABLE>
<CAPTION>
PRESIDENT VICE
AND CHIEF VICE PRESIDENT
EXECUTIVE PRESIDENT/ OF
OFFICER COMPTROLLER OPERATIONS
--------- ----------- ----------
<S> <C> <C> <C>
Annual compensation $ 200,000 $ 88,000 $ 88,000
========= ========= ========
</TABLE>
NOTE 20 STOCK OPTIONS
On January 31, 1999, the corporation adopted a stock option plan for the
purpose of providing an incentive based form of compensation to the
directors, key employees and service providers of the corporation.
The stock subject to the plan and issuable upon exercise of options
granted under the plan are shares of the corporation's common stock,
$.001 par value, which may be either unissued or treasury shares. The
aggregate number of shares of common stock covered by the plan and
issuable upon exercise of all options granted shall be 5,000,000 shares,
which shares shall be reserved for use upon the exercise of options to
be granted from time to time.
The company issued the following options:
F-40
<PAGE> 85
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 20 STOCK OPTIONS (CONTINUED)
<TABLE>
<CAPTION>
DATE OF NUMBER VESTING
ISSUANCE OF SHARES RECIPIENT PERIOD TERM
-------- --------- --------- ------ ----
<S> <C> <C> <C> <C>
April 22, 1999 800,000 Officers One year 10 years
50% immediately
50% in six months
April 22, 1999 240,000 Employees Five years 10 years
10% immediately
balance over five years
April 22, 1999 200,000 Employee Five years 10 years
10% immediately
balance over four years
April 22, 1999 150,000 Directors Two years 10 years
50% per year
May 7, 1999 500,000 Employee Immediately 10 years
May 7, 1999 85,000 Employees Five years 10 years
10,000 shares immediately
balance over five years
May 7, 1999 375,000 Employee Immediately 10 years
---------
2,350,000
=========
</TABLE>
The exercise price is the fair market value of the shares (average of
bid and ask price) at the date of the grant which was .754 per share.
The company applied APB Opinion 25 and related interpretations in
accounting for this stock option plan. Had compensation costs for the
company's plan been determined based on the fair value at the grant date
consistent with the method of FASB Statement 123, the company's net
income and earnings per share would not have changed.
The fair value of the option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions: (1) dividend yield of 0%, (2) expected volatility of 30%,
(3) risk-free interest rate of 6.40%, and (4) expected life of 10 years.
F-41
<PAGE> 86
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>
$ .754 2,350,000 $ .75 9 years, 6
months
</TABLE>
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
-------------------
WEIGHTED
AVERAGE
PRICE EXERCISE
RANGE SHARES PRICE
----- ------ --------
<S> <C> <C>
$ 0 0 N/A
</TABLE>
Since the exercise price and the fair market value of the stock were the
same, there is no compensation costs to report and required pro-forma
net income and earnings per share are the same as the historical
financial statement presentations.
NOTE 21 PLAN OF REORGANIZATION AND STOCK EXCHANGE AGREEMENT
On January 1, 1999, the company issued 16,000,000 shares of newly issued
restricted common stock for 100% of the issued and outstanding stock of Invnsys
Technology Corporation. Invnsys Technology Corporation became a wholly-owned
subsidiary of IBIZ Technology Corp. and the acquisition was accounted for as a
reverse acquisition.
F-42
<PAGE> 87
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 21 PLAN OF REORGANIZATION AND STOCK EXCHANGE AGREEMENT (CONTINUED)
The details of the results of operation (unaudited) for each separate
company, prior to the date of combination, that are included in the
current net income are:
<TABLE>
<CAPTION>
INVNSYS IBIZ
TECHNOLOGY TECHNOLOGY
CORPORATION CORP.
----------- ----------
<S> <C> <C>
Sales $ 402,127 $ 0
Cost of sales 239,704 0
--------- ---------
Gross profit 162,423 0
Selling, general and administrative
expenses 243,094 27,742
--------- ---------
(Loss) before income taxes (refund) (80,671) (27,742)
Income taxes (refund) (20,150) 0
--------- ---------
Net (loss) $ (60,521) $ (27,742)
========= =========
</TABLE>
There were no adjustments in the net assets of the combining companies
to adopt the same accounting policies.
Each of the companies had an October 31 fiscal year so no accounting
adjustments were necessary.
An (unaudited) reconciliation of revenues and earnings reconciled with
the amounts shown in the combined financial statements is as follows:
<TABLE>
<S> <C>
Net (loss) on IBIZ Technology Corp. at December 31, 1998 $ (27,742)
Add Invnsys Technology Corporation (loss)
for November 1, 1998 to December 31, 1998 (60,521)
Additional net (loss) from January 1, 1999 to October 31, 1999 (965,300)
-----------
Net (loss) for the year ended October 31, 1999 $(1,053,563)
===========
</TABLE>
NOTE 22 GOING CONCERN
These financial statements are presented on the basis that the company
is a going concern. Going concern contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business
over a reasonable length of time. The accompanying financial statement
show that current liabilities exceed current assets by $912,169 and a
shareholders' deficit of $433,527. In addition, sales have declined
significantly from prior years. As described in note 23, the company
obtained $1,600,000 of additional financing in November 1999 and
December 1999.
F-43
<PAGE> 88
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 23 SUBSEQUENT EVENT
$600,000 DEBENTURE
In November 1999, the company issued $600,000 of 7%
convertible debentures under the following amended terms and
conditions:
1. Due date - November 9, 2004.
2. Interest only on April 1 and November 1 of each year
commencing January 1, 2000.
3. Warrants to purchase 100,000 shares of common stock
at $ 0.94 per share.
4. Conversion terms - The debenture holder shall have
the right to convert all or a portion of the
outstanding principal amount of this debenture plus
any accrued interest into such number of shares of
common stock as shall equal the quotient obtained by
dividing the principal amount of this debenture by
the applicable conversion price.
5. Conversion price - Lesser of (i) $ 0.675 (fixed
price) or (ii) the product obtained by multiplying
the average closing price by .80.
6. Average closing price - The debenture holder shall
have the election to choose any three trading days
out of twenty trading days immediately preceding the
date on which the holder gives the company a written
notice of the holders' election to convert
outstanding principal of this debenture.
7. Redemption by company - If there is a change in
control of the company, the holder of the debenture
can request that the debenture be redeemed at a price
equal to 125% of the aggregate principal and accrued
interest outstanding under this debenture.
8. The debentures are unsecured.
9. Any further issuance of common stock or debentures
must be approved by debenture holders.
10. Debenture holders have a eighteen month right of
first refusal on future disposition of stock by the
company.
11. Restriction on payment of dividends, retirement of
stock or issuance of new securities.
12. On December 6, 1999, $200,000 plus $3,149 of accrued
interest was converted to 300,962 shares of common
stock.
FINANCIAL PROJECT MANAGEMENT AGREEMENT
In December 1999, the company entered into a six month
agreement with Equinet, Inc., the project manager, to promote
the growth of, or increase in the shareholder value of the
company.
The project manager will be compensated as follows:
1. A monthly fee of $3,500 for the first 6 months of the
agreement payable in cash or stock.
2. A fee of 1% - 10% based upon the funding received
from the project manager's recommendations.
3. In connection with the first $5,000,000 raised by the
project manager, the company will issue to the
project manager warrants to purchase three shares of
common stock for each $20 raised, up to a maximum of
750,000 shares. In the event the first $1,875,000 is
received by January 10, 2000, the Company will
provide a discounted exercise price of $0.96 per
share in connection with the warrants for these
funds.
F-44
<PAGE> 89
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 23 SUBSEQUENT EVENT (CONTINUED)
$1,000,000 DEBENTURE
In December 1999, the company issued an additional $1,000,000 of 7%
convertible debentures under the following terms and conditions:
1. Due date - December 28, 2004.
2. Interest only on May 1 and December 1 of each year
commencing April 1, 2000, payable in cash or stock.
3. Warrants to purchase 200,000 shares of common stock
at $0.94 per share.
4. Conversion terms - The debenture holder shall have
the right to convert all or a portion of the
outstanding principal amount of this debenture plus
any accrued interest into such number of shares of
common stock as shall equal the quotient obtained by
dividing the principal amount of this debenture by
the applicable conversion price.
5. Conversion price - Lesser of (i) $0.94 (fixed price)
or (ii) the product obtained by multiplying the
average closing price by .80.
6. Average closing price - The debenture holder shall
have the election to choose any three trading days
out of twenty trading days immediately preceding the
date on which the holder gives the company a written
notice of the holders' election to convert
outstanding principal of this debenture.
7. Redemption by company - If there is a change in
control of the company, the holder of debenture can
request that the debenture be redeemed at a price
equal to 125% of the aggregate principal and accrued
interest outstanding under this debenture.
8. The debentures are unsecured.
9. Any further issuance of common stock or debentures
must be approved by debenture holders.
10. Debenture holders have a eighteen month right of
first refusal on future disposition of stock by the
company.
11. Restriction on payment of dividends, retirement of
stock or issuance of new securities.
12. The company paid a $100,000 brokerage fee for
obtaining the $1,000,000 debentures.
13. The debenture agreement provides monetary penalties
in the event the company delays the issuance of the
conversion stock.
STOCK ISSUANCE
On November 29, 1999, the company received $50,000 and issued
100,000 shares of restricted stock.
INVESTOR COMMUNICATION AGREEMENT
In December 1999, the company entered into an agreement with
an investment company for the purpose of providing investor
communications and enhancing shareholder values.
The agreement is for one year and requires the following
payments by the company:
F-45
<PAGE> 90
IBIZ TECHNOLOGY CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
NOTE 23 SUBSEQUENT EVENT (CONTINUED)
INVESTOR COMMUNICATION AGREEMENT (CONTINUED)
1. Non-refundable retainer of $50,000.
2. $10,000 per month advisory fee commencing June 1,
2000.
3. Warrants to purchase 75,000 shares of the company's
common stock at 120% of the last trade price as of
the execution of the agreement and the warrants must
be exercised within three years from date of
issuance.
ASSET PURCHASE AGREEMENT
On December 23, 1999, the company purchased the customer and
vendor list from PC Solutions, Inc. for a purchase price of
$11,250.
In addition, the company acquired two key-employees of PC
Solutions, Inc, and entered into two employment contracts with
the following terms and conditions:
<TABLE>
<CAPTION>
EMPLOYEE ONE EMPLOYEE TWO
------------ ------------
<S> <C> <C>
Effective date December 9, 1999 December 23, 1999
Salary annual $60,000 $ 0
Salary - per each half-day $ 0 $ 250
Commissions 2%
Options -December 9, 1999 25,000 shares 0
Options - January 3, 2000 0 25,000 shares
Options - January 2, 2001 25,000 shares 0
Options - January 2, 2002 50,000 shares 0
Options - January 2, 2003 50,000 shares 0
Each month after January 3, 2000
monthly 5,000 share options to
a maximum of 50,000 shares 0 50,000 shares
Option price $1.00 per share $1.00 per share
Option vesting period Immediate Immediate
Option expiration dates 10 years 10 years
Term of employment contract 3 years Mutually agreed date
AUTOMATIC RENEWAL Annually 0
</TABLE>
F-46
<PAGE> 91
IBIZ TECHNOLOGY CORP. AND
CONSOLIDATED SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2000 AND 1999
F-47
<PAGE> 92
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT .......................... F-49
FINANCIAL STATEMENTS
Consolidated Balance Sheets .................................... F-50 - F-51
Consolidated Statements of Operations .......................... F-52 - F-53
Consolidated Statement of Changes in Stockholders' Equity ...... F-54 - F-57
Consolidated Statements of Cash Flows .......................... F-58 - F-59
Notes to Consolidated Financial Statements ..................... F-60 - F-74
</TABLE>
F-48
<PAGE> 93
MOFFITT & COMPANY, P.C.
--------------------------------------------------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS 5040 East Shea Blvd. Suite 270
Scottsdale, Arizona 85254
(480) 951-1416
Fax (480) 948-3510
[email protected]
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.
/s/ MOFFITT & COMPANY, P. C.
MOFFITT & COMPANY, P. C.
SCOTTSDALE, ARIZONA
August 25, 2000
F-49
<PAGE> 94
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>
F-50
<PAGE> 95
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>
See Accompanying Notes and Independent Accountants' Review Report.
F-51
<PAGE> 96
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>
F-52
<PAGE> 97
<TABLE>
<CAPTION>
1999
-------------------------------------
THREE MONTHS NINE MONTHS
ENDED ENDED
JULY 31, 1999 JULY 31, 1999
------------- -------------
<S> <C> <C>
$ 382,495 $ 1,804,064
398,937 1,533,817
------------ -----------
(16,442) 270,247
375,401 1,168,222
------------ -----------
(391,843) (897,975)
------------ -----------
5,012 15,768
(10,738) (35,357)
20,491 20,491
148,033 148,033
------------ -----------
162,798 148,935
------------ -----------
(229,045) (749,040)
0 0
------------ -----------
$ (229,045) $ (749,040)
============ ===========
$ (.01) $ (.03)
============ ===========
26,571,000 26,571,000
============ ===========
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
F-53
<PAGE> 98
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>
F-54
<PAGE> 99
<TABLE>
<CAPTION>
PAID IN
CAPITAL IN
EXCESS OF ADVANCES RETAINED
PAR VALUE ON STOCK EARNINGS
OF STOCK SUBSCRIPTIONS (DEFICIT)
-------- ------------- ---------
<S> <C> <C>
$ 1,106,266 $ 75,000 $(1,641,163)
200,734 0 0
49,900 0 0
274,750 0 0
(188,000) 0 0
74,900 (75,000) 0
199,700 0 0
1,039,585 0 0
59,944 0 0
314,580 0 0
52,430 0 0
49,900 0 0
210,500 0 0
50,450 0 0
483,147 0 0
(668,987) 0 0
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
F-55
<PAGE> 100
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>
F-56
<PAGE> 101
<TABLE>
<CAPTION>
PAID IN
CAPITAL IN
EXCESS OF ADVANCES RETAINED
PAR VALUE ON STOCK EARNINGS
OF STOCK SUBSCRIPTIONS (DEFICIT)
------------ ------------- ------------
<S> <C> <C>
$ 131,100 $ 0 $ 0
226,295 0 0
383,520 0 0
0 0 (2,322,540)
------------ ------------- ------------
$ 4,050,714 $ 0 $ (3,963,703)
============ ============= ============
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
F-57
<PAGE> 102
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>
See Accompanying Notes and Independent Accountants' Review Report.
F-58
<PAGE> 103
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>
See Accompanying Notes and Independent Accountants' Review Report.
F-59
<PAGE> 104
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:
See Accompanying Notes and Independent Accountants' Review Report.
F-60
<PAGE> 105
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
See Accompanying Notes and Independent Accountants' Review Report.
F-61
<PAGE> 106
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>
See Accompanying Notes and Independent Accountants' Review Report.
F-62
<PAGE> 107
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>
<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.
See Accompanying Notes and Independent Accountants' Review Report.
F-63
<PAGE> 108
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 $ 425,876 $ 339,111
secured by 500,000 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.
</TABLE>
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
<TABLE>
<CAPTION>
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>
See Accompanying Notes and Independent Accountants' Review Report.
F-64
<PAGE> 109
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>
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>
See Accompanying Notes and Independent Accountants' Review Report.
F-65
<PAGE> 110
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>
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 insurance 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>
See Accompanying Notes and Independent Accountants' Review Report.
F-66
<PAGE> 111
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>
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:
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.
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
F-67
<PAGE> 112
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>
See Accompanying Notes and Independent Accountants' Review Report.
F-68
<PAGE> 113
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>
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.
See Accompanying Notes and Independent Accountants' Review Report.
F-69
<PAGE> 114
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.
See Accompanying Notes and Independent Accountants' Review Report.
F-70
<PAGE> 115
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 (275,000) .75
---------
Balance at end of period 3,315,000
=========
</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 proforma 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
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.
See Accompanying Notes and Independent Accountants' Review Report.
F-71
<PAGE> 116
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>
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.
See Accompanying Notes and Independent Accountants' Review Report.
F-72
<PAGE> 117
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.
See Accompanying Notes and Independent Accountants' Review Report.
F-73
<PAGE> 118
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.
See Accompanying Notes and Independent Accountants' Review Report.
F-74
<PAGE> 119
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 $ 4,333.06
Legal Fees and Expenses $15,000.00
Accounting Fees and Expenses $ 3,000.00
Printing Expenses $10,000.00
Blue Sky Fees and Expenses $ 0.00
------------------------------------------------------------
TOTAL(1) $32,333.06
------------------------------------------------------------
</TABLE>
1. Except for the SEC registration fee, all fees and expenses are estimates.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
iBIZ Technology Corp.
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<PAGE> 120
On July 10, 1998, iBIZ issued 3,000,000 shares of common stock, $0.001
par value, at a sales price of $0.05 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, $0.001 par value, at a sales price of $0.35 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,
$0.001 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, $0.001 par value, at a sales price of $0.50 per share
and 640,318 shares of common stock, $0.001 par value, at a sales price of $0.35
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, $0.001 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% Debentures shall
automatically convert to 300,000 fully paid and nonassessable shares of common
stock, $0.001 par value.
Effective May 1999, iBIZ issued a warrant entitling the holder to
acquire 400,000 shares of common stock, $0.001 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.
II-2
<PAGE> 121
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, $0.001
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 January 10, 2000, iBIZ issued a warrant to purchase an aggregate of
281,250 shares of common stock at a purchase price of $0.99 per share. The
warrant is immediately exercisable and expires December 29, 2004. iBIZ relied
upon either Section 4(2) or Regulation D, Rule 506 promulgated under the
Securities Act with respect this warrant.
On March 27, 2000, iBIZ issued a warrant to purchase an aggregate of
240,000 shares of common stock at a purchase price of $2.05 per share. The
warrant is immediately exercisable and expires March 27, 2005. iBIZ relied upon
either Section 4(2) or Regulation D, Rule 506 promulgated under the Securities
Act with respect this warrant.
On June 1, 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, and on September 14, 2000, $650,000 of the principal amount of the
Debentures was converted into 2,172,247 shares of common stock. 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
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<PAGE> 122
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 150,00 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 $0.30 to $0.55 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 $0.50 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>
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
5.06(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.
</TABLE>
II-4
<PAGE> 123
<TABLE>
<S> <C>
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)
10.35(9) Subscription Agreement for Notes Convertible into
Common Stock of iBIZ Technology Corp.
10.36(9) Form of 8% Convertible Notes Due Oct. 30, 2002
10.37(9) Funds Escrow Agreement
10.38(9) Form of Warrant dated Oct. 30, 2000.
21.01(1) Subsidiaries of Registrant
23.04(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-QSB, 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:
II-5
<PAGE> 124
(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 that remain unsold at the termination of
the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-6
<PAGE> 125
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 November 22, 2000.
iBIZ Technology Corp.,
a Florida Corporation
By: /s/ Kenneth W. Schilling
----------------------------------------
Kenneth W. Schilling, President,
Director
By: /s/ Terry S. Ratliff
----------------------------------------
Terry S. Ratliff, Vice President,
Comptroller, Director
By: /s/ Mark H. Perkins
----------------------------------------
Mark H. Perkins, Vice President of
Operations, Director
II-7
<PAGE> 126
EXHIBIT INDEX
<TABLE>
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
5.06(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.
</TABLE>
II-8
<PAGE> 127
<TABLE>
<S> <C>
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)
10.35(9) Subscription Agreement for Notes Convertible into Common Stock
of iBIZ Technology Corp.
10.36(9) Form of 8% Convertible Notes Due Oct. 30, 2002
10.37(9) Funds Escrow Agreement
10.38(9) Form of Warrant dated Oct. 30, 2000.
21.01(1) Subsidiaries of Registrant
23.04(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-QSB, File No. 027619,
filed with the SEC on July 27, 2000.
(9) Filed herewith.
II-9
